This transcript has been auto generated
00;00;00;00 - 00;00;26;14
Jonathan Porter
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host, Jonathan Porter. All right, so I like trials. I'm a big fan of trials. Unabashed fan of trials. I think trials are a big reason why our justice system is so good. There's something about telling people you can have your day in court. There's going to be 12 people who aren't affiliated with the government, not affiliated with the other side.
00;00;26;15 - 00;00;44;25
Jonathan Porter
They're going to come in. They're going to hear everything that we have to say, and they're going to decide whether you are liable, not liable, guilty, not guilty. All those things. I think access to trials is phenomenal. So you won't hear me say a bad thing about trials is not perfect. But I in general really, really like trials.
00;00;44;27 - 00;01;01;28
Jonathan Porter
But there's a big discussion going on about trial penalties. You hear it mostly on the criminal side where you say, look, if you go to trial and you are convicted of a crime, you're oftentimes going to get a harsher sentence than if you didn't go. And a lot of people have said, is that right or wrong? So you hear a lot about that.
00;01;01;28 - 00;01;23;22
Jonathan Porter
But what you don't hear a whole lot about is trial penalties in the false claims Act world. And to be honest, as bad as trial penalties are on the criminal side, the trial penalties under the False Claims Act, if you go to trial and lose, they are significant. They are a really catastrophic result. And we're going to talk about why.
00;01;23;22 - 00;01;43;21
Jonathan Porter
That is why if you go to trial in a false claims, that case, you are taking on a lot, a lot, a lot of risk. We talked about why that is where you talk about some best practices for potentially avoiding that sort of catastrophic fate. And we're going to talk about how the Constitution offers a check on those catastrophic trial.
00;01;43;21 - 00;02;04;17
Jonathan Porter
Penalties weren't about all that today on the episode. So dig in with us as we talk about this exciting big picture topic. Joining me to talk about trial penalties and the False Claims Act is my colleague Tanner Cook. And Tanner, when I introduce people, usually the first time someone's a guest, I do a long intro. The second time they're a guest, I do a much shorter intro.
00;02;04;24 - 00;02;23;02
Jonathan Porter
And then for the third time, I've never had to deal with that before. And Tanner, now all of a sudden, your podcast’s very first three time guest. And so I don't know how to introduce you. I'm just going to say very quickly, Tanner, you're an amazing colleague of mine in our Saint Louis office and really smart on the False Claims Act.
00;02;23;02 - 00;02;32;15
Jonathan Porter
And so, Tanner, welcome back. You're our first three time guest. I'm excited that you're joining the podcast and telling our listeners about trial penalties in the False Claims Act.
00;02;32;19 - 00;02;41;28
Tanner Cook
Yeah. Well, thanks so much, Jonathan. Happy to be here. And certainly honored to be the first three time guest. I always love joining you on this. And I think we have a fun topic today. So thanks again.
00;02;42;00 - 00;03;08;11
Jonathan Porter
Thanks, Tanner. So in normal civil litigation, I think everyone understands lawyers and non-lawyers alike. They understand how penalties work. You're normally getting some sort of compensatory relief. You might get some sort of pain and suffering award in a personal injury case. Sometimes you get punitive damages. That's how penalties work. People sort of understand the mechanism that we have for penalties, and what a lot of people may not realize is in the False Claims Act, it's totally different.
00;03;08;14 - 00;03;34;22
Jonathan Porter
In the False Claims Act, you're getting three times the government's damages plus penalties for every false claim. So for whatever DOJ or the whistleblower alleges is false, whenever that happens repeatedly, like with Medicare claims for a particular procedure, penalties could be astronomical. And so trials are insane. When you do a cost benefit analysis for your client, and it's oftentimes really hard to justify.
00;03;34;22 - 00;03;48;09
Jonathan Porter
So, Tanner, walk us through the basic math behind that cost benefit analysis. Tell our listeners about treble damages and penalties and how that compares to what pretrial settlements normally look like.
