UNITED STATES v. HERNANDEZ PA (2025)

ORDER ON MOTION FOR DEFAULT JUDGMENT

On this date, the Court considered Plaintiff the United States of America's Motion for Default Judgment (ECF No. 11) against Defendants Dr. Arthur Hernandez (“Dr. Hernandez”) and Southwest Pain Clinic PA (“Southwest”). After careful consideration, the United States’ Motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND

I. Facts

This case arises from thousands of alleged unlawful prescriptions issued between 2019 and 2021 at two clinics owned and operated by Dr. Hernandez—Southwest and Wealth of Health—located in San Antonio, Texas. ECF No. 1 ¶¶ 13, 16–17. During this time, Dr. Hernandez was licensed to practice medicine in Texas and held a DEA Certificate of Registration, which he has since surrendered. Id. ¶¶ 13–14, 96. Nearly 80 years old, his financial circumstances are unknown and his cognitive capacity may be on the decline. ECF No. 11-1 at 1 n.1. Still, the United States brings claims against Dr. Hernandez and Southwest (together, “Defendants”) under the Controlled Substances Act (“CSA”) and False Claims Act (“FCA”) for numerous violations arising out of this operation and seeks nearly $70 million dollars in penalties.¹

The relevant conduct falls in three buckets: unlawful prescriptions, failing to register a dispensing site, and recordkeeping violations. The Court lays them out in turn, treating the facts as true for purposes of this motion unless otherwise stated.

A. Unlawful Prescriptions.

Dr. Caceres Prescriptions. Beginning in July 2019, Dr. Hernandez hired another physician, Dr. Caceres, to provide services to Southwest patients on a temporary basis. ECF No. 1 ¶ 132. Unbeknownst to Dr. Caceres, Dr. Hernandez used Dr. Caceres’ credentials to obtain an “EPCS token,” a secure device which allows physicians to issue electronic prescriptions for controlled substances in lieu of paper prescriptions. Id. ¶¶ 48–52, 135. Dr. Hernandez then instructed Southwest's APRNs (advanced practice registered nurses) to use Dr. Caceres’ EPCS token to issue prescriptions to patients when Dr. Hernandez was not present at the clinic. Id. ¶ 142.

Between July 2019 and October 2021, 4,771 controlled substance prescriptions were issued at Southwest using Dr. Caceres’ EPCS token to at least 1,050 patients, including 3,678 prescriptions for Schedule II controlled substances. Id. ¶ 144. All these prescriptions were issued without Dr. Caceres’ consent. See id. ¶ 145; ECF No. 11-3 ¶ 18 (Declaration of Dr. Douglas Caceres).

Moreover, these 4,771 prescriptions were issued by two ARPSs at Southwest who, while trained nurses and DEA registrants, lacked authority under Texas law to issue the prescriptions. Id. ¶¶ 103–113. This was due to either (1) a lack of a valid “prescriptive authority agreement” between the APRNs and a licensed physician (here, Dr. Caceres), which could be used to delegate certain prescribing authority to an APRN or (2) that the prescriptions were for Schedule II controlled substances, which a prescriptive authority agreement in Texas does not cover. Id. ¶¶ 62–70.²

Wealth of Health Prescriptions. Between July 2019 and September 2021, Wealth of Health's unlicensed medical assistants issued 3,774 prescriptions for phentermine—a Schedule IV weight loss drug—using Dr. Hernandez's name and DEA Certificate of Registration number. Id. ¶¶ 156–169. These prescriptions were issued by calling them in to pharmacies. Id. ¶ 161. Compared to APRNs, the medical assistants at Wealth of Health did not hold any professional licenses or DEA Certificates of Registration. Id. ¶ 163. So, under Texas law, Dr. Hernandez (even if he wanted to), could not have delegated prescriptive authority to the assistants. Id. ¶ 164.

Out-of-State Prescriptions. According to the United States, between September 2019 and May 2020, Southwest and Wealth of Health employees, at the direction of Dr. Hernandez, issued at least 88 controlled substances prescriptions in Schedules II through IV in Dr. Hernandez’ name on dates when he was traveling outside of Texas. Id. ¶¶ 170–185, 208–09. Because Dr. Hernandez was outside Texas, his EPCS token was kept at Southwest, and none of the clinics’ employees had valid prescriptive authority agreements, none of these prescriptions could have lawfully been issued.

The United States does not explain how it came up with this number, and the record reveals inconsistencies.³ The Court therefore adopts 5 controlled substance prescriptions as falling within this bucket of unlawful prescriptions.

B. Recordkeeping and Registration Violations

Dr. Hernandez also stored fentanyl and midazolam (Schedule II and IV controlled substances, respectively) at Suite 250C, which was located across the hall from Southwest (which used Suite 250), but failed to register Suite 250C as a location in which controlled substances were stored and dispensed and at which procedures were performed. Id. ¶¶ 125–127.

Additionally, Defendants racked up 27 CSA recordkeeping violations. Id. ¶¶ 114–124.

C. Damages

For the above conduct, the United States seeks substantial penalties under the FCA and CSA: $28,617,192 in treble damages and statutory penalties under the FCA and $38,754,771 in statutory penalties under the CSA. ECF No. 11 at 19, 30–31. The United States does not seek costs.

II. Procedural History

On July 16, 2024, the United States filed this action. ECF No. 1. In its complaint, the United States asserts seven claims: five under the CSA and two under the FCA. Id. ¶¶ 188–248.⁴ The United States properly served Dr. Hernandez on August 14, 2024 in person at his residence in Carthage, Texas. ECF No. 4. Dr. Hernandez was also simultaneously served as to Southwest. Id.

After Dr. Hernandez did not appear, the United States moved for entry of default and default judgment. ECF Nos. 6, 11. The Clerk entered default on October 2, 2024. ECF No. 8.

