(CN) - A Belgian company must pay $24 million - nearly 50 times the original penalty- for defrauding the U.S. government, the 4th Circuit ruled.
The dispute stems from a contract that Belgium-based Gosselin Worldwide Moving signed in 2001 to bring the belongings of U.S. military personnel and their families to Europe along certain shipping channels.
In 2011, a federal jury in Alexandria, Va., found that Gosselin had conspired to defraud the United States. The court held that each of the 9,136 invoices Gosselin submitted over the years constituted a false claim.
Though Gosselin said it "independently" conceived its bid, the company had actually conspired with other potential bidders to fix prices and allocate territory.
The government sought to impose the minimum civil penalty of $5,500 per violation - i.e. a total of more than $50 million - under the False Claims Act (FCA).
But U.S. District Judge Anthony Trenga held on Valentine's Day 2012, that the penalty was "grossly disproportional to the harm caused by the defendants," in violation of the Eighth Amendment.
The court rejected relator Kurt Bunk's proposal to accept $24 million, and instead awarded merely $500,000 against Gosselin.
Within months, the government appealed, and Gosselin cross-appealed.
A three-judge panel of the 4th Circuit partly affirmed the lower court's ruling Dec. 19.
The district court "correctly granted summary judgment" against Gosselin on claims regarding 12 Germany-U.S. channels that Cartwright International Van Lines had bid on, but the court incorrectly sided with Gosselin on many others issues, including the 14 channels that Covan International had bid on, the appellate panel found.
"Gosselin could not have successfully asserted Shipping Act immunity anew to defeat the preclusive effect of our prior judgment, and it should not have been suffered to prevail on the same argument with respect to the nearly identical circumstances presented by the Covan Channels, or to the materially similar circumstances common to all the German channels," Judge Robert King wrote for the panel. "The jury should have been allowed to consider the government's entire case, but, inasmuch as it was not so permitted, the verdict in favor of Gosselin must be vacated as infirm."
Judge Dennis Shedd disagreed with that part of the ruling, but concurred with the rest.
Though Bunk "possessed standing to sue for civil penalties while bypassing the prospect of a damages award," his requested $24 million award is appropriate, the court ruled.
"Indeed, an award of nothing at all because the claims were so voluminous provides a perverse incentive for dishonest contractors to generate as many false claims as possible, siphoning ever more resources from the government," the 49-page ruling states. "Though we agree that the number of false invoices presented is hardly a perfect indicator of the relative liability that ought to attach to an FCA defendant, injustice is avoided in the particular case by the discretion accorded the government and a relator to accept reduced penalties within constitutional limits, as ultimately adjudged by the courts."
A $24 million award "would not constitute an excessive fine under the Eighth Amendment," King added. "That amount, we think, appropriately reflects the gravity of Gosselin's offenses and provides the necessary and appropriate deterrent effect going forward. To the extent that the district court was of the view that the constitutional threshold could not exceed $1.5 million, we have reviewed its decision de novo, and have come to the different conclusion set forth above."
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