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Federal government has absolute right to nix qui tam settlements, even without intervening

By Lisa Milam-Perez, J.D.

Addressing an issue of first impression in a case before it on interlocutory appeal, the Fourth Circuit affirmed a district court’s holding that the U.S. Attorney General could object to a proposed settlement in a qui tam action even when the government has chosen not to intervene in the case. The appeals court rejected the notion that the attorney general could only object to a settlement for good cause when the government has declined to intervene, declining to adopt the “reasonableness” requirement cobbled together by the Ninth Circuit based on other elements of the statute. Rather, looking to the plain language of the relevant FCA provision, the appeals court followed the Fifth and Sixth Circuits, and held the attorney general has absolute veto power over voluntary qui tam settlements (U.S. ex rel Michaels and Whitesides v. Agape Senior Community Inc., February 14, 2017, King, R.).

It was “entirely consistent” with the statute to conclude that the attorney general would have absolute veto authority over a FCA settlement, the appeals court reasoned. “Even where the Government declines to intervene, ‘the United States is the real party in interest in any [FCA] suit.’ Instead of freeing relators to maximize their own rewards at the public’s expense, Congress has granted the Attorney General the broad and unqualified right to veto proposed settlements of qui tam actions.”

However, putting off for now an increasingly critical electronic discovery matter, the Fourth Circuit dismissed as improvidently granted the relators’ appeal of the lower court’s ruling that they could not use statistical sampling to prove their claims that their employer, an elder care facility, had committed fairly rampant Medicare fraud.

Government won’t intervene. In a suit against 23 corporate entities, two employees of a South Carolina elder care facility alleged that their employer had fraudulently billed Medicare and other federal health care programs for services to thousands of patients, but that the services were not actually provided, or were provided to ineligible patients. They served their complaint on the federal government and filed it under seal in court. The federal government declined to intervene; nonetheless, citing Section 3730(b)(1), the FCA’s “consent-for-dismissal” provision, it requested that the parties solicit the attorney general’s written consent before asking the court to approve any settlement in the case.

Attorney general won’t approve. The relators and the defendants, along with the government, mediated without success. But in a second mediation, conducted without the government’s knowledge, the relators and defendants reached a deal. However, the attorney general objected to the proposed settlement. The settlement was far less than the $25 million that the government had estimated to be the total damages in the case, a figure it had reached using statistical sampling. (The district court was left in a bit of a quandary: it had concluded, on the particular facts and evidence at hand, that the use of statistical sampling was improper here, and had rebuffed the relators in their bid to use the device to prove liability and damages.)

Objection upheld. The employer filed a motion to enforce the proposed settlement anyhow, but the district court ruled the government had unreviewable veto authority to object to the proposed settlement. Then, seeing before it “a trial of monumental proportions, involving a staggering outlay of expenses by the [relators] and a significant drain of [court] resources,” the district court certified the case for interlocutory appeal. That teed up the question to the Fourth Circuit for the first time: whether the attorney general, under FCA Section 3730(b)(1), could veto a voluntary settlement of an FCA qui tam action if the government had never intervened in the case. The appeals court found the attorney general had absolute authority to do so. Looking at the plain text of the statute, it concluded that nothing therein left any room for doubt that Congress intended that a qui tam suit could only be dismissed with the attorney general’s written consent.

No “reasonableness” requirement. The employer argued that the attorney general couldn’t unreasonably withhold its approval when the parties have reached a settlement. In support of this contention, it cited the Ninth Circuit, which has found the attorney general can only object for “good cause” after a hearing on whether the proposed agreement is “fair and reasonable.” The Ninth Circuit (and the employer here) reasoned that unlimited veto power was inherently incongruous with the right of private parties to conduct an FCA action when the government declines to intervene, and incompatible with the operation of the statute, which grants a private party the right to share in the award. But, as the Fifth Circuit had pointed out in reaching the contrary conclusion, “the right to conduct the action does not necessarily include the right to settle the claim, although, absent the Attorney General’s objection, the relator may yet settle the claim.” In other words, the FCA did not endow the relator with an unfettered right to settle the action.

Rather, under the plain language of Section 3730(b)(1), the attorney general has absolute veto power over voluntary FCA settlements. The district court correctly held as much.

Statistical sampling. However, the Fourth Circuit declined to consider on interlocutory appeal the employees’ challenge to the district court’s refusal to permit the use of statistical sampling. The lower court had concluded statistical sampling was improper based on the facts and evidence at hand; there were more than 10,000 patients, and more than 40,000 federal health care claims, and it would cost some $36 million to review the patient charts to identify which claims were fraudulent. But those medical charts were intact, and ready for review, the trial court found, and in its view, statistical sampling was only proper “where the evidence has dissipated.” The appeals court could readily appreciate why the district court would want to get a ruling on the statistical sampling issue before taking on a particularly complex trial, it said. Still, the issue was not a pure question of law subject to interlocutory review, so appeal was improvidently granted.