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Eleventh Circuit Agrees Excessive Fines Clause Permits Large False Claims Act Penalties Awards

The Eleventh Circuit recently held that the Excessive Fines clause permits False Claims Act awards predominated by penalties

An appeals court recently held that the Excessive Fines clause allows False Claims Act awards predominated by penalties.  Yates v. Pinellas Hematology & Oncology, No. 20-10276 (11th Cir.).  There, the Eleventh Circuit reviewed an award of $1,179,266.62.  It consisted of $2,266.62 in treble damages and $1,177,000 in penalties.  The court concluded the Constitution allowed such awards.  This decision should strengthen the argument of prosecutors and relators, that settlements and judgments should include False Claims Act penalties.  As of December 2021 False Claims Act penalties stood at $11,803 to $23,607 per violation.

Yates v. Pinellas Involved Repeated Instances of Laboratory Fraud

In Yates v. Pinellas, a physician practice purchased a lab to conduct tests for its patients.  However, for a period of time that laboratory did not hold a valid license.  This license is called a CLIA (Clinical Laboratory Improvement Amendments of 1988) certificate.  Without it, a lab cannot bill Medicare.  As the court explained,

The problem for Pinellas was that it did not have the proper CLIA certificate for Bayfront from April of 2015 until March of 2016, but it still performed tests at Bayfront during that time. The bigger problem for Pinellas was that it then submitted reimbursement claims to Medicare for those tests. And the biggest problem for Pinellas was that when Medicare rejected those claims, it altered the relevant information and resubmitted them-twice.

Michele Yates, Pinellas’ billing manager, blew the whistle on this fraud.  She filed a qui tam action alleging that this conduct violates the False Claims Act.  After investigating, the the United States chose not to intervene and allowed Yates to prosecute the case on its behalf.

At trial, Ms. Yates testified that Pinellas had submitted 214 claims for payment containing different lab’s billing number. Medicare ultimately paid 64 claims totaling $755.54.

The jury found Pinellas liable for submitting 214 materially false claims to Medicare.  It also awarded the United States $755.54 in damages.

The Trial Judge Imposed Treble Damages and 214 Penalties

Following trial, the district court determined that the False Claims Act mandated treble damages and statutory penalties of between $5,500 and $11,000 per false claim. Accordingly, the court imposed a total award of $1,179,266.62.  The award consisted of two parts.  First, treble damages of $2,266.62 (3 x $755.54). And second, the lowest permissible statutory penalty of $1,177,000.00 (214 x $5, 500).

The district court also held that this penalty did not violate the Eight Amendment’s prohibition on excessive fines.

The Appeals Court Holds That The Excessive Fines Clause Applies to Declined False Claims Act Cases

The Excessive Fines Clause is part of the Eighth Amendment. It prohibits the government from imposing “excessive fines.”  In 1998, the Supreme Court concluded that a civil penalty could violate the clause. United States v. Bajakajian, 524 U.S. 321 (1998).  The Court concluded that civil fines violate the constitution when:   (1) the forfeiture is “punitive”; and (2) a full forfeiture “would be grossly disproportional to the gravity of the offense.” Id. at 324, 334. For a complete discussion of the Bajakajian, see Suzanne E. Durrell, The Excessive Fines Clause of the Eighth Amendment and the Civil False Claims Act: To United States v. Bajakajian and Beyond, 27 Taxpayers Against Fraud Quarterly, 29 (July 2002).

Since Bajakajian, some courts have held that False Claims Act Penalties could potentially violate the Excessive Fines Clause.  But no case has actually rejected penalties on this basis.  Yates is the first case to address whether the Excessive Fines clause applies to penalties in a declined case.  Declined cases are those in which the whistleblower takes the primary role in prosecuting the fraud. – one in which the relator rather than the government runs the litigation. In Yates, the court found that just like in a case brought by the government, a court must consider whether the fines imposed violate the Constitution.

The Eleventh Circuit Concludes that These False Claims Act Penalties Do Not Violate the Excessive Fines Clause

Importantly, the court concluded that the penalty here, $1,177,000.00 along with treble damages of $2,266.62 did not violate the Excessive Fines Clause.  The Appeals Court noted that the penalties imposed were the smallest possible under the FCA. Penalties falling below the maximum receive a strong presumption of constitutionality. It then becomes the defendant’s obligation to rebut that presumption of constitutionality.

The Yates court looked to several, non-exhaustive factors to determine whether a penalty was excessive:

(i) whether the defendant is in the class of persons at whom the statute was principally directed;

(ii) how the imposed penalties compare to other penalties authorized by the legislature; and

(iii) the harm caused by the defendant.

Here, it found that Pinellas is among those at whom the FCA is directed.  It also found that the FCA treble damages were similar to those authorized in other suits.

False Claims Act Penalties Especially Those Below The Maximum Compare Favorably to Other Penalties

At the time of the violations, the FCA penalties were between $5,500 and $11,000 per violation.

The district court imposed penalties of $5,500.  That is only half the potential maximum. The appeals court also noted that by 2020, the FCA’s statutory penalties had jumped to $11,665 and $23,331 per violation.  As of the end of 2021 FCA penalties are now $11,803-$23,607.  That is similar to the penalties for violations of the Anti-Kickback Statute.

The Harm to the Government in False Claims Act Cases Extends Far Beyond “Actual Damages”

Conversely, the court found that the harm was considerable. The court rejected the defendant’s attempt to equate the harm to be the damages assessment holding that

Fraud harms the United States in ways untethered to the value of any ultimate payment. For instance, we have explained that when the United States is defrauded, the government has been damaged to the extent that such corruption causes a diminution of the public’s confidence in the government.

Finally, the court considered  the deterrent effect of a monetary award, finding that it properly balanced the need to deter potential fraudsters with the gravity of the’ conduct. The court concluded that  “[s]ubstantial penalties . . . serve as a powerful mechanism to dissuade” repeated violations of the FCA.”

Yates v. Pinellas Should Serve to Encourage Prosecutors to Consider Penalties as an Essential Part of False Claims Act Remedies

False Claims Act settlements reached before litigation rarely include penalties.  There are many reasons for this, but one of them has been a concern that adding penalties on top of multiple damages can result in over-punishing fraudsters.  However, the persuasive reasoning of Yates offers a powerful rebuttal to that argument.  Multiple damages compensate the government for its losses and expenses in prosecuting the fraud.  But as the Appeals Court explained: “Fraud harms the United States in ways untethered to the value of any ultimate payment.”  Every time a corrupt vendor steals from the public disc, the public’s confidence in government is diminished.

This is why penalties are required in a judgment.  For the same reason they should be more regularly included in settlements and damage assessments.

Whistleblower Law Collaborative

The Whistleblower Law Collaborative LLC, based in Boston, devotes its practice entirely to representing clients in bringing actions under the federal and state False Claims Acts and other whistleblower programs. Under the False Claims Act, a private citizen (known as a “relator”) who suspects or knows of fraud against the government can act as a whistleblower and file a sealed complaint on behalf of the government. If the case is successful, the relator is entitled to a share of the government’s recovery.  Among the firm’s many successes is the government’s $465 million settlement with Mylan for failing to pay the correct Medicaid rebates on its high–priced drug EpiPen.

For more information, contact the Whistleblower Law Collaborative LLC at 617.366.2800

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