DOD Fraudster Waltzes From $50 Million Fine

(CN) - A federal judge has refused to penalize a company convicted of conspiring to defraud the government because the minimum $50 million penalty is "grossly disproportional" to the harm done.

In 2001, the U.S. Defense Department contracted with Belgium-based Gosselin Worldwide Moving to bring the belongings of U.S. military personnel and their families to Europe.

Gosselin certified that its bid reflected "independently" conceived prices, but it had actually conspired with other potential bidders to fix prices and allocate territory.

A federal jury in Alexandria, Va., convicted Gosselin last year of conspiring to defraud the United States, and the court concluded that each of the 9,136 invoices Gosselin submitted over the course of several years constituted a false claim.

In accordance with the False Claims Act, the government sought to impose the minimum civil penalty of $5,500 per violation, totaling more than $50 million.

Last week, however, U.S. District Judge Anthony Trenga found that "the minimum mandated civil penalty of $50,248,000 is grossly disproportional to the harm caused by the defendants."

"The court therefore concludes that the FCA [False Claims Act] results in the imposition of an excessive fine in violation of the Eighth Amendment," Trenga wrote. "For that reason, the court refuses to impose that civil penalty."

"The court's task with respect to economic harm is particularly challenging in this case since neither the government nor the relators attempted to prove at trial any damages and there was in fact no evidence during the trial of any cognizable financial harm to the United States as a result of the 2001 ... contract," Trenga added.

At a post-evidentiary trial, the government compared Gosselin's pricing to its freight-services contracts, and concluded that the price-fixing caused an overpayment of up to $5 million.

This method shows that "the plaintiffs have failed to establish, based on reliable information, that the defendants' conduct, in fact, cause the government any economic harm," the 34-page ruling states. Additionally, "plaintiffs offered no evidence, nor have they claimed, that the service provided by the defendants under the 2001 contract were deficient in any way."

Given that "the government did not sustain any demonstrable damages, the mandated civil penalties of at least approximately $50 million cannot be expressed or justified as a multiple of those damages," Trenga said.

Evidence also showed that Gosselin profited by about $150,000 under the 2001 contract. "There is nothing about this level of gain that would justify the minimum mandated civil penalty of over $50 million," Trenga wrote.

"While defendants failed to abide by the critical and important difference between negotiating subcontract pricing on an individual basis with only one company at a time, without collusive agreements, its level of culpability must be assessed within the overall context of the solicitation," the decision states.

Trenga said the government contract required a bit of collaboration among competing companies, since no individual packer would have the capacity to handle short-notice shipments where U.S. military personnel were stationed.

Finding that the $50 million penalty was unconstitutional, the court added that it "does not have the discretion to fashion some other civil penalty."

"Basically, the court would need to rewrite the FCA in order to fashion a constitutional civil penalty under the facts of this case," Trenga said.

Hypothetically, the judge noted that $500,000 would be an appropriate penalty.

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