Is this a Small or Large Whistleblower Case? How $755.54 in Actual Damages Became a $1.1 Million Award
Dating back to the Civil War, the False Claims Act has been around for quite some time. It was well utilized until a series of amendments in 1943 largely neutered it, after which time it fell into temporary disuse. Then in the mid-1980s, Congress revisited the Act and refitted it with teeth even sharper than before.
Many of the changes to the Act in that time affected its damages provisions. The new and improved False Claims Act provided for treble damages against entities found to have submitted false claims to the government and allowed for a greater share (15-30%) of the government’s recovery to go to those private citizens called “relators” who pursued claims on behalf of the US government. These are known as qui tam lawsuits. As a result of these and other changes that meant to make the FCA a more appealing prospect for whistleblowers and their attorneys, qui tam litigation has spread like wildfire in recent decades, leading to massive amounts of money recovered by the federal government and sizable recoveries for relators in many cases.
But not every FCA case—not even those that unequivocally reveal fraud upon the government and successfully navigate the proverbial minefield set out by dispositive motions practice—leads to a finding that the government suffered concrete damages. But the FCA amendments of 1986 ensured that in such cases, all was not lost. One of those amendments, codified at § 3729(a)(1) provides for the assessment of a flat civil monetary penalty for each false claim a Defendant submitted, additional to those derived from actual value of the false claims at issue.
Those monetary penalties were at issue in Yates v. Pinellas Hematology & Oncology, P.A., an 11th Circuit Court of Appeals decision handed down in December 2021. 21 F.4th 1288. The relator in that case, a former employee of the defendant medical practice, alleged that the practice was performing a laboratory test at a facility that it had recently acquired without the proper licensure for that facility. When Medicare rejected the claims, the practice simply altered the claims and resubmitted them, now representing that they were actually performed at another of defendant’s facilities that was properly licensed. Hello fraud.
The case went to trial, and a jury found that Pienellas had indeed violated the FCA. It found that the government had sustained a rather puny $755.54 in damages, but the district court not only tripled that amount; it supplemented it with minimum mandatory penalties of $5,500[1] for each separate violation, bringing the total award to $1,117,000. Not bad.
Pinellas appealed on several grounds, challenging the jury’s findings on the elements of materiality, falsity, and knowledge, as well as its award of damages. Notably, it also challenged the court’s award of $1,177,000 in statutory penalties, arguing that the award constituted an excessive fine under the Eight Amendment’s Excessive Fines Clause, which reads, “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” U.S. Const., amdt. 8. That clause acts to limit the government’s, not a private party’s, ability to extract punitive damages as punishment for some offense.
Pinellas’s argument was that even though the federal government did not intervene in the case, the Excessive Fines Clause still applied because, it being a qui tam action, the relator was pursuing the case on behalf of the government, who would be entitled to the bulk of the recovery. The statutory fine then, the Pinellas argued, was unconstitutional because it was “grossly disproportional to gravity of [its] offense,” a standard set forth in United States v. Bajakajian, 524 U.S. 321, 334, 118 S. Ct. 2028, 2036, 141 L.Ed.2d 314, 329 (1998).
Ultimately, the 11th Circuit ruled emphatically that the Excessive Fines Clause applied to qui tam actions. It concluded, however, that the fine assessed by the district court was not excessive under the Eighth Amendment. In so deciding, it reasoned that Congress should be granted deference in its judgments of “the monetary value society places on harmful conduct.” Yates, 21 F.4th at 1314. Other considerations, such as defendant’s fitting into the class of persons at whom the FCA was directed and the penalty’s heft compared to other legislative penalties also factored in.
But perhaps most interestingly, the court noted that despite directly representing only $755.54 in conventional damages, “the harm caused by Pinellas…is considerable.” Id. at 1316. It stated that “fraud harms the United States in ways untethered to the value of any ultimate payment.” Id. at 1316. That harm, it wrote, comes in the form of the diminution of that public’s trust in the competency of the government and in the difficulty, it adds to the administration of programs like Medicare, among others. The court held that statutory penalties also have an important deterrent effect. In the end, because the $1,177,000 fine did not violate the Excessive Fines Clause, the court upheld the award.
This case is certainly a positive development for relators because it makes their cases, even ones with potentially small, or even nominal damages, premised on the net effect of fraud in the strictest sense, potentially worthwhile notwithstanding. It also makes smaller cases more enticing for government intervention for the same reasons. Perhaps even more importantly, it permits relators to continue serving their important role as guardians of the public treasury, even where the harm caused by a nefarious defendant’s actions doesn’t translate into an astronomical damages figure.
The takeaway for potential relators, and for attorneys for that matter, is to not be so easily dissuaded from pursuing whistleblower claim simply because the amounts at issue do not appear substantial. With the addition of the FCA’s statutory minimum penalties, it just might be worth your while.
[1] These fines have since increased to a minimum of $12,537 to a maximum of $25,076.