Missouri Supreme Court Upholds Penalties Equaling 35X Actual Damages
On June 29, 2010, in Missouri v. Spilton, No. SC 90586 (Mo. June 29, 2010), an action brought by the Attorney General, the Supreme Court of the State of Missouri issued a unanimous decision affirming a penalties award under the Missouri False Claims Act, Mo. Rev. Stat. § 191.905 (2009), in the amount of $1,625,000, where the actual damages allegedly suffered by the State were only $45,385.
The trial court held that Spilton, a clinical social worker, committed 325 separate violations of the Missouri FCA by submitting Medicaid reimbursement claims for clinical services that she did not provide at all or did not provide in accordance with the rules governing the Medicaid program. The Missouri FCA provides for treble damages, so the trial court entered an award of damages in the amount of $136,155, based on single damages of $45,385. The Missouri FCA also provides for a penalty between $5,000 and $10,000 “for each separate act in violation” of the Missouri FCA. The trial court imposed a penalty of $5,000 for each of the 325 violations, for a total penalties award of $1,625,000.
On appeal, the Missouri Supreme Court rejected Spilton’s argument that the penalties award violated due process. The court distinguished statutory penalties from punitive damages awards by juries because the statute defines “in advance the prohibited conduct and the legislative prescribed penalty.” As applied to Spilton, the court found that the penalties provision was not vague or arbitrarily enforced, since the trial court applied the minimum permissible penalty to each of Spilton’s 325 violations. The Missouri Supreme Court further held that the penalties award did not violate the Eighth Amendment’s prohibition on excessive fines because “when the litigant receives the lowest possible penalty proscribed by a statutory range, as Spilton did, the penalty is not excessive.” The court also found that the penalties award did not constitute cruel and unusual punishment because $5,000-per-violation penalty assessed was not so grossly excessive “as to shock the conscience.”
U.S. Supreme Court decisions that limit punitive damage awards on due process grounds may provide a basis to limit excessive penalties awards under the FCA, especially when the amount of the penalties award far exceeds the government’s actual damages and the amount of actual damages is substantial. Although the U.S. Supreme Court has declined to set a bright line test for determining when an award would run afoul of the due process clause, a punitive damages award that exceeds a substantive actual damages award by a ratio of more than 1:1 may run afoul of the due process clause, and it would be unlikely that a punitive damages award that was more than 9 times compensatory damages could ever comport with due process requirements. See Exxon Shipping Corp. v. Baker, 128 S. Ct. 2605, 2624-25 (2008). The Supreme Court’s reasoning regarding punitive damages may be equally applicable to penalties awards under the FCA, a statute that the U.S. Supreme Court has held is punitive in nature. If so, the Missouri Supreme Court’s decision in Spilton may well be contrary to federal due process requirements of the U.S. Constitution, and may be subject to review by the U.S. Supreme Court.
