Government can nix whistleblower settlements without intervening

Listen to this article

The attorney general has absolute, unreviewable veto power over settlements in qui tam suits, even when the government declines to intervene on behalf of whistleblowers, the 4th U.S. Circuit Court of Appeals has ruled.

The decision of first impression follows the lead of the 5th and 6th circuits, but breaks with the 9th Circuit — and it could spur more whistleblowers to bail on actions when the government decides to watch from the sidelines.

“I don’t like it from the standpoint of a relators’ attorney. You may do all this work and reach a settlement, only to have the government disagree,” said Keith Williams, a Greenville, North Carolina attorney who represents whistleblowers in qui tam actions under the federal False Claims Act.

“This is a statute that is supposed to empower every citizen to detect fraud in government spending without the government being involved,” added Williams, who reviewed the decision, U.S. ex rel. Brianna Michaels v. Agape Senior Community Inc. v. U.S., at Lawyers Weekly’s request. “But this [opinion] is a huge disincentive to go forward in the absence of the government.”

An attorney for the whistleblowers in Agape, Mario Pacella of the Strom Law Firm in Columbia, said he’s going to “have to get creative” in the wake of the 4th Circuit’s Feb. 14 decision.

“There’s a split among the circuits, but I’m not sure this is the case to take to the Supreme Court on the issue,” he added. “It might be, but we’ve got some time to decide that.”

$36M to prove a $25M case

The whistleblowers, Brianna Michaels and Amy Whitesides, alleged that their former employer, Agape, which operates elder care facilities throughout the Palmetto State, fraudulently billed Medicare and other federal heath care programs for providing services to patients that either never received the services or were not eligible for the services.

The U.S. Attorney General declined to intervene in the action. But the AG later stepped in and torpedoed a settlement deal by asserting that the proposal undervalued the case and that the government had unreviewable veto authority.

The AG objected to the proposed settlement, the details of which are confidential, after determining that the damages totaled $25 million. That estimate was based on the government’s use of statistical sampling.

Michaels and Whitesides also wanted to use statistical sampling. Otherwise, their hired experts would have to pore over more than 50,000 claims that Agape submitted to federal health care programs in an effort to determine exactly which claims were fraudulent. The process would have cost $36.5 million.

But Senior U.S. District Judge Joseph Anderson Jr. of Rock Hill found that the methodology was improper for determining damages based on the facts of the case and granted Agape’s objection to the relators’ use of statistical sampling.

Interestingly, Anderson subsequently sustained the AG’s objection to the settlement — despite the fact that its veto also was based on statistical sampling. Anderson wrote in his order that he faced a “unique dilemma,” because the government was vetoing a settlement in a case to which it was not a party and supporting its veto with a methodology that the court had already rejected. Not only that, but the AG also refused discovery requests to show its calculations.

Anderson concluded that he and other district court judges lacked the authority to review the government’s objection to qui tam settlements. But he noted that if he did have that power “a compelling case could be made here that the Government’s position is not, in fact, reasonable,” because the relators might have to spend $36.5 million to prove a case that the AG valued at $25 million.

‘Broad and unqualified right’

The relators and Agape had argued, unsuccessfully, that the district court had to review the AG’s objection for reasonableness and cited the 9th Circuit’s decision in Killingsworth to support their position.

But Anderson joined the 5th and 6th Circuits in determining that the AG has absolute veto power over voluntary settlements in False Claims Act qui tam actions. He subsequently asked the 4th Circuit to review his rulings on the government’s veto power and the relators’ use of statistical sampling.

In affirming Anderson’s veto ruling, 4th Circuit Judge Robert King wrote that the whistleblower‘s “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.” He added that “the United States is the real party in interest in any [False Claims Act] suit,” even when the government declines to intervene.

“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,” King concluded. Circuit Judges Barbara Keenan and Albert Diaz concurred.

The panel declined to address Anderson’s ruling on the relators’ use of statistical sampling because it was based on the particular facts of the case and did not raise a pure question of law, meaning that it was not subject to interlocutory review.

“While we are disappointed in the court’s ruling on the veto issue, we are gratified and pleased that they left Judge Anderson’s correct ruling on statistical sampling undisturbed,” said an attorney for Agape, Mark Moore of Nexsen Pruet in Columbia. He declined to comment further on the opinion.

‘You can commit fraud’

The decision troubled Pacella, the relators’ attorney. He said the 4th Circuit has sent a message to the health care industry that “you can commit fraud as long as it’s a multitude of low-dollar claims.”

“There’s really no ability by a relator to bring that case,” he added, because the cost of having experts examine each individual claim will eclipse the recoverable damages.

Reflecting on the conundrum, Williams, the Greenville whistleblower attorney, quipped: “Too large to fail has become too large to detect.”

Despite the latest setback, Pacella said he and his clients still planned to forge ahead.

“We can’t try all 50,000 claims. So how many can we try that make sense to be able to at least establish liability in some way, shape or form and then seek statutory penalties?” he said. “We’re trying a case to get damages that may ultimately be less than the proposed settlement value.”

The 27-page decision is U.S. ex rel. Brianna Michaels v. Agape Senior Community Inc. v. U.S. (Lawyers Weekly No. 001-037-17). An opinion digest is available at sclawyersweekly.com.

Follow Phillip Bantz on Twitter @SCLWBantz