ANALYSIS

I. Legal Standard

Under Federal Rule of Civil Procedure 55(a), a default judgment is proper “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend.” Fed. R. Civ. P. 55(a). After a default has been entered and the defendant fails to appear or move to set aside the default, the court may, on the plaintiff's motion, enter a default judgment. Fed. R. Civ. P. 55(b)(2). A party is not entitled as a matter of right to default judgment, even where the defendant technically is in default. Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir. 1996). Rather, “[d]efault judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations.” Sun Bank of Ocala v. Pelican Homestead & Sav. Ass'n, 874 F.2d 274, 276 (5th Cir. 1989).

“To obtain a default judgment, a plaintiff must establish that (1) a default was entered against Defendant; (2) Defendant is neither a minor nor incompetent; (3) Defendant is not in military service; and (4) Defendant was provided with notice of the motion for default judgment.” United States v. Lopez, 2017 WL 8182744, at *2 (W.D. Tex. Mar. 20, 2017), report and recommendation adopted, 2017 WL 8182752 (W.D. Tex. June 8, 2017). The Fifth Circuit also considers six factors—the Lindsey factors—that inform whether default is procedurally warranted: “[(1)] whether material issues of fact are at issue, [(2)] whether there has been substantial prejudice, [(3)] whether the grounds for default are clearly established, [(4)] whether the default was caused by a good-faith mistake or excusable neglect, [(5)] the harshness of a default judgment, and [(6)] whether the court would think itself obliged to set aside the default upon the defendant's motion.” Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998) (numeration added).

Further, a court must examine jurisdiction, liability, and damages. Rabin v. McClain, 881 F. Supp. 2d 758, 763 (W.D. Tex. 2012). The Court begins with jurisdiction, then turns to procedure, before analyzing liability and damages.

II. Jurisdiction and Proper Procedure

“[W]hen entry of default is sought against a party who has failed to plead or otherwise defend, the district court has an affirmative duty to look into jurisdiction both over the subject matter and the parties.” Sys. Pipe & Supply, Inc. v. M/V Viktor Turnakovskiy, 242 F.3d 322, 324 (5th Cir. 2001) (citation omitted).

Subject Matter Jurisdiction. Because the United States asserts claims and seeks fines under the CSA and FCA, it invokes the Court's federal question jurisdiction under 21 U.S.C. § 842(c)(1)(A) and 28 U.S.C. §§ 1331 and 1355. This Court also has jurisdiction under 28 U.S.C. § 1345 because the United States brought the lawsuit.

Service Absent proper service of process, a court lacks personal jurisdiction over a defendant, and any default judgment against the defendant would be void. Rogers v. Hartford Life & Accident Ins., 167 F.3d 933, 940 (5th Cir. 1999). Here, service was proper under Federal Rule of Civil Procedure 4(e)(2)(A). The United States personally served Hernandez and Southwest (which is owned by Hernandez) at his Texas residence. ECF No. 4.

Personal Jurisdiction The court has general personal jurisdiction over Hernandez and Southwest as both are Texas residents and “[t]he residency of a defendant in the forum routinely creates such systematic and continuous contact.” Religious Tech. Center v. Libriech, 339 F.3d 369, 374 (5th Cir. 2003). See ECF No. 4 (residence in Carthage, Texas); Ex. 2, Certificate of Formation of Professional Association, “Southwest Pain Clinic PA” (filed with the Texas Secretary of State).

The Court also has specific personal jurisdiction over Hernandez and Southwest because the alleged CSA and FCA violations occurred in Texas. ECF No. 1 ¶¶ 7–8.

Default is Procedurally Proper. The Clerk entered default against Defendants. ECF No. 8. Dr. Hernandez is neither a minor nor incompetent. ECF No. 11-1 ¶ 4 (Declaration of AUSA Erin Van De Walle). Nor is he in military service. Id. ¶ 5. And Dr. Hernandez was provided with notice and copy of this motion. ECF No. 11 at 33.

The six Lindsey factors also weigh in favor of a default judgment. First, there are no disputed material issues of fact, as Defendants have not filed an answer or responsive pleading, and the United States’ allegations are deemed admitted. See Fed. R. Civ. P. 8(b)(6) (“An allegation ․ is admitted if a responsive pleading is required and the allegation is not denied.”). Second, Defendants’ failure to appear has caused substantial prejudice to the United States’ ability to prosecute its case, halting the adversary process. Joe Hand Promotions, Inc. v. Fusion Hookah, LLC, No. 1:19-CV-618-RP, 2020 WL 6876208, at *2 (W.D. Tex. Nov. 23, 2020). Third, the grounds for default are clearly established: Defendants were properly served, failed to respond, and the Clerk properly entered default. ECF Nos. 4, 8. These circumstances foreclose any basis for claiming that her default resulted from a good-faith mistake or excusable neglect, or that the entry of default would be unduly harsh, the fourth and fifth factors. Nor is the Court aware of any facts that give rise to “good cause” to set aside default if challenged by Defendants.

III. Merits

A. Legal Standard

The Court now looks to the substantive merits of the United States’ claims. “The defendant, by his default, admits the plaintiff's well-pleaded allegation of fact [and] is concluded on those facts by the judgment[.]” Jackson v. FIE Corp., 302 F.3d 515, 524 (5th Cir. 2002) (quoting Nishimatsu Constr. Co. v. Hous. Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)). Although the Court must accept the plaintiff's well-pleaded facts as true, the Court then asks whether there is a “sufficient basis in the pleadings for the judgment entered.” Nishimatsu Constr., 515 F.2d at 1206; see also 10A Wright, Miller et al., Fed. Prac. & Proc. Civ. § 2688 (3d ed. 2002) (“Even after default, however, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.”).

