The Railroad Retirement Board (RRB) became the first federal agency to increase FCA penalties pursuant to the Bipartisan Budget Act of 2015 (Budget Act), which was signed into law last November. The penalties announced by the RRB nearly doubled the prior penalty levels, with the minimum penalty skyrocketing from $5,500 to $10,781 and the maximum penalty from $11,000 to $21,563. As we covered here, the Budget Act amended the Federal Civil Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act) to require federal agencies to increase civil monetary penalties imposed by the FCA as a “catch up adjustment” to compensate for inflation. The Budget Act also requires agencies to make annual adjustments to penalties in the future.
The aggressive initial increase in civil penalties announced by the RRB is attributable to two components of the Budget Act. First, while civil penalties were last adjusted under the Inflation Adjustment Act in 1996, the RRB determined that “[f]or purposes of the initial adjustment under the 2015 Act, the Board last set or adjusted the amount of civil penalties in 1986.” The Budget Act managed to roll back the clock to 1986 for purposes of determining Civil Penalties Inflation (CPI) by specifying that the base year would correspond to the year penalties were last increased pursuant to an authority other than the Inflation Adjustment Act. Because the 1996 adjustments were made pursuant to the Inflation Adjustment Act, the RRB explained they “must be disregarded” for determining the CPI inflation rate, such that the last relevant adjustment was in 1986. The Budget Act also quietly removed a provision of the Inflation Adjustment Act that limited any increase in monetary penalties to 10%. This ceiling had been added in conjunction with the 1996 adjustments, and limited the increases that year from a minimum of $5,000 to $5,500 and a maximum of $10,000 to $11,000. The effect of removing this provision is dramatic; instead of facing a 10% increase in penalties, the recent adjustments calculated by the RRB reflect a 216% increase over 1986 levels.
The RRB is a small agency tasked with administering benefits programs for railroad workings, including certain aspects of Medicare. Nevertheless, other agencies, including DOJ, are expected to announce identical increases due to the Budget Act’s prescribed formula and the authority granted to agencies to implement the adjustments pursuant to interim final rulemaking procedures, which do not require a notice and comment period. Given that the current maximum FCA penalty ($11,000) will effectively become the minimum penalty ($10,781) under the forthcoming adjustments, the forthcoming increases will undoubtedly have a significant impact on settlement and litigation strategy for FCA defendants. Furthermore, the dramatic initial increase – combined with subsequent annual increases – will continue to fuel debates about FCA defendants’ rights under the Eighth Amendment’s Excessive Fines Clause.