Recently, South Carolina U.S. District Judge Joseph Anderson, Jr. issued an opinion in which he struggled with how to handle a non-intervened qui tam brought under the Federal False Claims Act (FCA). In his opinion, Judge Anderson requested that the United States Court of Appeals take an interlocutory appeal to determine two issues:
- The extent of the government’s right to object to a reasonable settlement in a non-intervened FCA case; and
- The plaintiff’s right to use statistical sampling to provide liability and damages in an FCA case.
While the second issue has been the subject of much debate recently, the first issue is relatively new. However, with more and more state and federal FCA cases proceeding without government intervention, it is likely an issue that many more state and federal judges will be facing.
The qui tam case before Judge Anderson was filed in December 2012 and alleged that Agape Senior Community and associated entities had submitted false claims to government health care programs for nursing home related services. In March 2013, the government declined to intervene in the case. While actual estimates varied, there is no denying that the case was a monstrous undertaking for the relator, involving anywhere from 10,000 to 20,000 individual patients for whom there were between 53,000 to 62,000 individual claims. Given its declination, the government was unwilling to assist the relator with the costs of prosecuting the matter, including costs for expert file review.
After the government declined to intervene in the case, and before expert reports were due, relator and the defendants engaged in mediation and reached a settlement agreement which required the defendants to pay $2.5 million dollars to settle the FCA allegations. Because government consent to any dismissal of the case was necessary under Section 3730(b)(1) of the FCA, the government was informed of the settlement terms. When the government objected to the settlement as financially insufficient, the relator and defendant joined forces to request that Judge Anderson enforce their settlement.
In subsequent proceedings before Judge Anderson, the government explained that an expert review of some “cherry-picked” claims revealed an error rate that should, per the government, yield a damages figure closer to $25 million as opposed to $2.5 million. It was unclear whether or not the government’s work could stand on its own as valid statistical sampling for the purpose of proving FCA liability, let alone damages. But Judge Anderson believed that in the present case, it would not be appropriate to allow the plaintiff to prove FCA liability based on sampling. Each of the individual claims involved the factual question of whether those billed services were medically necessary for that individual patient and should stand on the facts specific to that claim, not statistical sampling.
But Judge Anderson saved his more colorful language for the government’s objection to the settlement. Noting that expert witness costs could run in the tens of millions of dollars, Judge Anderson was disturbed that the government maintained an “unreviewable veto right” over the settlement, especially in light of the government’s refusal to contribute to those costs. While acknowledging that the legal precedents outside of the Ninth Circuit found the statutory language of the FCA unambiguous in giving the government unfettered authority, Judge Anderson appeared partial to the argument that in a declined qui tam the government’s objection to an FCA settlement must be objectively reasonable:
It bears mention, however, that if this Court did have the authority to review an objection by the Attorney General for reasonableness in a case of this nature, a compelling case could be made here that the Government’s position is not, in fact, reasonable.
Judge Anderson did not address this aspect of the FCA, but it bears mentioning that under the same statutory provision in the FCA, the government has right to settle a FCA action over the relator’s objection, but only if a court finds after a hearing that the proposed settlement terms are “fair, adequate and reasonable under all the circumstances.” It seems that Judge Anderson is saying that the same standard should apply to settlement of an FCA action over the government’s objection.
The Fourth Circuit, and the litigants, should bear in mind that the statutory language gives the government the right to object to dismissal of the case, not settlement of the case. Settlement of the qui tam between the relator and defendant without government consent or full dismissal is perhaps feasible, but risky for all parties. Under such circumstances:
- The defendant obtains no government releases and risks further government investigation or enforcement;
- The relator risks that the government will pursue alternative remedies and attempt to cut the relator out of any later judgment or settlement;
- The government has may have no input into settlement language which, if approved or adopted by the court, may pose res judicata
One thing is certain, however, as more and more FCA cases are proceeding without government intervention, Judge Anderson and the litigants in this matter may not be alone in their struggles to implement settlement terms without the involvement of, or in spite of, the government.