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A Guide To The Federal False Claims Act

The Federal False Claims Act is the U.S. Government’s primary weapon for combatting fraud. It allows whistleblowers to sue persons...

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2020 False Claims Act Penalties

In June, DOJ updated the 2020 False Claims Act penalties to a range of $11,665 to $23,331. False Claims Act...

False Claims Act Penalties: A Complete Guide

The False Claims Act requires a penalty for each each violation. The FCA penalty amount also increases with inflation each year. Currently, False Claims Act penalties range as high as $23,331 per violation. With some frauds involving tens of thousands of individual violations, total False Claims Act penalty assessments can run into the millions or tens of millions of dollars.

Unfortunately, whistleblowers and their lawyers fail to understand how significant FCA penalties can be to a total False Claims Act award.  As a consequence, this leads them to ignore statutory penalties when valuing a case. However, understanding the nuances of False Claims Act penalties is key to properly understanding their impact on a case.

Contents:

How Do You Determine The Number of False Claims Act Penalties?

The False Claims Act, 31 U.S.C. §§ 3729, provides that anyone who violates the law is liable for a civil penalty in addition to three times the damages. False Claims Act penalties are sometimes referred to as statutory penalties or civil penalties or fines.  The original version of the False Claims Act also referred to penalties as “forfeitures” and some sources still use that term.

The False Claims Act is intended to reach all fraudulent attempts to cause the Government to pay out sums of money or to deliver property or services.  United States v. Neifert-White Co., 390 U.S. 228, 232 (1968). Thus, the key to calculating FCA penalties is to count the number of violations of the statute.  The current version of the False Claims Act lists seven types of violation:

  1. False Claims – Presenting, or causing the presentment, of a false claim for payment or approval. 31 U.S.C. §§ 3729(a)(1)(A).
  2. False Records or Statements – Making, using, or causing others to make or use, a false record or statement that is material to a false or fraudulent claim. 31 U.S.C. §§ 3729(a)(1)(B).
  3. Conspiracy – Conspiring to violate the False Claims Act. 31 U.S.C. §§ 3729(a)(1)(C).
  4. Conversion –  Failing to return government property. 31 U.S.C. §§ 3729(a)(1)(D).
  5. False Receipts – Making or delivering a receipt of government property without completely knowing that the information in it is true. 31 U.S.C. §§ 3729(a)(1)(E).
  6. Unlawful purchase of Government Property – Buying public property from a government employee who may not lawfully sell it. 31 U.S.C. §§ 3729(a)(1)(F).
  7. Reverse False Claims – Making, using, or causing to be made or used, a false record or statement material to an obligation to pay money to the government; or conceals, avoids, or decreases an obligation to pay money to the government. 31 U.S.C. §§ 3729(a)(1)(G).

Within these seven categories of violation, there are many ways to run afoul of the False Claims Act. If you are still curious, check out False Claims Act Violations and Penalties Explained.

Congress Intended A Penalty For Every Violation Of The False Claims Act

Congress made clear that the law imposes a penalty (then they called it a forfeiture) for every violation of the False Claims Act. So in a prosecution for making false claims under 31 U.S.C. §§ 3729(a)(1)(A).

Each separate bill, voucher or other “false payment demand” constitutes a separate claim for which a forfeiture shall be im­posed and this is true although many such claims may be submitted to the Government at one time.

S. Rep. No. 99-345, at 9-10, reprinted in 1986 U.S.C.C.A.N. at 5274.  Often a single fraudulent scheme will generate many, even thousands of false claims, and each of these warrants a penalty.  For example, in health care fraud, statutory penalties usually flow from each false form.  Thus,

a doctor who completes separate Medicare claims for each patient treated will be liable for a forfeiture for each such form that contains false entries even though several such forms may be submitted to the fiscal intermediary at one time.

IdAnd when a physician is ineligible to participate in Medicare, “all Medicare claims submitted by or on behalf of a physician who is ineligible to partici­pate in the program” generate a penalty. Id.

The same is true when a contractor obtains a contract by fraud:

each and every claim submitted under a contract, loan guarantee, or other agreement which was originally obtained by means of false statements or other corrupt or fraudulent conduct, or in violation of any statute or applicable regulation, constitutes a false claim. For example, all claims submitted under a contract obtained through collusive bidding are false and actionable under the act.

