Opinion ID: 2898290
Heading Depth: 2
Heading Rank: 2

Heading: Retroactive Laws and the Ex Post Facto Clause

Text: {26} The United States and New Mexico Constitutions prohibit the Legislature from enacting ex post facto laws. See U.S. Const. art. 1, § 10, cl. 1; N.M. Const. art. 2, § 19. “‘The Ex Post Facto Clause flatly prohibits retroactive application of penal legislation.’” State v. Ordunez, 2012-NMSC-024, ¶ 14, 283 P.3d 282 (quoting Landgraf v. USI Film Prods., 511 U.S. 244, 266 (1994)). “The prohibition does not apply to penalties that are considered remedial in nature.” Foy, 2013-NMCA-043, ¶ 11. Defendants bear the burden of proving that FATA is unconstitutional beyond all reasonable doubt. See State v. Druktenis, 2004-NMCA-032, ¶ 15, 135 N.M. 223, 86 P.3d 1050. (“In regard to Ex Post Facto Clause . . . constitutional attacks, there exists a presumption of constitutionality, and the party attacking the constitutionality of the statute has the burden of proving the statute is unconstitutional beyond all reasonable doubt.”). {27} In this case, Defendants argue that the sanctions (money damages) authorized under FATA are penal in nature. And, therefore, imposing these sanctions for conduct that occurred prior to the effective date of FATA would be retroactive application of penal legislation, a direct violation of the Ex Post Facto Clauses. C. The Legislature Intended FATA to Apply Retroactively {28} To determine whether a sanction is punitive and thus violative of the Ex Post Facto Clause, we first look to the “government’s purpose in enacting the legislation.” City of Albuquerque ex rel. Albuquerque Police Dep’t v. One (1) 1984 White Chevy Ut., 2002NMSC-014, ¶ 11, 132 N.M. 187, 46 P.3d 94 (internal quotation marks and citation omitted). “In assessing Legislative intent, the reviewing court looks first to the plain language of the statute, giving the words their ordinary meaning, unless the Legislature indicates a different one was intended.” Zhao v. Montoya, 2014-NMSC-025, ¶ 18, 329 P.3d 676 (internal quotation marks and citation omitted). However, “we look not only to the language used in the statute, but also to the object sought to be accomplished and the wrong to be remedied.” Starko v. Presbyterian Health Plan, Inc., 2012-NMCA-053, ¶ 20, 276 P.3d 252 (internal 10 quotation marks and citation omitted), rev’d on other grounds by Starko v. N.M. Human Servs. Dep’t, 2014-NMSC-033, ¶¶ 2, 42, 333 P.3d 947. {29} The specific legislative designation of FATA proceedings and penalties as “civil” indicates that the Legislature intended to craft a civil statute. FATA consistently uses the term “civil action” when referring to the proceedings brought under the statute. See § 44-9-4(A) (allowing the Attorney General to “bring a civil action . . . pursuant to the Fraud Against Taxpayers Act”); § 44-9-4(B) (allowing the Attorney General to “delegate the authority to . . . bring a civil action to the state agency to which a false claim was made”); § 44-9-5(A) (allowing a qui tam plaintiff to “bring a civil action for a violation of Section 3 of the Fraud Against Taxpayers Act on behalf of the person and the state” (internal citation omitted)); § 44-9-12(A) (“A civil action pursuant to the Fraud Against Taxpayers Act may be brought at any time.” (internal citation omitted)). Furthermore, FATA is placed within the section of the New Mexico Statutes Annotated entitled “Miscellaneous Civil Law Matters.” See §§ 44-9-1 to -14; Kansas v. Hendricks, 521 U.S. 346, 361 (1997) (“Kansas’ objective to create a civil proceeding is evidenced by its placement of the Act within the Kansas probate code, instead of the criminal code.”). In addition, not a single section of FATA specifies or punishes criminal conduct. See