Another District Court Finds FCA Civil Penalties Unconstitutionally Excessive
Last year, we reported on a rare district court decision from Minnesota finding application of the FCA’s civil penalties unconstitutionally excessive. Last week, a judge in the Northern District of Texas determined that even the minimum amount in FCA penalties, as applied, would have violated the Eighth Amendment’s Excessive Fines Clause. Based on the number of false claims for which the jury found the defendant liable, the minimum penalty mandated by the statute was nearly $300 million—around one hundred times the actual damages. The court instead imposed a reduced penalty of roughly $8 million, about three times the actual single damages, equating to a per-claim civil penalty of approximately $378.18.
In U.S. ex rel. Taylor v. Healthcare Associates of Tex. (N.D. Tex. Feb. 26, 2025), the defendants allegedly submitted claims (1) as “incident to” a physician’s care without proper documentation; (2) for services by providers not eligible to bill Medicare; and (3) for services performed by medical assistants instead of qualified providers. The jury found against one of the defendants, a primary care group practice, and determined the practice submitted 21,844 false claims, which yielded $2,753,641.86 in actual damages. Per the FCA’s trebling requirement, the court held that it would enter judgment against the defendant for roughly $8 million in treble damages.
The FCA imposes a per-claim civil penalty whose range is adjusted every year (this year’s range reported here). Based on the number of false claims identified by the jury, the total penalty amount ranged from approximately $300 to $600 million. The defendant argued that a penalty amount in that range would violate the Eighth Amendment’s Excessive Fines Clause.
Analyzing the constitutional challenge, the court assessed whether the Eighth Amendment applies to FCA penalties in the first place. The court acknowledged that the Fifth Circuit has not decided the question. Looking to other circuits, however, the court held that FCA penalties are fines subject to the Eighth Amendment.
Next, the court applied four factors that the Fifth Circuit uses to determine whether a “fine is grossly disproportional to the gravity of the offense” under the Eighth Amendment: “(a) the essence of the defendant’s crime and its relationship to other criminal activity; (b) whether the defendant was within the class of people for whom the statute of conviction was principally designed; (c) the maximum sentence, including the fine that could have been imposed; and (d) the nature of the harm resulting from the defendant’s conduct.”
With regard to the first factor, the court emphasized that the defendant’s misconduct involved violations of Medicare billing rules, but did not involve billing for services not rendered. Indeed, the court viewed the defendant’s misconduct as “closer in gravity to something like a ‘reporting offense.’” The court also observed that there was no evidence that the defendant’s conduct was “related to other criminal or fraudulent activity.”
As to the second factor, the court determined that the defendant was within the class of people for whom the FCA was designed, because the defendant had committed fraud against the Government. For the third factor, the court briefly noted that the minimum statutory penalty was below the maximum that could have been imposed. But the court noted that where, as here, the minimum amount “itself presents an excessive fines issue, this factor is not very helpful.”
The court focused on the fourth factor. The court acknowledged that the defendant’s harm was significant. “[S]ubmitting false claims harms the government is [sic] ways that are difficult to quantify.” Yet the court determined that the harm did not necessitate a penalty “two orders of magnitude greater than the actual financial harm” (especially where the actual damages were themselves “‘substantial’”). Indeed, the minimum penalty mandated by the statute was one hundred times the amount of actual damages. That ratio was “grossly out of alignment with the ratios in other similar cases.” The court pointed to the above-referenced Minnesota case from last year, in which the court held that even a penalty-to-actual damages ratio of 8.2-to-1 was unconstitutionally excessive. The Texas court also pointed to decisions in which courts determined that 3-to-1 and 8-to-1 ratios were not unconstitutionally excessive.
In sum, the four factors justified overcoming the “strong presumption” that a fine “within the ranges of fines prescribed by Congress” is constitutional. The court concluded that “a civil penalty to actual damages ratio of 3 to 1 is the maximum allowable under the Excessive Fines clause here,” and imposed a civil penalty of $8,260,925.58. That penalty represents less than three percent of the statutory minimum.
A copy of the court’s opinion can be found here.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
