The Eleventh Circuit recently held that the Eighth Amendment’s prohibition on excessive fines applies to monetary awards in non-intervened FCA actions—the first federal court of appeals directly to address the application of this constitutional protection in non-intervened cases. See Yates v. Pinellas, No. 20-10276 (11th Cir.). However, the panel concluded that while the amount of the fine in this case was “very harsh,” it was not unconstitutionally excessive.
In Yates v. Pinellas, following the government’s declination, the district court imposed a total monetary award of $1,179,266.62 under the FCA based on the defendant’s submission of laboratory test claims to Medicare without a proper CLIA certificate. Specifically, the jury found that the defendant violated the FCA on 214 occasions and that the United States had incurred $755.54 in damages. The court then imposed treble damages of $2,266.62 and statutory minimum penalties of $5,500 for each of the 214 violations, or $1,177,000, for a grand total of $1,179,266.62. The defendant moved for remittitur, arguing that this amount constituted an excessive fine in violation of the Eighth Amendment. The district court rejected the argument. (more…)
The Sixth Circuit recently awarded a defendant $468,704 in attorney’s fees, despite the government winning its FCA suit. The Court found that the defendant was entitled to recover its fees under the plain language of the Equal Access to Justice Act (“EAJA”), even though it was not the prevailing party, because the government’s demand for $1.6 million in damages was “unreasonable” and “substantially in excess” of the final judgment of $14,748. (more…)
On February 13, 2017, the District Court for the District of Columbia rejected motions for summary judgment filed by cyclist Lance Armstrong and his agents Capital Sports and Entertainment Holdings Inc. (CSE) in an FCA suit alleging the defendants violated the FCA by issuing payment invoices to the United States Postal Service (USPS) under sponsorship agreements while actively concealing Armstrong’s use of performance enhancing drugs (PEDs). The Court rejected Armstrong’s motion because it found that the government raised genuine issues of fact regarding the applicability of two of its three theories of FCA liability, its common-law claims, and the issue of actual damages. As a result, the Court will set the case for trial, where Armstrong may face nearly $100M in damages. A copy of the court’s order can be found here.
In April 2015, we wrote about the Sixth Circuit’s decision to reverse and remand a $664 million judgment in favor of the government against United Technologies Corp., relating in part to claims that United Technologies’ predecessor, Pratt & Whitney (“P&W”), violated the False Claims Act by falsely certifying that it had corrected misstated projected costs in a 1983 bid to supply engines for the Air Force’s F-15 and F-16 fighter jets. See United States v. United Techs. Corp., No. 13-4057 (6th Cir. Apr. 6, 2015). The $664 million award included $7 million in statutory penalties related to the False Claims Act violation, and $657 million in damages for common law claims of payment by mistake and unjust enrichment.
The Sixth Circuit recently issued a strongly worded rebuke to the government in response to its proposition that “actual damages” in a FCA suit premised on wage underpayment equals the full amount of the government’s payment for the contractor’s services. See United States ex rel. Wall v. Circle C Constr., No. 14-6150 (6th Cir. Feb. 4, 2016). The defendant contractor—hired to build warehouses for the Army—had certified to compliance with certain laws and regulations, including one requiring payment of above-market wages. The contractor underpaid several employees by a total of $9,900, and the government argued that the contractor’s noncompliance “tainted” all of its claims, resulting in damages equal to the full amount the government paid for the services. Trebling these so-called damages yielded a total FCA damages award in excess of $750,000.
On July 2, 2015, the Fourth Circuit affirmed a $237 million verdict against Tuomey Hospital following a retrial in the government’s long-running effort to pursue alleged violations of the Stark law. (See our previous posts on the case here and here). As we previously reported, in 2013 in U.S. ex rel. Gosselin v. Bunk, the Fourth Circuit acknowledged that FCA awards are subject to Eighth Amendment scrutiny, but it rejected the constitutional challenge in that case without providing any concrete standards against which the constitutionality of an award in any particular case could be measured. In the more recent Tuomey opinion, the Fourth Circuit again rejected Eighth Amendment and Due Process challenges to the constitutionality of the award. However, the opinion provides a roadmap for future challengers that suggests that constitutional challenges could find traction in cases in which there is a significant discrepancy between per-claim damages and penalties.
Posted by Scott Stein and Jessica Rothenberg
In the latest decision in litigation that spans 17 years and relates to conduct that occurred 32 years ago, the Sixth Circuit reversed a $664 million judgment in favor of the government against United Technologies Corp. and remanded the case, for a second time, for a recalculation of damages. A copy of the Sixth Circuit’s opinion in United States v. United Techs. Corp., No. 13-4057 (6th Cir. Apr. 6, 2015) can be accessed here.