State v. Kirby, 2003-NMCA-074, ¶ 25, 133 N.M. 782, 70 P.3d 772 (finding that the Securities Act has a remedial purpose in part because “only one section specifies criminal conduct”). Finally, the penalties imposed under FATA are designated as “civil.” See § 44-9-3(C)(2). {30} We recognize that “in New Mexico, the fact that the Legislature . . . chose[] to label a proceeding ‘civil’ or ‘criminal’ is not dispositive of the true nature of that proceeding,” see State v. Nuñez, 2000-NMSC-013, ¶ 46, 129 N.M. 63, 2 P.3d 264, and cannot “be utilized to defeat the applicable protections of constitutional law.” See N.M. Taxation & Revenue Dep’t v. Whitener, 1993-NMCA-161, ¶ 12, 117 N.M. 130, 869 P.2d 829 (discussing with approval the holding of United States v. Halper, 490 U.S. 435, 447-48 (1989), abrogated by Hudson v. United States, 522 U.S. 93, 95, 100–03 (1997)). {31} Looking beyond the “civil” label to the overall purpose of the statute, we determine that the Legislature intended FATA to be remedial in nature. Consistent with other remedial statutes, FATA compensates the State for losses incurred as a result of fraud and encourages qui tam plaintiffs to bring civil actions to root out fraud. See § 44-9-7(B) (entitling qui tam plaintiff to up to thirty percent of the proceeds of the action or settlement), (E) (“The state is entitled to all proceeds collected in an action or settlement not awarded to a qui tam plaintiff.”); see also Quynh Truong v. Allstate Ins. Co., 2010-NMSC-009, ¶ 30, 147 N.M. 583, 227 P.3d 73 (stating that the Unfair Practices Act which allows treble damages for persons damaged by unfair, deceptive, and unconscionable trade practices “constitutes remedial legislation”); Kirby, 2003-NMCA-074, ¶ 23 (“The Securities Act . . . has remedial purpose. . . . Its . . . provisions are aimed at protecting investors against unfair, deceptive, and fraudulent practices in the sale of securities.”). {32} It is clear that the Legislature intended FATA to be a civil, remedial statute. 11 However, even when “the intention was to enact a regulatory scheme that is civil and nonpunitive, we must further examine whether the statutory scheme is so punitive either in purpose or effect as to negate the State’s intention to deem it civil.” Smith v. Doe, 538 U.S. 84, 92 (2003) (internal quotation marks and citation omitted, internal alteration omitted). [T]he court must determine whether the sanction established by the legislation was sufficiently punitive in its effect that, on balance, the punitive effects outweigh the remedial effect. Although a civil penalty may cause a degree of punishment for the defendant, such a subjective effect cannot override the legislation’s primarily remedial purpose. White Chevy, 2002-NMSC-014, ¶ 11 (internal citations omitted). D. The Civil Remedies under FATA are Predominantly Compensatory {33} The actual sanctions imposed under FATA include liability for the costs of a civil action and reasonable attorneys’ fees for both the State and the qui tam plaintiff; a civil penalty of between five thousand and ten thousand dollars per violation; and “three times the amount of damages sustained by the state.” See § 44-9-3(C)(1). With regard to the retroactive effect of an award of the costs of bringing the qui tam action and attorneys’ fees, we agree with the Court of Appeals that both “would fall under the rubric of compensating for government losses.” Foy, 2013-NMCA-043, ¶ 28. We therefore turn to the retroactive effect of FATA’s treble damages and civil penalties. We hold that treble damages under FATA are predominantly compensatory and may be applied retroactively. We hold that the nature of the civil penalties under FATA cannot be determined until after penalties are assessed.
