Petitioners Brief — United States v. Halper

In the Supreme Court of the Bnited States

OcTOBER TERM, 1988

UNITED STATES OF AMERICA, APPELLANT

Vv.

IRWIN HALPER

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR THE UNITED STATES

CHARLES FRIED

Solicitor General

JOHN R. BOLTON

Assistant Attorney General

THOMAS W. MERRILL

Deputy Solicitor General

ROY T. ENGLERT, JR.

Assistant to the Solicitor General

MICHAEL JAY SINGER

THOMAS M. BONDY

Altorneys

Department of Justice

Washingion, D.C. 20530

(202) 633-2217

28

QUESTION PRESENTED

Whether the $2000-per-false-claim penalty prescribed

by the civil False Claims Act, 31 U.S.C. (1982 ed.)

3729-3731, when applied to a defendant who has already

been convicted and punished under the criminal false

claims statute (18 U.S.C. 287) for 65 false claims of $9

each, is in effect a criminal penalty prohibited by the

Double Jeopardy Clause.

(I)

PARTIES TO THE PROCEEDING

In addition to the parties named in the caption, Morris

Halper, M.D., was named as a defendant in the govern-

ment’s complaint in the district court, but the complaint

was dismissed as against him pursuant to a stipulation.

Before the complaint was dismissed as against him, Morris

Halper filed a third-party complaint against Robert

Halper.

TABLE OF CONTENTS

Page

EEE IS ELITE TTT TTT TETTE TATE |

EE EES SEL ILEE EE IEE POS PTET TET E TEST l

Constitutional and statutory provisions involved ............ 2

EEE EEE EE 3

Introduction and summary of agrument ................... 9

Argument:

The False Claims Act’s civil penalties are civil rather than

ccc cea we ccs eccecedecescccece: 11

A. This Court has already decided that the False Claims

Act’s civil penalties are civil and that the size of

the government’s actual loss does not affect the

CE EEEUS Ci ccccccccccccccccces: 11

B. Congress’s own statements show that the penalties in

the civil False Claims Actare civil ................ 21

C. The district court erred in adopting a case-by-case ap-

proach to whether the False Claims Act’s civil

penalties are civil or criminal .................... 27

LSE IL ISLET TTETTTT ETS 31

TABLE OF AUTHORITIES

Cases:

Albernaz v. United States, 450 U.S. 333 (1981) ......... 28

Berdick v. United States, 612 F.2d $33 (Ct. Cl. 1979) .... 7,

a 14, 21

Brown v. United States, 524 F.2d 693 (Ct. Cl. 1975) ..... 16, 17

Buchanan v. Stanships, Inc., No. 87-133 (Mar. 21,

EE l

Chapman v. United States, 821 F.2d 523 (10th Cir.

TERR ee cbnbscescecescccsccccce: 20, 22, 29

Consumer Product Safety Comm’n v. GTE Sylvania, Inc.,

EEE 26

First Nat'l Bank v. United States, 117 F. Supp. 486 (N.D.

eee eda ccc ececcccesccccecs 14

Flemming v. Nestor, 363 U.S. 603 (1960) .............. 22

Gravitt v. General Electric Co., 680 F. Supp. 1162 (S.D.

Ohio 1988), appeal dismissed, No. 88-3171 (6th Cir.

May 3, 1988), petition for cert. pending, No. 88-182 ... 5

(IIT)

IV Vv

Cases — Continued: Page Cases — Continued: Page

Griffon v. United States Department of Health & Human United States v. Hughes, 585 F.2d 284 (7th Cir. 1978) ... 14,

Services, 802 F.2d 146 (Sth Cir. 1986) ............... 30 16, 17

Helvering v. Mitchell, 303 U.S. 391 (1938) ........... 11, 21, 23 United States v. J.B. Williams Co., 498 F.2d 414 (2d Cir.

Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) ........ 26 SET, dncedserestcaseane PEPE CIDER! AC Ae rete 23

Mayers v. Department of Health & Human Services, 806 United States v. Jacobson, 467 F. Supp. 507 (S.D.N.Y.

F.2d 995 (llth Cir. 1986), cert. denied, No. 86-1887 rT rr rerrrrrrr iy rT Trrt) Trier 17

is a io udcdnnevcentenekiees vane 18-19, 21, 24, 29 United States v. Killough, 848 F.2d 1523 (11th Cir.

Missouri v. Hunter, 459 U.S. 359 (1983) ............... 28 EEE nnesnecdcdcauabubeenbesbedetadéed buadebstee 7, 10,

One Lot Emerald Cut Stones v. United States, 409 U.S. 14, 15, 17, 18

ED sitdcikirs daceantennastenuesedeed 14, 18, 21, 22, 23 United States v. McNinch, 356 U.S. 595 (1958) ......... 24

Peterson v. Weinberger, 508 F.2d 45 (Sth Cir.), cert. United States v. One Assortment of 89 Firearms, 465 U.S.

denied, 423 U.S. 830 (1975) .... 0... cece eee 17, 18 354 (1984) cee eee eee ee nees 22

Rex Trailer Co. v. United States, 350 U.S. 148 (1956) .... 9, 13, United States v. Thomas, 709 F.2d 968 (Sth Cir. 1983) ... 7

14, 15, 19, 22, 27, 30 United States v. Ward, 448 U.S. 242 (1980) ............ 21, 22,

Scott v. Bowen, 845 F.2d 856 (9th Cir. 1988) ........... 10, 29 23, 30

Sell v. United States, 336 F.2d 467 (10th Cir. 1964) ...... 7 United States ex rel. Fahner v. Alaska, 591 F. Supp. 794

Tanner v. United States, No. 86-177 (June 22, 1987) ..... 5 SEED ovo cécceddecccdossecncevscncemedos 20-21

Toepleman v. United States, 263 F.2d 697 (4th Cir.), cert. United States ex rel. Marcus v. Hess, 317 U.S. 537

denied, 359 U.S. 989 (1959) .... 2.6... eee eee 16, 19, 20 Pi Cle CCUNGss i beeeeess 6ésdcherscesesceeesas passim

United States v. Bekhrad, 672 F. Supp. 1529 (S.D. lowa

SEE Sobechenensbedensdeedvedandusecasocccoeecs 5 Constitution, statutes and rule:

United States v. Bornstein, 423 U.S. 303 (1976) ......... 3, 4, ea we elaseeeence 2

5, 7,17

United States v. CFW Construction Co., 649 F. Supp. Act of Mar. 2, 1863, ch. 67, 12 Stat. 696................ 4

616 (D.S.C. 1986), appeal dismissed, 819 F.2d 1139 (4th Act of Sept. 13, 1982, Pub. L. No. 97-258, § 1, 96 Stat.

GR x ts ccncsntinuademeeacdisectsecias: 16 DIB-ITD ieee e cece ee eeee ene e esse seen ees ecees 4

United States v. Cato Bros., 273 F.2d 153 (4th Cir. False Claims Act, 31 U.S.C. (& Supp. IV) 3729-3731 ... . passim

1959), cert. denied, 362 U.S. 927 (1960) .............. 17 ED «6s cen eeundnceeesaseeeereNeris 2, 4, 10,

United States v. Diamond, 657 F. Supp. 1204 (S.D.N.Y. 21, 23, 27, 29

SD 400d de debdbéhies ends s bedesce cas conues 17, 18, 21 Es ed wo db ots cbs ceneeenusuebet 6

United States v. Ettrick Wood Products, Inc., 683 F. ess canes koesesessaee 6

Supp. 1262 (W.D. Wis. 1988) ...............0..0.04.. 5 31 U.S.C. (Supp. IV) 3729(a) ... 0... eee 4, 21, 23

United States v. Grannis, 172 F.2d 507 (4th Cir.), cert. 31 U.S.C. (Supp. IV) 3729%(c) .......... 6.02 e eee 5

denied, 337 U.S. 918 (1949)... 2... eee eee 14 31 U.S.C. (Supp. IV) 3730(a) .... 6. eee 4, 23

United States v. Greenberg, 237 F. Supp. 439 (S.D.N.Y. 31 U.S.C. (Supp. IV) 3730(b) ... 6. cee ll

SED 606 ec cuddnesesbsbesctescsveneoeseubedsiee 17-18 31 U.S.C. (Supp. IV) 3731(c) ... «6 eee 26

United States v. Hill, 676 F. Supp. 1158 (N.D. Fila. 31 U.S.C. (Supp. IV) 3731(d) ... 2 eee, 7

ee Do ch eebecdcededeeeceddbcocsedoes 5 False Claims Amendments Act of 1986, Pub. L. No.

