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In Calculating FCA Damages, Another Court Rejects Government Windfalls Based on Purportedly “Tainted Claims”

Last month, the US District Court for the District of Columbia delivered another blow to the “tainted claims” theory of False Claims Act (FCA) damages frequently espoused by the government and qui tam relators.

From the 1990s through 2004, the US Postal Service sponsored a professional cycling team led by Lance Armstrong, who won the Tour de France seven consecutive times during that span shortly after surviving metastatic cancer. It was later revealed that Armstrong and his teammates had used performance enhancing drugs (PEDs) during the relevant time period. Armstrong ultimately was stripped of his titles and banned from the sport permanently. After years of denials, Armstrong publicly admitted his PED use in a 2013 interview with Oprah Winfrey.

In 2010, former Armstrong teammate Floyd Landis filed a qui tam FCA suit under seal against Armstrong, the team’s owner (Tailwind Sports Corporation) and others. United States ex rel. Landis v. Tailwind Sports Corp., et al., No. 1:10-cv-00976 (CRC) (U.S. Dist. Ct. D.D.C.). The government intervened against certain defendants, including Armstrong, shortly after the 2013 interview aired. The government and Landis seek to recover as damages the entire $32 million the Postal Service paid to Tailwind during the last four years of the sponsorship, trebled to nearly $100 million, on the grounds that the defendants sought payment while actively concealing Armstrong’s and his teammates’ PED use, which violated both the rules of the sport and the Postal Service’s sponsorship agreement—thereby violating the FCA. (more…)

FCA Civil Penalties May Double, Exploding Possible Damages Awards

On May 2, 2016, the Railroad Retirement Board (RRB) issued an interim final rule increasing civil penalties allowable under the False Claims Act (FCA).  The rule will be effective on August 1, 2016.  Public comments may be sent to the RRB by July 1, 2016.  The Bipartisan Budget Act of 2015 requires other agencies, including the U.S. Department of Justice, to issue similar regulations in the coming months.

The 1986 version of the FCA provided that on a finding of liability, the government can recover civil penalties of not less than $5,000 and not more than $10,000 per false claim in addition to treble damages.  The statute was subsequently amended to permit the civil penalties provision to be adjusted through the regulatory process by the Federal Civil Penalties Inflation Adjustment Act of 1990 and the Bipartisan Budget Act of 2015.  Civil penalties currently range from $5,500 to $11,000 per claim.

Under the RRB’s proposed regulation, penalties will increase to a minimum of $10,781 per claim and a maximum of $21,563 per claim, approximately double their current size.

The proposed regulation exacerbates an already alarming trend in the size of FCA damages awards and settlements.  Some commentators have already questioned whether the revised regulations raise constitutional concerns about the total size of a damages award.  In considering whether the size of a damages award violates a defendant’s right to due process, the Supreme Court has looked to the ratio of punitive damages and/or civil penalties and compensatory damages.  In one case, the Court recognized that a 10-to-1 ratio between punitive damages and compensatory damages may be the constitutionally permissible maximum.  See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003) (noting that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process”).

It is easy to fathom an FCA case in which the ratio of civil penalties to single damages would exceed 10-to-1.  For example, in cases where the government alleges that a health care provider “upcoded” (i.e., assigned an inaccurate billing code to increase reimbursement) charges to a federal payor, the difference in reimbursement between the service for which the provider billed and the service actually performed might only be $100 per treatment (or even less).  In such a case, the $100 per treatment would represent the amount of damages the federal payor suffered.  In the event a court awarded a civil penalty of $21,563 per claim, the ratio of civil penalties to single damages could be over 215-to-1.

Contractors who face the possibility of civil penalties should keep in mind these constitutional considerations, as they may present opportunities for litigants to ask courts to decrease civil penalties or decline to apply them altogether.