{34} Historically, New Mexico has followed the seven-factor test set forth in Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168 (1963), to determine whether a statute has a punitive effect. See Druktenis, 2004-NMCA-032, ¶ 30 (“[O]ur New Mexico Supreme Court referred to the Mendoza-Martinez framework as ‘the test’ in determining whether a statute is intended as punitive rather than remedial.” (quoting White Chevy, 2002-NMSC-014, ¶ 11)); see also State v. Block, 2011-NMCA-101, ¶¶ 36-46, 150 N.M. 598, 263 P.3d 940 (analyzing civil penalty under Voter Action Act); Kirby, 2003-NMCA-074, ¶¶ 27-39 (analyzing civil penalty under Securities Act). These factors are: 1) whether the sanction involves an affirmative disability or restraint; 2) whether it has historically been regarded as a punishment; 3) whether it comes into play only on a finding of scienter; 4) whether its operation will promote the traditional aims of punishment—retribution and deterrence; 5) whether the behavior to which it applies is already a crime; 6) whether an alternative purpose to which it may rationally be connected is 12 assignable to it; and 7) whether it appears excessive in relation to the alternative purpose assigned. Druktenis, 2004-NMCA-032, ¶ 31. While these factors may “provide useful guideposts,” Hudson, 522 U.S. at 99, they are “neither exhaustive nor dispositive,” Smith, 538 U.S. at 97 (internal quotation marks and citation omitted). {35} In regard to the nature of treble damages, recent United States Supreme Court opinions do not refer to the Mendoza-Martinez factors, but simply examine whether such damages are predominantly compensatory or predominantly punitive. See, e.g. Pacificare Health Sys., Inc. v. Book, 538 U.S. 401, 405 (2003) (acknowledging that U.S. Supreme Court cases “have placed different statutory treble damages provisions on different points along the spectrum between purely compensatory and strictly punitive awards”); Cook Cnty. v. United States ex rel. Chandler, 538 U.S. 119, 129-33 (2003) (acknowledging that treble damages under the FCA have compensatory and punitive traits, but concluding that, on balance, such damages are not essentially punitive). In doing so, the Court has looked largely at the purpose of the legislation and the purpose of the treble damages. See, e.g., Agency Holding Corp. v. Malley-Duffy & Assocs., Inc., 483 U.S. 143, 151 (1987) (holding that RICO is “designed to remedy economic injury by providing for the recovery of treble damages, costs, and attorney’s fees.”); Am. Soc’y of Mech. Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 575-76 (1982) (holding that an antitrust private action “was created primarily as a remedy for the victims of antitrust violations . . . ” and that “treble damages serve as a means of deterring antitrust violations and of compensating victims”); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 485 (1977) (holding the treble damages under the Clayton Act “is designed primarily as a remedy”). {36} Given recent U.S. Supreme Court precedent, we believe this restorative approach is more appropriate in determining the retroactive effect of FATA. Therefore, if the primary purpose of treble damages under FATA is punitive, then they should be not be applied retroactively. Cf. Ordunez, 2012-NMSC-024, ¶ 14 (“The Ex Post Facto Clause flatly prohibits retroactive application of penal legislation.” (internal quotation marks and citation omitted)). If the primary purpose of treble damages is remedial, then they should be upheld. Cf. Foy, 2013-NMCA-043, ¶ 11 (“The prohibition does not apply to penalties that are considered remedial in nature.”). {37} The U.S. Supreme Court has passed upon the nature of treble damages under the analogous federal FCA, see 31 U.S.C. § 3729(a)(1) (holding violators liable for civil penalties “plus 3 times the amount of damages which the Government sustains because of the act of that person”), on at least two occasions. In Vermont Agency of Natural Resources, the Court held that a state was not a “person” for purposes of qui tam liability under the FCA. See 529 U.S. at 787-88. Although this case did not analyze the ex post facto implications of treble damages under the FCA, the Court was required to address whether treble damages are punitive in nature in determining whether states are subject to qui tam liability under the FCA. See id. at 783, 8485 (“Several features of the current statutory scheme . . . support the conclusion that States are not subject to qui tam liability [including treble damages].”). The Court concluded that “the FCA imposes damages that are essentially punitive in nature, which would be inconsistent with 13 state qui tam liability in light of the presumption against imposition of punitive damages on governmental entities.” Id. at 784-85. The Court stated, “‘[t]he very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers.’” See id. at 786 (quoting Tex. Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 639 (1981)). While these statements indicate that treble damages under FATA may be similarly punitive, the U.S. Supreme Court has since distinguished Vermont Agency of Natural Resources. {38} In Cook County, a unanimous U.S. Supreme Court held that municipal corporations are “persons” for purposes of qui tam liability under the FCA. The municipal defendant argued that it was not subject to liability in part because the FCA imposes damages that are punitive in nature. See 538 U.S. at 129. The Court disagreed, distinguishing its earlier statements from Vermont Agency of Natural Resources.: “While the tipping point between payback and punishment defies general formulation, being dependent on the workings of a particular statute and the course of particular litigation, the facts about the FCA show that the damages multiplier has compensatory traits along with the punitive.” Cook County, 538 U.S. at 130. {39} We hold that the facts about FATA demonstrate that its treble damages feature possesses predominantly compensatory traits. Under FATA, one-third of the treble damages award is allocated to compensate the government for its loss. See § 44-9-7(E)(1) (requiring “proceeds in the amount of the false claim paid” to be returned to the fund from which it came). This portion of the damage award is, by definition, compensatory. See Black’s Law Dictionary 394 (7th ed. 1999) (defining “compensatory damages” as “[d]amages sufficient in amount to indemnify the injured person for the loss suffered.”). {40} Up to another thirty percent of the damage award is allocated to reward the qui tam plaintiff for exposing fraud and corruption in state government. See § 44-9-7(B) (entitling qui tam plaintiff to between 25 and 30 percent of the proceeds of the action or settlement if the State does not proceed with an action brought by a qui tam plaintiff and the State prevails in the action). The importance of this potential qui tam award under FATA should not be overlooked. Both this Court and the U.S. Supreme Court have held that a qui tam award as part of a treble damages scheme is remedial in nature. In Denison v. Tocker, 1951-NMSC-022, ¶¶ 11, 17, 55 N.M. 184, 229 P.2d 285, we held that the federal Housing and Rent Act, 50 U.S.C. Appendix, 1895 (1947, amended 1949) “is highly remedial, and the plain purpose of . . . authorizing recovery of three times the amount of an overcharge was to enlist the help of tenants by soliciting their aid in filing suits against overcharging landlords.” In Cook County, the U.S. Supreme Court also stressed the importance of a qui tam award within the treble damages scheme of the FCA. According to the Court: The most obvious indication that the treble damages ceiling has a remedial place under this statute is its qui tam feature with its possibility of diverting as much as 30 percent of the Government’s recovery to a private relator who began the action. In qui tam cases the rough difference between double and triple damages may well serve not to punish, but to quicken the self-interest of some private 14 plaintiff who can spot violations and start litigating to compensate the Government, while benefiting himself as well. The treble feature thus leaves the remaining double damages to provide elements of make-whole recovery beyond mere recoupment of the fraud. 538 U.S. at 131(citation omitted). Therefore, we hold that the qui tam provisions of FATA are compensatory. {41} Having determined that actual damages and a potential qui tam award under FATA are compensatory, it follows that at least two-thirds of the treble damages under FATA are compensatory. See Hess, 317 U.S. at 551-52 (holding that “the chief purpose” of the earlier version of the FCA “was to provide for restitution to the government of money taken from it by fraud, and that the device of double damages plus a specific sum was chosen to make sure that the government would be made completely whole.”). However, as Cook County suggests, the remaining approximately one-third of the treble damages under FATA also serve remedial purposes by encouraging more qui tam plaintiffs to root out fraud. We agree. {42} Our conclusion is further bolstered by the allocation of the remaining damages under FATA. Under FATA, half of the remaining one-third of the damage award is allocated to fund the attorney general’s anti-corruption efforts. See § 44-9-7(E)(3). The other half is deposited in the state’s general fund. See id. “There is no question that some liability beyond the amount of the fraud is usually necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims.” Cook County, 538 U.S. at 130 (internal quotation marks and citations omitted). Furthermore, the government’s injury includes “not merely the amount of the fraud itself, but also ancillary costs, such as the costs of detection and investigation, that routinely attend the Government’s efforts to root out deceptive practices at the public purse.” Id. at 130-131 (quoting Halper, 490 U.S. at 445 (internal quotation marks omitted)). Allocating a portion of the recovery to the attorney general helps to offset these costs. See NMSA 1978, § 44-9-7(E)(3)(a). {43} Finally, when people or businesses commit fraud against the State, it deprives taxpayers of the use of funds for essential government services. The loss of use of money to fraudulent claims are the types of consequential damages not otherwise recoverable under FATA, which justify the conclusion that treble damages under FATA are predominantly compensatory. As noted by the U.S. Supreme Court in Cook County, “[t]he treble damages provision [under the FCA] was, in a way, adopted by Congress as a substitute for consequential damages.” 538 U.S. at 131 n.9. In a similar fashion, allocating a portion of the treble damages award under FATA to the general fund helps address consequential damages resulting from fraud. See NMSA 1978, § 44-9-7(E)(3)(b). {44} In conclusion, we hold that treble damages under FATA are predominantly compensatory. As such, treble damages do not violate the ex post facto clause and may be awarded for conduct occurring prior to the effective date of FATA. 15