99-562, 100 Stat. 3153 ........ Din dines gaia ckneees 4

Oh ES ME Sok cdce<ectensdcsececcesesaes 6

VI

Statutes and rule — Continued: Page

Program Fraud Civil Remedies Act of 1986, 31 U.S.C.

(Supp. TV) 3001 6F 20g. 2. cece cece ccc cccccccees 30

Surplus Property Act of 1944, 50 U.S.C. (1946 ed.) App.

Dt DERCA idee eehnudhs bcgcbbeseaceeedaotaneenes 13

Rev. Stat. (1875 ed.)

EE Us Kb diddy 0990006666060 006eendedaune 4

a 4

18 U.S.C. (& Supp. IV) 287 :..-. 2... eee 4, 6, 23, 28, 29

18 U.S.C. (& Supp. IV) 1001... 2... eee 4

BO is CPOE cccccccccccccccccceccccences 12

31 U.S.C. (1970 ed.) 231 ef seg. ©... 6 cece 4

Ss SE hood ctcccdcdcsscedecckesaete 23, 29, 30

EEE cic dodddbvacesecsdecceeuacteees 8

Miscellaneous:

S. Rep. 96-615, 96th Cong., 2d Sess. (1980) .......... 17, 19, 27

S. Rep. 99-345, 99th Cong., 2d Sess. (1986) ............ passim

H.R. Rep. 99-660, 99th Cong., 2d Sess. (1986) ........ 4, 7, 10,

19, 24, 25, 26, 29

In the Supreme Court of the Anited States

OCTOBER TERM, 1988

No. 87-1383

UNITED STATES OF AMERICA, APPELLANT

Vv.

IRWIN HALPER

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR THE UNITED STATES

OPINIONS BELOW

The opinion of the district court declaring the statute

unconstitutional as applied (J.S. App. la-Sa) is reported at

664 F. Supp. 852. A prior, superseded opinion of the

district court (J.S. App. 6a-lla) is reported at 660 F.

Supp. 531.

JURISDICTION

The judgment of the district court (J.S. App. 12a) was

filed on October 21, 1987.' A notice of appeai to this

' Although the district court issued a later judgment on October 28,

1987, it is the October 21 judgment that constitutes the court’s final

judgment for purposes of appealing the constitutional holding below.

See J.S. 1 n.1; see also Buchanan v. Stanships, Inc., No. 87-133 (Mar.

21, 1988).

(1)

2

Court (J.S. App. 13a-14a) was filed on November 19,

1987. On January 13, 1988, Justice Marshall extended the

time within which to docket this appeal to and including

February 17, 1988. The appeal was docketed on that date,

and probable jurisdiction was noted on June 13, 1988. The

jurisdiction of this Court is invoked under 28 U.S.C.

1252.?

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Double Jeopardy Clause of the Fifth Amendment

provides: “nor shall any person be subject for the same of-

fence to be twice put in jeopardy of life or limb.”

31 U.S.C. 3729, before its amendment in 1986, provided

in pertinent part:

A person not a member of an armed force of the

United States is liable to the United States Govern-

ment for a civil penalty of $2,000, an amount equal to

2 times the amount of damages the Government sus-

tains because of the act of that person and costs of the

civil action, if the person —

(1) knowingly presents, or causes to be presented,

to an officer or employee of the Government or a

member of an armed force a false or fraudulent claim

for payment or approval; [or]

(2) knowingly makes, uses, or causes to be made or

used, a false record or statement to get a false or

fraudulent claim paid or approved; [or]

2 See J.S. 2 n.2. Although Section 1252 was repealed by Pub. L.

No. 100-352, § 1, 102 Stat. 662, which was signed by the President on

June 27, 1988, the repeal does not take effect until September 25, 1988

(§ 7, 102 Stat. 664), and “shall not apply to cases pending in the

Supreme Court on the effective date * * * or affect the right to review

or the manner of reviewing the judgment or decree of a court which

was entered before such effective date” (ibid.).

3

(3) conspires to defraud the Government by getting

a false or fraudulent claim allowed or paid * * *.

31 U.S.C. (Supp. IV) 3729 provides in pertinent part:

(a) * * * Any person who—

(1) knowingly presents, or causes to be presented,

to an officer or employee of the United States

Government or a member of the Armed Forces of the

United States a false or fraudulent claim for payment

or approval; [or]

(2) knowingly makes, uses, or causes to be made or

used, a false record or statement to get a false or

fraudulent claim paid or approved by the Govern-

ment; [or]

(3) conspires to defraud the Government by getting

a false or fraudulent claim allowed or paid * * *

is liable to the United States Government for a civil

penalty of not less than $5,000 and not more than

$106,000, plus 3 times the amount of damages which

the Government sustains because of the act of that

person * * *.

* * * A person violating this subsection shall also be

liable to the United States Government for the costs

of a civil action brought to recover any such penalty

or damages.

STATEMENT

1. The civil False Claims Act, 31 U.S.C. 3729-3731,

was first enacted in 1863 and signed into law by President

Lincoln in an effort to “stop{] the massive frauds

perpetrated [against the Union Army] by large [defense]

contractors during the Civil War.” United States v. Born-

stein, 423 U.S. 303, 309 (1976); see S. Rep. 99-345, 99th

4

Cong., 2d Sess. 8 (1986).’ It is “the Government’s primary

litigative tool for combatting fraud” (S. Rep. 99-345,

supra, at 2; see H.R. Rep. 99-660, 99th Cong., 2d Sess. 18

(1986)). “[T]his statute has been used more than any other

in defending the Federal treasury against [fraud]” (S. Rep.

99-345, supra, at 4).

In pertinent part, the statute gives the United States (31

U.S.C. 3730(a)) a civil cause of action against defined

classes of persons who seek the payment of false claims by

the federal government (see 31 U.S.C. 3729). The version

of the statute that was in effect at the time of the false

claims in this case provides that, if a defendant is deter-

mined to have committed a false claim violation within the

meaning of the Act, the government is entitled to recover a

civil penalty of $2000 plus double damages and costs. 31

U.S.C. 3729. The $2000-per-claim penalty remained in the

statute, unchanged, from 1863 to 1986 (H.R. Rep. 99 660,

supra, at 17).*

* The original False Claims Act, including both criminal and civil

provisions, was the Act of Mar. 2, 1863, ch. 67, 12 Stat. 696. It was

reenacted as Rev. Stat. §§ 3490-3494, 5438 (1875 ed.). Before 1982,

the part of the Act dealing with civil penalties was codified in 31

U.S.C {1970 ed) 231 et seq., but the official text of the statute was that

which appeared in the Revised Statutes. Bornstein, 423 U.S. at 305

n.l. The civil penalties were revised without substantive change,

recodified in 31 U.S.C. 3729-3731, and enacted into positive law by

the Act of Sept. 13, 1982, Pub. L. No. 97-258, § 1, 96 Stat. 978-979.

Those provisions were amended in 1986 (see note 4, infra). The

criminal provisions of the False Claims Act, as amended, are codified

in 18 U.S.C. (& Supp. IV) 287 and 1001. See Bornstein, 423 U.S. at

307 a.1.

