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October 23, 2015

ILR Summit Blog Series: Might excessive government fines be unconstitutional?

Headlines announcing huge fines levied against companies for alleged misconduct are all too common. These payments can reach into the billions of dollars as entities frequently face multiple actions by different federal government agencies and even multiple state enforcers for the same alleged misconduct.

Paul Clement, former U.S. Solicitor General and a partner at Bancroft PLLC, shares his insight on this issue as part of the 16th Annual Legal Reform Summit where he will present his recent research on the best defense companies have against these excessive fines, the Constitution.

Paul’s paper, Constitutional Constraints: Provisions Limiting Excessive Government Fines, focuses on the statutory damages and Constitutional legal arguments, such as due process and the Eighth Amendment, which he says litigators can cite when challenging disproportionate statutory damages awards.

Through a series of Q&A, Paul gives us a broad look at the emerging issues with government penalties and how our Constitution and laws can be used to protect companies from unjust punitive fines.

Are excessive government fines a new problem?

Absolutely. In general, government fines are nothing new, but the government fines we’re seeing in recent years are vastly different in degree and kind from the fines imposed in the past. Not only are they immense in size, but they seldom follow a finding of wrongdoing, and companies are often subject to analogous fines from multiple agencies. Furthermore, the fines are based on novel interpretations of broadly worded statutes that nobody could anticipate; and they often inure not to the general benefit of the government, but to the direct benefit of the particular government entities that impose them—creating incentives for government actors to repeat this strategy.

How does the Constitution protect against excessive government fines?

The two leading constraints are the Excessive Fines Clause and the Due Process Clause. The Eighth Amendment’s Excessive Fines Clause was long ignored in American jurisprudence, but has made a comeback in recent years. It applies to any punitive government action, whether civil or criminal, and it prohibits fines and punishments that are grossly disproportionate to the charge.

The Due Process Clause is found in both the Fifth and Fourteenth Amendments. It limits the government’s ability to seek compensation for the same injury multiple times, demands clear notice of the consequences that attach to conduct, supports the ability to obtain judicial review of fines, and checks the imposition of fines that inure to the particular benefit of the agency imposing them. Each of these principles is applicable to the new wave of government fines.

Do any other Constitutional principles constrain excessive fines?

Several other Constitutional principles reinforce the concerns over massive government fines and their misuse. The Double Jeopardy Clause and the Takings Clause shape limitations on the government’s ability to deprive persons of their property. These constraints are further informed by Supreme Court decisions establishing limitations on punitive damages and expressing concerns about overcriminalization and questionable exercise of prosecutorial discretion. The same concerns that led to these clauses and decisions apply to government fines.

How can companies protect themselves against excessive fines?

Parties should invoke these Constitutional principles and precedents early, often, and forcefully. At a minimum, doing so will shape negotiations with government actors by placing them on notice that their efforts will not go unchallenged and are subject to well-established limitations. It will also tee up compelling issues that parties may wish to raise in court; indeed, even the threat of seeking judicial or political relief based on invocation of these principles may favorably shape discussions with government actors.

Finally, companies and individuals should invoke these principles when seeking to persuade legislators to enact limitations on the government’s abusive practices. Assuring legislators that efforts to restrain these practices are consistent with foundational tenets of Constitutional law may bolster efforts to obtain much-needed reforms.

What to learn more? Register here to attend the 16th Annual Legal Reform Summit.

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