After a rare False Claims Act (FCA) trial, a St. Paul federal jury has returned a verdict for the government in United States, ex rel. Kipp Fesenmaier v. Cameron-Ehlen Group, Inc., No. 0:13-cv-03003 (D. Minn.).
The jury found that ophthalmic products supplier, Cameron-Ehlen Group, Inc., doing business as Precision Lens, and its owner, Paul Ehlen, are liable for 64,575 false claims and $43,694,641 in single damages. With the FCA’s mandatory treble damages and statutory penalties, the verdict could result in a judgment of more than $841 million.
Perhaps more remarkable is that the relator’s allegations made it to jury. By some estimates, the government intervenes in only 18-20% of FCA litigation. Even fewer cases reach a jury verdict.
The scarcity of FCA trials is likely due to the time, effort, and money that it takes to litigate these complex cases. The $43.6 million verdict against Precision Lens and Ehlen, for example, was the culmination of ten years of litigation.
The Long Road to Trial
Relator Kipp Fesenmaier filed his sealed qui tam complaint in November 2013. After a four-year investigation, the United States elected to intervene and co-litigated the case with Relator’s counsel. The district court lifted the seal in August 2017.
The government accused Precision Lens of violating the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, by giving illegal kickbacks to ophthalmologists. Tainted by kickbacks, the doctors’ claims for Precision Lens products to Medicare violated the FCA, 31 U.S.C. § 3729(a)(1)(A)-(B). The kickbacks included exotic trips, lavish meals, and entertainment, according to the complaint.
Precision Lens moved to dismiss the case in March 2018, a month after the United States filed its intervenor complaint. The court upheld the FCA claims but dismissed the government’s unjust enrichment and payment by mistake claims. See 2018 WL 11451362 (D. Minn. Oct. 22, 2018). Three years of contentious discovery and motion practice followed the decision.
In 2019, the court granted Precision Lens’ motion to make the government identify every specific false claim before the end of discovery. See 2019 WL 3245003 (D. Minn. July 19, 2019). The court also ordered the government to turn over its witness interview notes, including those prepared by the FBI, which had been investigating Precision Lens before Fesenmaier filed his suit. Id.
Later that year, Precision Lens moved to dismiss the case and disqualify opposing counsel after learning that Fesenmaier—at the FBI’s direction—had secretly recorded conversations with Precision Lens personnel. The recordings were made after Precision Lens had retained counsel, but before the United States had intervened in the case. The district court denied the motion, reasoning that the conduct was lawful because the recordings were made before the government had decided to bring criminal charges or intervene. See 442 F. Supp. 3d 1101 (D. Minn. 2020).
Even as discovery ended, the parties continued to accuse each other of misconduct. In July 2020, for example, United States Magistrate Judge David T. Schultz partly granted two sanction bids: one from Precision Lens and another from the government. See 2020 WL 9209366 (D. Minn. July 10, 2020), aff’d in part, rev’d in part, 2021 WL 101193 (D. Minn. Jan. 12, 2021). The court excluded thousands of false claims that the government had improperly identified after the close of discovery. The court also ruled that Precision Lens had failed to take reasonable steps to preserve relevant text messages.
Three motions for summary judgment followed discovery. Precision Lens filed the first, arguing that Fesenmaier lacked standing to file FCA claims in 2013 after filing for bankruptcy in 2012. The district court denied the motion, holding that “even assuming the FCA claim had been transferred to the bankruptcy estate, it has since been transferred back to Fesenmaier by virtue of the bankruptcy trustee’s express abandonment of the claim[.]” See 2020 WL 4476427 (D. Minn. Aug. 4, 2020).
The parties then cross-moved for summary judgment. The government moved for partial summary judgment on a subset of its FCA claims and to exclude three defense experts. Precision Lens moved for summary judgment on claims and to exclude two government experts.
In January 2021, the district court denied the cross-motions for summary judgment and granted in part the bids to exclude expert testimony. 2021 WL 101193 (D. Minn. Jan. 12, 2021). But with COVID and a myriad of pretrial issues to resolve, another two years passed before a jury was empaneled.
The Seven-Week Trial
The parties began presenting the case to the jury on January 9, 2023. The government’s case-in-chief ended on January 31, 2023. The defense rested two to three weeks later.
After making their case to the jury, the parties cross-moved for judgment as a matter of law. Both sides argued that the evidence at trial was susceptible to one conclusion: judgment in their favor. The district court needed only a few hours to deny each motion.
The jury returned a verdict on February 27, 2023, after deliberating for about six days and losing two days to a snowstorm. The verdict form referred to some 200 trips, meals, and other inducements. For each “transaction,” the jury had to decide whether it “amount[ed] to a kickback that resulted in a violation of the False Claims Act.”
The Verdict and Possible Judgment
In the end, the jury found that the defendants caused 64,575 false claims to be submitted to Medicare between 2006 and 2015, resulting in single damages of $43,694,641. But the final judgment against Precision Lens and Ehlen will be much larger.
Treble damages and civil penalties are mandatory under the FCA, 31 U.S.C. § 3729(a), when a defendant fails to self-disclose and cooperate with the government’s investigation. For that reason, the jury is asked to determine single damages and the number of false claims. The court must then treble the damages and assess a civil monetary penalty for each false claim.
For FCA violations that occurred between September 30, 1999 and November 2, 2015, penalties range from $5,500 to $11,000 per false claim. For later violations, the minimum and maximum amounts are adjusted for inflation each year. As of January 2023, courts must assess a civil penalty of $13,508 to $27,018 per false claim for post-November 2015.
Almost all the Precision Lens kickbacks on the verdict form occurred before November 2, 2015. If the court ties the FCA violation to the kickback date, rather than when doctors submitted their Medicare claims, then the $5,500 to $11,000 range would apply to nearly all 64,575 false claims.
On that basis, civil penalties could total between $355 million to $710 million. So with treble and penalties, Precision Lens and Ehlen are facing a final judgment between $486 million and $841 million. That assumes, of course, that the verdict and final judgment withstand posttrial and appellate scrutiny. Even then, the defendants might opt for bankruptcy.
At any rate, Fesenmaier’s ten-year journey as a whistleblower will have earned him a substantial bounty. Under 31 U.S.C. § 3730(d)(1), he stands to receive at least 15% but not more than 25% of what the government collects. His attorneys are also entitled to an award of reasonable attorney’s fees and costs under 31 U.S.C. § 3730(d)(1).