In 1999, the United States filed a lawsuit against Pratt & Whitney (“P&W”), now owned by United Technologies, alleging that Pratt violated the False Claims Act by falsely certifying that it had corrected previously misstated projected costs in a 1983 bid to supply engines for the Air Force’s F-15 and F-16 fighter jets. The Air Force ultimately chose to divide its engine orders between P&W and another manufacturer, and each year, issued a “call for improvement” that requested more favorable terms than the prior year’s “best and final offer” from P&W and the other manufacturer. The Air Force certified each year that P&W’s prices were “fair and reasonable” based on the “market test between competitors.”
In 1998, the government filed an administrative action against P&W with the Armed Services Board of Contract Appeals alleging that P&W misrepresented that it had corrected problems in its initial bid and used its most accurate cost data to develop its best and final offer prices. However, the Board rejected the government’s claim, holding that P&W alleged misstatements did not cause any damages because the Air Force had relied on competitive forces, rather than the erroneous price and cost data, in awarding its contracts. Therefore, Board concluded, the prices that the Air Force paid for the engines were not inflated by the alleged fraud. The Federal Circuit affirmed the Board’s determination.
In 1999, the government filed a separate lawsuit in federal district court alleging violations of the FCA and for common law restitution. In 2008, the district court held P&W liable under the FCA, but found that the government had suffered no actual damages and awarded the government only $7 million in statutory penalties. The district court also determined that the government’s claims for restitution were barred by claim preclusion because they should have been litigated before the Board. See United States v. United Techs. Corp., No. 3:99-cv-093, 2008 WL 3007997 (S.D. Ohio Aug. 1, 2008). The government appealed, and in 2010, the Sixth Circuit affirmed liability, but found that the government’s restitution claims were not barred by claim preclusion and remanded the case back to the district court. See United States v. United Techs. Corp., 626 F.3d 313 (6th Cir. 2010). On remand, the district court held that the Board and Federal Circuit litigation did not resolve whether P&W misstatements caused the government damages and therefore rejected P&W’s issue preclusion defense. In addition to the $7 million originally awarded, the government was awarded $657 million in treble damages, restitution, and prejudgment interest. See United States v. United Techs. Corp., 950 F. Supp. 2d 949 (S.D. Ohio 2013).
On appeal from the 2013 judgment, the Sixth Circuit affirmed the district court’s holding that issue preclusion did not bar the government’s damages claim under the FCA and common law restitution. However, the Sixth Circuit held that the district court had, mistakenly, exclusively relied on the government’s damages estimate, which failed to take into account the role that competition between P&W and the other manufacturer played in determining reasonable and fair prices, and whether that competition mitigated the damages to the government. Citing the protracted litigation and the decades that had passed since the fraud, the court was “tempted” to end the case with the government receiving the $7 million in statutory penalties under the FCA. Further, the court stated that “the government had every opportunity to put on an expert to show whether affected its damages,” but it had “refused to do so.” However, the Sixth Circuit ultimately decided that the district court, which presided over the remand litigation, was in a better position to decided whether the government should have another chance to prove its damages after taking into account the role of competition. The Sixth Circuit reversed the lower court’s judgment and remanded the case for further proceedings.
Posted by Jaime L.M. Jones and Emily Van Wyck
A Florida federal district court granted a motion for a new trial on damages after an $89.6 million default judgment was entered for False Claims Act violations by a doctor and cancer treatment center. See United States ex rel. McBride v. Makar, No. 8:12-cv-792-T-27MAP, 2014 WL 5307469 (M.D. Fla. Oct. 15, 2014). The court entered a default judgment against the defendant physician and American Cancer Treatment Centers, Inc. (“ACTC”) after defendants failed to respond to the complaint. In calculating damages, the court relied on data compiled by the relator from Medicare records reflecting the total amount paid in reimbursement by the government for all claims submitted by defendants during the time period at issue.
In the order granting a new trial, the court concluded that the damages award was calculated based on allegedly fraudulent claims that were outside the scope of the original complaint. The complaint alleged that the defendant physician submitted false claims for radiation therapy services performed at ACTC that were unnecessary, never performed, or improperly administered. The court noted that these allegations did not support the conclusion that all claims made during this period were false because the existence of some fraudulent billing practices “does not necessarily taint each claim for every patient.” Makar, 2014 WL 5307469, *4. Indeed, as the court recognized, some of the procedures submitted during this period may have been properly supervised and administered.
In reaching its decision, the court distinguished the fraudulent claims submitted in this case from those addressed in United States v. Rogan, 517 F.3d 449 (7th Cir. 2008). In Rogan, the court awarded damages for all claims submitted for patients referred to the defendant through an illegal kickback scheme even if those patients received medical services. Id. at 453. By contrast, the Makar defendants were not alleged to have engaged in illegal conduct that would necessarily taint all claims submitted by the defendants. Therefore, the court ruled that the damages calculation must be based only on those claims determined to be false; specifically, those claims submitted for unnecessary, never performed, or improperly administered services. The court’s order requires additional discovery and a new trial to establish the amount of damages associated with such fraudulent claims.
