Opinion ID: 811165
Heading Depth: 2
Heading Rank: 2

Heading: Punitive in Purpose or Effect

Text: Because we find that the Congress did not intend to impose punishment when it enacted the FCA and the FCA amendments, we must turn to the second step in the Ex Post Facto analysis and determine whether the statutory scheme is “so punitive either in purpose or effect as to negate [Congress’s] intention to deem it civil.” Hendricks, 521 U.S. at 361 (internal quotation marks omitted). “[O]nly the clearest proof will suffice to . . . transform what has been denominated a civil remedy into a criminal penalty.” Smith, 538 U.S. at 92 (internal quotation marks omitted). In order to determine if the effects of the FCA are punitive in purpose or effect, we may consult as useful guideposts the factors set forth in Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168–69 (1963), although the factors are not exhaustive or dispositive of the inquiry. Smith, 538 U.S. at 97. The Mendoza-Martinez factors are: [w]hether the sanction involves an affirmative disability or restraint, whether it has historically been regarded as a punishment, whether it comes into play only on a finding of scienter, whether its operation will promote the traditional aims of punishment—retribution and deterrence, whether the behavior to which it applies is already a crime, whether an alternative purpose to which it may rationally be connected is assignable for it, and whether it appears excessive in relation to the alternative purpose assigned . . . . 372 U.S. at 168–69. The parties acknowledge that the Mendoza-Martinez factors do not uniformly weigh in favor -25- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. of finding that the statute is or is not punitive in purpose or effect. We agree, but find that on balance the factors weigh in favor of finding a civil purpose or effect. The first Mendoza-Martinez factor clearly favors the conclusion that the FCA has a civil purpose or effect. The sanctions under the FCA do not involve an affirmative disability or restraint because they do not involve a “sanction approaching the infamous punishment of imprisonment.” Cutshall, 193 F.3d at 474 (internal quotation marks omitted); see Hudson, 522 U.S. at 104 (prohibiting petitioners from further participation in banking industry does not approach imprisonment). The defendants acknowledge that this factor does not support a finding of a punitive effect. Under the second factor, we ask whether, from a historical perspective, the sanction has been viewed as punishment. Here, the sanction at issue is a monetary penalty.13 See 31 U.S.C. § 3729(a) 13 The defendants argue that an analysis of this factor requires focusing more specifically on whether FCA sanctions have been regarded as punitive and not on the historical view of money penalties generally. (Appellees’ Br. at 49–50.) Our review of cases applying the Mendoza-Martinez factors suggests that the analysis under this factor is often conducted at a fairly high level of generality, suggesting that the historical view of monetary penalties generally is appropriately considered at this point in the analysis. See Smith, 538 U.S. at 97–98 (comparing Alaska sex offender registration law’s sanction (dissemination of information) to colonial punishments); Hudson, 522 U.S. at 104 (analyzing money penalties and occupational debarment sanctions imposed by the Office of the Comptroller of Currency by examining long held views of money penalties and debarment generally); Cutshall, 193 F.3d 475 (comparing Tennessee sex offender registration law’s sanction (dissemination of information) to incarceration, incapacitation, and rehabilitation). However, to the extent that cases addressing the FCA’s sanctions specifically should be considered, the Supreme Court has found that the FCA (before treble damages) was “remedial rather than punitive.” See Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 785 (2000) (citing Bornstein, 423 U.S. at 315). Further, the Supreme Court’s view of treble damages under the FCA appears to have evolved somewhat, with the Court recently finding that such damages have compensatory aspects. Compare Cook County v. United States ex rel. Chandler, 538 U.S. 119, -26- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. (2012) (providing for civil penalty of at least $5000 and not more than $10,000, adjusted for inflation, plus treble damages). A monetary penalty “is a sanction which has been recognized as enforcible by civil proceedings since the original revenue law of 1789” and has not “historically been viewed as punishment.” Hudson, 522 U.S. at 104 (internal quotation and editorial marks omitted). Moving to the third factor, a violation of the FCA contains an element of scienter14 because it is premised on knowing conduct. 