United States v. Management Consulting, Inc.United States v. Management Consulting, Inc.
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on the parties’ cross-motions for summary judgment. Dkt. Nos. 25; 27. This Court has heard oral argument, and the matter has been fully briefed and is ripe for disposition. Having considered the statement of undisputed facts (Dkt. 23) in addition to each party‘s motion for summary judgment (Dkt. Nos. 26; 28), memoranda in
I. BACKGROUND
A. Factual Background
The factual record in this case is based on a stipulation by both parties, see Dkt. 23, and the filings in a related criminal case, United States v. Thomson, No. 1:10-cr-00067 (E.D. Va.). Defendant Management Consulting, Inc. (“Mancon“) is a corporation that served as the prime contractor for two federal government contracts at issue in this case. Dkt. 23 ¶¶ 1, 18. In 2008, Mancon was awarded a prime contract with the U.S. Department of Health and Human Services (the “HHS Contract“), under which they provided services related to the Wounded Warrior Program. Id. ¶ 1. In 2012, Mancon was awarded several prime contracts with the U.S. Marine Corps, involving providing recovery care coordinators and other services to the U.S. Marine Corps Wounded Warrior Regiment (collectively referred to as the “RCC Contract“). Id. ¶ 18. In each contract, Mancon subcontracted work to Armed Forces Services Corporation (“AFSC“), which further subcontracted work to Special Media Enterprises LLC (“SpecMed“). Id. ¶¶ 3-4, 7, 20-21. Mancon also directed some work on the RCC Contract directly to SpecMed through a series of purchase orders. Id. ¶ 22. For Mancon‘s work as the prime contractor, the United States paid it approximately $240 million under the HHS Contract and $25 million under the RCC Contract. Id. ¶¶ 6, 24.
In exchange for receiving subcontracts and purchase orders from AFSC on the HHS Contract, SpecMed made multiple kickback payments to AFSC executive Brodie Thomson. Id. ¶ 8. To pay for the kickbacks, Thomson directed SpecMed to mark up the amounts in its invoices to AFSC for work performed on the HHS Contract. Id. ¶¶ 9-12. SpecMed also paid kickbacks to Thomson and two other AFSC executives, Sarah Hackett Kim and Nicole Bazemore, in exchange for receiving purchase orders and subcontracts from AFSC on the RCC contract. Id. ¶¶ 25-28. The United States has not presented evidence that Mancon or its employees participated in, were aware of, or benefited from either kickback scheme while performing the contracts. Id. ¶¶ 13-15, 30-32. Furthermore, the United States has not presented evidence that Mancon passed the cost of the kickbacks on to the Government—for either contract. Id. ¶¶ 16, 33.
The kickbacks on the HHS Contract totaled $770,691.58, and the kickbacks on the RCC Contract amounted to $318,111.34. Id. ¶¶ 17, 34. Thus, the total amount of the kickbacks at issue in this case, and the amount the federal government seeks to recover from Mancon, is $1,088,802.92. Id. ¶ 40. AFSC has already paid the United States $4.3 million to resolve civil claims under the False Claims Act,
B. Procedural Background
Brodie Thomson, a former executive at AFSC, pleaded guilty to accepting over $4 million in kickbacks on four government contracts, two of which are at issue in this case. United States v. Thomson, No. 1:10-cr-00067 (E.D. Va.), Dkt. 35. Following that criminal prosecution, the United States reached a settlement with AFSC, resolving AFSC‘s civil liability for the kickbacks on the four contracts at issue in Thomson. Dkt. 23 ¶ 37. On August 3, 2021, the United States filed a Complaint in this Court against Mancon seeking to impose a civil penalty under the strict liability provision of the Anti-Kickback Act,
II. STANDARD OF REVIEW
Under
On summary judgment, a court reviews the evidence and draws all reasonable inferences in the light most favorable to the non-moving party. Jacobs v. N.C. Admin. Off. of the Cts., 780 F.3d 562, 570 (4th Cir. 2015) (quoting Tolan, 572 U.S. at 657); McMahan v. Adept Process Servs., Inc., 786 F. Supp. 2d 1128, 1134-35 (E.D. Va. 2011) (citing Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)). This is a “fundamental principle” that guides a court as it determines whether a genuine dispute of material fact within the meaning of Rule 56 exists. Jacobs, 780 F.3d at 570. “[A]t the summary judgment stage[,] the [Court‘s] function is not [it]self to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
A factual dispute alone is not enough to preclude summary judgment. “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson, 477 U.S. at 247-48. A “material fact” is one that might affect the outcome of a party‘s case. Id. at 248; JKC Holding Co. v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001). The substantive law determines whether a fact is considered “material,” and “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248; Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001). A “genuine” issue concerning a “material fact” arises when the evidence is sufficient to allow a reasonable jury to return a verdict in the non-moving party‘s favor. Anderson, 477 U.S. at 248.
