Earlier this week, the Railroad Retirement Board (RRB) became the first federal agency to promulgate an interim final rule implementing provisions of the Bipartisan Budget Act of 2015 intended to index civil penalties assessed under certain statutes to inflation. The RRB’s proposed final rule would double civil penalties assessed under the False Claims Act (FCA). 

The Bipartisan Budget Act of 2015 requires all federal agencies to increase the amount of civil penalties assessed under multiple statutes to reflect inflation since the last such adjustment. The statute calls for a “catch up adjustment” that applies a cost-of-living adjustment percentage based on the amount by which the October 2015 CPI exceeds the October CPI of the year in which the penalty amount was established or adjusted.  This “catch up adjustment” must be implemented through interim final rulemaking by July 1, 2016 with an effective date of August 1, 2016. After the catch-up adjustment, the statute mandates automatic annual adjustments without requiring any determination by an agency respecting the need for an increase. The statutes involved include the FCA, the Program Fraud Civil Remedies Act, the Recovery and Enforcement Act of 1989, and the Financial Institutions Reform.  Federal agencies must publish proposed rules by July 1, 2016 with an effective date of August 1, 2016.

In the interim final rule, the RRB proposed increasing the minimum per claim civil penalty from $5,500 to $10,781 and increasing the maximum per claim civil penalty from $11,000 to $21,563. The RRB calculated these adjustments based on inflation since 1986, which the agency determined was the last time such adjustments had been made to penalties under the FCA.  Other agencies, including the Department of Justice, are expected to publish similar increases to civil penalty figures.

Significantly, the adjustments under the Act are intended to be retroactive in scope. The adjustments apply to all civil monetary penalties that are assessed after the date the increase takes effect, even if the “associated violation predated such increase.”  As a result, penalties will be higher for pending FCA cases than they were when the violation occurred.  This will undoubtedly lead to constitutional challenges to the increased penalties under the ex post facto clause of the Constitution.

The proposed civil penalty increases will likely result in changes to the approaches both defendants and the government take to litigating FCA matters. Defendants may face greater pressure to settle with the government given the fact that the substantially increased penalties provide the Department of Justice with additional leverage in FCA negotiations.  Defendants found liable under the FCA may be more likely to challenge civil penalties assessed as excessive fines under the Eighth Amendment, particularly when thousands of claims with little actual damages are at issue.  Further, the statutory mandate for automatic adjustments could be challenged under the Administrative Procedure Act.  Overall, FCA defendants may soon be facing penalty awards that are even more disparate to the actual damages or the degree of fault involved as a result of the proposed regulation.