31 U.S.C. § 3729(a)(1), (b)(1). The United States argues that although liability under the FCA is premised on knowing conduct, it “falls short of the specific intent required for most crimes.” (United States Reply Br. at 22.) The United States points out that “knowing” is defined broadly in the current § 3729(b)(1) as having actual knowledge, acting in deliberate ignorance of the truth or falsity of information, and acting in reckless disregard of the truth or falsity of information, and requires no specific intent to defraud. Id. § 3729(b)(1)(A)(i)–(iii), (B). Although the pre-FERA version of the FCA did not include a lowered intent standard (it did not premise liability on reckless conduct), the current version of the FCA can be violated upon either a finding of scienter (“knowingly”) or recklessness. Because the current act can be violated by a lower mens rea than knowingly, see 31 U.S.C. § 3729(b)(1); Cutshall, 193 F.3d at 475, this factor does not weigh in favor of finding that the effect of the act is to punish. The FCA does have some deterrent effects. See United States ex rel. Roby v. Boeing Co., 302 130 (2003), with Stevens, 529 U.S. at 784 (2000) (finding such sanctions essentially punitive). 14 “The term scienter means knowingly and is used to signify a defendant’s guilty knowledge.” Cutshall, 193 F.3d at 475 (internal quotation marks omitted). -27- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. F.3d 637, 641 (6th Cir. 2002) (“The FCA has since become the primary means by which the Government combats and deters fraud.”); Bornstein, 423 U.S. at 309 (noting principal goal of FCA when enacted was to stop massive frauds perpetrated by government contractors during Civil War). However, a deterrent purpose may serve both civil and criminal goals, and the mere presence of a deterrent purpose is not enough to render sanctions criminal. See Hudson, 522 U.S. at 105 (analyzing whether a sanction is criminal such that it would prevent trial under the Double Jeopardy Clause, and finding fact that sanction’s deterrent purpose was insufficient to render it criminal because deterrence may support both civil and criminal goals); Doe v. Bredesen, 507 F.3d 998, 1005 (6th Cir. 2007). Thus, while the presence of deterrent effects might weigh in favor of finding a punitive effect, this factor is not dispositive. The behavior which the FCA targets—the submission of a false claim to the government—is also a crime. 18 U.S.C. § 287. Thus, the fact that the FCA applies to behavior that is already criminal supports the conclusion that its effect is punitive, see Mendoza-Martinez, 372 U.S. at 168, although the impact of this factor on the analysis is potentially weakened by the fact that the FCA as amended by FERA appears to cover more conduct than that proscribed by the criminal statute.15 15 The Supreme Court has noted that the reasoning behind this conclusion—that if the targeted behavior is already a crime it supports a finding of a punitive purpose or effect—is somewhat weakened by the fact that Congress may impose both a criminal and civil sanction regarding the same act or omission. United States v. One Assortment of 89 Firearms, 465 U.S. 354, 365 (1984). In 89 Firearms, the Court noted that the forfeiture provision in question covered a broader range of conduct than a related criminal provision, which meant that the forfeiture provision was not limited solely to criminal conduct and was therefore not “co-extensive with the criminal penalty.” Id. at 366. The overlap that did exist did not convince the Court that the forfeiture proceedings in question could not reasonably be viewed as civil proceedings. Id. The criminal statute regarding false, -28- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. Another factor to consider in the analysis of whether the FCA sanctions are punitive in effect is whether the sanction may serve an alternative purpose. Mendoza-Martinez, 372 U.S. at 168–69. The Supreme Court has found “compensatory traits” in the FCA damages multiplier such that the treble damages available under the FCA “have a compensatory side, serving remedial purposes in addition to punitive objectives.” Cook Cnty. v. United States ex rel. Chandler, 538 U.S. 119, 130 (2003). The Court reached this conclusion based on several “facts about the FCA,” including the facts that “some liability beyond the amount of the fraud is usually necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims,” the FCA contains a qui tam feature which means that “as much as 30 percent of the Government’s recovery” may be diverted to the relator and thus the “remaining double damages . . . provide elements of make-whole recovery beyond mere recoupment of the fraud,” and the FCA does not provide for pre-judgment interest or consequential damages that often accompany recovery for fraud. Id. at 130–31 (internal quotation marks omitted). Given the Supreme Court’s analysis of the FCA’s treble damages provision, an alternative purpose may be assigned—that of compensating, or making whole, the government for its losses suffered due to fraud—and this factor weighs in favor of finding fictitious or fraudulent claims against the government provides: “[w]hoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.” 