ARTICLE
15 February 2024

Monumental Reduction In FCA Damages Based On Excessive Fines Clause

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Crowell & Moring LLP

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In a recent landmark decision, the United States District Court for the District of Minnesota dramatically reduced the damages and penalties awarded in a major False Claims Act ("FCA") case.
United States Litigation, Mediation & Arbitration
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In a recent landmark decision, the United States District Court for the District of Minnesota dramatically reduced the damages and penalties awarded in a major False Claims Act ("FCA") case. United States of America ex rel. Kipp Fesenmaier v. The Cameron-Ehlen Group, Inc., et al., Case No. 13-cv-3003 (D. Minn., Feb. 8 2024) (Dkt. 1086). The case initially concluded with a staggering judgment of over $487 million against the defendants. However, after post-trial motions, the court reduced the judgment over 55% to approximately $216 million, citing the Excessive Fines Clause of the federal constitution as a limiting factor.

At trial, the jury found that a distributor of eye surgery products and its owner violated the Anti-Kickback Statute (AKS) by providing remuneration to ophthalmologists which led to the submission of 64,575 false claims to Medicare, resulting in $43,694,641.71 in single damages. These damages were then trebled under the FCA, and statutory penalties were assessed for each false claim resulting in an order to pay $487,048,705.13.

In post-trial briefing, the defendants sought judgment as a matter of law, a new trial, and a reduction in the monetary judgment on the grounds that the award violated the Excessive Fines Clause. The Court denied the request for a new trial and for judgment as a matter of law, except for one transaction related to a trip to New York City. However, the Court granted a reduction in the judgment on constitutional grounds, amending the award to $216,675,248.55.

In its analysis, the Court considered the reprehensibility of the defendants' conduct, the relationship between the penalty and the harm to the victim, sanctions in other cases for comparable misconduct, legislative intent, and the defendants' ability to pay. The Court found that while the defendants' conduct was serious, certain aspects, such as the benefit derived by the defendants and the nature of some remunerative transactions (e.g., a salad and soda at a Christmas party), were less severe than typical AKS cases. Additionally, the Court noted that the penalties were partly due to the structure of Medicare's billing process, which requires separate claims for different fees.

The Court also observed that the ratio of punitive damages to compensatory damages was excessive. Comparing sanctions in similar cases, the Court concluded that the Excessive Fines Clause permits a maximum recovery of $216,675,248.55, which includes actual damages, trebled damages, and penalties.

This case serves as a critical reminder of the potential for constitutional challenges to play a decisive role in the outcome of FCA litigation. The approximately $271 million reduction in damages underscores the importance of strategic litigation and a deep understanding of the constitutional protections available to defendants. This case highlights the need for defendants and their counsel to scrutinize the punitive aspects of FCA judgments and to consider post-judgment relief motions as a viable avenue for mitigating financial liability.

For further discussion on the implications of this landmark decision and strategic approaches in FCA litigation, please reach out to our experienced legal team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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