S. Rep. No. 99-345, at 9-10, reprinted in 1986 U.S.C.C.A.N. at 5274.

The Supreme Court Explained How to Count False Claims Act Penalties in United States v. Bornstein

In United States v. Bornstein, the government sued Model Engineering, an electron tube producer under the False Claims Act. 423 U.S. 303, 313 (1976).  Model sold faulty electron tubes to United, which used them to make radio kits and sold them to the military.  The government sued Model for “causing” the presentment of false claims under an earlier version of the False Claims Act. Bornstein at 313.

The Supreme Court agreed that the False Claims Act “permits recovery of multiple forfeitures” (penalties). Bornstein at 309. The defendant argued that it could only be liable for one civil penalty for each contract.  But the Supreme Court said that is wrong:

To equate the number of forfeitures with the number of contracts would in a case such as this result almost always in but a single forfeiture, no matter how many fraudulent acts the subcontractor might have committed. This result would not only be at odds with the statutory language; it would also defeat the statutory purpose. Such a limitation would, in the language of the Government’s brief, convert the Act’s forfeiture provision into little more than a $2,000 license for subcontractor fraud.

Bornstein at 311. Instead, the Court decided that when a subcontractor “causes” a prime contractor to make false claims, the FCA penalties are the number of acts of causation.

If United had committed one act which caused Model to file a false claim, it would clearly be liable for a single forfeiture. . . . If, on the other hand, United had committed three separate such causative acts, United would be liable for three forfeitures, even if Model had filed only one false claim.

Bornstein at 312. Importantly, however, the government sued Model only for causing false claims. Justice Rehnquist wrote a separate concurrence explaining that the false claims act also requires FCA penalties for making false statements in violation of 31 U.S.C. §§ 3729(a)(1)(B). Those civil penalties “turn on the number of false bills, certificates, affidavits, etc., made or used, or caused to be made or used.” Bornstein at 323 n.6.

Courts Agree That A Penalty is Required For Every Violation of the False Claims Act

The principle that a statutory penalty, fine, or forfeiture is required for each violation of the False Claims Act, not just each false claim has been upheld in numerous federal cases.  Some examples:

What is the False Claims Act Penalty Range?

Once you have figured out how many statutory penalties should be imposed, the second step is to figure out the fine range per violation. The False Claims Act sets penalties at $5,000 to $10,000 per violation.  However, subsequent federal law periodically adjusts the amounts for inflation. As of June, 2020, FCA penalties range from $11,665 to $23,331 per violation.False Claims Act Penalties Ranges

False Claims Act Penalties Range from $5,000 to $10,000 for Conduct Occurring Before September 29, 1999

The 1986 False Claims Act set the penalty to $5000 to $10,000 for each violation.  Subsequent federal law changed these amounts to adjust for inflation.

False Claims Act Penalties Range from $5,500 to $11,000 for Conduct Occurring Between September 30, 1999 and November 2, 2015

In 1990 Congress passed the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990, Pub.L. 101-410. That law stated that every five years, federal agencies would update FCA penalties for violations occurring after that date.  In 1996, Congress amended that law to limit the initial increase to 10 percent of the maximum penalty. 110 Stat. 1321–373 (Apr. 26, 1996).

In 1999, DOJ adjusted the False Claims Act penalties range for the first time.  This amendment applied  to violations occurring after September 29, 1999. In other words, this increased applies only to underlying conduct that occurs after 1999. For those violations, it raised the FCA civil penalty range to $5,500 to $11,000. 64 Fed. Reg. 47099, 47103 at § 85.3.

For Conduct After November 2, 2015, False Claims Act Penalties are Determined by Date of Assessment

The Bipartisan Budget Act of 2015, Public Law 114-74 (Nov. 2, 2015), again revised the method for adjusting FCA penalties for inflation.  Now the government adjusts the civil penalties ranges every year. In addition, the 10% cap was replaced by a %150 cap, meaning that False Claims Act penalties could increase by as much as 2.5 times over the prior FCA penalty range.

New adjustments now apply to all post-November 2015 violations.  In other words, for conduct occurring after November 2015, FCA civil penalties are determined by the last (most recent) adjustment when the court imposes penalties.

