Fraud is Not a Cost of Doing Business: Deterring Fraud Through the False Claims Act’s Penalties Provision
The False Claims Act seeks to discourage fraud and make the government whole by imposing treble damages and civil penalties. This note focuses on the Act’s inflation-adjusted penalties, which currently range from $13,946 to $27,894 per violation.[1]
Nationwide, courts have asserted again and again that the penalties are harsh because they are intended to deter fraud by punishing those who cheat the government.
For example, an appellate court upheld a substantial penalty in a healthcare fraud case in which there were 214 false claims (averaging $3.53 each) totaling only seven hundred fifty-five dollars ($755). The Court allowed a $5,500 penalty on each of the 214 false claims (the statutory minimum at the time) totaling $1,1777,000. It recognized the penalty was harsh, but that the per violation penalty of $5,500 per claim was intended to deter fraud.[2]
Sometimes, including in that case, defendants challenge penalties under the Constitution’s prohibition against “excessive” fines.[3] In determining whether FCA’s civil penalties are excessive, courts apply several factors.[4]
The first factor is how these penalties compare to other penalties. Comparing False Claim Act penalties with other statutes’ penalties requires courts to consider the penalty assessed on each false claim, rather than a cumulative total amount. In the example above, the court considered whether $5,500 was reasonable, not the $1,177,000. In other areas of law, such as municipal fines, courts also look at the individual amounts, such as daily fines, rather than a total amount—even when daily fines grow for years.[5] Because the penalty is designed to discourage fraud, considering the cumulative amount, rather than each violation’s fine, might encourage a violator to continue its false claims hoping that the fines would grow large enough to become unconstitutionally excessive. Such a result defies common sense: the gravity of an offense is not diminished because it is repeated.[6]
The second factor considers harm caused by the defendant. Although legally a false claim case legally involves only the United States’s economic damages, for an excessive fines analysis courts look at other harms. Such other harms can include causing patient harm, eroding the public’s faith in the government’s competence, or possibly encouraging others to act in a similar fashion.[7]
A third consideration is whether the defendant is among those at whom the statute was principally directed. Municipalities used to challenge FCA coverage—until the United States Supreme Court laid that issue to rest.[8]
In an apparent attempt to avoid litigating this issue, the government often seeks less than the full amount available by asking for the lowest penalty at the bottom of the range, or by requesting penalties against fewer than all the false claims.[9]
Penalties are an essential element of the law’s intent to deter fraud. As one court wrote: “The United States is entitled to guard the public fisc against schemes designed to take advantage of overworked, harried, or inattentive disbursing officers; the False Claims Act does this by insisting that persons who send bills to the Treasury tell the truth. As Justice Holmes put it, [m]en must turn square corners when they deal with the Government.’”[10]
Jonathan Kroner is the Founder of Jonathan Kroner Law Office.
[1] 28 CFR Part 85, available at https://www.govinfo.gov/content/pkg/FR-2024-02-12/pdf/2024-02829.pdf
[2] Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288, 1307-1314 (11th Cir. 2021).
[3] The Eighth Amendment to the U.S. Constitution provides that: “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” U.S. Const., amdt. 8.
[4] See Yates, 21 F.4th at 1314 (citing United States v. Bajakajian, 524 U.S. 321, 338-39 (1998)).
[5] See Robson 200, LLC v. City of Lakeland, 593 F. Sup. 3d 1110, 1123-24 (M.D. Fla. 2022) (holding $50 per day fine failure to mend a fence not excessive, even though it eventually $50,000); Conley v. City of Dunedin, No. 08-cv-1793, 2010 U.S. Dist. LEXIS 1978, 2010 WL146861, at *2-5 (M.D. Fla. Jan 11, 2010) ($50 and $100 per day parking fine not excessive, even when it totals $198,000)
[6] Conley, 2010 U.S. Dist. LEXIS 1978 at *15-17.
[7] Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390, 409 (4th Cir. 2013)
[8] See Cook County v. United States ex rel. Chandler, 538 U.S. 119, 128-29 (2003).
[9] See, e.g., United States ex rel Lutz v. BlueWave, No. 14-cv-00230 (D.S.C. May 23, 2018) (awarding penalty against only 11,500 of 38,887 claims, approximately $17 million damages, reducing statutory penalties to only $63 million as part of a $114 million total award).
[10] United States v. Rogan, 517 F.3d 449, 452-53 (7th Cir. 2008) (citing Rock Island, AR & LA R.R. v. United States, 254 U.S. 141, 143 (1920)).
