Eleventh Circuit Holds Excessive Fines Clause Applies to Penalties in Non-Intervened FCA Cases
The Situation: A defendant who violates the False Claims Act ("FCA") can be liable for treble damages plus mandatory penalties that range from $5,500 to $11,000 ($11,665 to $23,331 with inflation) for each false claim. This can yield penalty totals that dwarf the actual damages in FCA suits, in which the alleged false claims are often for small sums. In such circumstances, courts sometimes consider whether the FCA's mandatory penalties are unconstitutionally excessive and must be reduced—but the applicable standard for this inquiry is not yet settled.
The Result: In Yates v. Pinellas Hematology & Oncology, P.A., the Eleventh Circuit held that the Eighth Amendment's Excessive Fines Clause applies to penalty awards in FCA cases in which the government does not intervene—but still affirmed an award of $1.18 million in penalties, despite only $755.54 in actual damages. In a concurrence, Judge Newsom highlighted a circuit split on whether the Excessive Fines Clause requires courts to consider not only proportionality between the misconduct and the fine imposed but also the defendant's ability to pay the fine.
Looking Ahead: The Eleventh Circuit is the first circuit to hold that the Excessive Fines Clause applies in non-intervened FCA cases. The opinions in the case bolster arguments that defendants can use to contest FCA penalty awards.
A defendant who violates the FCA can be liable for treble damages plus a civil penalty of $5,500 to $11,000 (adjusted for inflation) for each false claim. Meanwhile, FCA lawsuits often involve tens of thousands of alleged false claims. FCA defendants accordingly may be subject to draconian penalty awards that, in cases that involve small amounts of damages, are grossly disproportionate to any actual damages.
This issue came to the fore in Yates, a case in which a jury found that the defendant violated the FCA by submitting 214 claims to Medicare for reimbursement without a proper certification. The jury found that the government, which had declined to intervene in the suit, suffered $755.54 in damages. The court trebled the damages to $2,266.62 and imposed the statutory minimum fine ($5,500) for each violation, resulting in a penalty award of $1.177 million—more than 1,500 times the actual damages.
The defendant challenged the penalty as a violation of the Eighth Amendment's Excessive Fines Clause. On appeal, the parties disputed whether the Excessive Fines Clause applies in FCA cases in which the government declines to intervene and the private plaintiff who initiated the action ("relator") continues to prosecute it on a qui tam basis.
The Eleventh Circuit held that the Eighth Amendment applies. The court described non-intervened FCA actions as falling into a "grey area" under the Eighth Amendment, which limits the government's ability to impose fines but does not apply to civil disputes between private parties. Although a relator prosecutes an FCA case on the government's behalf, the court found it not obvious whether the Excessive Fines Clause should constrain judgments where the government did not intervene and the relator pursued the suit alone.
But the Eleventh Circuit joined several other circuits in recognizing that FCA penalties are "fines" under the Eighth Amendment—regardless of whether the government intervenes—because they are at least partly punitive in nature and the United States receives the majority of the recovery. The Eleventh Circuit then became the first court of appeals to hold that FCA penalties are government-imposed fines even in non-intervened cases. The court reasoned that: (i) Congress imposed the fines by making them mandatory through the FCA; (ii) the relator brings suit on behalf of the United States, which is always the real party in interest in an FCA suit; and (iii) qui tam suits have existed for centuries as a mechanism to expand the government's ability to pursue wrongdoing by enlisting private parties to act for the government's benefit—confirming that the government imposes the fines.
Since the Excessive Fines Clause prohibits "grossly disproportional" fines, one might think that a $1.177 million penalty on $755.54 in damages would be unconstitutional. The Eleventh Circuit disagreed, however, upholding the award despite describing it as "harsh." The court afforded a strong presumption of constitutionality because the district court imposed the statutory minimum penalty. It then held that several factors supported the award, including the need for deterrence and the view that defrauding the government causes harm beyond any actual damage.
Judge Newsom, joined by Judge Jordan (who authored the majority opinion), wrote a concurrence to highlight a circuit split on whether the Excessive Fines Clause requires courts also to consider the defendant's ability to pay the fine imposed. After noting that it seems "odd" to defer to Congress by presuming fines are constitutional—"a bit like letting the driver set the speed limit"—he concluded that the Eighth Amendment's original meaning requires courts to consider the defendant's ability to pay a fine, which is more objective than a proportionality determination.
Construing the Supreme Court's decision in United States v. Bajakajian, the Eleventh Circuit had previously rejected the relevance of a defendant's ability to pay under the Excessive Fines Clause, but other circuits (including the First, Second, and Eighth) have disagreed. In addition, the Supreme Court has indicated that Bajakajian does not resolve the question. For now, however, the law in the Eleventh Circuit continues to hold otherwise.
Judge Tjoflat also wrote separately, to propose applying the criminal sentencing factors in 18 U.S.C. §§ 3553(a) and 3572 as the test for constitutionality under the Excessive Fines Clause.
The Eleventh Circuit's opinion in Yates provides multiple arguments that defendants can use to limit mandatory penalty awards in FCA cases. FCA defendants should also be mindful of other potential defenses to such awards. The Fourth Circuit, for example, held in United States ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015), that the Fifth Amendment's Due Process Clause imposes independent limits on penalties, separate from the Excessive Fines Clause.
Four Key Takeaways
- Under the Eleventh Circuit's decision in Yates, the Eighth Amendment's Excessive Fines Clause applies to penalty awards in FCA cases regardless of whether the government has intervened.
- FCA defendants can argue that the Excessive Fines Clause requires courts to consider not only whether a penalty is disproportionate but also the defendant's ability to pay the penalty.
- Other defenses to mandatory FCA penalties exist, including under the Due Process Clause.
- The FCA's mandatory penalties need reform. The statute imposes substantial penalties for each false claim, which can result in enormous judgments exponentially higher than the actual damages in a case—raising serious policy and constitutional concerns.
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