* On October 27, 1986, the President signed into law the False

Claims Amendments Act of 1986, Pub. L. No. 99-562, 100 Stat. 3153

(1986 Amendments). The 1986 Amendments revise the civil False

Claims Act to provide in most instances for a civil penalty of from

$5000 to $10,000 plus triple damages and costs. See 31 U.S.C. (Supp.

IV) 372%a). It is the position of the United States that (with limited

5

2. Appellee was the manager of New City Medical

Laboratories, Inc. (New City), which provided medical

services for patients eligible for benefits under the federal

Medicare program (J.S. App. 6a). Providers under that

program are entitled to federal reimbursement, at

specified rates, for services rendered to Medicare re-

cipients. From abcut January 1982 to December 1983, ap-

pellee submitted 65 different false claims for reimburse-

ment to Blue Cross and Blue Shield of Greater New York

(Blue Cross), a fiscal intermediary of the Department of

Health and Human Services, which administers the

Medicare program (id. at 7a).° Each of appellee’s 65 claims

demanded payment of $12 by falsely representing the

nature of the service performed; in fact, the service actual-

ly performed entitled appellee to reimbursement of only

three dollars (id. at 7a-8a). Blue Cross was unaware of the

exceptions) the 1986 Amendments are applicable to all cases pending

on their effective date, including cases in which the false claims were

made earlier. See United States v. Ettrick Wood Products, Inc., 683 F.

Supp. 1262, 1264-1268 (W.D. Wis. 1988); Gravitt v. General Electric

Co., 680 F. Supp. 1162, 1163 (S.D. Ohio 1988), appeal dismissed, No.

88-3171 (6th Cir. May 3, 1988), petition for cert. pending, No. 88-182;

United States v. Hill, 676 F. Supp. 1158, 1165-1172 (N.D. Fla. 1987).

But see United States v. Bekhrad, 672 F . Supp. 1529 (S.D. lowa 1987).

The government did not assert a demand for civil penalties under the

amended version of the statute in the present case, however, and ac-

cordingly the only question before this Court concerns the constitu-

tionality of the pre-1986 version of the statute.

* As the district court noted (J.S. App. 8a), the fact that appellee

submitted the false claims to an intermediary rather than directly to

the government does not in any way shield him from liability under

either the civil or the criminal false claims statute. See United States ex

rel. Marcus v. Hess, 317 U.S. $37, $41-545 (1943); see also Bornstein,

423 U.S. at 309; Tanner v. United States, No. 86-177 (June 22, 1987),

slip op. 21. Congress has now codified this rule. See 31 U.S.C. (Supp.

IV) 372%c); see also S. Rep. 99-345, supra, at 21.

6

misrepresentations, and it paid New City the full amount

that it requested (ibid.). New City was thus overpaid by a

total of $585, an amount ultimately paid by the govern-

ment.

When the government became aware of his fraud, ap-

pellee was indicted (J.A. 7-17) on 65 counts under the

criminal false claims statute (18 U.S.C. (1982 ed.) 287),

which makes it a crime to “make[] or present[] * * * any

claim upon or against the United States, or any depart-

ment or agency thereof, knowing such claim to be false,

fictitious, or fraudulent.”* On July 9, 1985, appellee was

convicted on all 65 counts as well as 16 counts of mail

fraud. He was fined $5000 and sentenced to two years’ im-

prisonment. J.A. 18-20.

3. On April 11, 1986, the goverment commenced this

civil action against appellee under the civil False Claims

Act, 31 U.S.C. 3729-3731 (J.A. 21-27). At the time the ac-

tion was instituted, that Act provided in pertinent part

that a person who “knowingly presents, or causes to be

presented [to the government] a false or fraudulent claim

for payment or approval,” or who “knowingly makes * * *

a false * * * statement to get a false or fraudulent claim

paid or approved,” “is liable to the United States Govern-

ment for a civil penalty of $2,000, an amount equal to 2

times the amount of damages the Government sustains

* * * and costs of the civil action” (31 U.S.C. 3729(1) and

(2)). Because the statute provided for a civil penalty of

$2000, the government sought a total civil penalty of

* Appellee was charged, tried, and sentenced under the pre-1986

version of this statute. Section 7 of the 1986 Amendments, 100 Stat.

3169, revised the wording of this statute but did not change the

substance of the offense. See 18 U.S.C. (Supp. IV) 287.

:

$130,000, i.e., $2000 for each of appellee’s 65 violations.’

The government also sought double damages ($1170) and

costs.

In an initial opinion filed on April 24, 1987, the district

court granted summary judgment for the government on

the question of appellee’s liability (J.S. App. 6a). Noting

that appellee’s conviction under the criminal false claims

statute “necessarily determined” (id. at 8a) that he know-

ingly submitted false claims, the court ruled that appellee

was collaterally estopped from denying liability in this civil

action. /d. at 9a (citing United States v. Thomas, 709 F.2d

968, 972 (Sth Cir. 1983); Berdick v. United States, 612

F.2d 533, 537 (Ct. Cl. 1979); Sell v. United States, 336

F.2d 467, 474-475 (10th Cir. 1964)).* |

The court, however, declined to impose the civil penalty

of $130,000 that the government had requested. Stating

that “the amount by which the 65 claims were inflated was

$9.00 for each claim, or [a total of} $585” (J.S. App. 10a),

the court declared that “the total amount necessary to

make the Government whole bears no rational relation to

the $130,000 penalty the Government seeks” (ibid.). The

court regarded a civil penalty of $130,000 as dispropor-

tionate to appellee’s total overbillings, and it suggested

that such a penalty would constitute, in effect, a

“criminal” punishment (id. at 9a, 10a). Because appellee

’ This Court has indicated that, when a defendant submits several

fraudulent demands for payment, in general each individual false pay-

ment demand gives rise to a separate false claim violation for purposes

of the False Claims Act. Bornstein, 423 U.S. at 309 n.4; see United

States v. Killough, 848 F.2d 1523, 1533 (lith Cir. 1988) (“each

separate fraudulent submission by a defendant demanding payment

from the government is a ‘claim’ ”). See also S. Rep. 99-345, supra, at

8, 9; H.R. Rep. 99-660, supra, at 21.

* Accord, e.g., Killough, 848 F.2d at 1528. The new, amended ver-

sion of the statute contains an explicit collateral estoppel provision.

See 31 U.S.C. (Supp. IV) 3731(d).

had already been criminally convicted and sentenced for

his commission of the acts on which this civil action is

based, the court stated that appellee “would have a valid

double jeopardy defense” (id. at 10a) if a penalty of

$130,000 were imposed in this case.

Apparently because of its double jeopardy concerns, the

court construed the statute to mean that “the imposition of

a civil penalty of $2,000 for each false claim [is not] man-

datory” (J.S. App. 10a). The court then determined that a

“civil penalty of $2,000 on 8 of the 65 claims, or $16,000,

will reasonably compensate the Government for actual

damages as well as expenses incurred in investigating and

prosecuting this action” (ibid.). Accordingly, the court im-

posed on appellee a $16,000 civil penalty (id. at 11a).

4. The government moved for reconsideration of the

district court’s decision pursuant to Fed. R. Civ. P. 59%e).

The government argued that it was well established that

the statute requires a separate civil penalty of $2000 for

each false claim and that the court therefore lacked the

discretion to award a penalty of less than $130,000 in this

case. The court thereupon issued a new opinion and judg-

ment (J.S. App. la-Sa, 12a), agreeing with the govern-

ment’s statutory interpretation but holding the statute un-

constitutional as applied.

The court acknowledged that it had erred in interpreting

the statute to allow less than a total civil penalty of $2000

for each statutory infraction (J.S. App. 2a). The court

therefore revisited the double jeopardy concerns expressed

in its previous opinion. It recognized (J.S. App. 3a-4a, 9a)

that in United States ex rel. Marcus v. Hess, 317 U.S. 537

(1943), this Court had held that the False Claims Act's

$2000 penalty provision was civil, not criminal, and

therefore did not implicate the Double Jeopardy Clause.

