United States: Three Years After Escobar: Lessons Learned Regarding Plaintiffs' Efforts To Neutralize Escobar And Opportunities This Practice Raises For Defendants

Key Points

• Under the FCA there are multiple circuit court splits related to how power should be allocated between the United States and the relator and whether the relator has contributed sufficient value to merit obtaining a significant portion of the government's recovery.
• These circuit splits include whether the government must consent to a dismissal, whether the government has essentially unfettered discretion to dismiss qui tam actions that do not advance the government's interest, whether relators have the same ability as the United States to toll the FCA statute of limitations beyond the FCA's six-year statute of limitations, and whether relators can intervene in an existing qui tam or the extent to which a qui tam can survive if it is filed while another qui tam action is pending based upon related facts.
• Courts should apply the FCA's plain language and effectuate its purpose by construing it to ensure the primacy of the United States over private individuals in determining what allegations advance the government's interest and to ensure that relators obtain only a portion of the government's funds when the relator actually contributes real value to the government.

The False Claims Act (FCA) is the government's primary weapon to police fraud committed against the government. The FCA's qui tam provisions authorize private citizens, known as "relators," to file lawsuits where they have suffered no personal injury and obtain a substantial statutory bounty from funds that otherwise would be remitted to the government.¹

In crafting the FCA, Congress confronted many challenges. One was to provide private plaintiffs with sufficient incentives to file an action and yet not usurp the executive branch's constitutional power to enforce the law.² Another was to allow private persons to receive a statutory bounty from the government that is proportionate to the value that the private person contributed in filing the action so that excessive wealth (in the form of recoveries) is not redistributed from the government, the actual victim in any FCA action, to private persons and their counsel.³

In seeking to strike the right balance in the allocation of power and providing an appropriate reward when the relator actually contributes valuable information rather than repeating public information or information disclosed in a prior qui tam lawsuit (and, hence, no "whistleblower" is needed), Congress, at times, used ambiguous language that presents, as the Supreme Court has noted, "many interpretative challenges" for courts.⁴ These "many interpretative challenges" have resulted in multiple circuit splits. Indeed, going into 2018, there are more than one half dozen circuit court splits regarding the FCA. Given the overall goals underlying the FCA, not surprisingly, some splits center on how power should be allocated between the United States and the relator and whether relators (private citizens) motivated by their private financial interest, should have equal authority and power as the United States. These splits include:

• Under Section 3730(b)(1), which requires that the Attorney General "give written consent to the dismissal" of an FCA action, does the relator, when the United States declines to participate in the action, have the power to settle FCA lawsuits when the United States does not believe that a settlement is in the United States' interest and therefore refuses to provide written consent to the dismissal of the underlying FCA action?
• Under Section 3730(c)(2)(A), which authorizes the "Government [to dismiss the action notwithstanding the objections of the person initiating the action if . . . the court has provided the person with an opportunity for a hearing on the motion," does the United States have essentially an unfettered right to dismiss the litigation that is brought in its name, or can the relator compel the FCA action to continue when the United States does not believe that the FCA action advances its interest?
• Under Section 3731(b)(2), which extends the statute of limitations beyond six years if an "official of the United States" did not know of a right of action within three years of the time in which the action is brought, can the relator be considered an "official of the United States" and have the statute of limitations extended if the relator did not know of a right to action within three years of the time in which the relator filed?

Other circuit splits center on whether the relator's action brings sufficient value such that a substantial portion of the government's recovery should be transferred to a private individual. More specifically, these splits include:

• Under Section 3730(b)(5), which bars relators from intervening or bringing an FCA action "based on the facts underlying" a pending FCA action, there have been multiple splits, including:
  • Does the bar prohibit relators from amending the complaint to join additional relators?
  • Does the bar prohibit relators from proceeding when they file a viable qui tam action, but some other relator previously filed a defective qui tam that is subject to dismissal?
  • Does the bar prohibit relators from proceeding when the prior-filed qui tam is no longer pending?
• Under Section 3730(e)(4), which, unless the relator qualifies as an original source, prohibits actions based upon the "public" disclosure of specified types of information, what disclosures qualify as "public"? Is a disclosure to a single individual sufficient to be a public disclosure? Are employees and agents of the defendant members of the public? Are government employees members of the public such that disclosures to them are public disclosures?
• In applying Fed. R. Civ. P. 9(b) to FCA actions, must the relator, who presumably is an insider privy to fraud, be able to specify at least a single false claim with specificity to be permitted to proceed with an FCA action?

Resolving those circuit splits is important for multiple reasons. First, the FCA is a national statute that should be applied uniformly, but, instead, as a result of these multiple splits, it is applied differently depending upon in which circuit the lawsuit is pending. Second, such a divergence in application results in forum–shopping, since relators, who frequently file their lawsuits against companies operating across the country,⁵strategically file their actions in jurisdictions based upon which jurisdiction is deemed most favorable based upon its case law and which United States Attorney's Office may view their claims more sympathetically. Third, the splits indicate which issues are more likely to be reaching the Supreme Court in the near term in an era in which the Court has been taking FCA cases almost annually. Fourth, the splits also indicate issues that may soon result in additional congressional amendments to the FCA.

I. Circuit Splits Addressing The Proper Allocation Of Power Between The Government And Relators

Courts have split regarding whether the government should have the ultimate say regarding whether an FCA case is dismissed, either on the relator's motion or the government's, and whether Congress ever considered the relator to be an "official of the United States." Set forth below is a description of the splits and how they should be resolved.