In other words, “whether the factual allegations in the complaint—apart from those about damages—if taken as true, would state a claim upon which relief can be granted.” D'Costa v. Abacus FoodMart Inc., No. 4:21-CV-4031, 2023 WL 1094019, at *3 (S.D. Tex. Jan. 26, 2023), report and recommendation adopted, 2023 WL 2088424 (S.D. Tex. Feb. 13, 2023). This threshold is lower than the standard for surviving a motion to dismiss under Rule 12(b)(6). See Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 499-500 (5th Cir. 2015) (holding that the allegations need only provide fair notice of the claim under Rule 8, particularly when the defaulting defendant chose to forgo moving for dismissal or for a more definite statement under Rule 12(b)(6) or 12(e)). On the other hand, “claims brought under the FCA must comply with the particularity requirements of Rule 9(b).” U.S. ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 267 (5th Cir. 2010). So, on default judgment, the Court applies Rule 9(b). See United States v. McClinton, 25-CV-188, at 9 (W.D. Tex.) (ECF No. 12) (discussing Rule 9(b)’s applicability to FCA claims on default judgment).

Accordingly, the Court applies Rule 8 to the CSA claims, but Rule 9(b) to the FCA claims. See United States v. Spivack, No. 22-CV-343, 2022 WL 4091669, at *1 n.1 (E.D. Pa. Sept. 6, 2022),

B. CSA Claims

“Enacted in 1970 with the main objectives of combating drug abuse and controlling the legitimate and illegitimate traffic in controlled substances, the CSA creates a comprehensive, closed regulatory regime criminalizing [and penalizing] the unauthorized manufacture, distribution, dispensing, and possession of substances classified in any of the Act's five schedules.” Gonzales v. Oregon, 546 U.S. 243, 250, 126 S.Ct. 904, 163 L.Ed.2d 748 (2006).

The United States brings five claims under the CSA. Three are for unlawful prescribing under 21 U.S.C. § 842(a)(1). The other two are for failing to register under 21 U.S.C. § 822(e) and operating a drug-involved premises under 21 U.S.C. § 856 and recordkeeping violations under 21 U.S.C. § 842(a)(5).⁵ The Court addresses them in turn.

1. Section 842(a)(1) Claims

i. Legal Standard

Section 842 of the CSA prohibits any person subject to registration requirements from distributing or dispensing a controlled substance in violation of 21 U.S.C. § 829. See 21 U.S.C. § 842(a)(1). A “person” includes “any individual, corporation ․ partnership, association, or other legal entity,” 21 C.F.R. § 1300.01, and to dispense includes to prescribe a controlled substance to an ultimate user. 21 U.S.C. § 802(10). Section 829, titled “Prescriptions,” provides that controlled substances are subject to certain dispensing requirements. See 21 U.S.C. § 829. One of these is that, with certain exceptions, no controlled substances in Schedule II, III, or IV may be dispensed without a valid prescription. See 21 U.S.C. § 829(a)-(b).⁶ The more specific rules governing the issuing and dispensing of prescriptions under § 829 are set forth in regulations 21 C.F.R. §§ 1306.01–1306.27.

As relevant here, prescriptions issued by any person are invalid under Section 829 unless they are, inter alia, issued by a DEA-registered practitioner who is authorized to prescribe controlled substances under the laws in which the practitioner is licensed or issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice. 21 C.F.R. §§ 1306.03(a), 1306.04(a). These requirements apply with equal force to controlled substance prescriptions issued electronically. See 21 C.F.R. § 1311.102(k); see generally 21 C.F.R. § 1311.01–1311.305 (specific regulations governing electronic orders and prescriptions).⁷

ii. Analysis

Dr. Caceres Prescriptions. Using an EPCS token to authenticate an electronic prescription constitutes “signing” the prescription, and only the practitioner whose DEA registration number is listed on the prescription may sign it. 21 C.F.R. §§ 1311.120(b)(11), (12); cf. United States v. Stokes, No. 14-CR-290-TWT-JFK-2, 2018 WL 2171473, at *6 (N.D. Ga. April 18, 2018) (“DEA regulations require that the practitioner who authorizes a prescription be the person who signs it”), report and recommendation adopted, 2018 WL 2151536 (N.D. Ga. May 10, 2018). But the 4,711 prescriptions issued by Southwest using Dr. Caceres’ EPCS token were signed by Southwest APRNs, not Dr. Caceres. And the APRNs lacked authority under Texas law to issue the prescriptions in Dr. Caceres’ name.

Accordingly, each of the 4,771 electronic prescriptions issued by Southwest's APRNs using Dr. Caceres’ EPCS token were invalid under Section 829 because (i) they were not issued by a DEA-registered practitioner (but by APRNs who lacked authority to use Dr. Caceres’ EPCS token) and so (ii) were not issued for a legitimate medical purpose by Dr. Caceres acting in his usual course of practice. See 21 C.F.R. §§ 1306.03(a), 1306.04(a).

Further, while the APRNs issued the prescriptions, Southwest and Dr. Hernandez are both liable under the CSA. By employing APRNs to dispense drugs in connection with its operation, the clinic is a dispenser of controlled substances. So is Dr. Hernandez, as Southwest's sole owner. See United States v. Poulin, 926 F. Supp. 246, 253 (D. Mass. 1996); United States v. City Pharmacy, LLC, No. 16-CV-24, 2016 WL 9045859, at *3 (N.D. W. Va. Dec. 19, 2016) (Section 842(a)(1) “applies broadly to all persons involved in the manufacture, distribution, and dispensing of controlled substances[.]”).

Phentermine Prescriptions. Dr. Hernandez violated Section 829 for each of the 3,744 prescriptions for phentermine issued by medical assistants using Dr. Hernandez's DEA registration credentials. The medical assistants at Wealth of Health who issued the prescriptions were not DEA-registered practitioners and lacked any authority to do so. So they were also not issued for a legitimate medical purpose by Dr. Hernandez acting in the usual course of his professional practice. See 21 C.F.R. §§ 1306.03(a), 1306.04(a).

