Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.
– U.S. Constitution, 8th Amendment
In late December, the U.S. Circuit Court of Appeals for the Eleventh Circuit issued its decision in Yates v. Pinellas Hematology & Oncology, P.A.1 The appellate court affirmed the district court’s imposition of damages and penalties where the jury found that the defendant had violated the False Claims Act on 214 occasions by submitting claims for reimbursement of laboratory tests without a proper Clinical Laboratory Improvements Amendments (CLIA) certificate. The CLIA requires that any facility conducting tests on materials derived from the human body must obtain CLIA certification through the Centers for Medicare and Medicaid Services (CMS), and a valid CLIA certificate is required for Medicare reimbursement of those tests.
The trial evidence showed that Pinellas was a hematological and oncological medical practice that included a clinical laboratory with the appropriate CLIA certification. In 2016, Pinellas purchased an oncology practice (Bayfront) that also had a CLIA certificate, but that certificate did not transfer upon the sale. Because each laboratory facility must have its own certification, Pinellas could not use either its own or Bayfront’s pre-existing certificate for tests conducted at Bayfront. Initially, Pinellas submitted claims for reimbursement for tests at Bayfront without a valid CLIA certificate number, and those claims were rejected. Pinellas then altered the information on the claim forms to make it appear that the laboratory tests had been conducted at another location owned by Pinellas, which had a valid CLIA certificate, and re-submitted the claims.
The jury found that, during the eleven months that Bayfront did not have a proper CLIA certificate, the United States suffered $755.54 in damages based on the 214 false claims. Accordingly, the Court imposed a total monetary award of $1,179,266.62, which was composed of (i) treble damages of $2,266.62 (3 x $755.54), and (ii) the lowest permissible statutory penalty of $1,177,000.00 (214 x $5,500).
This case is notable for two reasons: First, the Court recognized that the Eighth Amendment’s prohibition on “excessive fines” applies to False Claims Act cases even where the government declined to intervene. Second, the Court decided that even where the total amount of the false claims was $755.54, fines and penalties of $1,177,000 were not unconstitutionally excessive. In other words, while the prohibition may apply to cases where the government did not intervene, the Court’s ruling also makes clear that “excessiveness” under the Eighth Amendment is not determined by the ratio of the financial loss to the financial penalty.
THE EIGHTH AMENDMENT’S PROHIBITION ON EXCESSIVE FINES APPLIES IN NON-INTERVENED FCA CASES
The Excessive Fines Clause of the Eighth Amendment applies, per its terms, only to “fines” imposed by the United States. As the Court explained, a payment constitutes a fine so long as “it can only be explained as serving in part to punish.”2 As a result, consistent with the Fourth, Eighth, and Ninth Circuits, the Eleventh Circuit has also concluded that FCA monetary awards are fines for the purposes of the Excessive Fines Clause, precisely because they are, at least in part, punitive.3
The next question the Court faced was whether, in a non-intervened case, where the relator proceeds with the case in the name of and for the benefit of the United States, the monetary award is, in effect, imposed by the United States. The Court determined that the Excessive Fines Clause applied for three reasons. First, all monetary awards in FCA qui tam actions are imposed by the United States because they are mandated by the FCA, a federal law enacted by Congress. Second, the Court found that any monetary award is imposed by, and attributable to, the United States. “Unlike a traditional private party, a relator does not initiate an FCA action to recover for an injury she herself suffered. She is instead filing suit on behalf of the United States, for a fraud committed against the United States, and as a partial assignee of the United States’ damages claim.”4 In fact, the United States generally receives between 70 and 75 percent of the recovery.5 Furthermore, even if the United States is not formally a party to the litigation in a non-intervened case, it still exercises sufficient control over the proceedings to make the constitutional prohibition applicable.6 Third, the Court found that “the history and nature of qui tam actions supported the understanding that the United States imposes the monetary award in a non-intervened FCA action.”7
THE “VERY HARSH” FINE, IN THIS CASE, WAS NOT CONSTITUTIONALLY EXCESSIVE
