A recent Appeals Court decision could force whistleblowers into lengthy and expensive litigation, even if a whistleblower and defendant reach a settlement agreement for a “qui tam” (whistleblower) case brought under the False Claims Act.
In US ex rel. Michaels v. Agape Senior Community, Inc., the Fourth Circuit Court of Appeals joined those circuits that have interpreted the False Claims Act to give the US Attorney General absolute veto power over settlements in cases where it has not joined as a party. As a result, the whistleblowers, the defendants, and their counsel may have to continue litigating a case that they all agree should be settled.
Under the False Claims Act, a qui tam action may be dismissed only if the court and the Attorney General give written reasons for the dismissal. When a case is settled, it typically is dismissed as part of the settlement.
In Agape, the court addressed whether the False Claims Act’s requirement that the Attorney General give written reasons for dismissal of a qui tam case means that the Attorney General can veto any settlement simply by withholding consent to dismiss cases where the government has declined to join.
The Fourth Circuit not only held that the Attorney General does have this power, but also held that courts cannot second-guess the exercise of that power by evaluating the reasonableness of the decision.
The Fourth Circuit’s decision is similar to earlier decisions from the Fifth and Sixth Circuits, which had considered the same issue and determined that the False Claims Act does not allow for any judicial review of the Attorney General’s veto of a voluntary settlement in a declined case.
The Fourth Circuit rejected the alternative approach adopted by the Ninth Circuit in US ex rel. Killingsworth v. Northrop Corp., which held that the government’s veto decision is subject to judicial review to determine whether the government’s decision is supported by “good cause.” The Ninth Circuit reasoned that if the relator has the right to continue to pursue a declined case, this would necessarily include the right to settle the case.
The facts of the Agape case illustrate the practical problems with the Fourth Circuit’s approach. In Agape, the whistleblower and defendant were faced with a trial that they estimated would cost between $16.2 to $36.5 million dollars to conduct. The US government’s own estimate of the total damages in the case was $25 million. The cost of the trial thus potentially exceeded the government’s assessment of the value of the case.
After negotiation, the whistleblower and defendant agreed to settle the case for $2.5 million, but the Attorney General objected to the settlement as too low, based on the government’s damages estimate. While rejecting the settlement, the government also refused to join or assist in prosecuting the case, which placed all of the financial responsibility and risk on the whistleblower.
The District Court had noted that if it had been permitted to review the government’s decision, a “compelling case” could be made that the government’s objection to a settlement which it did not negotiate — when it bore none of the risks of trial and refused to turn over its damage calculations — “is not, in fact, reasonable.”
While the Fourth Circuit held that its decision is in line with the intentions of the False Claims Act, it may have undermined the statute’s purposes by discouraging whistleblowers from pursuing actions after the government declines to join the case.
If whistleblowers and their counsel back out of cases the government does not intervene in out of fear of being prevented from resolving a case that the parties to the case believe should be resolved and with no ability to challenge the government’s veto on reasonableness grounds, the ones who will ultimately lose out will be the taxpayers, patients and others who are harmed by the fraud.