Photo of Bexis

The result for the defendant (a “distributor of ophthalmologic supplies”) in the False Claims Act decision, United States ex rel. Fesenmaier v. Cameron-Ehlen Group, Inc., ___ F. Supp.3d ___, 2024 WL 489708 (D. Minn. Feb. 8, 2024), was so terrible that something good ended up happening.

The total judgment was over $487 million “not including post-judgment interest, statutory attorneys’ fees or other taxable costs.”  Id. at *1.  Here are that judgment’s components:

Of that amount, less than one tenth ($43,694,641.71) represented actual damages to the United States.  That actual-damages amount was then trebled . . ., resulting in approximately $131 million in trebled damages.  The remaining three quarters of the judgment amount, or approximately $358 million, represented statutory penalties assessed for each of the 64,575 requests for Medicare reimbursement found by the jury to be false claims.

Id. at *2 (citation omitted) (emphasis added).  The “statutory penalties” consisted of 410 claims “made on or after December 1, 2015” that were “subject to a minimum penalty of $13,508,” and 64,165 older claims “subject to the $5,500 minimum penalty.”  Id. at *14 n.12.

We’ve criticized before the rote multiplication of “statutory penalties” that bear no resemblance to reality so that defendants are targeted with suits demanding absurdly high “damages.”  We discussed Judge Weinstein’s conclusion (in dictum) in In re Zyprexa Products Liability Litigation, 671 F. Supp.2d 397 (E.D.N.Y. 2009), that a governmental plaintiff’s demand “for statutory penalties on a per-violation basis, in addition to actual damages sought, would result in a . . . cumulative penalty grossly disproportionate to both the injury [plaintiff] has suffered and the seriousness of [defendant’s] alleged misconduct.”  Id. at 463.  That “slash-and-burn-style of litigation” would “arguably” violate the Excessive Fines Clause of the constitution, id., which (as we also reported) has been held applicable to the states.

But until Fesenmaier, all we had was dictum.  For the first that we’re aware of, in the multiple statutory penalty context, an award has actually been declared unconstitutional as an “excessive fine.”  The $400 million+ award in Fesenmaier was “grossly disproportional to the gravity of a defendant’s offense.”  2024 WL 489708, at *15 (citation and quotation marks omitted).  The penalty multiplication produced a judgment that “vastly overstate[d] the benefit that defendants derived personally from the misconduct.”  Id. at *16.  “For one example”:

a doctor was offered a salad and soda at a Christmas party [that] amount[ed] to remuneration.  While the jury could reasonably conclude that violation of the FCA resulted from that remuneration, but it is difficult to categorize that particular instance of conduct as reprehensible.

Id.  No patient had “undergone a procedure that would not otherwise have occurred.”  The products were not defective.  Id. at *17.  Further, between trebling and penalty multiplication, the award was also “grossly disproportional” to the $43 million awarded as compensatory damages.  Id.  “If the trebled damages in this matter were to be regarded as purely punitive, the ratio of punitive damages to compensatory damages would exceed 10-to-1.”  Id.  In addition, the multiplication of the civil penalties produced a number that far exceeded any possible criminal fine that could have been imposed.  Id. at *18 (making calculations).  That disparity was an “indication from Congress itself that the penalties resulting from defendants’ misconduct might be overly severe.”  Id.

Thus, even though Fesenmaier recognized that “few courts have concluded that [statutory] penalties imposed exceed the constitutional barrier,” id., it reached the conclusion that this award went too far:

After consideration of the appropriate factors − the reprehensibility of defendants’ conduct, the harm to the victim, the ratio of punitive damages to actual damages, legislative intent, the financial status of the defendants, and the penalties imposed in similar cases − the Court concludes that the Excessive Fines Clause permits recovery of no more than $216,675,248.55 in this matter. This amount consists of $43,335,049.71 of actual damages, $86,670,099.42 in trebled damages, and $86,670,099.42 in penalties.

2024 WL 489708, at *20.  “The amount of the judgment represents five times the actual damages imposed in this case.”  Id. at *21.

Thus, while Fesenmaier was – and remains – an objectively terrible result for those particular defendants, it was bad enough that it might actually have some legal benefit for the rest of us.  The multiplication of statutory penalties that bear no resemblance to reality has become an all-too-frequent threat to our clients, particularly in litigation where governmental enforcement authority has been subcontracted to private, contingent fee lawyers.  Precedent that such an award does indeed (instead of theoretically might) violate the Excessive Fines Clause thus is quite welcome.

Finally, we note that Fesenmaier has been appealed by both sides (Eighth Circuit Nos. 24-1467, and 24-1755), and we assume that the constitutional Eighth Amendment issue is the basis of the cross-appeal.  So stay tuned.