‘Failsafe’ Damages Ruling for Precision Lens Derided as Sidestep

A $270 million reduction in the damages award against Precision Lens was a win for False Claims Act defendants, but whistleblowers’ counsel debate how big and see it as an example of sidestepping congressional intent to punish fraudsters.

The $487 million judgment against Precision Lens and others must be reduced to $216.7 million to avoid the “massive imposition” of penalties barred by the the Eighth Amendment’s excessive fines clause, the US District Court for the District of Minnesota ruled Feb. 8.

Only $43.7 million was actual damages to the US government. That amount was trebled to about $131 million, and the remaining judgment amount—about $358 million—represented statutory penalties assessed for 64,575 requests for Medicare reimbursement that were found by a jury to be false claims, Judge Wilhelmina M. Wright said.

The decision “helpfully reflects the reality that under the FCA there is a chasm between the seemingly trivial violations that can be covered and the staggering potential penalties,” said Winston Y. Chan, who represents FCA defendants with Gibson, Dunn & Crutcher LLP.

Chan noted the court’s consideration of a kickback where a doctor received a salad and soda at a Christmas party. A jury could reasonably determine that a violation of the FCA occurred, but it’s difficult to see it as reprehensible, Wright said.

“If FCA claims are going to be brought on that kind of conduct, and courts refuse to reject liability out of hand in such cases, then what the court did here was the last failsafe to avoid exceedingly unfair results,” Chan said.

Alexander O. Canizares of Perkins Coie LLP said the court was motivated by how about 73% of the initial award consisted of the statutory penalties assessed for each of the more than 64,000 Medicare reimbursement claims that the jury found to be false.

“It is reasonable to expect future cases in which Eighth Amendment arguments are made to examine the ratio of the FCA’s penalties to the government’s compensatory damages when determining whether the penalties are ‘grossly disproportionate’ to the gravity of the offense,” he said.

Reaffirming the jury verdict of liability and over $43 million in damages doesn’t undermine the FCA’s deterrent effect, said Renée Brooker, who represents FCA whistleblowers with Tycko & Zavareei LLP.

“I doubt defendants consider this a win,” she said.

But H. Vincent McKnight Jr., who represents FCA whistleblowers at Sanford Heisler Sharp LLP, said that courts are sidestepping Congress’ intent to punish fraudsters when they use the Eighth Amendment to reduce statutory penalties.

“Isn’t it ironic that the Eighth Amendment allows the death penalty, and, simultaneously, the Eighth Amendment prohibits the imposition of congressionally mandated penalties on corporate fraudsters?” he said.

Formula

Wright said the US Supreme Court has rejected the notion that a simple mathematical formula can mark the constitutional line for excessiveness.

But a lawful award can’t be grossly disproportional to the gravity of the offense, she said.

She also noted that the Supreme Court has also suggested that the ratio of punitive damages to compensatory damages can provide a guidepost for excessiveness, and that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety.

In reaching her decision here, Wright assessed six factors—including penalties imposed in similar cases and legislative intent—and said no single factor determined the outcome.

The reduced $216.7 million judgment represents five times the actual damages imposed in the case, Wright said.

There isn’t a hard-and-fast rule for determining if an award is unconstitutional, Canizares said. Litigants in future cases will have to make arguments as to whether the ratio of punitive damages to compensatory damages is excessive, he said.

Skiing and Golfing

Whistleblower Kipp Fesenmaier sued Cameron-Ehlen Group Inc., which does business as Precision Lens, and owner Paul Ehlen in 2013. The government intervened with its own complaint in 2018.

The US said it “identified multiple examples of trips, including high-end skiing, fishing, golfing, hunting, sporting, and entertainment vacations, often at exclusive destinations” to which the physicians were transported on private jets. Precision Lens sought to induce ophthalmic surgeons to use its products in cataract surgeries reimbursed by Medicare, the government said.

A Minnesota jury in February 2023 found that the defendants violated the FCA by causing the submission of 64,575 false claims, tainted by kickbacks, to Medicare for reimbursement.

The defendants filed their post-trial motion challenging the award in June 2023.

Despite the reduction, this was an “excellent case for plaintiffs,” Brooker said.

“Courts will always have discretion in assessing penalties with judicious consideration of the Eight Amendment,” she said.

Another whistleblower attorney, Scott Terry of Florin Gray, was less encouraged.

“The jury found that they broke the law, they got caught, and there is price to pay for that,” he said. “Congress crafted the FCA’s penalty provision to protect taxpayers and deter fraud.”

“As a taxpayer myself, and a lawyer practicing in this area, I am disappointed and think that the court got this one wrong,” Terry said.

Counsel for the whistleblower and the defendants didn’t immediately respond to a request for comment. The US Attorney’s Office declined to comment.

The case is United States ex rel. Fesenmaier v. Cameron-Ehlen Grp., D. Minn., No. 13-cv-3003, 2/8/24.