Government Veto of Qui Tam Settlement Stands in Fourth Circuit

Because we are a smaller firm, we spend a lot of energy upfront evaluating potential whistleblower cases. The importance of this process was emphasized again by a Fourth Circuit decision last month in United States ex rel. Michaels v. Agape Senior Community, Inc. (4th Cir. Feb. 14, 2017)

The case involved an interlocutory appeal of a pair of U.S. District Court decisions in a False Claims Act lawsuit over elder care fraud. The U.S. declined to intervene and the relators are prosecuting the case. Facing the prospect of taking an expensive case to trial, the relators and defendants agreed to a settlement. The U.S. Government, however, disapproved of the settlement and informed the court that it was exercising its veto.

Although the False Claims Act permits whistleblowers and their attorneys to litigate on behalf of the U.S. Government to recover fraud, it contains several provisions to protect the interests of the United States. The Fourth Circuit concluded that 31 U.S.C. ยง 3730(b)(1) allowed the Government an unreviewable veto of the settlement. It disagreed with the Ninth Circuit, where precedent requires the veto to be reasonable.

The decision was important because the District Court in Michaels signaled that it did not find the Government’s decision reasonable. As the District Court had rejected the use of statistical sampling, the cost to the relator’s counsel of taking the case to trial was estimated at between $16.2 million to $36.5 million in pretrial preparation. The Government, through statistical sampling, estimated that the value of the case was $25 million. It has not taken over the case, though.

This case has obvious implications for the case evaluation process. When we take on a client, we expect that it is going to be a multi-year relationship. It is not a decision to be made lightly. We are putting our time and money behind our clients as we only take whistleblower cases on a contingency fee basis. These are also complex cases where a variety of factors will influence our ability to successfully litigate a case for our clients and the U.S. Government. It takes time upfront to determine whether we are in it to win it.

Earlier this week, we published a response to an opinion piece in the Pennsylvania Record. The editorial opinion rejected a proposed False Claims Act because of concerns about the conduct of greedy whistleblowers and their attorneys.

Our experience in the trenches has been different. We review our cases thoroughly to ensure that our clients are not seeking 15 minutes of fame. We put a lot of thought into whether we are undertaking a case that we believe we have a decent shot of winning. After all, we do not want to get several years down the road and be told by the U.S. Government that we must spend millions to take a case to trial because they do not find the settlement offer reasonable.

We hope that our potential clients and future clients understand.