Posted by Scott Stein and Catherine Kim
Several circuit courts have recognized the “worthless services” theory of FCA liability, which allows qui tam relators to assert FCA claims premised on the notion that the defendant received reimbursement for goods or services that were worthless. In a recent case, U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit held that assuming the theory is viable in the Seventh Circuit (an issue it declined to decide), it does not apply to situations in which deficient performance of a contract is alleged to have resulted in services “worth less” than what was contracted for. As the court succinctly put it, “[s]ervices that are ‘worth less’ are not ‘worthless.'”
The case was originally filed by two nurses who formerly worked at Momence, alleging that the nursing home knowingly submitted false claims to Medicare and Medicaid by seeking reimbursement for treatment that allegedly failed to comply with standards of care. Although the United States and Illinois declined to intervene, the relators proceeded to trial. The jury reached verdicts against Momence and awarded over $3 million in compensatory damages, which was trebled under the FCA.
On appeal, Momence argued that the district court lacked jurisdiction under the public disclosure bar because the FCA action was based on allegations of non-compliant care that were the subject of previous government reports. The Seventh Circuit, however, continuing its streak of recent opinions narrowing the scope of the public disclosure bar, held that the bar was not implicated because the reports did not disclose “that Momence had the scienter required by the FCA.”
The court then proceeded to assess whether the relators’ claims failed as a matter of law. Although the Seventh Circuit declined to address the viability of a worthless services theory of FCA liability – “a question best saved for another day” – it nevertheless concluded that even if that theory was valid, “[i]t is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for.” Because the court concluded that the relators failed to offer evidence establishing that Momence’s services were “truly or effectively ‘worthless[,]'” it held that the worthless services theory could not support the jury’s verdict.
Similarly, the court found that the relators’ evidence in support of the express certification theory was also insufficient because the relators not only failed to put forth evidence of “precisely how many . . . forms contained false certifications[,]” but they also failed to identify “even a roughly approximate number of forms contain[ing] false certifications.” While the court acknowledged the difficulty in producing evidence that supports “even an approximate finding[,] . . . under the FCA, the plaintiff must ‘prove all essential elements of the cause of action . . . by a preponderance of the evidence.'”
Lastly, with respect to the implied certification theory, the court acknowledged that it had not expressly determined whether such theory is recognized in the Seventh Circuit. However, it declined to answer the question here since the realtors did not argue to the jury that the purported implied certifications were conditions of payment, thereby waiving the theory on appeal.
The Seventh Circuit vacated the judgment and remanded the case for judgment to be entered for the defendants. Although the court did not definitively preclude the possibility of a plaintiff prevailing on a worthless services theory in the Seventh Circuit, the reasoning contained in its ruling strongly suggests that such theory, if recognized, would likely be reserved for the most extreme cases.
A copy of the court’s decision can be found here.
In recent decisions, a federal court entered judgment under the FCA against a healthcare system that a jury had found violated the Stark Law and submitted claims for prohibited patient referrals. Among relatively few FCA cases that have proceeded to a jury verdict, this case illustrates the significant penalties defendants face.
As we previously reported, U.S. ex rel. Drakeford v. Tuomey Healthcare System involved claims that the defendant healthcare system entered into compensation arrangements with physicians that violated the Stark Law and resulted in the submission of false claims for patients who were referred in violation of Stark. In 2010, a jury concluded that the defendant violated the Stark Law but not the FCA. The district court subsequently set aside the verdict and ordered a new trial on the FCA claim, but entered a judgment on equitable claims based on the jury’s finding of a Stark Law violation. The Fourth Circuit reversed the judgment and remanded the case for a new trial.
In May 2013, the retrial concluded with the jury finding the defendant violated the Stark Law and caused the submission of 21,730 false claims, in violation of the FCA. The jury calculated the total value of false claims filed by Tuomey as $39,313,065. The court calculated the award under the FCA as including treble damages plus the statutory minimum per-claim penalty of $5,500, for a total judgment under the FCA of $237,454,195. On September 30, the court ordered the defendant to pay $276 million. The government moved to amend the judgment, noting that the court’s award appeared to include $39,313,065 above the treble damages and statutory penalties to which it was entitled under the FCA. The government noted this appeared to be a “clerical error.” The court agreed, entering an amended judgment for $237 million.
In its order entering the amended judgment, the court also disposed of the defendant’s post-trial motions. Among the arguments for setting aside the jury verdict the court rejected, it denied Tuomey’s request for judgment as a matter of law because the government “failed to prove damages.” The Court noted that although the government “received the medical services it paid for, and it paid the same amount it would have paid had the services been performed by another hospital,” the government was entitled to damages under the FCA because the Stark Law prohibits “any payment” for a claim for prohibited referrals. In addition, the court denied Tuomey’s motion to set aside the $237 million award based on the excessive fines provision of the Eighth Amendment, finding the award of treble damages plus statutory per-claim penalties not to be “grossly disproportional to the gravity of Tuomey’s offense.”