The court nevertheless found this case distinguishable on

its facts from Hess, because “[t}he penalty imposed in

9

Hess was approximately equal to the actual loss sustained

by the government” (J.S. App. 4a). Focusing on a per-

ceived “tremendous disparity between actual damage and

the ‘civil penalty’ in this case” (ibid.), the court repeated its

earlier statement that a penalty of $130,000 in this case

would “bear[] no rational relation to the Government's

loss” (id. at Sa). The court concluded (ibid. ):

[T]he $130,000 penalty sought in this case amounts to

a criminal penalty for violations for which Halper has

already been punished.

Judgment in this amount would violate the Double

Jeopardy Clause. The statute, therefore, is unconsti-

tutional as applied to Halper, and the sought-after

relief of $130,000 must be denied.

The court limited the government’s recovery to double

damages ($1170) and costs, with no civil penalty at all

(J.S. App. Sa).

INTRODUCTION AND SUMMARY OF ARGUMENT

The district court in this case has struck down as un-

constitutional the statute that “has been used more than

any other in defending the Federal treasury against

[fraud}” (S. Rep. 99-345, supra, at 4). The district court's

holding —that the False Claims Act’s civil penalty provi-

sion is really a “criminal” penalty provision in the circum-

stances of this case and therefore violates the Double

Jeopardy Clause—is at odds with United States ex rel.

Marcus v. Hess, supra, and Rex Trailer Co. v. United

States, 350 U.S. 148 (1956), in which this Court rejected

the double jeopardy analysis that the district court

adopted here.

The error in the district court’s decision is not limited to

its inconsistency with this Court's decisions in Hess and

Rex Trailer. The district court’s ruling also disregards

10

Congress’s clearly expressed intention that the False

Claims Act’s “civil penaltfies}]” (31 U.S.C. 3729) are indeed

civil, not criminal, for double jeopardy and other pur-

poses. Congress labeled the civil penalties “civil” — both in

the pre-1986 version of the statute and in the 1986 Amend-

ments — and the district court erred in upsetting Congress's

characterization. The district court’s view that the civil

penalty in this case is disproportionately harsh also cannot

be squared with Congress’s determination that even more

severe penalties are appropriate.

Finally, the theory embraced by the district court,

because it characterizes the False Claims Act's civil

penalties as “civil” or “criminal” on a case-by-case basis

depending on whether (in the court’s view) the penalty is

proportionate to the magnitude of the defendant's fraud,

would be largely standardiess in its application and, if

adopted, would lack any semblance of certainty and

predictability. If followed, therefore, the district court's

view would threaten serious disruption of the False Claims

Act’s civil enforcement scheme —a scheme that Congress

has recently reinforced as “the Government's primary

litigative tool for combatting fraud” (S. Rep. 99-345,

supra, at 2). The district court’s amorphous, case-by-case

approach to whether the statute’s civil penalties are civil or

criminal cannot be reconciled with Congress’s admonition

that “it is important that [the False Claims Act] be an ef-

fective tool” (H.R. Rep. 99-660, supra, at 18).

For all these reasons, the district court’s decision should

be reversed. Indeed, the two courts that have addressed

the decision below have both concluded that it is incorrect

and have declined to follow it. See United States v.

Killough, 848 F.2d 1523, 1534 (11th Cir. 1988); Scort v.

Bowen, 845 F.2d 856, 856 (9th Cir. 1988).

1]

ARGUMENT

THE FALSE CLAIMS ACT’S CIVIL PENALTIES ARE

CIVIL RATHER THAN CRIMINAL SANCTIONS.

A. This Court Has Already Decided That The False Claims Act's

Civil Penalties Are Civil And That The Size Of The Govern-

ment’s Actual Loss Does Not Affect The Analysis

1. This case is controlled by United States ex rel. Mar-

cus v. Hess, supra. In Hess, various electrical contractors

had engaged in a collusive bidding scheme on a federally

funded public works project. They were convicted under

the criminal false claims statute and fined $54,000 (317

U.S. at 545). An action was then brought against the same

contractors under the civil False Claims Act.? The com-

plaint sought the imposition of 56 civil penalties of $2000

each, for a total civil penalty of $112,000 (317 U.S. at

540). The defendants asserted that the civil suit was barred

by the Double Jeopardy Clause on the ground that imposi-

tion of a civil penalty of $112,000 over and above the

previous criminal fine would constitute a second criminal

punishment for the same conduct (id. at 548).

This Court rejected the defendants’ argument. The

Court began with the premise that jeopardy attaches only

in a criminal proceeding (317 U.S. at 549 (quoting Helver-

ing v. Mitchell, 303 U.S. 391, 399 (1938)):

Congress may impose both a criminal and a civil

sanction in respect to the same act or omission; for

the double jeopardy clause prohibits merely punish-

ing twice, or attempting a second time to punish

criminally, for the offense. The question for

* The civil action was brought by a private party, in the

government’s name, pursuant to the False Claims Act’s qui tam provi-

sions (see 31 U.S.C. 3730(b)).

12

decision is thus whether [the statute in question] im-

poses a criminal sanction.

The Court then explained that, unlike the purpose of the

criminal false claims statute, which is to punish

wrongdoers and “to vindicate public justice” (Hess, 317

U.S. at 548-549), “the chief purpose of the [civil False

Claims Act] was to provide for restitution to the govern-

ment of money taken from it by fraud” (id. at 551).

The Court acknowledged that, in any particular case,

the civil penalty of $2000 might exceed the amount of the

fraud actually perpetrated on the government. But the

Court emphasized that the statute — especially when con-

sidered in light of its criminal counterpart (see 317 U.S. at

549) — was clearly intended to provide a civil remedy, and

that “[t}his remedy does not lose the quality of a civil ac-

tion because more than the precise amount of so-called ac-

tual damage is recovered” (id. at 550). Stressing that Con-

gress was faced with “(t]he inherent difficulty of choosing

a proper specific sum which would give full restitution”

(id. at 552) to the government, the Court determined that

“the instant proceedings are remedial and impose a civil

sanction” (id. at 549), since “the device of double damages

plus a specific sum [i.e., $2000] was chosen [simply] to

make sure that the government would be made completely

whole” (id. at 551-552). The Court concluded, therefore,

that there was no merit to the defendants’ argument “that

the $2,000 ‘forfeit and pay’ provision is ‘criminal’ rather

than ‘civil’.” (id. at 551).'°

'© The phrase “forfeit and pay” came from the language of the ver-

sion of the civil False Claims Act then in effect, 31 U.S.C. (1940 ed.)

231, which provided that anyone who submits a false claim against the

government “shall forfeit and pay to the United States the sum of

$2000” plus double damages and costs.

13

This Court’s holding in Hess was reiterated 13 years

later in Rex Trailer Co. v. United States, supra. In Rex

Trailer, the defendant was criminally convicted of using

fraud in buying surplus war assets from the government

and was fined $25,000 (350 U.S. at 149).' After the

criminal conviction, the government filed a civil action

under the Surplus Property Act of 1944, 50 U.S.C. (1946

ed.) App. 1635, seeking the imposition of five civil

penalties of $2000 each based on the same five acts of

fraud that gave rise to the criminal proceeding. The

defendant asserted that the previous criminal conviction

posed a double jeopardy bar to the government’s civil

penalty proceeding (350 U.S. at 150).

As in Hess, this Court rejected the defendant’s argu-

ment. “The only question for * * * decision,” the Court

observed, “is whether [the civil penalty provision] is civil

or penal” (350 U.S. at 150). Noting that the Surplus Prop-

erty Act’s civil penalty provision was “virtually identical”

(id. at 152 n.4) to the civil penalty provision in the False

Claims Act that was upheld in Hess, the Court followed

Hess and concluded that the $2000 civil penalty provision

at issue was civil, not criminal, and therefore did not im-

plicate the Double Jeopardy Clause (id. at 152).