False Claims Act penalties inflation adjustments are published in the Federal Register.  After publication they are codified in a chart in the Code of Federal Regulations at 28 C.F.R. §  85.5.

From November 3, 2015 to July 31, 2016, False Claims Act Penalties (still) Ranged From $5,500 to $11,000

DOJ did not adjust the FCA penalties for almost a year after the Bipartisan Budget Act. Statutory penalties imposed during that period, for conduct occurring after November 3, 2015 continued to range from $5,500 to $11,000.

From August 1, 2016 to February 2, 2017, False Claims Act Penalties Ranged from $10,781 to $21,563

In June 2016, DOJ published a rule adjusting the False Claims Act civil penalties range for the first time since 1999. 81 Fed. Reg. 42491.  The rule took affect on August 1, 2016.  Because it had been so long since False Claims Act penalties had been adjusted, the increase was substantial.  FCA penalties assessed after August 1, 2016 for post November 3, 2015 conduct, more than doubled to $10,781 to $21,563.

From February 3, 2017 to January 28, 2018, False Claims Act Penalties Ranged from $10,957 to $21,916

In February 2017, DOJ adjusted the False Claims Act penalties range for 2017. 82 Fed. Reg. 9131. FCA penalties assessed after February 3, 2017 for post November 3, 2015 conduct, are $10,957 to $21,916.

From January 29, 2018 to June 18, 2020, False Claims Act Penalties Ranged from $11,181 to $22,363

In January, 2018, DOJ adjusted the FCA statutory penalties range for 2018. 83 Fed. Reg. 3944. False Claims Act penalties assessed after January 29, 2018 for post November 3, 2015 conduct, are $11,181 to $22,363.

But, despite the requirements in the law, DOJ did not adjust 2019 False Claims Act Penalties, but two other agencies did.

After June 19, 2020 False Claims Act Penalties Range from $11,665 to $23,331

On June 19, 2020, DOJ did adjust the 2020 False Claims Act penalties. 85 Fed. Reg. 37004 This adjustment included a catch up for 1999. 2020 False Claims Act penalties assessed after June 19, 2020 for post November 3, 2015 conduct, are $11,665 to $23,331.

How Are The Precise Number and Amount Of FCA Penalties Decided?

Once you know the number of available False Claims Act statutory penalties and the applicable range, you can calculate a broad range of potential FCA penalties.  But, the third step of the analysis is setting the exact number of False Claims Act penalties and penalty per violation.  As we explain, in court, there is a role for both a jury and a judge.  The jury determines the number of FCA penalties and the judge decided the False Claims Act penalty per violation.  In a settlement, however, the government generally does not seek any penalties.

A Jury Determines the Number of False Claims Act Penalties

The jury decides the number of violations.  United States v. Capitol Supply, Inc., Civil Action No. 10-1094, 2 (D.D.C. Sep. 20, 2017). This is because, as in all litigation, it is the jury’s job to decide questions of fact. On the other hand, it is the judge’s job to decide issues of law.  For False Claims Act penalties, this means that the jury decides the number of violations, and later, a judge decides on the FCA penalty for each violation.

Once a violation is established, a False Claims Act penalty is mandatory for each violation.  Congress explained clearly that imposition of a False Claims Act forfeiture is automatic and mandatory for each claim which is found to be false. S. Rep. No. 99-345, at 8, reprinted in 1986 U.S.C.C.A.N. at 5274. Courts agree that imposition of an FCA penalty is mandatory for each false claim. In re Schimmels, 85 F.3d 416, 419 n.1 (9th Cir. 1996) (In addition to treble damages, the FCA requires a court to award not less than $5,000 and not more than $10,000 for each false claim or statement submitted to the government, even if no damages were caused by the false submissions.).

A Judge Decides the Penalty Per False Claims Act Violation

Once the jury sets the number of violations, it plays no role in setting the amount of False Claims Act penalties. United States ex rel. Landis v. Tailwind Sports Corp., 292 F. Supp. 3d 211, 214–15 (D.D.C. 2017).  In Cook County v. United States ex rel. Chandler, the Supreme Court explained that in a False Claims Act case, the “court alone” sets the FCA penalty. 538 U.S. 119, 132 (2003).

