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A False Claims Act First: Eleventh Circuit Holds That the Excessive Fines Clause Applies to Non-Intervened Cases

February 4, 2022

In an issue of first impression, the Eleventh Circuit Court of Appeals recently held that the Excessive Fines Clause of the Eighth Amendment to the Constitution applies in non-intervened False Claims Act (FCA) qui tam lawsuits in Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288 (11th Cir. 2021).  While the Eleventh Circuit ultimately held that the specific facts before it did not violate the Excessive Fines Clause, the ruling provides support for defendants to challenge excessive awards, including required statutory penalties, in declined FCA matters.

In Yates, the defendant was a medical practice with multiple locations, each of which had a clinical laboratory.  One of the defendant’s locations did not have the proper certification to perform tests on human specimens but nevertheless submitted for Medicare reimbursement for the tests conducted.  The jury found the defendant liable for 214 separate false claims for tests performed at the non-certified location.  However, the total single damages awarded was just $755.54.  The district court then assessed statutory penalties of $5,500 per false claim, which totaled $1,177,000.  In a motion for judgment as a matter of law, or, in the alternative, for remittitur, the defendant argued that the more than $1.1 million in penalties in a case with actual damages of less than $1,000 violated the Excessive Fines Clause of the Eighth Amendment.  The district court denied the motion and concluded that the penalties did not violate the Eighth Amendment because the calculation was based on the low end of the statutory penalty range of $5,500 to $11,000 per false claim.

On appeal, the Eleventh Circuit affirmed the district court’s verdict and penalty amounts.  The Eleventh Circuit first determined that, in a non-intervened qui tam, an award to a relator is subject to the limitations of the Eighth Amendment.  The Eighth Amendment provides that: “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”  In interpreting the Eighth Amendment, the Supreme Court has held: “[t]he Excessive Fines Clause limits the government’s power to extract payments, whether in cash or in kind, as punishment for some offense.”  Austin v. United States, 509 U.S. 602, 609-10 (1993).  Relying on the fact that the Supreme Court “left open” the question of whether the Eighth Amendment applied to non-intervened qui tams in Austin and Browning-Ferris Indus. of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 275 n.21 (1989) and citing one district court decision holding that the Eighth Amendment does apply to such actions, the Eleventh Circuit concluded that because a relator stands in the shoes of the federal government in a qui tam, the Eighth Amendment applies to FCA judgments.  The Eleventh Circuit also explained that the FCA’s penalties (1) constitute a “fine” under the Excessive Fines Clause because they are “essentially punitive” in nature under the case law; (2) are imposed by the Government in that they are statutorily required even when the Government does not take control of the lawsuit; and (3) the Government receives 70-75% of the penalty amounts in a non-intervened qui tam.

The Eleventh Circuit next turned to the question of whether the damages and penalties in the Yates case violated the Eighth Amendment’s limitations, and concluded that it did not.  The Eleventh Circuit noted that penalties of more than $1,100,000 in a case with a single damages amount of $755.54, “may raise an eyebrow,” but those potentially bad “optics” were negated because the penalties were imposed as a result of the defendant’s “repeated (214) instances of fraud against the United States.”  The Eleventh Circuit also deferred to Congress’ judgment in imposing mandatory statutory penalties in the FCA, and further noted that the harm caused by fraud against the United States is “considerable,” regardless of the “ultimate value of the payment.”  Finally, like the district court, the Eleventh Circuit reasoned that because the penalties were based on multiples of the $5,500 statutory penalty, which the Court noted was less than half of the lowest FCA penalty amount available for claims submitted in 2021, that the verdict did not violate the Excessive Fines Clause of the Eighth Amendment.

The Yates decision is a mixed result for FCA defendants.  On the one hand, FCA defendants can take solace in knowing that the Excessive Fines Clause applies to non-intervened qui tams.  On the other hand, the Court’s holding that FCA penalties of approximately 1,558 times the actual damages are not “excessive” poses a significant hurdle for similarly situated defendants in challenging an award that is almost entirely based on penalties.  At the very least, the decision may provide defendants with stronger arguments for applying the low-end of the FCA penalty range to minimize draconian penalties.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Brian Tully McLaughlin
Partner – Washington, D.C.
Phone: +1.202.624.2628
Michael Shaheen
Partner – Washington, D.C.
Phone: +1.202.508.8766
Lyndsay A. Gorton
Counsel – Washington, D.C.
Phone: +1.202.654.6713