The defendant in Rex Trailer sought to bolster its argu-

ment by using the same theory that the district court

employed in the present case: that the penalty was

disproportionate to the government’s actual loss under the

circumstances of that case. Indeed, in Rex Trailer the

defendant’s fraud had not been shown to have resulted in

any damages to the government (350 U.S. at 152). The

Court rejected this effort to escape from Hess. Repeating

Hess’s admonition that “ ‘[t}he inherent difficulty of

choosing a proper specific sum which would give full

restitution was a problem for Congress’ ” (ibid. (quoting

Hess, 317 U.S. at 552)), the Court explained that the $2000

14

civil penalty provision was essentially a “liquidated-

damage” provision (350 U.S. at 151, 153). The fact that

the civil penalty provision effectively served as a

liquidated-damages clause, to provide a rough, across-the-

board measure of the government’s recovery, did not

“transform[] what was clearly intended as a civil remedy

into a criminal penalty” (id. at 154). Cf. One Lot Emerald

Cut Stones v. United States, 409 U.S. 232, 237 (1972).

2. The district court’s approach in this case cannot be

squared with this Court’s explicit rejection of the defend-

ants’ double jeopardy arguments in Hess and Rex Trailer.

The district court characterized the False Claims Act’s civil

penalties as “criminal,” but this Court made clear in

Hess—and again in Rex Trailer—that the False Claims

Act’s civil penalties “are remedial and impose a civil sanc-

tion” (317 U.S. at 549). The lower courts have uniformly

recognized that holding. See, e.g., Killough, 848 F.2d at

1534; Berdick v. United States, 612 F.2d 533, 538 (Ct. Cl.

1979); United States v. Hughes, 585 F.2d 284, 287 (7th

Cir. 1978); United States v. Grannis, 172 F.2d 507, 511

(4th Cir.) (“[iJt is clearly established that the defense of

double jeopardy is not applicable in civil actions under the

federal false claims statute”), cert. denied, 337 U.S. 918

(1949); First Nat'l Bank v. United States, 117 F. Supp.

486, 489 (N.D. Ala. 1953).

The district court erred in attempting to distinguish

Hess on the basis of the perceived disproportionality of

the penalty in this case. Although “(t]he penalty imposed

in Hess was approximately equal to the actual loss sus-

tained by the government” (J.S. App. 4a; see Hess, 317

U.S. at 540), this Court’s decision in Hess did not turn on

the amount of actual damages inflicted on the government

in that particular case.''

'! Justice Frankfurter, in fact, approached the question from a dif-

ferent angle than did the Court precisely because, although the Court’s

15

If Hess was not sufficient to make clear that the Court

had held the $2000-per-false-claim penalty to be a civil

remedy in general, and not just in cases involving

demonstrated large losses to the government, then the

opinion in Rex Trailer cleared away any remaining doubt.

The Court in Rex Trailer expressly rejected the defendant’s

double jeopardy argument in the face of a contention that

the government had suffered no measurable loss at all:

“there is no requirement, statutory or judicial, that

specific damages be shown” (350 U.S. at 152).

As the courts have recognized in the wake of Rex

Trailer, and as Congress has recently reaffirmed, the

government is entitled under the False Claims Act to.

recover a full civil penalty even in cases in which no money

is paid out and there are no measurable damages: “The

United States is entitled to recover such forfeitures solely

upon proof that false claims were made, without proof of

any damages.” S. Rep. 99-345, supra, at 8; Killough, 848

F.2d at 1533-1534 (“[e]ven if nc payment [i]s made on a

claim or the government cannot prove actual damages, a

analysis invoked rough notions of proportionality, the Court did not

leave open the possibility of proving disproportionality in any par-

ticular case. Noting that the majority’s approach turned on the distinc-

tion between “an extra penalty” and “an indemnity for loss suffered,”

Justice Frankfurter contended that, “[i}f that is the issue on which the

protection against double jeopardy turns, * * * respondents * * *

ought to be allowed to prove that, as a matter of fact, the forfeiture

and the double damages are punitive because they exceed any amount

that could reasonably be regarded as the equivalent of compensation

for the Government's loss” (317 U.S. at 554 (concurring opinion)).

Although Justice Frankfurter agreed with the majority that such a fac-

tual inquiry was unnecessary, he felt that that result should be reached

by holding that, regardless of proportionality considerations, “where

two * * * proceedings merely carry out the remedies which Congress

has prescribed in advance for a wrong, they do not twice put a man in

jeopardy for the same offense” (id. at 555).

16

forfeiture shall be awarded on each false claim

submitted”); Hughes, 585 F.2d at 286 n.1 (“[a] false claim

is actionable under the [False Claims] Act even though the

United States has suffered no measurable damages from

the claim”); Brown v. United States, $24 F.2d 693, 706

(Ct. Cl. 1975) ($2000 civil penalty per false claim is “to be

paid whether or not defendant can prove actual

damages”); Toepleman v. United States, 263 F.2d 697, 699

(4th Cir.) (“against this loss the Government may protect

itself, though the damage be not explicitly or nicely ascer-

tainable”), cert. denied, 359 U.S. 989 (1959); United States

v. CFW Construction Co., 649 F. Supp. 616, 618 (D.S.C.

1986) (“a showing of measurable damages to the United

States is not an essential element of a cause of action for

submission of false claims”), appeal dismissed, 819 F.2d

1139 (4th Cir. 1987).

The foregoing authorities show that the district court

erred in relying on the propositions that “[a] penalty 220

times the actual and easily measurable loss bears no ra-

tional relation to the Government’s loss” (J.S. App. Sa)

and that there are no cases “involving sums that even begin

to approach the tremendous disparity between actual

damage and the ‘civil penalty’ in this case” (id. at 4a).

When the government obtains a $2000 civil penalty (or

many such penalties) without sustaining any loss, the ratio

between the penalty and the loss is far greater than the

220:1 ratio that the district court mentioned here —the

ratio is infinite—yet it is established law that that ratio

does not convert the civil penalty into a criminal sanction.

The district court’s focus on the 220:1 ratio of civil

penalty to actual loss is flawed in another respect. The

district court could not have meant to suggest that a single

$2000 penalty for a single $9 overcharge would be a

criminal penalty. To the contrary, the court initially

thought it appropriate to impose eight such penalties and

17

no penalties for the remaining 57 false claims (J.S. App.

10a). Yet the ratio of one $2000 penalty to one $9 over-

charge, eight $2000 penalties to eight $9 overcharges, or 65

$2000 penalties to 65 $9 overcharg*s is exactly the same.

There is no good reason why a statute should be deemed

civil when applied to one fraud but criminal when applied

to 65 frauds.'?

'2 The district court correctly determined in its second opinion that

the statute required a $2000 penalty for each of the 65 false claims in

this case. It is well established that “the $2,000 penalty for each false

claim is mandatory” (J.S. App. la-2a). See, e.g., Killough, 848 F.2d at

1533; United States v. Hughes, 585 F.2d 284, 286 (7th Cir. 1978);

Brown v. United States, $24 F.2d 693, 705-706 (Ct. Cl. 1975); United

States v. Cato Bros., Inc., 273 F.2d 153, 156 (4th Cir. 1959), cert.

denied, 362 U.S. 927 (1960); United States v. Diamond, 657 F . Supp.

1204, 1206 (S.D.N.Y. 1987); United States v. Jacobson, 467 F. Supp.

507, 508 (S.D.N.Y. 1979). See generally United States v. Bornstein,

supra (reversing court of appeals decision that imposed only one

$2000 forfeiture for three separately invoiced shipments of falsely

marked tubes). The Senate Judiciary Committee has twice in the last

eight years reconfirmed this understanding of the pre-1986 statute (S.