Additional Prescriptions. For same reasons, the five controlled substance prescriptions issued by Southwest employees in Dr. Hernandez's name—while he was out of the state—were invalid under Section 829. None of the employees at Southwest entered into prescriptive authority agreements with Dr. Hernandez. Again, the employees lacked authority to issue the prescriptions and so they were not issued for a legitimate medical purpose by Dr. Hernandez.

2. Section 856 Claim

Under the CSA, the place of conducting a registrant's business is important. Section 822(e) “requires a separate registration at each ‘principal place of business or professional practice where the applicant manufactures, distributes, or dispenses controlled substances[.]” United States v. Clinical Leasing Service, Inc., 925 F.2d 120, 122 (5th Cir. 1991) (quoting 21 U.S.C. § 822(e)). As laid out in the current companion regulation, 21 C.F.R. § 1301.12(a), “[i]t is evident ․ that a physician must be separately registered at each physical location in which he administers controlled substances as a regular part of his professional practice.” Clinical Leasing Service, 925 F.2d at 122 (rejecting vagueness argument that “each principal place of business” suggests it is limited to only a primary place of business).

On the other hand, Section 856, titled “Maintaining drug-involved premises,” prohibits, “except as authorized,” (1) knowingly opening, leasing, renting, using, or maintaining any place for the purpose of distributing a controlled substance or (2) managing or controlling any place and knowingly making that place available for use for the purpose of unlawfully distributing a controlled substance. See 21 U.S.C. § 856(a); see United States v. Barnes, 803 F.3d 209, 216 (5th Cir. 2015) (listing elements). “In determining whether a person ‘maintained’ a drug-involved premises under Section 856, [courts] typically consider whether a defendant (1) has an ownership or leasehold interest in the premises, (2) was in charge of the premises, or (3) exercised ‘supervisory control’ over the premises.” Id. Furthermore, “the term ‘maintain’ ‘connotes a degree of continuity and duration.’ ” Id. (citation omitted). Compared to Section 822(e), violations of Section 856(a) carry a heavier civil penalty and may be criminally charged as well. See 21 U.S.C. § 856(b), (d).

According to the United States, Suite 250C operated as an unregistered location in violation of Section 822(e), which alone rendered it an unauthorized “drug-involved premises” under 21 U.S.C. § 856(a). See ECF No. 11 at 15.⁸

The United States has established a violation of Section 822(e), as Defendants used Suite 250C to store and dispense controlled substances. See ECF No. 1 ¶¶ 125–27; ECF No. 11–4 ¶¶ 34—35. But the Court declines to enter default judgment on the Section 856(a) claim. The Court is unaware of any case which has expanded Section 856(d) in this way. While the United States alleges that Dr. Hernandez, through Southwest, owned and operated Suite 250C “for the purpose of unlawfully distributing or dispensing controlled substances to Southwest patients,” ECF No. 1 ¶ 218, this parrots the statutory language. The Vazquez-Lopez Declaration attests that Dr. Hernandez stated he used Suite 250C to perform procedures, not with the purpose of distributing controlled substances. ECF No. 11-4 ¶ 34. Tellingly, the United States does not allege that the in-office procedures in Suite 250C, at which Dr. Hernandez “dispensed or administered” controlled substances to his patients, were themselves unlawful, or that any of the controlled substances being dispensed in Suite 250C were invalid prescriptions.

Accordingly, the Court concludes the United States adequately pled a violation of Section 822(e), but not Section 856(a).

3. Section 842(a)(5) Claims

Under 21 U.S.C. § 842(a)(5), it is unlawful for any person to “refuse or negligently fail to make, keep, or furnish any record, report, notification, declaration, order or order form, statement, invoice, or information required under” the CSA. A mens rea of negligence applies. See United States v. Al-Amin, No. 1:13-CV-13, 2016 WL 744306, at *3–4 (E.D. Tenn. Feb. 23, 2016). The CSA specifies several recordkeeping requirements imposed on DEA registrants. See, e.g., 21 U.S.C. § 827 (titled “Records and reports of registrants”); 21 C.F.R. § 1304.01–1304.55 (implementing regulations).

To start, there is a requirement to maintain complete and accurate records reflecting the quantities of every controlled substance on hand at any given time. 21 U.S.C. § 827(a)(3); 21 C.F.R. § 1304.21(a). A separate violation occurs each time the United States can prove a discrepancy in a practitioner's inventory with respect to a particular controlled substance. See United States v. Little, 59 F. Supp. 2d 177, 185–86 (D. Mass. 1999) (“[T]he Government need only demonstrate that a shortage or overage exists.”).

Moreover, as relevant here, CSA's recordkeeping requirements include: 21 C.F.R. § 1304.11(c) (requiring a biennial inventory); 21 C.F.R. § 1305.13(e) (requiring quantity and date for controlled substances purchases on DEA Form 222 requirements); 21 C.F.R. § 1305.17(c) (requiring preservation of DEA Forms 222); 21 C.F.R. § 1305.22(g) (requiring an electronic record to be “linked” to the original order and archived); 21 C.F.R § 1304.22(c) (requiring dispensation logs and records); and 21 C.F.R. § 1317.10(a) (requiring record of returns or recalls).

The United States adequately alleges twenty seven recordkeeping violations. These include failing to (i) record inventory (six recorded shortages and overages); (ii) maintain biennial inventory (one violation); (iii) maintain DEA order forms (nine violations); (iv) preserve DEA order forms (one violation); (v) link electronic purchase orders (eight violations); (vi) maintain dispensation logs (one violation), and (vii) maintain substance return records (one violation). See ECF No. 1 ¶¶ 114–124, 221–228; ECF No. 11-4 ¶¶ 22–33.⁹ Further, Dr. Hernandez, as the owner and licensed physician at Southwest, had an obligation to know the recordkeeping requirements and use his best efforts to abide by them. His failure to do so demonstrates, at minimum, negligence.

