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United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369

Decided: December 19, 2013

The Fourth Circuit held that private parties have standing in civil suits under the False Claims Act (“FCA”) to seek redress on behalf of federal government interests, and ordered the trial court to impose $24 million in FCA penalties against the defendants.

The Department of Defense (“DOD”), in its effort to provide its armed forces and civilian personnel with their household goods across the Atlantic, instituted the International Though Government Bill of Lading Program to govern transoceanic moves and the Direct Procurement Method (“DPM”) to contract for transport strictly in Europe. The DOD’s Military Traffic Management Command (the “MTMC”) administered both methodologies. The MTMC solicited domestic vendors to bid on one or more “through rates” for moving household goods along shipping channels. The successful bidders contracted with the MTMC to supply door-to-door service. Subcontractors, including Gosselin World Wide Moving (“Gosselin”), provided services in connection with the European segment, and the prices quoted by those subcontractors were taken into account by the freight forwarders. In 2000, Gosselin and a number of its industry peers met and agreed to charge a non-negotiable minimum price for these local services. Pursuant to that agreement, Gosselin was awarded a contract after colluding with its fellow bidders to artificially inflate the submitted bids.

Despite the efforts of Gosselin and its cohorts, freight forwarder Covan International (“Covan”) was awarded a contract in Summer 2001. In order to increase the likelihood of obtaining business in those channels, other freight forwarders with which Gosselin had a continuing relationship would have been compelled to match Covan’s through rate. Instead, Gosselin threatened to withdraw financing from Covan in another business venture. Consequently, Covan cancelled its bid, and Gosselin spread the word that the freight forwarders should match only the second-lowest bid on the Covan channels during the second phase of bidding. The previous scenario was duplicated one year later when Cartwright International Van Lines (“Cartwright”) submitted the low bid on twelve Germany-U.S. channels. For it’s actions in connection with that, Gosselin was convicted of federal criminal offenses in 2005.

The above-described acts gave rise to the underlying civil actions premised on the False Claims Act (“FCA). Pursuant to the FCA, Kurt Bunk (“Bunk”) brought this action in the government’s name in 2002, asserting claims arising from the DPM scheme. Also in 2002, Ray Ammons (“Ammons”) brought a similar suit in the same capacity in the Eastern District of Missouri. In 2007, the Ammons matter was transferred and consolidated with the Bunk Proceeding. The United States intervened in substitution of Ammons. By its February 2012 order, the district court assessed a single penalty in the sum of $5,500 in favor of the United States, as to a single portion of its FCA claim; finding Gosselin immune under the Shipping Act, decreed judgment for Gosselin on the remainder of the FCA claim; granted judgment as to liability with respect to a single FCA claim alleged by Bunk against Gosselin in the second action; but denied recovery of civil penalties on that claim because such penalty would violate the Eighth Amendment.

On appeal, Gosselin first argued that Bunk, as a relator seeking solely civil penalties, lacked standing. The Fourth Circuit rejected this contention and held that relators seeking solely civil penalties are entitled to sue because denying the recovery on the ground that the relator cannot pursue penalties alone would be to deny the United States due recompense, or, in the alternative, to deprive the government of its choice to forgo intervention.

The primary issue before the court was whether the district court erred in determining that, concerning 9,136 false invoices at the heart of Bunk’s claim, any award under the FCA must necessarily exceed more than $50 million. Because the district court ruled that such an assessment would contravene the Eighth Amendment’s Excessive Fines Clause, it awarded nothing. The Fourth Circuit, however, reversed and remanded for entry of Bunk’s requested award of $24 million. In so doing, the court noted that the discretion accorded to the government and a relator to accept reduced penalties within constitutional limits avoids injustice. And, in this case, it found that $24 million appropriately reflected the gravity of Gosselin’s offenses and provided the appropriate deterrent effect going forward.

Lastly, the court addressed the issue of whether the district court properly declared Gosselin immune under the Shipping Act. Relying on the preclusive effect of its prior judgment in the criminal proceeding, the Fourth Circuit reversed, holding that Gosselin was not entitled to immunity under the Act and therefore remanded this issue for further proceedings.

Full Opinion

– W. Ryan Nichols