00;03;48;11 - 00;04;12;13
Tanner Cook
Yeah, absolutely, Jonathan. Happy to do so. As you alluded to, there's a lot more to FCA damages than just the government's actual damages. We'll get into in a bit. Sometimes the government's damages are the least of a defendant's concerns. For starters, damages are automatically trebled under the FCA, meaning that the court takes the total damages the government sustained and multiplies those by three, and adds that to the amount for which the defendant is liable.
00;04;12;13 - 00;04;30;05
Tanner Cook
And there's no discretion there that's automatic, that's provided for by statute, and it happens every time there's the finding of liability. Then on top of that, as you mentioned, the FCA imposes penalties for each claims submitted. So that's each individual claim. It's not just the causes of action that are brought. It's for every false claim that's submitted to the government.
00;04;30;05 - 00;04;52;15
Tanner Cook
And these penalties are adjusted regularly for inflation at the moment they range between 14,000 and 28,000. So they're substantial. And so if we take all this together we end up with the following calculus. You get the government's actual damages plus three times that amount and treble damages plus a penalty of between 14,000 and 28,000 for every single claim that was submitted to the government.
00;04;52;15 - 00;05;01;06
Tanner Cook
So taken together, these damages are often astronomical, which is a huge part of why we see so few FCA trials that oftentimes the risk is simply too.
00;05;01;06 - 00;05;29;16
Jonathan Porter
Great thanks to error and what a lot of people don't realize is, at least when you're settling with the government, usually the government is not imposing per claim penalties when you're settling. So a lot of times, if the government paid out $1 million and the government feels it shouldn't have, you're talking about usually a settlement in the maybe $2 million range, maybe a little less, maybe a little more, depending on aggravating factors, but very rarely does DOJ take a we want penalties posture when they're talking settlement before trial.
00;05;29;22 - 00;05;53;26
Jonathan Porter
That's very different. When you get to trial, the court is going to award penalties by statute. And the question is what do those look like? And for those who are doing the math, as Tanner was saying, that you can realize if you're talking about 14,000 and 18,020 8000, something like that, that's really jumping up very quickly when you start doing the multiplication and realizing there's a lot of big numbers that can come out of this.
00;05;53;26 - 00;06;17;28
Jonathan Porter
And so at this point, I think a lot of our listeners are hearing this and saying, well, that's just totally insane. That's not fair. This is depriving me, or those are accused of false claims from a real forum to contested things. And that's where the U.S. Constitution comes in to offer some protection. And so Tanner, tell our listeners about the Excessive Fine Clause and how courts have used it to curb insane penalties following FCA trials.
00;06;18;00 - 00;06;40;27
Tanner Cook
Sure thing. And one thing I want to note right off the bat is that the excessive fines clause differs from the limits that courts have placed on damages awards under the Due Process clause. A lot of our listeners are probably familiar with the Supreme Court decision from the early 2000 BMW v Gore, where the court held that the punitive damages award and the underlying case was so excessive as to deprive the defendant of due process.
00;06;41;00 - 00;07;02;24
Tanner Cook
This isn't that. The Excessive Fines Clause is a separate constitutional guarantee contained within the Eighth Amendment, which says that excessive fines shall not be imposed. Of course, that's pretty vague, and as we'll see, it doesn't give courts much guidance in determining whether a particular fine is excessive. But that hasn't stopped defendants or the courts from relying on the clause to limit the total damages.
00;07;02;24 - 00;07;21;14
Tanner Cook
Awards. In FCA cases, in particular, defendants have been ramping up their attacks on the FCA. Statutory penalties under the theory that, at least as applied to them, the penalties violate the Excessive Fines Clause, and courts have been buying this argument, at least in varying degrees across the country. And so it's it's gaining a little bit of traction.
00;07;21;16 - 00;07;43;02
Jonathan Porter
Thanks, Tanner. So let's tell our listeners now how this works in real life. Earlier this month, a judge in the Southern District of New York had to wrestle with these issues following a trial where Omnicare and CVS both lost following a trial. So in that case, the jury was asked to identify the government's damages and how many false claims there work.