C. FCA Claims

The FCA was implemented to prevent widespread fraud against the federal government. Rainwater v. United States, 356 U.S. 590, 78 S.Ct. 946, 2 L.Ed.2d 996 (1958). It prohibits, in relevant part, “the presentment of a false claim to the Government” and “the use of a false record or statement to get a false claim paid.” U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 184 (5th Cir. 2009) (citing 31 U.S.C. § 3729(a)(1)-(2)). The Fifth Circuit has adopted a four-factor test for determining whether a violation of the FCA has occurred: (1) whether there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or to forfeit moneys due (i.e., that involved a claim). U.S. ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 467 (5th Cir. 2009) (internal quotation marks and citation omitted). The United States has adequately pled violations of the FCA.¹⁰

First, the United States alleges that 1,907 prescriptions (out of the 4,771 total prescriptions issued under Dr. Caceres’ EPCS token) were issued to 647 Medicare beneficiaries, and that 145 prescriptions (out of the 4,771) were issued to 29 TRICARE program beneficiaries. Id. ¶¶ 149, 152.¹¹ Each prescription contained a false statement—it purported to have been prescribed by Dr. Caceres when in fact it was issued by a Southwest APRN.

Second, the allegations establish Defendants acted with scienter. The FCA's scienter requirement defines “knowing” and “knowingly” to mean that a person has “actual knowledge of the information,” “acts in deliberate ignorance of the truth or falsity of the information,” or “acts in reckless disregard of the truth or falsity of the information.” Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 579 U.S. 176, 182, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016) (quoting 31 U.S.C. § 3729(b)(1)(A)). “Actual knowledge ․ refers to whether a person is aware of information.” United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739, 751, 143 S.Ct. 1391, 216 L.Ed.2d 1 (2023). The term “deliberate ignorance ․ encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statement's truth or falsity.” Id. And “reckless disregard ․ captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway.” Id.

As discussed above, Dr. Hernandez knew what was going on, as he created the scheme to obtain and use Dr. Caceres’ EPCS token. At a minimum, he acted with reckless disregard in operating a clinic in which the APRNs were using an EPCS token for prescriptions without authorization, after himself procuring that EPCS token without telling Dr. Caceres.

Third, the false statements were material, as they had the “potential to influence the government's decisions” on loan approval and forgiveness. Longhi, 575 F.3d at 470; United States v. Marlin Med. Sols. LLC, 579 F. Supp. 3d 876, 884 (W.D. Tex. 2022). Indeed, the United States explains that had Medicare and TRICARE been aware of the claims’ falsity—that Dr. Caceres did not sign the prescriptions—neither healthcare program would have paid the claims. ECF No. 11 at 18.

And fourth, Defendants false statements caused the United States to pay out money, to the tune of $257,715.35 ($232,221.98 for 1,907 Medicare prescriptions and $25,493.37 for 145 TRICARE prescriptions). ECF No. 11-6 ¶ 5 (Medicare) (Declaration of Jamie Cole, Auditor with the USAO), ECF No. 11-7 ¶¶ 7, 9 (TRICARE) (Declaration of Alison Coleman, Deputy Director of the Health Care Fraud Resolution in the DHA).

D. Damages

A default judgment does not establish damages, which must be supported by evidence. United States v. Shipco Gen. Inc., 814 F.2d 1011, 1014 (5th Cir. 1987). But damages may be awarded without a hearing if they can be determined with certainty from the pleadings and supporting documents. James v. Frame, 6 F.3d 307, 310–11 (5th Cir. 1993). As explained below, the United States’ complaint, motion, and supporting declarations provides sufficient detail, rendering a hearing unnecessary. The Court takes the FCA and CSA damages in turn.

1. FCA Damages

Under the FCA, a violator is liable for a civil penalty per violation (adjusted for inflation) plus treble damages. 31 U.S.C. § 3729(a)(1). In the Fifth Circuit, treble damages are calculated before deducting compensatory payments. See United States v. Thomas, 709 F.2d 968, 972 (5th Cir. 1983) (“The damages must be doubled [now tripled] and then reduced by the amount of any previous payments on the claim.”); Longhi, 575 F.3d at 473 & n.11.

Because the Defendants caused the United States to pay $257,715.35 for these 2,052 allegedly fraudulent prescription claims by way of Medicare and TRICARE, id. ¶¶ 149–155, the United States seeks treble damages of $773,146.05, as well as the minimum statutory penalty per violation. This totals $30,133,162.05 ($29,360,016 ($14,308 x 2,052) + $773,146.05).¹²

While the Court is somewhat skeptical of this civil penalty—which imposes a ratio between civil penalty and actual damages of nearly 114 to 1—the Court declines to sua sponte take up whether this violates the Excessive Fines Clause of the Eighth Amendment. The Fifth Circuit has yet to hold if, and how, the clause applies to civil penalties under the FCA and Defendants, by their default, do not contest it.¹³

Accordingly, the Court awards the United States $30,133,162.05 in treble damages and statutory penalties for the FCA violations. Dr. Hernandez and Southwest are jointly and severally liable for the total amount. See U.S. ex rel. Drummond v. BestCare Lab. Servs., L.L.C., 950 F.3d 277, 285 (5th Cir. 2020).

2. CSA Damages

Section 842(c) of the CSA provides that “any person who violates this section shall, with respect to any such violation, be subject to a civil penalty of not more than $25,000.” 21 U.S.C. § 842(c)(1)(A). This includes Sections 842(a)(1) and (a)(2).¹⁴ A violation of Section 842(a)(5) is limited to a penalty of $10,000. 21 U.S.C. § 842(c)(1)(B)(i). But “[f]or civil penalties assessed after July 3, 2025, whose associated violations occurred after November 2, 2015, the civil monetary penalties provided by law ․ are adjusted as set forth in the seventh column of table 1” in 28 C.F.R. § 85.5(d). See 28 C.F.R. § 85.5(a), (d).

