January 17, 2019 / 8:14 PM / 4 months ago

As AG nominee Barr commits to defend FCA, Utah hospital asks SCOTUS to review its constitutionality

The Utah hospital chain Intermountain Health Care was already facing extremely long odds in its bid for the U.S. Supreme Court to find the False Claims Act unconstitutional under the Appointments Clause. But this week’s confirmation hearing for Attorney General nominee William Barr may just be the death knell for constitutional challenges to the FCA – even though it was Barr himself who pioneered the theory that the FCA is unconstitutional.

Intermountain is a defendant in a whistleblower suit that alleges it and another hospital were complicit in Medicare fraud by a staff cardiologist who is accused of performing unnecessary surgeries billed to Medicare. The Justice Department declined to pursue the case, which was dismissed by a Utah federal district judge because, among other things, the complaint failed to provide enough specificity about Intermountain’s alleged fraud. Last July, however, the 10th U.S. Circuit Court of Appeals revived the case (895 F.3d 730). On Wednesday, Intermountain’s lawyers at McDermott Will & Emery filed a petition requesting Supreme Court review of the 10th Circuit ruling.

Intermountain argues that there’s a deep split in the federal circuits on the pleading standard for FCA fraud claims. But it also asserts a far more sweeping argument that the whistleblower provisions of the FCA are unconstitutional. Its reasoning: Whistleblowers who file FCA cases are, in effect, acting as officers of the United States because they have the power to level fraud allegations and collect damages and penalties in the name of the U.S. government, yet they are not properly appointed and subject to removal under Article II of the Constitution.

As Intermountain acknowledged in its petition, the Supreme Court has previously endorsed the FCA’s constitutionality in 2000’s Vermont Agency of Natural Resources v. United States (120 S.Ct. 1858), which held that whistleblowers have constitutional standing to assert claims on behalf of the U.S. But according to the hospital chain, the justices expressly reserved a decision on whether the whistleblower law is constitutional under the Appointments Clause.

There are a lot of reasons for the Supreme Court to reject Intermountain’s request for review on the constitutional question. For one, Intermountain didn’t raise an Appointments Clause argument at the trial court level. The 10th Circuit deemed the argument forfeited and did not address its merits. And, as Intermountain conceded in Wednesday’s petition, even if the 10th Circuit had considered its Appointments Clause arguments, the panel would have been bound to reject them under circuit precedent in United States ex rel. Stone v. Rockwell (282 F.3d 787). In fact, Intermountain acknowledged, the 10th Circuit is one of four federal circuits to have considered and rejected Appointments Clause challenges to the FCA. No appeals court has found the law unconstitutional.

If there was any sliver of hope for Intermountain’s argument, it was the prominence of the originator of the theory that FCA whistleblowers violate the Appointments Clause. That distinction belongs to none other than Attorney General nominee William Barr.

Back in 1989, when Barr headed the Justice Department’s Office of Legal Counsel in the George H.W. Bush administration, he wrote a memo about the FCA’s whistleblower provisions, which had been significantly expanded in 1986 amendments to the Civil War-era law. Barr considered the provisions unconstitutional on at least three grounds, including the Appointments Clause. Even after the Supreme Court confirmed the FCA’s constitutionality in the 2000 Vermont Agency ruling, Barr continued to opine publicly that the whistleblower provisions were unconstitutional and “an abomination.”

Whistleblower lawyers were sufficiently worried about the AG nominee’s dim view of the FCA that in the week before his Senate confirmation hearing, they asked Iowa Republican Senator Chuck Grassley – an architect of the whistleblower provisions of the FCA and one of the law’s most ardent champions – to push Barr to repudiate his former criticisms.

In his testimony on Tuesday, Barr did just that. Under questions from Senator Grassley, the AG nominee said the FCA is constitutional, as the Supreme Court has ruled. He agreed with Grassley that the whistleblower provisions of the law benefit taxpayers and said that if he were confirmed, he would take no actions to undermine the law. “I will diligently enforce the FCA,” Barr pledged.

The Justice Department has already briefed Intermountain’s constitutional arguments when the case was at the 10th Circuit. Although the government declined to pursue the whistleblower’s claims, once defendants raised challenges to the FCA, DOJ stepped in to defend it. The government’s brief to the 10th Circuit (2018 WL 780484) simply said that the 10th Circuit has already found the FCA constitutional under the Appointments Clause and there was no reason to reconsider that decision.

Assuming Barr is confirmed as attorney general, his testimony would seem to guarantee that the Justice Department will continue to back the FCA’s constitutionality at the Supreme Court. That would seem to reduce Intermountain’s already exceedingly thin chance of gaining the justices’ attention to infinitesimal odds.

I reached out the Intermountain counsel of record Miller Baker of McDermott Will but didn’t hear back. Rand Nolen of Fleming Nolen Jez, who represented whistleblower Gerald Polukoff at the 10th Circuit, said in an email that the Supreme Court effectively settled the Appointments Clause issue when it held in the Vermont Agency case that FCA whistleblowers are private litigants pursuing their private interest in a bounty from the U.S. recovery in their cases. “The relator is not a government official and does not litigate as the United States,” Nolen said. “Intermountain’s constitutional challenge lacks merit and we are hopeful that the Supreme Court will swiftly deny its petition.”

Reporting by Alison Frankel

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