00;07;43;08 - 00;08;08;02
Jonathan Porter
And in that case, the jury found $135 million in damages to the government over millions of individual false claims that caused that loss. So if the judge followed the letter of the law, the letter of the FCA, we're talking about almost $27 billion in penalties. And for the non math majors listening $135 million, that's a real big problem for any sized company.
00;08;08;05 - 00;08;34;00
Jonathan Porter
But $27 billion is just laughably catastrophic. So $27 billion, that's the GDP of Albania. That's just an insane penalty that Congress as authorized in the way that it drafted the False Claims Act, extracting a medium sized country's economy out of a private litigant who hasn't even committed a crime. This is over, you know, whether a long term care pharmacy had valid prescriptions in place before it dispensed and then build drugs.
00;08;34;00 - 00;08;54;07
Jonathan Porter
That's just sort of like a wacky thing to think about is that we're extracting Albania's GDP out of a company because of this issue. So, Tanner, tell our listeners what the judge in the Southern District of New York did with this FCA problem. Did she tell Omnicare and CVS to pay the federal government an amount equivalent to Albania's whole economy?
00;08;54;09 - 00;09;25;13
Tanner Cook
So the short answer is no. The court did not order that. But as a broader matter, the Omnicare case provides a really interesting data point for FCA damages disputes. So the court in that case was pretty thorough in applying the excessive fines clause to the damages award at issue. One thing that made the court's job a bit easier, though, is that the government was not going after the full amount it could have pursued under the statute, as the court noted, the government almost certainly knew that this amount, the 27 billion you referenced a moment ago, would surely violate the excessive fines clause.
00;09;25;16 - 00;09;50;25
Tanner Cook
So the government took a more conservative approach and saw essentially a 4 to 1 ratio of penalties to actual damages, which, you know, is still a huge amount, half $1 billion. The defendants still pushed back on this ratio by arguing that the constitutional maximum that the court could order was a 1 to 1 ratio. But as the court noted, this supposed constitutional maximum to the defendants presiding was rooted in case law regarding the Due Process Clause.
00;09;50;27 - 00;10;23;15
Tanner Cook
And as I mentioned earlier, that clause isn't applicable when it comes to the FCA penalties. The due Process clause comes into play only when we're dealing with discretionary things like punitive damages, awards or dealing with statutory penalties. Things set by Congress were operating under the excessive fines clause, so the court brushed off the defendant's argument that the penalties must be limited to a 1 to 1 ratio between actual damages and statutory penalties, and then it found that the 4 to 1 ratio that the government sought was appropriate, and it based this conclusion on a couple of different things.
00;10;23;17 - 00;10;59;08
Tanner Cook
It looked at awards and other FCA cases, where courts had allowed ratios of upwards of 10 to 1 between statutory penalties and actual damages. And it also looked at some of the factors that the Second Circuit has historically considered when determining whether a penalty violates the Excessive Fines clause. Those factors include, you know, the essence of the violation or and how serious this is to the overall scheme, whether the defendant fits within the class of persons at whom the statute is directed, the maximum fine that could have been imposed under the statute, and then finally, the harm the defendant cost to the victim, in this case to the government.
00;10;59;08 - 00;11;27;12
Tanner Cook
So looking at all these together, the court reasoned that a 4 to 1 penalty between statutory penalties and actual damages was not excessive. That was, you know, Omnicare in a nutshell, the court did not go after the $27 billion. So it had some out there because the government rightly recognized that it would never recover that. But then its analysis, the way it looked at the purpose of the penalties and what other courts have done, I think provides a good example of how courts are addressing this issue at the moment.
00;11;27;20 - 00;11;45;26
Jonathan Porter
Thanks for giving your listeners the factors that courts consider in deciding these issues. I think that's a helpful thing. What would the practice of law be without multi-part factor sets? And so thanks for digging into that. And I also agree with you. You mentioned this. I think this is the key point DOJ was on board with, not the Albanian economy sized penalty.
