On May 23, 2018, the U.S. District Court for the District of South Carolina, Judge Richard M. Gergel, imposed a $111 million judgment against former Health Diagnostics Laboratory (“HDL”) CEO, Latonya Mallory, and former BlueWave Healthcare Consultants (“BlueWave”) owners, Floyd Dent III and Robert Bradford Johnson. Mallory, Dent, and Johnson, who had been found liable by a jury in January for violations of the False Claims Act (“FCA”), argued that the judgment amounts to a violation of the Due Process Clause and the Eight Amendment’s prohibition on excessive fines. The court rejected these arguments.
The Litigation Rundown
An amended qui tam Complaint filed by Relators Scarlett Lutz and Kayla Webster initially named Dent, Johnson, and Mallory as co-conspirators in a nationwide scheme where BlueWave would “market” laboratory tests performed by HDL and another lab, Singulex, Inc., to physicians by offering them sham process and handling fees for each test ordered. The realtors were represented by Marc S. Raspanti, Pamela C. Brecht, and Douglas E. Roberts of Pietragallo Gordon Alfano Bosick & Raspanti; and William J. Tuck, P.A.
The United States intervened in the Lutz-Webster Complaint, and two complaints filed by other relators, and the claims against Dent, Johnson, and Mallory proceeded to trial in Charleston, South Carolina, after HDL and Singulex settled the claims against them. After intervention and at the government’s request, the Court froze numerous assets – including real property and bank accounts – belonging to Dent and Johnson.
On January 31, 2018, the jury found Dent, Johnson, and Mallory responsible for submitting or causing to be submitted 35,074 false claims that were tainted by the sham fees and for which federal health care programs paid $16,601,591. Because the FCA calls for the trebling of damages as well as the imposition of penalties for each claim submitted, and because the government sought civil penalties for some of the false claims, Dent, Johnson, and Mallory’s obligation climbed into nine figures.
Faced with a massive financial obligation, Dent, Johnson, and Mallory contended that the judgment would violate the Excessive Fines Clause of the Eighth Amendment. Following “well-settled” precedent, the district court rejected that argument in a written opinion and order, noting that punitive damages and penalties are not typically viewed as “fines,” as that term is used in the Eighth Amendment. Moreover, even if the Excessive Fines Clause were applicable to civil FCA judgments, “substantial deference” should be afforded to the legislature, which prescribes penalties for each false claim submitted. Here, the United States was circumspect in terms of the penalties it sought, opting to request the minimum $5000 per claim and only then for some of the false claims submitted. Thus, there was nothing grossly disproportionate about the judgment.
Dent, Johnson, and Mallory also raised due process objections under the Fifth Amendment based on the alleged excessiveness of the judgment. But the Court found that the statutorily determined ratio of punitive damages to compensatory damages passed constitutional muster. The Court imposed the $111 million judgment, for which Dent, Johnson, and Mallory will be jointly and severally liable.
The Take Away
This judgment serves as a stark reminder about the severity of consequences facing those defendants who go to trial and are found liable for FCA violations. Johnson, Dent, and Mallory were found responsible for submitting, or causing the submission of, false claims that cost the government $16 million. That obligation ballooned into more than $111 million due to the FCA’s provisions regarding treble damages and fines and penalties.