The Ninth Circuit recently held in Hendrix ex rel. United States v. J-M Manufacturing Company, Inc. that in False Claims Act (“FCA”) cases, one penalty per project or FCA violation is proper, rather than one penalty per line item contained within the project or violation.
Background
In this case, the plaintiff brought suit against the defendant alleging FCA violations. At the center of this case are 26 projects that occurred between 1996 and 2006. The defendant manufactured and sold PVC pipes that were used in these projects for the water and sewer systems. During the bidding process, the defendant represented that these PVC pipes complied with the three relevant industry standards, and each piece of pipe was stamped to show this compliance. In actuality, these pipes were not compliant, and the plaintiffs provided evidence at trial demonstrating that the defendant knew about the lack of compliance.
The Ninth Circuit recognized that the FCA allows for a civil penalty up to $10,000 for each violation and a damages award of three times the amount of damages sustained.
Damages Calculations
The jury determined that the plaintiffs could not demonstrate damages that resulted from the defendant’s noncompliant pipe. Evidence was presented at trial showing that the pipe was still in use, had not failed in any way and that the plaintiffs had no reason to remove the piping from any one of the 26 projects. Likewise, expert testimony could not establish that these noncompliant pipes would in fact fail, or that the lifespan of the pipe would be shortened in any way. While the defendant was found to have violated the FCA, the plaintiffs could not show that they had suffered any actual damages.
Penalty Calculations
The plaintiffs also argued that they were entitled to one penalty per stamp on the noncompliant piping. The district court disagreed and found that plaintiffs were only entitled to one penalty per project. The Ninth Circuit agreed with the district court and affirmed the 26 penalties. The court held that one penalty per project that resulted in an FCA violation was proper.
Practical Takeaways
Applying this case to health care, FCA penalties are likely to be awarded on a per-claim basis, rather than per each line item. Health care providers should ensure that each line item per claim is proper so that the entire claim does not face liability under the FCA as this may result in a higher award of damages should the relator or government be able to prove as much. At the same time, health care providers may only be issued one penalty for the fraudulent claim. It is important to work with legal counsel and ensure that all employees and providers are aware of the FCA’s requirements for compliant billing to avoid both damages and penalties.
If you have any questions, please contact:
- David Honig at (317) 977-1447 or dhonig@hallrender.com;
- Jessica Biondo at (248) 519-3093 or jbiondo@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