Courts are given, “considerable discretion” in setting False Claims Act penalty amounts. U.S. ex rel. Rigsby v. State Farm Fire & Cas. Co., No. 1:06CV433-HSO-RHW, 2014 WL 691500, at *6 (S.D. Miss. Feb. 21, 2014).  But, the False Claims Act does not tell courts exactly what to consider when setting a civil FCA penalty. Therefore, courts consider many factors (they call this a “totality of the circumstances” test).  Some of these factors include:

Settlements Usually Do Not Involve Any Penalties

As we’ve discussed in elsewhere, government intervention is the most important factor in the success of a False Claims Act case. Part of this is because the vast resources of the government often convince defendants to settle.  While settlements are a good thing for whistleblowers and the government, however, there is a possible downside.

Settlements require the agreement of both sides.  When the Government settles a False Claims Act case they generally do not rely on the potential False Claims Act penalties to arrive at a settlement number.  Instead, the settlements are usually based on a multiple of the agreed-upon damages.

Examples of False Claims Act Cases with Significant Penalties

As we’ve explained above a single fraudulent scheme can involve thousands of False Claims Act penalties.  In addition, each penalty can be tens of thousands of dollars. Thus, it should come as no surprise that False Claims Act penalties add up considerably.

Government Contracts: United States ex rel Bunk v. Gosselin World Wide Moving

For example, in United States ex rel. Bunk v. Gosselin World Wide Moving, N.V, government contractors submitted 9,136 invoices under contracts they obtained through bid-rigging. The Government chose not to prove any damages at all and instead established 9,136 False Claims Act penalties. Therefore, even at the minimum penalty amount, the defendant faced over $50 million in FCA penalties.  Subsequently, the government agreed to accept $24 million in settlement.

Hospitals: United States ex rel. Drakeford v. Tuomey

Health care fraud can also generate huge numbers of False Claims Act penalties.  In United States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 386 (4th Cir. 2015), a hospital compensated its physicians in a way that violated the Stark Law against physician self-referrals.  In other words, the hospital bribed the physicians to practice there.  A jury found that the hospital violated the Stark Law and therefore the False Claims Act. It further found that Tuomey had submitted 21,730 false claims to Medicare with a total value of $39,313,065. The district court assessed 21,730 civil False Claims Act penaltiesUltimately, the hospital was on the hook for $119,515,000 in FCA penalties.

Medical Testing Labs: United States ex rel Lutz v. BlueWave

Likewise, in United States ex rel Lutz v. BlueWave, No. 14-cv-00230 (D.S.C. May 23, 2018), a jury convicted defendants of violating the Anti-Kickback Statute to procure laboratory tests. The jury found that the defendants had presented over 38,000 claims, damaging the government by approximately $17 million.  The court noted that the government could have sought 38,887 False Claims Act penalties for a total of between $213,878,500 and $427,757,000, but requested FCA penalties of $5000 and for only 11,500 of the claims.  The court therefore, imposed statutory penalties of over $63 million as part of a $114 million total award.

Mortgage Fraud: United States v. Americus Mortg. Corp

When a mortgage company violated underwriting guidelines and therefore fraudulently obtained FHA insurance for its mortgages, it was liable for over 1000 FCA penalties. United States v. Americus Mortg. Corp., No. 4:12-CV-2676 (S.D. Tex. Sep. 14, 2017)  In that case, Allied Capital, Americus Mortgage, and their owner, Jim Hodge, falsely represented to HUD that FHA-insured loans had been underwritten with due diligence and were eligible for FHA insurance. As a result the court found 1,295 False Claims Act penalties, totaling $12,950,000 as part of a $268,757,929 total award.

Conclusion

There are keys to know to understand False Claims Act penalties.  Firstly, a False Claims Act penalty is required for every violation, this may be for each false claim, false statement, or other depending on the misconduct.  Secondly, the potential False Claims Act penalty range range adjusts periodically to account for inflation.  Thus, False Claims Act penalties are currently $11,665 to $23,331 per violation.  Thirdly, a jury determines the number of statutory FCA penalties and a judge sets the precise FCA penalty per violation.  Moreover, the judge can consider many factors including, seriousness of the misconduct, acceptance of responsibility, and how isolated the actions were.  The large numbers of False Claims Act penalties possible in a single scheme, together with tens of thousands of dollars per violation, result in some False Claims Act penalties awards in the tens or hundreds of millions of dollars.

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