Court Cuts False Claims Act Jury Verdict in Half in Rare Constitutional Decision

On Thursday, a Minnesota district court judge more than halved a $490 million False Claims Act jury verdict against an ophthalmology distributor and its founder for Anti-Kickback Statute (“AKS”) violations, to $217 million, holding the damages were “notably severe” and “grossly disproportional” to the offense, and thus improper under the Excessive Fines Clause.

The decision is the latest in United States of America ex rel. Fesenmaier v. Cameron-Ehlen Group, Inc. et al., No. 13-cv-3003 (D. Minn.), in which a jury determined that the distributor and its founder violated the AKS by providing remuneration in the form of luxury trips, meals, and other items of value to ophthalmologists over a 10-year period. Those ophthalmologists then purchased medical supplies from the distributor and ultimately sought reimbursement from Medicare for procedures utilizing those supplies, in violation of the FCA, according to the jury. In total, the jury directed judgment for $487 million. Of that amount, $43,694,641.71 was actual damages. The actual damages were then trebled, resulting in $131 million in trebled damages. The remaining portion of the judgment was $358 million in mandatory statutory penalties for the 64,575 claims the jury found to be false. $2.5 million was deducted due to settlements from other parties.

Defendants filed for post-judgment relief, seeking judgment as a matter of law, a new trial, or a reduction in the monetary judgment. Among other issues, defendants argued that the total monetary award of $487 million—for which less than one tenth represented actual damages to the United States as measured by the full value of the claims for services, including the medical supplies “tainted” by the AKS violation— violated the Excessive Fines Clause. The plaintiffs sought a reduced monetary judgment of $310 million in a move the court characterized as an “effort to evade a constitutional challenge.” Id. at 42.

The court partially granted the defendant’s challenges to the original decision. Most notably, the court agreed with defendants that the final $490 million was impermissibly excessive under constitutional standards. In reaching this decision, the court emphasized that it was not determining the appropriate punishment for the defendants but instead determining the “permissible” outer limits to the punishment under the Constitution. See id. at 35 (emphasis in original). To do so, the court applied Eighth Circuit precedent and assessed the reprehensibility of defendants’ conduct, the harm to the victim, sanctions for comparable misconduct, defendants’ ability to pay, and legislative intent. The court found no single factor determinative but emphasized that the new judgment amount of $217 million was five times the actual damages imposed in the case, suggesting greater than this amount would be unacceptable. The $217 million was made up by $43,335,049.71 in actual damages, which was reduced slightly from the original actual damages amount due to a separate ruling on insufficiency of the evidence for some claims in the case. The court then trebled the single damages and added $86,670.099.42 in penalties. This suggests a per-claim penalty of approximately $1,340, well under the current minimum statutory penalty of $13,946.  The judge ultimately concluded that any amount greater than $217 million “threatens to become grossly disproportional to the gravity of the offense.” Id. at 48.

A copy of the court’s ruling can be found here.

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