False Claims Act Damages and Penalties

Because of the amount of money at issue in a False Claims Act lawsuit, there has been substantial litigation over the appropriate statutory penalties and monetary damages to impose upon a violation of the FCA. The following information is an overview of some of the issues at play. For additional information about the potential damages in a False Claims Act case or a for a free initial legal consultation with a whistleblower attorney, please contact us or call (800) 590-4116.

Treble Damages

Section 3729(a)(1) allows the United States Government to recover “3 times the amount of damages” which it sustains. This amount is an increase over the double damages which were allowed before the amendment of the False Claims Act in 1986.

Because there is less than a sentence provided in the statutory scheme, the appropriate calculation of the amount of the Government’s damages has been an area of much controversy.

How are the damages calculated?

There are many nuances to the calculation of the damages which the United States is entitled to recover from a defendant that has violated the False Claims Act. In some cases, the amount of damage is determined in the same way as a breach of contract, according to the benefit of the bargain. The market value of the goods or services received from the government is subtracted from the market value of the item that the government sought. In 1976, the U.S. Supreme Court in Bornstein indicated that this should ordinarily be the amount of damages in a breach of contract case where non-conforming goods were provided.

However, there are many other types of factual scenarios leading to lawsuits, including cases that result from fraudulent inducement of a contract, the failure to provide the goods or services, and false certifications. Each case presents different interests and possibilities. In some cases such as those involving kickbacks, courts have held that the appropriate measure of damages is the entire amount paid out by the government and there should be no amount subtracted for the value of the goods or services provided.

Another issue that has arisen more recently is whether a gross or net trebling approach is appropriate. If the value of the goods received by the Government are subtracted before applying the damage multiplier, the Government’s damages are substantially less. A Seventh Circuit decision in Anchor Mortgage a few years ago followed this path. The other possible calculation is to triple the benefit of the bargain sought by the Government and then subtract the value of goods or services actually provided to the Government. The appropriate method of calculation should be an area of extensive litigation over the next decade.

The law also provides for a reduction in the damages to not less than 2 times the government damages sustained if the person committing the violation furnishes information about the violation within 30 days of obtaining the information, fully cooperates with the Government investigation, and no enforcement action had commenced under the False Claims Act. For most lawsuits filed by whistleblowers where the company has not already self-reported, this section will not come into play.

Civil Monetary Penalties

The amended False Claims Act from 1986 provided for a civil money penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990. In 1999, the minimum penalty for a violation was increased to $5,500 and the maximum penalty increased to $11,000. 28 C.F.R. § 85.3.

As part of the Bipartisan Budget Act of 2015, Congress required federal agencies to adjust civil monetary penalties for inflation annually. If adjusted for inflation since it was last changed, the False Claims Act penalty would be around $8,000 and $16,000. However, there are exceptions which might result in a lower increase.

The penalty applies to each violation of the False Claims Act. Each separate false claim or statement may be its own violation of the law and warrant a separate statutory penalty.

Enforcement Costs

A person that violates the False Claims Act is also liable for the costs of a civil action brought by the United States Government and the attorneys’ fees and costs of the relator’s counsel.

The appropriate attorneys’ fees for relator’s counsel is another area that has seen much litigation. The area of the most dispute has been the appropriate amount of work and the warranted hourly fee for services for counsel.

Additional Information

The False Claims Act is a heavily litigated area and decisions frequently turn upon the unique factual circumstances of the case. Whistleblowers with information about corporate wrongdoing should consult with a False Claims Act attorney immediately in order to minimize the potential for problems with the first-to-file bar and public disclosure doctrine.

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