Rep. 99-345, supra, at 8; S. Rep. 96-615, 96th Cong., 2d Sess. 2 (1980)

(emphasis added; footnotes omitted)):

In its present form, the False Claims Act empowers the United

States to recover double «mages * * *. In addition, the United

States may recover one $2,000 forfeiture for each false claim sub-

mitted or for each false document submitted in support of a

claim. The imposition of this forfeiture is automatic and man-

datory for each claim which is found to be false. The United

States is entitled to recover such forfeitures solely upon proof

that false claims were made, without proof of any damages.

In its initial opinion, the district court ruled that, even though ap-

pellee committed 65 false claims violations, the court nevertheless

possessed the discretion to impose a total civil penalty in an amount

less than $130,000 (J.S. App. 10a). The court relied on Peterson v.

Weinberger, 508 F.2d 45, $5 (Sth Cir.), cert. denied, 423 U.S. 830

(1975), and United States v. Greenberg, 237 F. Supp. 439, 445

The reason why large (even infinite) ratios of penalty to

loss in particular cases do not suffice to render the statute

’ criminal is that the statute is designed to recoup various in-

direct as well as dixect costs that the government suffers

and to do so by means of a formula rather than by case-

specific inquiry. The Fa!se Claims Act’s “[fjorfeitures and

double damages recompense the government for costs of

the investiga':on and litigation as well as the actual

monetary damage incurred because of the defendant’s

fraud” (Killough, 848 F.2d at 1534); in fact, the district

court itself seems to have acknowledged this point.'? As

this Court has indicated in a reiated context (see One Lot

Emerald Cut Stones, 409 U.S. at 237), even when a

defendant's false claim nets him little or no gain, the

defendant’s fraudulent conduct imposes on the govern-

ment an “extremely costly” burden of investigation and

prosecution. See Mayers v. Department of Health &

(S.D.N.Y. 1965). In its amended opinion holding that the statute re-

quires the imposition of one $2000 civil penalty for each false claim

submitted, however, the court correctly noted (J.S. App. 2a) that in

both Peterson and Greenberg the government consented to a

cumulative civil penalty amounting to less than one $2000 penalty for

each false claim violation. See Peterson, 508 F.2d at 55; Greenberg,

237 F. Supp. at 445. For that reason, Peterson and Greenberg are

distinguishable. See also Killough, 848 F.2d at 1533 (distinguishing

Peterson), Diamond, 657 F. Supp. at 1206 (distinguishing both Peter-

son and Greenberg). In our view, Peterson and Greenberg, to the ex-

tent that they suggest the existence of discretion in the courts to im-

pose less than a full $2000-per-claim penalty when the government

secks that full penalty, are also wrong.

') The district court recognized in its opinion (J.S. App. 10a) that

the civil remedy designed by Congress “must take into account the dif-

ficulty in many cases of calculating actual damages and the expense in-

curred by the Government in discovering the fraud and prosecuting a

civil action for damages.”

a

19

Human Services, 806 F.2d 995, 999 (lith Cir. 1986)

(upholding administrative imposition of civil penalty of

almost two million dollars in Medicare fraud case brought

under the Civil Monetary Penalties Act), cert. denied, No.

86-1887 (Oct. 5, 1987). Thus, the district court erred in

dwelling on the government's “actual damage” (J.S. App.

4a), because, “to the Government a false claim, successful

or not, is always costly” (Toepleman, 263 F .2d at 699). Cf.

Rex Trailer, 350 U.S. at 153.

A civil penalty of $2000 for a false claim against the

government is manifestly reasonable and is well within

Congress’s legislative power. See Toepleman, 263 F.2d at

699 (“[flor a single false claim $2000 [in 1959 dollars]

would not seem exorbitant”); cf. Hess, 317 U.S. at 552

(stressing “the inherent difficulty of choosing a proper

specific sum which would give full restitution”). This is

especially so because that sum was chosen by Congress in

1863 and upheld by this Court in 1943 (Hess) and 1956

(Rex Trailer) — years when $2000 was a much more prince-

ly sum than it is today. See H.R. Rep. 99-660, supra, at 17;

S. Rep. 96-615, supra, at 7 n.11. Moreover, a civil penalty

of $2000 serves not only “to make sure that the govern-

ment would be made co~.pletely whole” (Hess, 317 U.S. at

551-552) for its losses, but also the additional and wholly

legitimate purpose of deterring tiiose who would submit

false claims to the government.'* As this Court wrote in

Hess, 317 U.S. at 550-551 (citations and footnote

omitted):

Congress might have provided here as it did in the

anti-trust laws for recovery of “threefold damages

' Cf. H.R. Rep. 99-660, supra, at 18 (explaining that one purpose

of the 1986 Amendments to the False Claims Act was to bolster the

statute’s deterrent effect).

20

... Sustained and the cost of suit, including a

reasonable attorney's fee.” Congress could remain

misconduct or lawless acts

Punhive or camgiry Gomage have been bctd

afford a civil remedy to the individual injured. The

law can provide the same measure of damage for the

government as it can for an individual.

See also Toepleman, 263 F.2d at 699 (“[wjithout convert-

ing it into a criminal penalty, a statutory forfeiture of

civil process though its purpose and effect be

punishment”); Chapman v. United States, 821 F.2d 523,

$28 (10th Cir. 1987). Imposition of a $2000 penalty for

each false claim is especially appropriate in the present

case given the endemic abuse that plagues government

programs such as Medicare (see, e.g., S. Rep. 99-345,

supra, at 2-4, 21).

In short, the civil penalty in this case is substantial not

because Congress has provided for an excessive sanction,

but, quite simply, because the defendant has defrauded

the government 65 times. “While the total damage award

in this action may appear to be excessive, it reaches such

proportions for the sole reason that [the defendant] has

been found to have submitted [a great many] separate

false claims.” United States ex rel. Fahner v. Alaska,

21

591 F. Supp. 794, 801-802 (N.D. Ill. 1984) (imposing civil

penalty in excess of one million dollars for defendant's

commission of more than 500 False Claims Act

violations). Contrary to the district court’s apparent

belief, the government's civil remedy is not transformed

into . criminal punishment just because appellee cheated

the government many times. See Mayers, 806 F.2d at

998-999 ($1,791,000 civil penalty for 2702 false claims held

not criminal); Berdick, 612 F.2d at 538 & n.15 (civil penal-

ty of $72,000 for 36 false claims and total damages of

$1545.75); United States v. Diamond, 657 F. Supp. 1204,

1205-1206 (S.D.N.Y. 1987) (civil penalty of $78,000 for 39

false claims and total fraud of $549.04).

B. Congress's Own Statements Show That The Penalties In The

Civil False Claims Act Are Civil

Even if this Court had not already resolved the very

question presented in this case, it would be clear that the

penalties required by the civil False Claims Act ave civil.

For “[t}his Court has often stated that the question

whether a particular statutorily defined penalty is civil or

criminal is a matter of statutory construction.” United

States v. Ward, 448 U.S. 242, 248 (1980) (citing One Lot

Emerald Cut Stones, 409 U.S. at 237; Helvering v. Mit-

chell, 303 U.S. at 599). It is not difficult to conclude as a

matter of statutory construction that a “civil penalty”

statute (31 U.S.C. 3729) is indeed civil. And Congress’s re-

cent amendment of the statute buttresses that conclusion

in two respects. First, Congress has now raised the civil

penalty from $2000 per false claim to “not less than $5,000

and not more than $10,000” per false claim (31 U.S.C.

(Supp. IV) 3729%a)). Congress’s substantial increase of the

statutory penalty weighs against the district court's sugges-

tion that imposition of the preexisting $2000 penalty is so

22

excessive that it has been shown by “the clearest proof”

(Flemming v. Nestor, 363 U.S. 603, 617 (1960), quoted in

Ward, 448 U.S. at 249) to be criminal rather than civil.

Second, in amending the False Claims Act, Congress ex-

plicitly reaffirmed that the “civil penalty” provision is in-

tended to be a civil sanction.

