February 16, 2017 / 10:27 PM / 6 months ago

4th Circuit: DOJ has absolute veto power over False Claims Act settlements

(Reuters) - Can the Justice Department force whistleblowers and defendants to keep litigating a False Claims Act case the government has declined to join, even when both whistleblowers and defendants want to settle? The 4th U.S. Circuit Court of Appeals ruled this week that it can.

Based on the language and intention of the False Claims statute, as well as precedent from the 5th and 6th Circuits, the 4th Circuit ruled the Justice Department has absolute veto power over qui tam settlements. So even though the South Carolina nursing home chain Agape and the former employees who sued Agape under the False Claims Act both want to avoid a trial – and the Justice Department apparently has no intention of assuming the burden of litigating on its own behalf – the case will move on.

The whistleblowers, who are represented by the Strom Law Firm and Richardson Patrick Westbrook & Brickman, claimed that about two dozen Agape facilities defrauded the U.S. government by pushing thousands of Medicare patients into medically unwarranted hospice treatment. U.S. District Judge Joseph Anderson of Rock Hill, South Carolina, ruled that the former employees could not use a statistical sample of patient records to prove their claims. Facing the prospect of paying experts between $16 and $36.5 million to review the files of more than 10,000 patients, the whistleblowers reached a confidential settlement with Agape in 2015.

The Justice Department had declined in 2013 to intervene in the case, though government lawyers shadowed the private investigation with their own probe of Agape and even participated in early, unsuccessful settlement talks. The False Claims Act requires the government to sign off on settlements regardless of the Justice Department intervention. So after Agape and the whistleblowers reached an agreement, they notified the government and waited for its approval.

Instead, the Justice Department blocked the settlement. The government said its own investigation, which relied on the sort of sampling Judge Anderson would not allow the whistleblowers to conduct, showed the potential recovery in the case should be around $25 million, not the substantially lesser amount the whistleblowers had agreed to. (The size of the settlement is redacted in the appellate briefs, but the 4th Circuit described it as “appreciably less than $25 million.”) But the Justice Department continued to insist that it would not intervene and not devote government resources to proving the case against Agape.

Agape and the whistleblowers protested that neither of them wanted to keep litigating. Judge Anderson agreed that the government had put them in a tough spot, saying that “a compelling case could be made” that the Justice Department’s position was “not, in fact, reasonable.” He concluded, however, that the False Claims Act gives the Justice Department the final say on settlements.

The appeal by Agape and the whistleblowers presented a novel issue at the 4th Circuit. As Agape’s lawyers at Nexsen Pruet argued in their appellate brief, there’s a bit of a split among the other circuits on whether the Justice Department has absolute veto power over FCA settlements. In 1994, the 9th Circuit ruled in Killingsworth v. Northrop that if the government has declined to intervene in an FCA suit, it does not have an absolute right to bar a settlement. Trial courts elsewhere, Agape said, have cited Killingsworth in approving FCA settlements over Justice Department objections.

But the 5th Circuit, in 1997’s Searcy v. Philips Electronics, and the 6th Circuit, in 2000’s U.S. v. Health Possibilities rejected the 9th Circuit’s interpretation, holding that the FCA’s language is plain: A qui tam action “may be dismissed only if the court and the Attorney General give written consent to the dismissal.” If the government doesn’t consent to an FCA settlement, the 5th and 6th Circuits said, the case goes on.

Both Agape’s brief to the 4th Circuit and the whistleblowers’ appellate filing argued that their settlement, unlike those considered at the 5th and 6th Circuits, was a reasonable resolution, and the government’s objection to the deal was not. The Justice Department “has interposed itself into this litigation while claiming, when convenient, that it is not technically a ‘party’ in order to avoid the expense of producing documents, avoid the expense of trial, and avoid disclosing its damages calculation methodology to the district court and the parties while improperly blocking the settlement of this case,” the whistleblowers said. “The government cannot and should not be permitted to ‘have it both ways.’”

The 4th Circuit panel - Judges Robert King, Barbara Keenan and Albert Diaz – said in an opinion by Judge King that Congress intended to give the Justice Department the last word on claims made in the name of the United States. “We would be remiss not to recognize that the Attorney General’s absolute veto authority is entirely consistent with the statutory scheme of the FCA,” the court said. “Congress has granted the Attorney General the broad and unqualified right to veto proposed settlements of qui tam actions.”

The decision certainly isn’t good news for whistleblower lawyers who have to keep litigating cases they’d like to settle. It also puts a lot of faith in the good intentions of the Justice Department to safeguard the public interest. Let’s hope that faith is well founded.

I left phone and email messages for lawyers representing Agape and the whistleblowers but didn’t receive comments in response.

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