While the district court had acknowledged that the penalty was “very harsh,” the Eleventh Circuit nonetheless determined that it did not violate the Excessive Fines clause. The Court identified certain factors to consider, including: (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.8 The Court was influenced significantly by the fact that the fine was set at the statutory minimum of $5,500 per false claim, which the Court found gave it a strong presumption of constitutionality.9 The Court further found the harm caused by Pinellas was “considerable” and not limited to the actual damages of $755.54.10 “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.”11 Finally, the Court looked to the deterrent effect of the million-dollar penalty:
In this case, the imposition of the lowest-possible monetary award—though, as the district court noted, “very harsh”—properly balances the need to deter potential fraudsters with the gravity of Pinellas’ conduct. This is all the more so when one considers that the size of the award is a direct reflection of Pinellas’ repeated and knowing submission of false claims to the United States. We agree with the Fourth Circuit that ‘[s]ubstantial penalties serve as a powerful mechanism to dissuade repeated violations of the FCA.”12
While concurring in the ruling, however, Judge Newsom questioned the deference given Congress in determining whether the Eighth Amendment was violated:
In determining whether a fine set by Congress is unconstitutionally “excessive” within the meaning of the Eighth Amendment, we give great deference to Congress’s judgment about the excessiveness of the fine. See United States v. Chaplin’s, Inc., 646 F.3d 846, 852 (11th Cir. 2011). As a result, Congress both levies the fine and, at least as a presumptive matter, determines its constitutionality. It seems a bit like letting the driver set the speed limit.13
Judge Newsom also questioned whether the Excessive Fines analysis should also include looking at the effect of the fine on the individual and potential deprivation of livelihood.
Judge Tjoflat concurred that the Excessive Fines Clause applies to non-intervened qui tam cases, but dissented from the determination that it was not violated in this case. Instead, he would have remanded “so that the District Court could allow the defendant to present evidence on both the characteristics of the offense and the offender. To do otherwise would be to allow an arbitrary fine to stand under the Excessive Fines Clause.”14 Judge Tjoflat suggested that district courts should apply the statutory factors used in criminal cases when sentencing defendants as the test for the excessiveness of civil fines under the Eighth Amendment.15 Because these factors look to the traditional purposes of punishment, “it makes sense that if the Eighth Amendment incorporates the common law and its traditional purposes of punishment, and the common law performed an individual analysis for excessiveness, that we too should opt for a particularized analysis for excessive fines.”16
HOW DOES THIS AFFECT FCA CASES IN THE FUTURE?
While the ruling that the Excessive Fines Clause applies in non-intervened cases is both reasonable and consistent with rulings in other circuits, the determination that the FCA penalty imposed in this case did not violate the Constitution raises questions about when, if ever, an FCA penalty would be deemed excessive. The divided majority focused on the actual fine imposed and the potential maximum penalties, while the partial dissent looked to such factors as the characteristics of the individual and the facts surrounding the offense.
Does the majority conclusion mean that as long as a court stays within the statutory range, the fine could never be excessive under the Constitution?
And, shouldn’t the Court consider the conduct of the offender? In this case, the Court appeared to brush that aside remarking that fraud is serious and deserving of punishment. But shouldn’t the ratio or multiple between the damage caused and the fine imposed be considered in a constitutional analysis? Here, the fine was 1,558 times the damage caused. Is that not excessive? What if the damage was only a single dollar per claim as opposed to the $3.52 per claim in this case? Would that also justify a fine of over $1 million? There was no indication that the tests, in this case, were not performed or were not medically necessary; simply, that they lacked the requisite appropriate certificate. While Pinellas’s subsequent submission of an inappropriate certificate lends credence to the Court’s conclusion that the harm to the government was greater than the amount of the claim, the case raises questions of whether a statutorily-prescribed FCA penalty can still violate the Constitution.
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[1] 21 F.4th 1288 (11th Cir. 2021).
[2] 21 F.4th at 1308 (citations omitted).
[3] Id.
[4] Id. at 1309 (citations omitted).
[5] Id. at 1308 – 09.
[6] Id. at 1310 – 12.
[7] Id. at 1313.
[8] Id. at 1314.
[9] Id.
[10] Id. at 1316.
[11] Id. (citations omitted).
[12] Id. (citations omitted).
[13] Id. at 1318.
[14] Id. at 1336.
[15] Id. at 1334.
[16] Id.