III. ANALYSIS
Mancon raises several arguments in opposition to applying the strict liability penalty. Mancon argues that the Anti-Kickback Act is remedial in nature and that the United States cannot recover further after having been “made whole,” that charging a penalty in this case would violate the Eighth Amendment, and that Mancon is entitled to an offset against the United States’ recoveries in other cases. The Court addresses these arguments in turn.
A. The Anti-Kickback Act‘s Dual Nature
Mancon asserts that the disposition of this case depends on the purposes of the Anti-Kickback Act. Dkt. 26 at 4. Mancon points to multiple sources describing the Act‘s nature as compensatory, arguing that the government cannot recover from Mancon after being “made whole” through both its settlement with AFSC and the forfeitures from Thomson in the related criminal case. Id. Though Mancon‘s argument is fundamentally sound when considered incrementally, its position fails to address the Anti-Kickback Act‘s text, the hidden costs of kickbacks, and the ineluctable fact that the Act serves both compensatory and deterrent purposes.
1. Statutory Scheme of the Anti-Kickback Act
Congress enacted the Anti-Kickback Act in 1986.
The Anti-Kickback Act includes two provisions that are significant to this case. The “knowing provision,” found at
2. Application of the Act to this Case
The Court begins with considering the plain text of the Anti-Kickback Act‘s strict liability provision to this case. The government must first establish that Mancon is a “person” within the meaning of the Anti-Kickback Act. Second, the United States must prove that Mancon‘s “employee, subcontractor, or subcontractor employee” engaged in a potential violation of
As a corporation, Mancon qualifies as a “person” under the Act, which defines “person” as any “corporation, partnership . . . or individual.”
Section 8706(a)(2) provides that the government may recover a civil penalty from a prime contractor ”whose employee, subcontractor, or subcontractor employee violates section 8702.” See
Nonetheless, whether SpecMed would qualify as Mancon‘s subcontractor for the HHS Contract does not affect the issue of Mancon‘s liability in this case. Critically, although Mancon subcontracted some work on the RCC Contract to SpecMed directly, Mancon also subcontracted work to AFSC. Accordingly, AFSC undisputedly served as a subcontractor for Mancon. Thomson, Kim, and Bazemore were each AFSC employees. Each of them
Because each of the elements of a “strict liability” violation is satisfied, Mancon is liable for a “civil penalty equal to the amount of [the] kickback[s]” received by its subcontractor employees.
3. Purposes and Nature of the Anti-Kickback Act
a. Congressional Purpose
Instead of disputing the elements of
In the present case, the government is only pursuing recovery from Mancon under the strict liability provision,
b. Legislative History
While not essential to the disposition of this case, legislative history adds helpful context and purpose of the Anti-Kickback Act. As Mancon argues, the Anti-Kickback Act has, at least in part, a compensatory objective. The Congressional Record states that the higher penalty in
Furthermore, the objectives of the Anti-Kickback Act are not purely compensatory. The Act provides for “civil penalties” and does not require the United States to establish “specific damages.” See
B. Eighth Amendment Claim
Mancon also brings a constitutional challenge, arguing that a $1,088,802.92 fine in this case would be excessive under the Excessive Fines Clause of the Eighth Amendment. The Eighth Amendment of the United States
Mancon styles its argument as an “as-applied” constitutional challenge, arguing that its lack of involvement in the kickback scheme distinguishes this case from past cases involving application of the strict liability provision. Thus, Mancon argues that the strict liability provision is only enforceable as long as it is applied to a defendant with some knowledge of the kickback scheme. Mancon‘s argument largely relies on the relative novelty of this case, as past applications of the strict liability provision have generally involved defendants who either benefitted from or knew about the kickbacks. See Kruse, 101 F. Supp. 2d at 414. Mancon offers no specific facts that might make this case an exception to the text of the statute. Instead, Mancon takes issue with the “decision by the United States Attorney‘s Office” to pursue this case. Dkt. 31 at 2. As the United States argues, this is essentially a facial attack on the law, as the strict liability provision plainly contemplates liability without regard to a defendant‘s knowledge of the kickback scheme. See
When a court reviews an “as-applied” challenge, it must examine only the application of the law to the particular parties and the facts of the case before it, without considering whether the statute theoretically could be construed as unconstitutional in another hypothetical case. See United States v. Stevens, 559 U.S. 460, 473 n.3 (2010) (observing that case-specific “factual assumptions . . . can be evaluated only in the context of an as-applied challenge.“). An as-applied challenge requires only that the law is unconstitutional as applied to the challenger‘s case; a facial challenge requires this showing as well, but it also requires that there be “no [other, theoretical] set of circumstances” in which the law could be constitutionally applied. United States v. Salerno, 481 U.S. 739, 745 (1987). Because Mancon‘s constitutional challenge finds its footing in an argument about the government‘s enforcement discretion, this Court views Mancon‘s theory as a facial challenge under the Eighth Amendment.