00;11;45;26 - 00;12;11;00
Jonathan Porter
I think that's a big deal. Judges do put a lot of stock into what users say. And so the fact that DOJ came in and said, look, we don't want $27 billion against these companies. I think that's a really key part of this. And that's probably why judge McMann did what she did and found a more workable solution, not the one that the defense wanted, but still a much better outcome than Albania.
00;12;11;00 - 00;12;45;11
Jonathan Porter
So before everyone says, great, let's take all of these gray area questionable FCA cases to trial, we should point out that these cases don't always turn out this way. There are some notable cases where courts have not found FCA penalties to violate the Constitution, and imposed some Kardashian penalties in final judgments following FCA trial. So an example of that came in my home state of Georgia two years ago, when a doctor who'd been performing improper chelation therapy on patients and then billing Medicare went to trial against DOJ and lost DOJ.
00;12;45;11 - 00;13;00;11
Jonathan Porter
One doctor lost. So single damages. There were $1.1 million. Tanner. Did the judge in Georgia do the same thing that judge remanded in the Southern District, New York, and curb penalties to comply with the excessive fines clause?
00;13;00;14 - 00;13;20;14
Tanner Cook
The court did not. This case actually represents, in my view, the exact opposite of Omnicare. So whereas in Omnicare we had a massive damages award and a relatively smaller penalty award, at least in terms of ratio, the Georgia case you mentioned had a much smaller damages award, around 1.1 million, which, when trebled, went up to 3.3 million.
00;13;20;19 - 00;13;52;19
Tanner Cook
But the court awarded a massive penalty ratio of essentially 24 to 1, bringing the defendants total liability all the way up to 27 million. So we've gone from 1.1 million and actual damages to the government to this massive award of $27 million. And I should add that this is not even the most egregious example out there. There have been cases where the government's actual damages were really rather negligible, and one it was around $750, but the district court awarded over $1 million in penalties, and the Court of Appeals in that case upheld the award.
00;13;52;22 - 00;14;16;04
Tanner Cook
So there's a pretty staggering range of what courts consider acceptable versus unacceptable when it comes to statutory penalties under the FCA. And right now, the only real conclusion we can draw is that when the actual damages are greater, the penalty is typically lower. And now, on the one hand, this makes some sense. As you mentioned, applying a ratio award on the higher end in Omnicare would have led to a truly absurd results.
00;14;16;04 - 00;14;35;29
Tanner Cook
And so I think that's why courts are reluctant to impose those really high penalty ratios when the damages are high. But on the other hand, it's also a little bit counterintuitive to award a lower penalty ratio in cases with high damages. Right. In those cases, the defendant's conduct caused the government more harm, which we would tend to think is more deserving of penalties.
00;14;35;29 - 00;14;45;04
Tanner Cook
So I think we'll continue to see courts kind of slowly peel back the layers of all this as they struggle with what the proper ratio is and FCA penalty cases.
00;14;45;06 - 00;15;01;27
Jonathan Porter
Thanks to honor. And this is the root of my concern in these false Claims Act trials, is when you're deciding, should I go to trial? I want my day in court. Should I go to trial? You're not really getting to know what is the judge going to do? In my final judgment, until after trial, you go to trial.
00;15;01;27 - 00;15;19;12
Jonathan Porter
The jury's not going to be asked to set the number. The way it works is the jury's going to say, what's the damages of the government? Single damages, and then how many false claims were there? And then the judge is going to do the math, and the judge is going to do the analysis of whether that final judgment violates the excessive fines clause or not.
00;15;19;14 - 00;15;43;17
Jonathan Porter
And the issue is judges go completely different directions on this. You can do your research on your judge, but you're putting a lot of stock in sort of educated guesses on what a judge is going to do. And that to me, isn't really the way our justice system should work. You're sitting there trying to figure out, am I going to have a 30 x penalty at the end of this, or am I going to have A4X penalty at the end of this?
00;15;43;20 - 00;16;03;02
Jonathan Porter
And deciding that is a really, really big deal. There are litigants in recent years who have decided to settle because you look at this, you have some questions. Is this non discharge debt. Is this going to be something where it's going to be our entire budget for multiple years now? I can't get rid of this. We're gonna have to close down hospitals because of this.