{45} A person who violates FATA is liable for “a civil penalty of not less than five thousand dollars ($5,000) and not more than ten thousand dollars ($10,000) for each violation.” § 44-9- 3(C)(2). Civil penalties are deposited in the current school fund. See § 44-9-7(E)(2). In terms of the retroactive effect of civil penalties, the Court of Appeals concluded that, “in the absence of compensatory purposes, [civil penalties] exhibit the qualities of deterrence and retribution intended to punish the offender.” Foy, 2013-NMCA-043, ¶ 28. Because the civil penalties under FATA possess predominantly compensatory purposes, we disagree. {46} As a general matter, “monetary assessments are traditionally a form of civil remedy.” See Kirby, 2003-NMCA-074, ¶ 31 (internal quotation marks and citation omitted). “[N]either money penalties nor debarment has historically been viewed as punishment.” Hudson, 522 U.S. at 104. However, the imposition of monetary penalties has a deterrent purpose. See State ex rel. Schwartz v. Kennedy, 1995-NMSC-069, ¶ 38, 120 N.M. 619, 904 P.2d 1044 (“[M]onetary sanctions, such as fines or forfeitures, are qualitatively different from other types of administrative sanctions because of their distinctly punitive purposes.”); see also Hudson, 522 U.S. at 105 (“Finally, we recognize that the imposition of both money penalties and debarment sanctions will deter others from emulating petitioners’ conduct, a traditional goal of criminal punishment.”). Nevertheless, “[a]lthough a civil penalty may cause a degree of punishment for the defendant, such a subjective effect cannot override the legislation’s primarily remedial purpose.” White Chevy, 2002-NMSC-014, ¶ 11. In addition, “[deterrence] may be a valid objective of a regulatory statute,” Id. ¶ 14 (internal quotation marks and citation omitted), and “the mere presence of this purpose is insufficient to render a sanction criminal, as deterrence may serve civil as well as criminal goals.” Hudson, 522 U.S. at 105 (internal quotation marks and citation omitted); see also Schwartz, 1995-NMSC-069, ¶ 37 (“[T]he fact that the regulatory scheme has some incidental deterrent effect does not render the sanction punishment . . . .”). Therefore, a monetary sanction has a “deterrent or retributive purpose if it is not designed to compensate the government for its losses.” Id. ¶ 38. {47} The U.S. Supreme Court has found that civil penalties under an earlier version of the federal FCA are compensatory. In Hess, the U.S. Supreme Court held that “the chief purpose of the statutes here was to provide for restitution to the government of money taken from it by fraud, and that the device of double damages plus a specific [penalty] sum [$2,000 per claim] was chosen to make sure that the government would be made completely whole.” 317 U.S. at 551-52. In Vermont Agency of Natural Resources, however, the U.S. Supreme Court stated that the earlier version of the Fraud Claims Act which imposed a civil penalty of only $2,000 per claim was remedial rather than punitive, while the current version authorizing civil penalties of up to $10,000 per claim is punitive. 529 U.S. at 784-85. The Supreme Court was not clear, however, where on the given spectrum ($2,000 to $10,000) the penalty moves from remedial in effect to punitive. 16 {48} The New Mexico appellate courts have found civil penalties in the amount of $5,000 to be predominantly restorative. In Kirby, the New Mexico Securities Division assessed $75,000 in fines against the defendant for violations of the former New Mexico Securities Act. See 2003-NMCA-074, ¶ 5. The former Act authorized that the director of the Securities Division to “issue an order against an applicant, licensed person or other person who violates the act, imposing a civil penalty up to a maximum of five thousand dollars ($5,000) for each violation.” § 58–13B–37(B)(4) (1993). The Court of Appeals “conclude[d] that the civil penalty imposed upon Defendant in this matter was not sufficiently punitive in its effect that, on balance, the punitive effect outweighed its remedial effect.” Kirby, 2003-NMCA-074, ¶ 39. {49} Turning specifically to FATA, the imposed penalty ranges from $5,000 to $10,000 per violation, leaving the exact award to the discretion of the trial judge. § 44-9-3(C)(2). It is, therefore, conceivable that the amount awarded in civil penalties could be punitive in effect, particularly if the trial judge awards the maximum $10,000 per violation. See Vt. Agency of Natural Res., 529 U.S. at 785; see also Hudson, 522 U.S. at 103 (“The Eighth Amendment protects against excessive civil fines, including forfeitures.”). It is equally conceivable that a lesser award would not be considered punitive. It is not practical to make that determination without knowing the actual amount assessed with full briefing on appeal addressed to a specific dollar figure. See Boese, supra, § 3.06(D) (“While a constitutional challenge to disproportionate damages and penalties is a legitimate issue to be raised in many FCA cases, the issue normally cannot be determined until after the trial verdict regarding actual damages.”). We therefore decline to resolve the issue of whether the civil penalties awarded under FATA are punitive and violate ex post facto principles until there is a definitive amount awarded.