1. Congriss’s own characterization of the civil

penalties as “civil” is highly probative. This Court has

made clear that when “Congress has indicated an intention

to establish a civil penalty” (United States v. Ward, 448

U.S. at 248) as opposed to a criminal punishment, Con-

gress’s intention is entitled to great weight and is con-

trolling unless “the statutory scheme [is] so punitive either

in purpose or effect as to negate that intention” (id. at

248-249). This Court has admonished, moreover, that

“{ijn regard to this latter inquiry, * * * ‘only the clearest

proof could suffice to establish the unconstitutionality of

a statute on [the] ground [it is really a criminal and not a

civil provision]’ ” (id. at 249 (quoting Flemming v. Nestor,

363 U.S. at 617)). Thus, when it is asserted that a statute

that Congress has clearly denoted as civil is in reality a

criminal statute for one purpose or another, the question

is “whether Congress, despite its manifest intention to

establish a civil, remedial mechanism, nevertheless pro-

vided for sanctions so punitive as to ‘transfor{m]} what was

clearly intended as a civil remedy into a criminal penalty’ ”

(Ward, 448 U.S. at 249 (quoting Rex Trailer, 350 U.S. at

154)). See United States v. One Assortment of 89

Firearms, 465 U.S. 354, 362-366 (1984) (holding forfeiture

proceeding under 18 U.S.C. 924(d) “civil” and rejecting

double jeopardy claim); One Lot Emerald Cut Stones v.

United States, 409 U.S. 232, 235-237 (1972) (holding

forfeiture proceeding under 19 U.S.C. 1497 “civil” and re-

jecting double jeopardy claim); Chapman v. United

States, 821 F.2d $23, 528-529 (10th Cir. 1987) (holding

23

Civil Monetary Penalties Law, 42 U.S.C. 1320a-7a, “civil”

and rejecting double jeopardy claim).

There is no basis in this case for countering the pre-

. nption that a statute ordinarily is deemed civil if Con-

gress says it is. Indeed, as this Court indicated in Hess (see

317 U.S. at $49), the presumption in this case is particular-

ly strong, not only because Congress has expressly man-

dated “civil penalties” to be enforced by a “civil action” (31

U.S.C. 3729, 3730(a); see 31 U.S.C. (Supp. IV) 372%a),

373Q(a)), but also because Congress has deliberately pro-

vided for a separate criminal analog to the False Claims

Act, in 18 U.S.C. 287. “Congress labeled the sanction

* * * a ‘civil penalty,’ a label that takes on added

significance given its juxtaposition with the criminal

penalties set forth in [another, separate statutory provi-

sion)” (Ward, 448 U.S. at 249). As this Court stressed in

Hess (317 U.S. at 549), “[t}he statutes on which this suit

rests make elaborate provision both for a criminal punish-

ment and a civil remedy,” and “[t}he fact that the

[statutory scheme] contains two separate and distinct pro-

visions imposing sanctions [one civil and one criminal],

and that these appear in different parts of the statute,

helps to make clear the [civil] character of that here in-

voked” (Helvering v. Mitchell, 303 U.S. at 404 (footnote

omitted)). Since Congress not only has designated the

sanctions as “civil” but in addition has specifically set

forth an additional, criminal sanction in another, separate

statute, the district court erred in “frustrating |(Congress’s]

design” (One Lot Emerald Cut Stones, 409 U.S. at 237) by

effectively overturning “the congressional classification of

the penalty * * * as civil” (Ward, 448 U.S. at 250-251).

See United States v. J.B. Williams Co., 498 F.2d 414, 421

(2d Cir. 1974) (Friendly, J.) (“When Congress has charac-

terized the remedy as civil and the only consequence of a

24

judgment for the Government is a money penalty, the

courts have taken Congress at its word.”).'*

2. Prompted by extensive findings that fraud

“permeates generally all Government programs” (S. Rep.

99-345, supra, at 2)—including health-care benefit pro-

grams (id. at 4) such as the Medicare program involted in

this case (id. at 21)—Congress in 1986 revised the False

Claims Act “fijn order to make the statute a more useful

tool against fraud in modern times” (id. at 2). Congress

determined that “[{t}his growing pervasiveness of fraud

necessitates modernization of” the Act (S. Rep. 99-345,

supra, at 2) because “some of the provisions of the Act are

outdated” (H.R. Rep. 99-660, supra, at 17). In particular

(ibid.),

the current law permits the United States to recover

double damages plus $2,000 for each false or

fraudulent claim. This penalty has not been changed

since 1863. The Congressional Research Service has

reported that, based on the Consumer Price Index,

the buying power of $2,000 in 1863 would be close to

$18,000, today.

Thus, emphasizing that it shared “the apparent belief of

the act’s initial drafters that defrauding the Government is

serious enough to warrant an automatic forfeiture rather

than leaving fine determinations with district courts,

possibly resulting in discretionary nominal payments” (S.

Rep. 99-345, supra, at 17), Congress decided to strengthen

the civil penalties that the government is entitled to recover

from those who “plunder{] * * * the public treasury”

(United States v. McNinch, 356 U.S. $95, $99 (1958) (foot-

note omitted)) by making false claims.

'S Cf. Meyers, 806 F.2d at 998 (“[t}he labelling of the sanction as a

‘crvil penalty’ is determinative of Congressional imtemt. This is par-

uecularly true in light of the name given by Congress to the act — the

Civd Monetary Penalties & Assessment Act”) (emphasis in original).

25

The amended version of the statute increased the civil

penalty per false claim from $2000 to any amount in the

$5000-to-$10,000 range and imposed triple rather than

double damag~s. The legislative history of the amendment

makes it clea that Congress strengthened the

government’s civil remedies because it determined that

more severe sanctions were needed in order to stem the

tide of rampant fraud inflicted on the government. See

H.R. Rep. 99-660, supra, at 18 (estimating government’s

loss to fraud at “hundreds of millions of dollars to more

than $50 billion per year”); S. Rep. 99-345, supra, at 3

(suggesting larger estimates and noting that “(t]he cost of

fraud cannot always be measured in dollars and cents,

however”).

Given Congress’s substantial increase of the amount of

the statutory civil penalty, coupled with the legislative

determination that the increased amount was necessary to

provide the government with an adequate weapon against

the “pervasive” fraud in government programs (S. Rep.

99-345, supra, at 3), the district court erred by substituting

its judgment for that of Congress as to the excessiveness of

the smaller, $2000 civil penalties sought in this case. It

bears emphasis that, in raising the civil penalty from $2000

per false claim to $5000 to $10,000 per false claim, Con-

gress was aware that the civil penalty would be substantial

in cases in which the defendant commits many violations.

The Senate report speaks to this very situation (S. Rep.

99-345, supra, at 9):

Each separate * * * “false payment demand” con-

stitutes 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. For example, a doctor who completes separate

Medicare claims for each patient treated will be liable

26

for a forfeiture for each such form that contains false

entries even though several such forms may be sub-

mitted to the fiscal intermediary at one time.

See also H.R. Rep. 99-660, supra, at 21. The $2000 civil

penalties sought against appellee cannot be viewed as ex-

cessive in light of Congress’s determination that an even

stiffer civil penalty — $5000 to $10,000 per false claim — is

appropriate.

Congress’s recent amendments not only increased the

amount of the civil penalty to which the government is en-

titled, but they also reaffirmed that the statute’s civil

penalties are indeed “civil.” Referring to Congress’s addi-

tion to the statute of a provision “to make clear that in

civil fraud actions, the Government is required to prove all

essential elements of the cause of action [only] by a

preponderance of the evidence” (S. Rep. 99-345, supra, at

30-31; see 31 U.S.C. (Supp. IV) 3731(c)), the Senate

Judiciary Committee emphasized that False Claims Act

proceedings are civil in nature (S. Rep. 99-345, supra, at

31). The Senate report makes explicit Congress’s repudia-

tion of the notion that “the civil False Claims Act is penal

in nature” (ibid.), and highlights “[t}he Supreme Court’s

rejection of [that] premise in [Hess]” (ibid.). Thus, the

district court’s conclusion that the False Claims Act is

criminal in this case contradicts Congress’s emphatic reaf-

firmation that the Act is civil.