Thus, Defendants are liable for civil monetary penalties up to $82,950 for violations of Sections 842(a)(1) and (a)(2) (invalid prescriptions and registration requirements) and $19,246 for violations of Section 842(a)(5) (recordkeeping). See id.

The United States does not seek the maximum penalty allowed, but as follows (adjusted under § 85.5(d) and the applicable violations). First, after subtracting the 2,052 prescriptions already subject to the FCA penalties, the United States seeks a $13,946 penalty for each of the remaining 2,719 prescriptions, which totals $37,919,174. ECF No. 11 at 29–30. As there is no statutory minimum, the $13,946 penalty the United States seeks tracks the pre-adjusted FCA penalty. Second, the United States also seeks $377,900 for 3,779 violations at $100/per violation, including 5 prescriptions issued using Dr. Hernandez's credentials while traveling outside of Texas and the 3,774 phentermine prescriptions. Id. at 30. Third, it seeks $1,350 at $50 per violation for the 27 recordkeeping violations. Id. And fourth, while unaddressed given the reliance on the drug-involved premises, an applicable penalty for failure to register.

3. Legal Standard

The Fifth Circuit has not addressed how a civil penalty under Section 842(c) should be calculated. Generally, courts look to four factors: “(1) the level of the defendant's culpability; (2) whether and to what extent the defendant profited from the unlawful conduct; (3) the harm to the public; and (4) the defendant's financial capacity to pay a penalty.” Lopez, 2017 WL 8182744, at *3 (citing United States v. Butterbaugh, No. 14-CV-515-TSZ, 2015 WL 4660096, at *5 (W.D. Wash. Aug. 5, 2015)); accord Advance Pharm. Inc. v. United States, 391 F.3d 377, 399 (2d Cir. 2004) (articulating the same factors as Lopez).

But courts have recognized these factors “should not be taken as exclusive,” United States v. Glob. Distribs., Inc., 498 F.3d 613, 621 (7th Cir. 2007), and have considered whether fraudulent conduct is involved, see id. at 621–22, or the deterrent effect of a penalty, see United States v. Bradshaw, No. 23-CV-546-JD, 2024 WL 4521387, at *4 (W.D. Okla. Oct. 17, 2024). That said, “penalties should be assessed on a case-by-case basis, depending on the facts and evidence before the Court.” Id.

4. Analysis

Dr. Hernandez's Culpability. Dr. Hernandez is culpable. Dr. Hernandez concocted the scheme to use Dr. Caceres’ information to obtain an EPCS token, which Dr. Hernandez then directed staff at his own clinic to use to issue prescriptions. Dr. Hernandez clearly knew (or, was at a minimum reckless) that the APRNs at his clinic were issuing prescriptions without valid authority. The same goes with recordkeeping and registration requirements. This is no way to operate a clinic dispensing thousands of controlled substances to often vulnerable patients. Moreover, the United States points to Dr. Hernandez's previous conduct that resulted in several Board Orders from the Texas Board of Medicine, between 1991 and 2018, and a 2010 DEA Letter of Admonition, for related issues, which demonstrate his awareness of the issues with how he operated his clinics. ECF No. 11 at 21; ECF No. 11-4 ¶¶ 11, 13. But Dr. Hernandez did not change his ways.

Profits. There is no evidence before the Court relating to Dr. Hernandez's finances, and so the Court cannot determine whether he made a large profit, or a profit at all. So this factor is neutral and the Court does not consider profit to be a factor in determining the penalty.

Harm. “[T]he public harm caused by the violations,” also phrased as “the injury to the public,” includes considerations such as the extent to which a doctor's actions “facilitate[ed] the diversion of” pharmaceuticals to improper uses. Advance Pharmaceutical, 391 F.3d at 399. Such a diversion to improper uses is especially problematic if the particular drug “would cause” a great deal of harm “in the illegal [drug] market,” and if this diversion to improper users could have been largely prevented by the doctor following the law. Glob. Distrib. 498 F.3d at 620–21. But the mere fact that “prescription drug abuse” is “harmful to the public” will not weigh in favor of a stricter penalty where there is no evidence that the doctor's improper behavior has played a role in such drug abuse. See Butterbaugh, 2015 WL 4660096, at *7.

Here, Defendants issued over 3,500 invalid prescriptions issued for Schedule II controlled substances, including hydrocodone and oxycodone. These are “highly abused” substances that courts consider in weighing harm to the public. United States v. Ahuja, No. 3:14-CV-1558-JCH, 2017 WL 1807561, at *12 (D. Conn. May 5, 2017), aff'd, 736 F. App'x 20 (2d Cir. 2018). While not traced to the invalid prescriptions, the United States points to at least twenty patients who received multiple prescriptions resulting in dangerous combinations during the relevant period. ECF No. 11-4 ¶ 17–20; ECF No. The Court infers that these invalid prescriptions may have played a role. Indeed, Dr. Hernandez stated, in a 2023 application for a new DEA Certificate of Registration that was subsequently withdrawn, that his patients were “going through opioid withdrawal, trying to obtain care from other pain practitioners, or simply experiencing no care or buying illicit drugs off the street.” ECF No. 11-4 ¶¶ 109–110. Further, these Schedule II prescriptions (and others, including the thousands of phentermine prescriptions) were issued without a physician consult and by APRNs and medical assistants without proper authority. This conduct demonstrates a risk of harm to patients receiving medication.

The United States also points to a review of records by an expert who identified five patients at Southwest (one of whom was an undercover DEA agent) for whom, according to the expert, Defendants prescribed medically unnecessary opioid prescriptions, made unreliable diagnoses, failed to exhaust conservative, evidence-based treatments, and failed to resolve indications of drug-seeking behavior. ECF No. 11 at 24; ECF No. 11-4 ¶¶ 65–90. True, most of this conduct was outside the relevant period in which the violations at hand occurred.¹⁵ But some of it was. See ECF No. 11-4 ¶¶ 105–107 (discussing conduct between 2019 and 2020 for two patients).¹⁶ The Court concludes this deserves some weight given it is reasonable to extrapolate.

