Fourth Circuit Issues Important New Opinion on civil penalties in U. S. ex rel Bunk
At the end of December the United States Court of Appeals for the Fourth Circuit issued an important — and much anticipated — new opinion concerning the constitutionality of civil penalties in False Claims Act litigation. The opinion concerns two cases that were consolidated for trial in the Eastern District of Virginia in 2011 before Judge Anthony Trenga.
The analysis in this case is so nuanced and so important that I will examine it in two different parts, with today marking part one.
The jury trials in these cases took place in 2011. Because civil penalties are mandatory as a matter of law the jury has only two tasks with regard to civil penalties in an FCA trial. First, the jury determines whether the defendant is indeed liable for submitting false claims to the United States. If the answer to that question is yes, then jury determines the number of false claims submitted to the United States. After that determination is made, it is a question of law for the Court to determine whether the civil penalty for each false claim is the minimum of $5,500 or the maximum of $11,000, or somewhere in between.
Folks, this is an intricate area of the law, so fasten your seat belts….
The bookends of civil penalty awards in qui tam cases
Simply put once courts get into determining the amount for each civil penalty, interesting things can happen. Courts have discretion to determine whether the maximum or minimum penalty should apply; Courts may also award an amount somewhere in the middle of the maximum and minimum penalty.
In some — albeit rare — cases Judges decline to award civil penalties, which of course they have no authority to do. In other cases, defendants get slammed with millions upon millions of dollars in penalties. So what factors make the difference?
Just for the sake of clarity, let me state the obvious again — we are talking here simply about where along a continuum a civil penalty falls. In other words, in all cases discussed below, defendants were liable for civil penalties because defendants had submitted false claims to the United States. So we are not talking about liability here, only about whether a penalty is $5500 or $11,000 or something in between.
I will mention one case from each extreme to demonstrate the nuances here — the first case, US v. Rogan, 459 F.Supp.2d 692 (N.D. Ill. 2006) demonstrates clearly a set of circumstances under which courts will lower the boom on a defendant. The second case McDonnell v. Cardiothoracic & Vascular Surgical Associates, 2004 WL 3733402 (S.D. Ohio 2004) shows a set of circumstances under which courts will allow a defendant a free skate.
In US v. Rogan, 459 F.Supp.2d 692 (N.D. Ill. 2006), the defendant was a manager of a medical center management company, who conspired with six others to defraud the United States through a kickback scheme. Through the submission of kickback-tainted claims, the medical center received approximately $17 million in Medicare subsidies over a five year period. Rogan himself received $9.5 million in compensation over those 5 years. In assessing damages, the District Court trebled that entire amount and added penalties, producing a judgment of $64 million against the defendant.
A very good example is McDonnell v. Cardiothoracic & Vascular Surgical Associates, 2004 WL 3733402 (S.D. Ohio 2004). In that case, a qui tam relator alleged that CVSA had used physician employment agreements that violate the terms of the Anti-Kickback Statute. There is a safe-harbor to the AKS for geographic regions certified as Health Professional Shortage Areas (“HPSA”). There are nine requirements to the HPSA Safe Harbor; the chief one is—rather obviously—that the provider be located in a HPSA. In McDonnell, the employer/provider was not located in a HPSA. So, the defendants paid money to physicians in a manner that is only lawful for hospitals in a HPSA, and this was a problem because defendants did not operate in a HPSA.
But the defendants in McDonnell didn’t get a single civil penalty, while the defendants in Rogan got nailed. So what made the differences between these two cases?
But, although defendants in McDonell did compensate physicians in a manner that would be an unlawful kickback in any place other than a HPSA, and defendants were not within a geographic area certified as an HPSA, the defendants were the only health care providers for many, many miles. So the Court refused to institute civil penalties.
A good rule of thumb here is to look at the wrongdoing by the defendants. In a case where a defendant made out like a bandit and put people in jeopardy in the process (such as Rogan, cited above) Courts show less hesitation about really hammering a defendant. In a case like McDonell (also cited above) where a defendant violated the law but otherwise did not but anyone in danger, the analysis is different.
Now, back to the Bunk case. At the trial, the jury found that the defendants had indeed knowingly submitted false claims to the United States; the jury then determined that defendants had submitted exactly 9, 136 of these false claims. So at that point the jury’s work was finished, and it was up to the Judge to determine, at a later hearing, the amount of the penalty for each of the 9, 136 false claims.
U.S. District Judge Anthony Trenga found that the minimum mandated civil penalty of $50,248,000 is grossly disproportional to the harm caused by the defendants. He continued,
The court therefore concludes that the FCA [False Claims Act] results in the imposition of an excessive fine in violation of the Eighth Amendment,” Trenga wrote. “For that reason, the court refuses to impose that civil penalty. The court’s task with respect to economic harm is particularly challenging in this case since neither the government nor the relators attempted to prove at trial any damages and there was in fact no evidence during the trial of any cognizable financial harm to the United States as a result of the 2001 … contract.
Judge Trenga ruled, on a post-trial motion that because the civil monetary penalties on these false claims would exceed $50 million, any recovery was prohibited by the prohibition on excessive fines found in the Eighth Amendment to the United States Constitution. The court ruled that such an assessment would contravene the Excessive Fines Clause of the Eighth Amendment, and it thus awarded nothing.
In the next part of this post, we will look at the Excessive Fines Clause of the Eighth Amendment and what other Courts have done…stay tuned folks.