00;16;03;04 - 00;16;30;04
Jonathan Porter
That's a big deal. And so this issue to me is really important. I wish there was some way to figure out ahead of time what your judges is going to do. Then let's walk through the analysis that our clients should be doing that those accused of FCA violations should be doing. Given the uncertainty here, for those staring down in FCA trial date, either against DOJ or whistleblower, what should they be thinking?
00;16;30;04 - 00;16;33;19
Jonathan Porter
What should they be doing to close this out with that sort of analysis?
00;16;33;21 - 00;16;51;28
Tanner Cook
Certainly. And I think you highlighted the proper point at which this becomes a reality for FCA defendants, which is when they're staring down a trial date. As we've discussed in other episodes, there are a lot of strong defenses that FCA defendants have at their disposal from the rigorous materiality requirement, the heightened bleeding standard for FCA claims and and so forth.
00;16;51;28 - 00;17;11;19
Tanner Cook
So, so all is not lost just because a complaint is unsealed and the defendant is forced to defend against FCA allegations. But even still, it's smart for defendants to start doing this math early in the case to gauge their overall exposure and make a proper cost benefit determination. And in doing so, I think they should assume the worst case scenario.
00;17;11;19 - 00;17;28;17
Tanner Cook
And by this, I think they need to say what's the actual total amount that we could be liable for if everything that the relator or the government alleges is true? So what's that number taking the complaint totally is true. What is the actual damage to the government there? And then of course from that they have to trebled that number.
00;17;28;20 - 00;17;44;13
Tanner Cook
They have to multiply it by three and then they have to take it really hard. Look at what is the top number of claims. That could really be an issue here. Again, taking everything the government, the relator says is true. How many claims are really an issue? Because that's going to be the number of claims that are subject to the penalty.
00;17;44;13 - 00;18;09;28
Tanner Cook
So you take all that together and that's the defendant's worst day in court. So that's the absolute most catastrophic outcome. And I think it's important to know that number when you're starting this analysis. Realistically though, that numbers is probably going to be higher than what the defendant would ultimately face. So to get down to a more practical number for purposes of weighing settling the case versus going to trial, I think the defendant should look at the relevant penalty cases from its jurisdiction.
00;18;09;28 - 00;18;36;08
Tanner Cook
So in some jurisdictions, like the eighth or the 11th, where the Court of Appeals have spoken on this issue, at least to some extent, there will be a slightly clearer answer and others, the defendant might have to make some assumptions about what a court would likely do based on rulings with similar FCA cases. So once the defendant has a better understanding of the realistic as opposed to the theoretical penalty range, then they can make a better informed decision on whether to proceed with defending itself in trial or exploring settlement.
00;18;36;13 - 00;18;56;23
Tanner Cook
And all this is going to be extremely fact intensive. So I don't mean to suggest that there's a one size fits all approach, but I'd say that the foregoing is a solid worst case scenario format for determining exposure. And again, you always have to consider perceived strength of your defenses as well when you're doing this analysis. So sometimes a defendant will be facing massive FCA liability under this analysis.
00;18;56;23 - 00;19;20;04
Tanner Cook
But they have enough confidence in their case and their defenses to proceed to trial. Anyways, we've seen this work. Yeah I'm actually there have been a few recent trial victories for FCA defendants, even in cases where the government has intervened. But of course, sometimes it doesn't work like we saw in Omnicare. You know, I'm sure that Omnicare felt very strong in its defenses, and it must have thought it was worth taking the case to trial, despite this massive liability that it was facing.
00;19;20;04 - 00;19;37;28
Tanner Cook
So that's the broader picture of all this. You know, I think it's very important to do it, a worst case scenario analysis. And then from there, I kind of whittle it down to what's the more realistic exposure way that against the strength of your case. And I think that's really the only way to make it a smart decision about trying the case or attempting to settle a ten year.