The Court also concludes that harm to Dr. Caceres weights in favor of penalties. Dr. Caceres attested to his surrender of his DEA Certificate of Registration because of Dr. Hernandez's misuse, which has prevented him from seeking other opportunities to provide services or work as a medical doctor. ECF No. 11-3 ¶ 25.

Accordingly, the Court finds that the harm to the public weighs in favor of a harsh penalty. See Ahuja, 2017 WL 1807561, at *12 (finding that the “level of public harm weighs in favor of imposition of a severe penalty” where the “dispensed drugs had a high level for abuse” and “a risk of diversion of these drugs is present”).

Capacity to Pay. Like profitability, there is no evidence of Defendants’ ability to pay a penalty. Courts have recognized that “[t]he burden is on the defendant to produce evidence of an inability to pay.” Id. at *13. So the Court finds this factor neutral, given Defendants default.

Conclusion. The Court finds that the culpability and public harm factors favor a stiff penalty. As there is no evidence in the record of Defendants’ profits or capacity to pay, these are neutral. The Court also agrees with the United States that some level of deterrence is warranted here.

That said, considering the nearly thirty-million dollar penalty awarded to the United States under the FCA, the Court declines to award additional CSA penalties at the same statutory rate. While Dr. Hernandez's conduct is cause for great concern, violations of Sections 842 and 829 are considered “relatively minor offense[s]” and were intended to be “more or less technical violations.” United States v. Moore, 423 U.S. 122, 135, 138, 96 S.Ct. 335, 46 L.Ed.2d 333 (1975).

The Court must then determine what penalty to impose. Courts vary in awarding civil penalties under the CSA, considering the case specific inquiry.¹⁷ At least one court, when awarding CSA and FCA penalties together, has greatly discounted the CSA penalties. See United States v. Paskon, No. 4:07-CV-1161-CEJ, 2008 WL 4948458, *4 (E.D. Mo. Nov. 10, 2008) (awarding $1,000 each for 7 CSA violation and treble damages and the statutory minimum for 5 FCA claims).

The Court observes that the United States proposes a penalty of $100 for the phentermine prescriptions and those issued in Dr. Hernandez's name while he was away from Texas (which include Schedule II and III controlled substances). The Court does not see much difference between the Schedule II substances prescribed using Dr. Caceres’ EPCS token and those issued using Dr. Hernandez's credentials under the multi-factor analysis. Considering the FCA penalties, the Court will adopt the United States’ proposed penalty of $100 and apply that to remaining invalid prescription violations, for a total of $649,800 (2,719 + 3,779 = 6,498 x 100). The Court further adopts the proposed penalty of $50 per recordkeeping violation, for a total of $1,350. Finally, the Court awards a $2,500 penalty for the failure to register Suite 250C. See Blackmon, 2017 WL 5565675 (awarding $2,500 penalty for violation of Section 822(e) under § 842(c)(1)(A)).

Accordingly, the Court awards the United States $653,650 for the CSA violations.

CONCLUSION

For the foregoing reasons, the United States's Motion for Default Judgment (ECF No. 11) is GRANTED IN PART and DENIED IN PART. The United States is awarded $30,786,812.05. The United States shall receive post-judgment interest under 28 U.S.C. § 1961.

A final judgment under Rule 58 will issue separately under the terms of this Order.

IT IS SO ORDERED.

FOOTNOTES

1.   The United States initially sued Wealth of Health (formally titled Wealth of Health Weight Loss Center LLC) but later dismissed it without prejudice upon determining it is no longer a going concern. ECF No. 7.

2.   Indeed, 3,678 out of the 4,711 prescriptions were Schedule II controlled substances. Id. ¶ 144.

3.   First, the United States references 169 prescriptions for phentermine during this period in the relevant section of its Complaint, but is silent as to whether these are duplicative of the other 3,774 prescriptions discussed above. See id. ¶¶ 172 (51 prescriptions); 176 (50 prescriptions); 179 (50 prescriptions); 183 (18 prescriptions); but see ECF No. 11-4 (Vazquez-Lopez Declaration) ¶¶ 55–60 (detailing 51 prescriptions, 50 prescriptions, 54 prescriptions, and 28 prescriptions, totaling 183 prescriptions, during this same period). The Court does not understand why the United States alleges 88 prescriptions, if there are 169 or 183. Second, while the United States references other Schedule II and III controlled substance prescriptions as part of this group, see id. ¶ 173 (detailing 3 prescriptions); ¶ 177 (3 prescriptions); ¶ 180 (1 prescription); ¶ 181 (1 prescription); ¶ 184 (2 prescriptions), this amounts to 10 prescriptions, not 88. But see ECF No. 11-4 ¶¶ 55–60 (detailing 1 prescription, 2 prescriptions, and 1 prescription, totaling 4 prescriptions, during this same period); id. at 178–190 (detailing 5 prescriptions during this same period).The Court adopts the lower quantity of 5 prescriptions based on the supporting documentation provided by the United States, as it relates to the damage calculation.

4.   All the claims are asserted against Dr. Hernandez and Southwest, except for one claim under the CSA against Dr. Hernandez and Wealth of Health related to the phentermine prescriptions issued at that clinic and one against all three (related to out-of-town prescriptions). See ECF No. 1 ¶¶ 199–215. Because Wealth of Health is no longer a defendant, the Court proceeds with the claim against Dr. Hernandez and/or Southwest.

5.   While the United States refers to a violation of Section 822(e) in its complaint and motion for default judgment, it brings a claim under Section 856. The Court considers them both.