The Court does not find the statutory penalty unconstitutionally excessive, either on its face or as applied to Mancon. A fine is unconstitutionally excessive under the Eighth Amendment if its amount “is grossly disproportional to the gravity of the defendant‘s offense.” United States v. Bajakajian, 524 U.S. 321, 336-37 (1998). “From Bajakajian a two-part analysis can be distilled to determine whether the Excessive Fines Clause restricts the Government‘s ability to collect civil penalties. First, the Court must determine whether the recovery sought is remedial or punitive. Secondly, if the Court finds the remedy to be punitive, it must then decide whether the recovery sought is grossly disproportionate to the gravity of the offense.” Kruse, 101 F. Supp. 2d at 413 (citing Bajakajian, 524 U.S. at 413).
As an initial matter, the Court assumes that the recovery the government seeks is better understood as a punitive remedy. Accordingly, the Court analyzes whether
This case involves mere application of the strict liability provision, which has no per-occurrence penalty and fixes damages equal to the value of the kickback. See
While Mancon asserts that the company has committed “no offense” and that Mancon is “wholly innocent,” Mancon offers no challenge to the government‘s prima facie case under the strict liability provision. Dkt. 28 at 5. The text of the Act reflects Congress‘s intent, as expressed in the Congressional Record, to “fix [] vicarious civil liability, without regard to fault, on the Federal prime contractor.” 1986 U.S.C.C.A.N. at 5967. Moreover, Bajakajian provides that “judgments about the appropriate punishment for an offense belong in the first instance to the legislature.” Bajakajian, 524 U.S. at 336. Congress has made this judgment, as evidenced by the Anti-Kickback Act‘s comparatively larger penalty for violators of the “knowing” provision. See
Though Mancon‘s predicament is unfortunate, and the Court appreciates the policy concerns Mancon raises with respect to applying the Anti-Kickback Act‘s strict liability provision in edge cases, this Court does not find that the strict liability provision‘s penalty rises to the level of a constitutional violation in this case.1
Finally, Mancon argues that its civil penalty should be offset against the government‘s settlement with AFSC. This Court has held that “the silence of such federal statute counsels against allowing a set-off for settlement.” Crump v. United States Dep‘t of the Navy, 205 F. Supp. 3d 730, 764-65 (E.D. Va. 2016). The text of the Anti-Kickback Act does not authorize any offset, and offsetting Mancon‘s liability against past settlements would run contrary to other cases applying the Anti-Kickback Act. The Court does not find an offset appropriate in this case.
Mancon has not cited any authority in which a court has applied an offset when interpreting the Anti-Kickback Act. In Kruse, this Court allowed the government to recover $784,560 from Eastern Electric under the statute‘s strict liability provision and $1,569,120 from Kruse under the Act‘s knowing provision. 101 F. Supp. 2d at 414. The amount of the kickback was $784,560, and the government‘s quantified expenses totaled only $380,668.88. Id. Thus, the government‘s recovery equaled three times the amount of the kickback and vastly exceeded any quantified expenses, yet the Court did not apply any offset. Id. Similarly, the Federal Circuit has upheld a civil penalty against a defendant prime contractor without applying an offset, even though the defendant‘s subcontractor had previously reached a negotiated resolution with the government. See Kellogg Brown & Root Servs., Inc. v. United States, 728 F.3d 1348, 1371 (Fed. Cir. 2013), opinion corrected on denial of reh‘g, 563 F. App‘x 769 (Fed. Cir. 2014).
Because no case interpreting the Anti-Kickback Act has applied an offset, Mancon‘s argument relies on analogy to other statutes, including the False Claims Act. The False Claims Act provides for both “damages” and “penalties,” and courts have routinely offset damages without applying any offset to penalties. See, e.g., United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390, 401 (4th Cir. 2013) (“[T]he court thus decided that Gosselin was entitled to a full offset, with no damages remaining payable,” but “[i]t remained for the district court to calculate the appropriate civil penalties for the Bunk false claims.“); United States v. Zan Machine, 803 F. Supp. 620, 625 (E.D.N.Y. 1992) (applying an offset only to the “damages provision” of the False Claims Act, not the “civil penalty” provision). This weakens any analogy between the False Claims Act and the Anti-Kickback Act, which expressly provides for “civil penalties.”
IV. CONCLUSION
For the reasons set forth above, this Court finds that Mancon is liable to the United States under
The Clerk is directed to enter judgment for Plaintiff United States in the amount of $1,088,802.92 pursuant to
It is SO ORDERED.
Alexandria, Virginia
October 24, 2022
/s/
Rossie D. Alston, Jr.
United States District Judge