Federal Court Rejects False Claims Act's Draconian Penalties
Following a jury's verdict, a federal court slashed civil penalties under the False Claims Act ("FCA") as violative of the Constitution's 8th Amendment.
A new federal court ruling highlights a defense to the FCA's draconian penalties. A federal court jury previously found Healthcare Associates of Texas, LLC, and several individual partners liable for violating the FCA, 31 U.S.C. § 3729, et seq. The complaint alleged several purported "schemes" involving submissions of false claims to Medicare, including listing providers as supervising procedures without sufficient documentation to show as much, and billing for medical assistant services that were not reimbursable. The defendants denied the allegations. The jury determined the defendants were responsible for approximately $2.7 million in damages from 21,844 false claims. The jury's damages finding averaged $126.06 per false claim.
In addition to treble damages, the FCA states that a person who violates it "is liable … for a civil penalty" ranging from $13,946 to $27,894 per false claim. 31 U.S.C. § 3729(a)(1). As a result, relator asked the court to enter judgment reflecting $449 million in civil penalties (while acknowledging that the minimum penalties under the statute still would total more than $299 million).
The N.D. Tex. federal court rejected the relator's request, finding that the magnitude of penalties requested would violate the U.S. Constitution's Excessive Fines Clause. The court explained that the "magnitude of the harm in this case is significant, but it does not warrant a penalty of nearly one-third of one billion dollars." The court instead imposed a 1:1 ratio between the civil penalties and the trebled damages, which still resulted in a judgment of more than $16 million.
FCA defendants can continue to look to constitutional protections to defend these cases.