00;19;37;28 - 00;20;00;22
Jonathan Porter
That's great analysis. I appreciate you walking our listeners through how people staring down FCA trials should be thinking about this. I think that's exactly right. The one thing I'll add, Tanner, is I think a lot of times DOJ wants people to have forums in which to dispute things. I think DOJ, a lot of times if you go to them and say, look, I just think you're wrong about this, or I think the whistleblower is wrong about this.
00;20;00;25 - 00;20;22;00
Jonathan Porter
We want a jury to decide this, but we also don't want to have a $27 billion judgment against us. What do you think about us going to trial? What's your take? Do you have a recommendation that you would give the court in terms of what would be a judgment that wouldn't violate the excess of fines clause? You can point out the Omnicare case and say they decided a 4 to 1 ratio is the right way to go.
00;20;22;07 - 00;20;41;29
Jonathan Porter
What's your thinking on that? Because we would love to go to trial. Maybe that's a solution to this. I think DOJ would entertain those types of talks. I don't think a whistleblower would entertain those kinds of talks because the interest there are just different. And so maybe that's a solution. But I don't know that you're always going to get DOJ to commit to any specific thing.
00;20;41;29 - 00;20;59;29
Jonathan Porter
A lot of times DOJ, they're at least pretrial thinking about leveraging a settlement to avoid some sort of a trial where they could lose a lot of DOJ attorneys don't like to lose. I certainly didn't like the thought of losing when I was a DOJ. So I think there are conversations to be had there. But I think your analysis is absolutely the right starting place.
00;21;00;03 - 00;21;18;18
Jonathan Porter
Figure out what this bad day could be and price out what your litigation risk should look like. A lot of times you're going to be in a settlement range, and so, Tanner, I appreciate you coming on the podcasts, walking our listeners through this really important issue, and spitballing with me how people staring down FCA trials should be thinking about these issues.
00;21;18;18 - 00;21;23;19
Jonathan Porter
So thanks for coming on the podcast for the third time and giving this wisdom to our listeners.
00;21;23;21 - 00;21;25;03
Tanner Cook
Yeah, thanks for having me, Jonathan.
00;21;25;05 - 00;21;49;19
Jonathan Porter
Thinking about this more, as I said a minute ago, real people, real companies have settled FCA cases in recent years rather than take the risk of going to trial. These are people who I know have had real defenses, real strong views about what this look like. But at the end of the day, if you're facing a whistleblower or DOJ and you don't know what they're going to do in terms of excessive penalties, excessive fines, they're settling cases.
00;21;49;19 - 00;22;09;12
Jonathan Porter
They don't want to settle because the risk is significant. I keep coming back to this. I think trials are good for our system. Trials allow people to figure out what do juries actually think about this? Is this an area where we should be imposing trebled damages and penalties? Is this an area where we shouldn't? And so to me, trials are excellent.
00;22;09;14 - 00;22;30;02
Jonathan Porter
I want a system of justice where we're allowing people their day in court. And so I tend to think that DOJ should be open to having these conversations and thinking about how we can push cases into trial, figure out what's right and what's wrong. And so I think that this is a really important topic. I'm glad we're doing this episode because this is really, really critical.
00;22;30;04 - 00;22;48;22
Jonathan Porter
Super Value is a name that a lot of our listeners probably know from the Supreme Court case. The end of that Supreme Court case story is Super Value. Went back to trial and they won. I think it's really important. Super Value had their day in court. They were able to win. They clearly looked at this issue and said we feel comfortable enough with the risk that we're going to take this to trial.
00;22;48;24 - 00;23;05;18
Jonathan Porter
I think that's good. I mean, it's good for our system of justice, that Super Value and other litigants can have their day in court. Maybe they'll win, maybe they won't. But at least that's helping develop this case law, which to me is a tad underdeveloped. And so we're going to continue to think about the big picture FCA stuff.
00;23;05;18 - 00;23;25;13
Jonathan Porter
We're going to talk about the little picture we're going to talk about and best practices. But I want us to continue to think about big picture. So continue to listen to us. We're going to continue to bring you content like this. But to our listeners, thanks for listening and we'll see you next time.