Eighth Circuit Holds Penalties in Non-Intervened FCA Case Violate Excessive Fines Clause
In Short
The Situation: The False Claims Act ("FCA") imposes treble damages on defendants, as well as mandatory penalties per false claim. Because alleged false claims often involve much smaller amounts—for example, in cases with a multitude of claims for health care services provided to Medicare or Medicaid beneficiaries—the mandatory penalties often far exceed the actual damages in FCA suits. Courts have divided on the standard for determining whether the FCA's mandatory penalties violate the Eighth Amendment's Excessive Fines Clause in a given case.
The Result: In Grant ex rel. United States v. Zorn, the Eighth Circuit held that the Excessive Fines Clause applies to penalty awards in FCA cases in which the government does not intervene, joining the Eleventh Circuit in reaching that conclusion. The Eighth Circuit then held that the penalty award of $6.5 million was unconstitutionally disproportionate to the actual damages of $86,332. In doing so, the Eighth Circuit split with the Eleventh Circuit on the applicable standard for determining when penalties are excessive in FCA cases.
Looking Ahead: Grant bolsters arguments that defendants can use to reduce exposure and penalty awards in non-intervened FCA cases. But this remains an area where precedent is sparse, and defendants should keep a close eye on the caselaw.
The FCA imposes liability on defendants that knowingly submit or cause the submission of false claims and requires treble damages plus a civil penalty for each false claim. The mandatory penalties currently range from $13,946 to $27,894 per claim. FCA lawsuits often involve thousands of alleged false claims, with the value of each claim frequently falling well below the mandatory penalty—meaning defendants may face penalties grossly disproportionate to actual damages. Few FCA cases go to trial, in part due to the threat of draconian penalties, leading to a dearth of case law on the application of penalties.
Grant, however, is one FCA case that did go to trial. Following a bench trial, the district court found that the defendants submitted 1,050 false claims by overbilling the government for patient visits. This amounted to $86,332 in actual damages and $258,996 in treble damages. The court then calculated $7.7 million in mandatory penalties. Citing the Eighth Amendment's Excessive Fines Clause, the court reduced penalties to $6.47 million—still 78 times the amount of actual damages.
On appeal, the defendant challenged the penalty award, among other things. The Eighth Circuit first had to determine whether the Excessive Fines Clause applies in cases where the government declines to intervene and the private plaintiff who filed the lawsuit—called a "relator"—continues to prosecute the action on a qui tam basis. The U.S. Supreme Court has not yet addressed this question.
The Eighth Circuit held that the Excessive Fines Clause applies, agreeing with the Eleventh Circuit's decision in Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288 (11th Cir. 2021). As the court explained, the federal government remains "a real party in interest" even in non-intervened qui tam actions, and damages and statutory penalties are imposed by and payable to the government. (Jones Day previously issued a Commentary, "Eleventh Circuit Holds Excessive Fines Clause Applies to Penalties in Non-Intervened FCA Cases," discussing the Yates decision.)
The Eighth Circuit then laid out its approach on how to evaluate whether an award violates the Excessive Fines Clause. Courts first must decide what portion of the award is "punitive" and what portion is "compensatory," then determine the ratio of punitive-to-compensatory damages. The Eighth Circuit held that the district court erred on both fronts.
First, the Eighth Circuit held that treble damages in FCA cases are not entirely compensatory, agreeing with the Fourth Circuit, which reached the same conclusion in United States ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015). But while the Fourth Circuit set out a formula to determine the ratio of punitive-to-compensatory damages, the Eighth Circuit held that the district court should decide that issue on remand.
Second, the court then held that a single-digit ratio of punitive-to-compensatory damages is required, at least in cases involving only economic loss. Citing the Supreme Court's statement from State Farm Mutual Auto Insurance v. Campbell, 538 U.S. 408 (2003), that "an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety," the Eighth Circuit concluded that the penalty award in Grant was unconstitutionally excessive. While the Eighth Circuit previously upheld double-digit multipliers in cases that showed an indifference to the health or safety of others, it held that a single-digit multiplier was required because Grant involved only economic harm.
This creates a split with the Eleventh Circuit, which in Yates affirmed a penalty award that was more than 1,500 times the amount of actual damages by substantially deferring to Congress on the appropriate punishment for violating the law. The Eighth Circuit, in contrast, refused to give "undue deference" to Congress, reasoning that doing so would effectively allow Congress to determine not just the amount of a fine but also whether it was constitutionally excessive.
Going forward, Grant strengthens arguments that defendants can use to argue for lower penalty awards in FCA cases. This follows a federal district court's decision in Minnesota earlier this year, United States ex rel. Fesenmaier v. Cameron-Ehlen Group, Inc., __ F. Supp. 3d __, 2024 WL 489708 (D. Minn. Feb. 8, 2024), in which the court followed similar reasoning to reduce penalties by 75% (from $358.4 million to $86.7 million) based on the Excessive Fines Clause, such that penalties amounted to twice the actual damages amount.
Defendants also should be aware of other defenses to penalties in FCA cases. The Fourth Circuit in Drakeford, for example, held that the Fifth Amendment's Due Process Clause imposes independent limits on penalties.
Three Key Takeaways
- The Eighth Circuit joined the Eleventh Circuit in holding that the Excessive Fines Clause of the Eighth Amendment applies to awards in FCA cases regardless of whether the government intervened in the case.
- FCA defendants can argue that the Excessive Fines Clause limits the ratio of punitive damages to compensatory damages, with the Eighth Circuit's opinion holding that a single-digit multiplier is required in cases involving only economic loss. Supreme Court precedent provides support for arguing that a 4-to-1 multiplier is the limit.
- Other defenses to FCA penalties exist, including under the Due Process Clause.