Of course, the legislative history of the 1986 Ameund-

ments is of limited utility in ascertaining the character of

the pre-1986 version of the statute. See Consumer Product

Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 118

n.13 (1980); Jilinois Brick Co. v. Illinois, 431 U.S. 720,

734 n.14 (1977). Here, however, the legislative history of

the recent amendments serves only to underscore what was

already explicit in the very language of the pre-1986

|

27

statute, and what this Court has already held in Hess and

Rex Trailer: that the civil False Claims Act’s “civil penalty”

(31 U.S.C. 3729) is indeed civil and not criminal. '*

C. The District Court Erred In Adopting A Case-By-Case Ap-

proach To Whether The False Claims Act's Civil Penalties

Are Civil Or Criminal

Finally, the district court erred in adopting a case-by-

case approach to whether the False Claims Act’s civil

penalties are civil or criminal. The district court’s theory

that a statute can be “civil” in some cases and “criminal”

in others, depending on whether it leads (in the court’s

view) to a disproportionate sanction, would produce

bizarre consequences. Consider, for example, two pro-

ceedings both brought under the False Claims Act, one in-

volving a $112,000 penalty for 56 false claims costing the

government $100,000 and the other involving a $130,000

penalty for 65 false claims costing the government $585. If

the first proceeding is “civil” (following Hess) and the sec-

ond is “criminal” (under the decision below), then in the

second case — but not the first —the government would be

required to prove its case beyond a reasonable doubt.

Conversely, in the first case the defendant would be en-

'* Cf. S. Rep. 96-615, 96th Cong., 2d Sess. 2 (1980)(“The proposed

legislation is in no sense a ‘new’ false claims act.”). This passage refers

to the proposed False Claims Act Amendments of 1980, which were

not passed but which were very similar to the amendments that

ultimately were enacted in 1986. See S. Rep. 99-345, supra, at 13

(discussing the legislation proposed in 1980). The Senate report ex-

plaining the 1986 amendments notes that although the proposed 1980

amendments were not passed by the 96th Congress, “[e]vidence of

rampant fraud in Government programs since that time has renewed

the effort” to update the statute (ibid. ).

28

titled to take discovery under the liberal provisions of the

Federal Rules of Civil Procedure, but the defendant in the

second case would be allowed only the more limited

discovery available in criminal cases. Indeed, under the

district court’s theory a case might proceed to trial as a

“civil” case only later to be held “criminal” (and to require

more procedural safeguards) if the evidence developed at

trial led the district court to question the “proportionality”

of the civil penalty or if the court of appeals disagreed with

the district court’s conclusion that the penalty was not un-

duly disproportionate.

Thus, under the district court’s approach, the govern-

ment could be placed in the untenable position of bringing

an action for civil penalties under the False Claims Act

without knowing in advance whether the sanctions sought

would ultimately be determined to be civil or criminal. If

the government guessed wrong and decided to prosecute

under Section 287 first and seek civil penalties later, it

would lose the right to those penalties even though there is

no inherent reason why the government should not obtain

them.'’ Even if the government correctly predicted that

the district court would regard the “civil penalties” as

criminal sanctions, then the proper procedure would be

uncertain. At best, the government might be able to obtain

the full penalties that Congress intended by successfully

“prosecuting” under the civil False Claims Act in the same

proceeding as the Section 287 prosecution.'* At worst, the

'? The district court’s holding does not stand for the proposition

that the Constitution forbids the government to obtain a $130,000

penalty for 65 false claims of $9 each, but only for the proposition

that criminal rather than civil procedures govern the government's

method ing so.

16 simultaneous prosecution might be permissible under

Missouri v. Hunter, 459 U.S. 359 (1983), and Albernaz v. United

States, 450 U.S. 333 (1981).

29

government would be forced to elect between the Section

287 penalties and those provided in Section 3729, or might

even be precluded altogether from seeking the Section

3729 penalties, since there is no established criminal pro-

cedure for enforcing that statute. No matter what the

ultimate resolution of the issues raised by the district

court’s case-by-case approach, the result would be a

haphazard and unpredictable departure from Congress’s

clear intent.

Depending as it does on the court’s view of whether the

sanctions prescribed by Congress are disproportionate

under the circumstances of the particular case, the district

court’s theory, if adopted, would be unpredictable and

largely standardless in its application, and therefore would

seriously frustrate the government’s litigative efforts under

the civil False Claims Act. The disruption threatened by

the district court’s view of the statute is at odds with Con-

gress’s admonition that “it is important that [the False

Claims Act] be an effective tool” (H.R. Rep. 99-660,

supra, at 18), since it “is used as the primary vehicle by the

Government for recouping losses suffered through fraud”

(ibid.). And the district court’s theory, if followed, would

hamper the government’s ongoing enforcement efforts not

only under the False Claims Act, but also under other,

similar statutory schemes that provide for civil penalties in

addition to criminal sanctions. See, e.g., Chapman v.

United States, 821 F.2d 523, 528-529 (10th Cir. 1987)

(holding Civil Monetary Penalties Act, 42 U.S.C.

1320a-7a, “civil” and rejecting double jeopardy claim);

Mayers v. Department of Health & Human Services, 806

F.2d 995, 999 (lith Cir. 1986) (holding same statute

“civil”), cert. denied, No. 86-1887 (Oct. 5, 1987); Scott v.

Bowen, 845 F.2d 856, 856 (9th Cir. 1988) (same).'*

'* The Civil Monetary Penalties Act, which the courts of appeals in

Scott, Chapman, and Mayers held is civil and not criminal, provides

30

This Court’s decisions do not support any such case-by-

case analysis of whether a statute is “civil” or “criminal” in

nature. To the contrary, once it is established that Con-

gress intended to create a “civil” penalty, this Court “in-

quire[s} * * * whether the statutory scheme |ijs so

punitive either in purpose or effect as to negate

[Congress’s] intention.” Ward, 448 U.S. at 248-249 (em-

phasis added). As we have shown, the question whether

this statutory scheme is so punitive as to be “criminal” was

answered long ago in Hess and Rex Trailer. See Rex

Trailer, 350 U.S. at 152 (emphasis added) (Hess “held that

the statute involved was remedial and not penal”); id. at

152 n.4 (“Hess, hold{s} this provision to provide a com-

pensatory civil remedy”). What is more, the Court's

answer has been reaffirmed — emphatically — by Congress

in the 1986 amendments. The district court’s attempt to

fashion a case-specific exception to Hess and Rex Trailer

should be reversed.

for a “civil money penalty” (42 U.S.C. 1320a-7a) of up to $2000 per

claim for certain false claims submitted for reimbursement by the

Department of Health and Human Serv +s, and “generally track(s}

the civil penalty provision of the False Claims Act.” Griffon v. United

States Department of Health & Human Services, 802 F.2d 146,

149-150 (Sth Cir. 1986). Another statute that would be jeopardized

under the district court's approach is the new Program Fraud Civil

Remedies Act of 1986, 31 U.S.C. (Supp. IV) 3801 ef seg., which pro-

vides for civil penalties of up to $5000.

31

CONCLUSION

The judgment of the district court should be reversed.

Respectfully submitted.

AUGUST 1988

CHARLES FRIED

Solicitor General

JOHN R. BOL TON

Assistant Attorney Generai

THOMAS W. MERRILL

Deputy Solicitor General

Roy T. ENGLERT, Jr

Assistant to the Solicitor General

MICHAEL Jay SINGER

THOMAS M. BONDy

Attorneys

US GOVERNMENT PRINTING OFFICE 1988 — 202 537 60622