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The Eighth Circuit recently issued an opinion in Grant on behalf of United States v. Zorn, No. 22-3481, 2024 WL 3309763, at *4 (8th Cir. July 5, 2024) that provided a bit more clarity to one of the more opaque areas of False Claims Act (“FCA”) jurisprudence: application of the Constitution’s Excessive Fines Clause to FCA awards.  A whistleblower who prevails in an FCA matter recovers treble damages, plus a statutory penalty for each false claim submitted. In Grant, the Eighth Circuit held that the Excessive Fines Clause applies in non-intervened qui tams and that the district court in that case should have limited the ratio between the “punitive sanction” and the amount of compensatory damages to a single-digit multiplier. 

Chief Judge Smith’s concurring opinion expressed a different view, indicating that awards within the statutory bounds set forth by Congress should not be subject to further Excessive Fines analysis. Although relatively few FCA cases proceed to trial, the Grant decision has practical implications for any FCA litigants trying to assess the extent of defendants’ potential liability. 

The Grant District Court Applied the Excessive Fines Clause to Slightly Reduce a Trial Award

The prevailing plaintiff in an FCA matter is entitled to damages, multiplied by three, plus a penalty for each false claim. 31 U.S.C. § 3729(a)(1).  Those penalties are assessed within a range prescribed by Congress.  The range is inflation-adjusted and can differ depending on when the claim was submitted; the claims in Grant carried a minimum penalty of either $5,000 or $12,537. 

Grant was employed as a practitioner at Zorn’s sleep-related practice and owned 10% of two related entities.  Those entities billed Medicare and other federal programs for sleep-related services.  Grant brought an FCA whistleblower lawsuit alleging that the defendants had submitted false claims to the federal government.  Following a bench trial, the district court found that the defendants were liable for a group of initial visits, but not liable for established patient visits.  The court found that the defendants had submitted 1,050 false claims, resulting in $86,332 in actual damages.  The court trebled the damages and awarded the lowest per-claim penalty set forth in the statute, for damages of $258,996 and penalties of $7,699,525.  It then conducted an Excessive Fines analysis that slightly reduced the total award, resulting in a combined award of $6,733,896. It awarded attorney’s fees and other recoveries separately.

The Eighth Circuit Majority Held that a Single-Digit Multiplier Was Appropriate

The Eighth Circuit held that the district court’s Excessive Fines analysis did not sufficiently reduce the total award.  First, the Eighth Circuit resolved an open question in this circuit, holding that the Excessive Fines Clause applies in non-intervened qui tams. Grant, at *8 (citing with approval Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288, 1308 (11th Cir. 2021). It then provided a roadmap to determine whether a total award is excessive. As is typical for FCA Excessive Fines analyses, the court applied the rationale set forth in three Supreme Court cases: United States v. Bajakajian, 524 U.S. 321, 329 (1998), a civil forfeiture case applying an Excessive Fines analysis, and BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) and State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003), two punitive damages cases involving Due Process challenges. 

The Eighth Circuit also held that the district court had improperly counted the full treble damage amount as compensatory damages. The Supreme Court has held that treble damages serve both a compensatory and a punitive function, see Cook County v. U.S. ex rel. Chandler, 538 U.S. 119 (2003), but it has never apportioned how much of treble damages relates to each component. In Grant, the district court treated the full amount of the treble damages as compensatory, and therefore analyzed how many times higher penalties plus treble damages were than the treble damages.  The Eighth Circuit majority held that this violated Cook County, and directed the district court to determine on remand what portion of the treble damages constitutes compensatory damages and what portion is punitive. It did not provide guidance for how the court should make that determination.  

Finally, the majority took issue with the double-digit multiplier the district court had permitted in the ratio of (penalties plus treble damages):(treble damages). The Supreme Court observed in State Farm that “an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety,” and went on to say that “few awards exceeding a single digit ratio between punitive and compensatory damages, to a significant degree,” are constitutional. The Grant court acknowledged that prior Eighth Circuit cases had approved of double-digit multipliers, but distinguished those cases as involving more egregious facts than those in Grant. Grant involved only a small amount of purely economic loss, which the Eighth Circuit held did not warrant a departure from State Farm’s single-digit principle.

Concurrence Would Have Simply Applied the Statutory Penalty Amounts

Chief Judge Smith wrote in concurrence that the penalties the district court awarded were not excessive and would have directed the district court to award penalties at the lowest end of the statutory range.  He reasoned that the majority drew the wrong conclusion from State Farm and BMW, both of which applied the Due Process Clause to hold that the defendants had not received fair notice of their potential liability.  See, e.g., BMW, 517 U.S. at 572–74 (a person must receive fair notice of the conduct that will subject him to punishment and the severity of the potential penalty). He found this analysis ill-suited for the FCA, which Judge Smith indicated “gave Zorn ‘fair notice’ about the potential consequences of defrauding” the federal government. 

Key Takeaways from Grant

• Additional Clarity: The court confirmed what most anticipated: the Excessive Fines Clause applies to non-intervened FCA matters.
• Treble Damages: The Eighth Circuit declined to provide guidance about what portion of treble damages are punitive and compensatory.
• Single Digit Multiplier: Grant’s most interesting future impact is the court’s discussion of multipliers. FCA Defendants will argue that the case means that single-digit multipliers are now the de facto rule in the Eighth Circuit.  Plaintiffs will try to cabin that logic to cases that present only a small amount of purely economic harm.  Cf Grant, at *9 (“The defendants here caused a relatively small amount of only economic loss and did not endanger the health or safety of others.”).
• Potential Relevance of “Plus Factors:” Plaintiffs suggested that the case did not include purely economic harm, asking the court to consider additional arguably tortious conduct.  The court found that these arguments lacked support in the record but did not rule out considering that type of evidence in determining the appropriate multiplier.

Greene Espel’s False Claims Act team has the experience to help clients—particularly those in the healthcare industry—navigate the ever-expanding breadth of False Claims Act (“FCA”) and health care litigation. We have achieved success for our clients at every phase—conducting thorough investigations, persuading government agencies not to intervene in whistleblower suits, obtaining dismissals through motion practice, negotiating favorable settlements with government agencies and relators, and taking cases through litigation and trial. If you have any questions about this decision or the False Claims Act broadly, please do not hesitate to reach out.