6.   While “[o]n its face[,] § 829 addresses only the form that a prescription must take,” United States v. Moore, 423 U.S. 122, 137 n.13, 96 S.Ct. 335, 46 L.Ed.2d 333 (1975), courts use “valid” to refer to whether a prescription follows that form. See, e.g., United States v. Ahuja, 209 F. Supp. 3d 489, 493 (D. Conn. 2016) (referring to a violation of Sections 829 and 842(a)(1) as dispensing a controlled substance “without a valid prescription or medical purpose”); United States v. Wilson, 98 F.4th 1204, 1216 (10th Cir. 2024) (compliance with 21 C.F.R. § 1306.04(a) determines whether a prescription is “valid”).

7.   It is unclear whether there is a mens rea requirement for a civil enforcement action brought under Section 842(a)(1) that relies on 21 C.F.R. § 1306.04(a). See United States v. Howen, No. 1:21-CV-106-DAD-SAB, 2022 WL 18420744, at *6–7 (E.D. Cal. Aug. 9, 2022) (applying a knowledge requirement of “willful blindness” or “know or has reason to know” of the invalidity of the prescription to a civil enforcement action under Section 842(a)(1) premised on a violation of § 1306.04(a), but rejecting a “stringent” mens rea standard” in contrast to Section 841(a), the criminal statute). Unlike 21 C.F.R. § 1306.04(a), § 1306.03(a) does not contain the word “knowingly.”The Court need not address this because the United States premises the violation on 21 C.F.R. § 1306.03(a), and, as pled, Dr. Hernandez concocted the scheme to use Dr. Caceres’ information to obtain an EPCS token, directed the staff at his own clinics to issue invalid prescriptions, and admitted to numerous violations. This establishes knowledge.

8.   The Court assumes the United States proceeds under § 856(a)(1), not (a)(2), which looks to the purpose of third parties in unlawfully manufacturing, storing, distributing, or using a controlled substances. See United States v. Chen, 913 F.2d 183, 190 (5th Cir. 1990).

9.   While DEA Investigator Vazquez-Lopez appears to point to more than 27, see ECF No. 11-4 ¶¶ 30, 31, 33, the Court adopts 27 as represented by the United States.

10.   The United States brings two claims under the FCA. Count 1 arises under 31 U.S.C. § 3729(a)(1)(A), which penalizes any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” ECF No. 1 ¶¶ 57–63. Count 2 arises under 31 U.S.C. § 3729(a)(1)(B) and is closely related to Count 1. Id. ¶¶ 64–67. This provision imposes liability on one who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” Because the same conduct underlies both, the recovery is duplicative, and the United States does not explain where the daylight lies, the Court analyzes them together.

11.   The United States notes that upon later review, it learned that 2,480 prescriptions were issued as to Medicare beneficiaries. ECF No. 11 at 17 n.4. The United States only seeks recover for the 1,907 “in consideration of principles of fair notice.” Id.

12.   While the United States sought $28,617,192 in its motion for default judgment, ECF No. 11 at 19, this amount used the prior $13,946 statutory minimum, which has since increased to $14,308 for penalties assessed after July 3, 2025. See 28 C.F.R. § 85.5. Accordingly, the Court applies this adjusted-for penalty.

13.   Compare U.S. ex rel. Taylor v. Healthcare Assocs. of Texas, LLC, No. 3:19-CV-2486-N, 2025 WL 624493, at *5 (N.D. Tex. Feb. 26, 2025) (concluding that civil penalty under the FCA for fraudulent billing practices to Medicare that resulted in ratio of over 100 to 1 violated the Excessive Fines clause and reducing the ratio to 3 to 1, from nearly $300 million to $8,260,925.58); with U.S. ex rel. Montcrieff v. Peripheral Vascular Assocs., P.A., 649 F. Supp. 3d 404, 425 n.12, 428 (W.D. Tex. 2023) (rejecting ratio theory but noting that the ratio of 39 to 1 is in line with other FCA cases), aff'd in part and rev'd in part on other grounds, 133 F.4th 395 (5th Cir. 2025).

14.   See Clinical Leasing Service, 925 F.2d at 122 (“[a]ny party who distributes or authorizes the distribution of controlled substances without adequate registration [in violation of Section 822(e)] is subject to civil penalties” under Section 842(a)(2)).

15.   For instance, Dr. Hernandez ignored urine drug screens that pointed to misuse and diversion of controlled substances and even the discovery of a patient “slumped over in her vehicle” who was pronounced “dead on scene” and whose toxicology report confirmed the presence of six controlled substances. ECF No. 11-4 ¶¶ 67–89; but see id. ¶ 81 (discussing conduct in 2020). The United States also points to multiple patients (again, outside the relevant period) who were issued prescriptions after they had left the clinic, or had deceased. See id. ¶ 100.

16.   In a similar vein, while the United States points out that between April 2020 and April 2021, Dr. Hernandez alone issued 25,265 controlled substance prescriptions, totaling over 2.5 million pills, including over 1.5 million hydrocodone pills (9,420 prescriptions, an average of around 170 pills per subscription) and 500,000 oxycodone pills (5,297 prescriptions, an average of around 82 pills per prescription), ECF No. 11-4 ¶ 15; ECF No. 11 at 23, it is unclear whether these include invalid prescriptions or not. If they were not issued using Dr. Caceres’ EPCS token, while concerning and indicative of overprescribing, it is not clearly harm caused by the violations. Nor does the United States explain how many patients these prescriptions were written for.

17.   See, e.g., Bradshaw, 2024 WL 4521387, at *7 (awarding $25,000 per violation for 16 violations of Section 842(a)(1)); United States v. Patka, No. 117-CV-62, 2018 WL 3236050, at *2–3 (S.D. Ga. July 2, 2018) (awarding $1,200,000 for 299 violations of Section 842(a)(1), approximately $4,000 per violation); United States v. Blackmon, No. 16-CV-129-JED-JFJ, 2017 WL 5565675, at *2, 7 (N.D. Okla. Nov. 19, 2017) (awarding $296,000 for 430 violations, including $750 and $1,000 for violations of Section 842(a)(1)).

XAVIER RODRIGUEZ, UNITED STATES DISTRICT JUDGE