A. Section 3730(b)(1) and the Government's Power to Oppose Dismissal of an FCA Action

Section 3730(b)(1) mandates that an FCA "action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting." This provision has its origin in the FCA's initial passage in 1863.⁶The purpose of the provision is to ensure that the executive branch can bar the relator from dismissing the lawsuit when the relator is not acting in the public's best interest.⁷

In construing Subsection (b)(1), the precise issue upon which circuits have split concerns whether the United States, in a case in which it does not intervene, can unilaterally veto a settlement reached between the relator and defendants when the United States is not a party to the litigation. For example, imagine a scenario where the United States declines to intervene; the relator and the defendant litigate over a period of years, incurring substantial cost; and they ultimately reach a settlement and thus move to dismiss the action. At that point, can the United States, after spending the litigation on the sidelines, refuse to consent to settlement or dismissal, under Subsection (b)(1), and thereby compel the relator and defendant to continue to litigate the matter through trial?

The majority of circuits—specifically, the 4th, 5th, and 6th—have ruled in the affirmative, noting that the FCA's plain language and purpose support the conclusion that the FCA grants the executive branch a unilateral veto over the relator's decision to dismiss a qui tam that is not in the United States' interest.⁸For example, as to the plain language, the 5th Circuit, in Searcy, noted that Subsection (b)(1) is "unambiguous" in providing that dismissal may be granted only if the Attorney General provides his or her "written consent to the dismissal"⁹ and that, given that this statutory language has existed since the FCA's initial passage in 1863, the plain language should be given full force.¹⁰ As to policy, the court noted that this interpretation fully effectuates the statutory purpose of prohibiting relators from undertaking actions contrary to the public interest because, if this provision were not enforced, there is a danger that a relator can boost the value of settlement by bargaining away claims on behalf of the United States, and, thus, Section 3730(b)(1) allows the government to resist these tactics and protect its ability to prosecute matters in the future.¹¹

Footnotes

1 Under the qui tam provisions, a private person files the lawsuit under seal, and the government determines whether to intervene or decline to intervene in the action. 31 U.S.C. § 3730(b). If the government intervenes, it assumes primary responsibility to litigate the action. Id. § 3730(c)(1). Alternatively, if the government declines, the relator may litigate as the government's assignee. Id. § 3730(b)(4)(B); Vermont Agency of Nat. Resources v. United States, 529 U.S. 765, 773-74 (2000).

2 See, e.g., United States ex rel. Ridenour v. Kaiser-Hill Comp., L.L.C., 397 F.3d 925, 934-35 (10th Cir. 2005) (noting that courts should construe FCA provisions consistently with the Constitution's Take Care clause, which requires that the executive branch maintains sufficient control over qui tam actions so that there is no violation of its duty to enforce the laws of the land).

3 For example, Congress created various bars to the relator's action to preclude lawsuits that do not sufficiently benefit the government to merit a reward. For example, under the public disclosure bar, 31 U.S.C. § 3730 (e)(4), Congress barred actions that are substantially similar to specified information in the public domain, unless the relator is the original source of the information in the public domain or materially adds to the information in the public domain. Similarly, under the first-to-file rule, 31 U.S.C. § 3730(b)(5), Congress prohibited all actions that are based upon the facts underlying a pending qui tam action.

4 Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970, 1979 (2015) (noting in construing 31 U.S.C. § 3730(b)(5) that the "qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine").

5 In cases against defendants operating in several jurisdictions, relators have flexibility regarding where to file the action. Under the FCA, an action "may be brought in any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transactions business, or in which any act proscribed by section 3729 occurred."  31 U.S.C. § 3732(a).

6 See Act of March 2, ch 67, 12 Stat. 696 (1863) ("Such suit may be brought and carried on by any person, and shall be in the name of the United States, but shall not be withdrawn or discontinued without the consent, in writing, of the judge of the court and the district attorney, first filed in the case, setting forth  their reasons for such consent.").

7 Searcy v. Philips Electronics North America Corp., 117 F.3d 154, 159 (5th Cir. 1997) (noting that, although Congress substantially revised the FCA in 1986, it did not revise this provision, which had its roots in the original FCA and thus reasoned that, as "far as we can tell, Congress decided that it should combine its effort to reinvigorate the qui tam provisions of the Act with a continuation of its policy of encouraging the government to monitor relators' actions and step in when relator is not acting in the best interest of the public").

8 See United States ex rel. Michaels v. Agape Senior Community, Inc., 848 F.3d 330, 339-40 (4th Cir. 2017) (noting that, instead of "freeing relators to maximize their own rewards at the public's expense, Congress granted the Attorney General the broad and unqualified right to veto proposed settlements of qui tam actions" and agreeing "with the district court, and with the Fifth and Sixth Circuits, that the Attorney General possesses an absolute veto power over voluntary settlements in FCA qui tam actions"); United States ex rel. Smith v. Lampers, 69 Fed. Appx. 719, 721 (6th Cir. 2003) (the language of Subsection (b)(1) "means that a relator may not seek a voluntary dismissal of any qui tam action under the FCA without the government's consent") (citation omitted); United States v. Health Possibilities, P.S.C., 207 F.3d 335, 339 (6th Cir. 2000) ("We now join the Fifth Circuit in rejecting the Ninth Circuit's analysis, and hold that a relator may not seek voluntary dismissal of any qui tam action without the Attorney General's consent."); Searcy v. Philips Electronics North America Corp., 117 F.3d 154 (5th Cir. 1997).

9 117 F.3d at 159.

10 Id.

11 Id. at 160. The rule does not apply to involuntary dismissals. See, e.g., United States ex rel. Mergent Servs. v. Flaherty, 540 F.3d 89, 91 (2d Cir. 2008) ("While the False Claims Act appears to bar dismissal of qui tam actions absent the Attorney General's consent, . . . we have previously construed this provision to apply only in cases where a plaintiff seeks voluntary dismissal of a claim or action brought under the False Claims Act, and not where the court orders dismissal.") (citations and internal quotation omitted).

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