Defendants in privacy class action lawsuits increasingly face assertions by plaintiffs and putative class members that they should be awarded statutory penalties that vastly exceed any purported actual damages. A recent decision under the False Claims Act reinforces the constitutional limitations plaintiffs may face in pursuing these outsized awards.
The United States District Court for the District of Minnesota recently reduced a monetary award under the False Claims Act (31 U.S.C. §§ 3729-3733) on the basis that it violated the Excessive Fines Clause of the Constitution, cutting the award by more than half from approximately $487,000,000 to $217,000,000. See United States ex rel. Fesenmaier v. Cameron-Ehlen Grp., Inc., No. 13-CV-3003 (WMW/DTS), 2024 WL 489708.
The court recognized that civil penalties violate the Excessive Fines Clause if they are grossly disproportional to the gravity of the offense. To assess disproportionality, the court applied Eighth Circuit precedent specifying several factors to be considered, including “the reprehensibility of a defendant’s conduct, the relationship between the penalty and the harm to the victim, the sanctions in other cases for comparable misconduct, legislative intent, and the defendant’s ability to pay.” The court also recognized the Supreme Court’s directive that “the ratio of punitive damages to compensatory damages may provide a guidepost to district courts in conducting this inquiry.”
Applying this test, the district court concluded, “[w]hile no single factor was determinative,” the disproportionate size of the punitive damages warranted a reduction in the monetary award. The court also noted, inter alia, that the current punitive damages award exceeded what would be appropriate under analogous criminal statutes, and that there was no allegation of physical harm. The court also observed that the statutory penalties, which amounted to over $352,000,000, were tied to the number of false claims submitted—a number driven in part by billing practices and not actual harm.
While United States ex rel. Fesenmaier demonstrates that damages ratios remain a critical aspect of an Excessive Fines analysis, it also shows that certain statutorily mandated civil penalties may be unconstitutional if their application inflates the penalty amount in a way that departs drastically from actual damages.