18 U.S.C. § 287. This statute appears to proscribe less behavior than the amended version of § 3729; however, it is unclear that this difference in overlap is significant enough to suggest giving less weight to this factor in the analysis. -29- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. a civil purpose or effect. Finally, despite the fact that an alternative purpose may be assigned to the FCA sanctions, if the treble damages available under the FCA appear excessive in relation to the alternative purpose assigned, that would weigh in favor of finding a punitive purpose or effect. See Mendoza-Martinez, 372 U.S. at 169. Sanctions available under the FCA consist of “a civil penalty of not less than $5,000 and not more than $10,000 [adjusted for inflation], plus 3 times the amount of damages which the Government sustains . . . .” 31 U.S.C. § 3729(a)(1) (2012). The district court found that because the treble damages available under the FCA may lead to situations where the amount recoverable by the United States far exceeds the actual monetary loss sustained directly in the fraudulent scheme the sanctions under the FCA, especially the treble damages provision, appear excessive in relation to the alternative purpose of compensating the government and weigh in favor of finding a punitive effect. The Supreme Court has found that “[t]he very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers.” Tex. Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 639 (1981). The Supreme Court has also found the treble damages provision of the FCA to be “essentially punitive in nature.” Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 784 (2000). Viewed alone, this precedent suggests that the availability of treble damages supports a finding that the sanction is excessive in relation to the alternative purpose assigned (that of compensating the government for its losses). However, in Chandler, the Court seemed to soften its position with its finding that the -30- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. FCA’s treble damages provision actually possesses a compensatory side. Chandler, 538 U.S. at 130–32. In Pacificare Health Systems, Inc. v. Book, 538 U.S. 401, 405–06 (2003), the Supreme Court cited both Stevens’s and Chandler’s characterizations of the treble damages provision in the FCA, which suggests that the Court does not view the characterization of the treble damages provision set forth in Stevens as exclusively authoritative. See id. (explaining that the Court has “placed different statutory treble-damages provisions on different points along the spectrum between purely compensatory and strictly punitive.”). Despite the fact that the treble damages provision of the FCA—dependent on the specific facts of a case—may allow for situations where the sanctions may appear excessive in relation to the alternative purpose assigned, Chandler suggests that this factor would at best only weakly favor a finding of punitive effect. Overall, an analysis of the Mendoza-Martinez factors indicates that some aspects of the FCA weigh in favor of finding a punitive purpose or effect, while others weigh in favor of finding a civil purpose or effect. As the Supreme Court has noted, no one factor is dispositive in the analysis. Smith, 538 U.S. at 97. Here, the strongest factors in favor of finding a punitive effect are that the behavior punished by the FCA is already a crime, the deterrent function of the FCA, and the availability of treble damages. However, the fact that the FCA may have a deterrent effect is generally not enough alone to render a sanction punitive, and with Chandler, the Supreme Court appears to have softened its view of the role of the treble damages available under the FCA. Given that “only the clearest proof” suffices to establish that a statute is punitive in purpose or effect at this stage of the analysis, id. at 92, we conclude that viewed as a whole, the Mendoza-Martinez factors -31- Nos. 10-3818/10-3821 Sanders, et al. v. Allison Engine Co., et al. fail to demonstrate a sufficiently punitive purpose or effect to “transform what has been denominated a civil penalty into a criminal penalty.” Id. We therefore conclude that the retroactive application of the FCA does not violate the Ex Post Facto Clause’s prohibition on retroactive punishments.