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FALSE CLAIMS ACT: Fourth Circuit’s Decision
in Michaels Deepens Circuit Split on Attorney
General’s Veto Power over Settlements in NonIntervened Qui Tam Actions
Hopes were dashed this week for the many False Claims Act (“FCA”) practitioners and parties
anticipating a Fourth Circuit ruling on the use of statistical sampling in FCA cases. While that hotly
debated topic will remain unsettled for the time being, the Fourth Circuit’s decision in United States ex rel.
Michaels v. Agape Senior Community, Inc., No. 15-2145, 2017 WL 588356 (4th Cir. Feb. 14, 2017), is not
without relevance. To the contrary, the preliminary FCA legal question that caused the Michaels court to
avoid the “statistical sampling” issue is important in its own right. That question—whether the FCA
provides the United States with unreviewable veto power over qui tam settlements negotiated by
relators—is one that appears destined for Supreme Court review, with the Fourth Circuit now reviving the
conflict among the circuit courts.
The Fourth Circuit has joined the Fifth and Sixth Circuits in holding that the FCA unequivocally grants the
United States absolute and unreviewable authority to veto any relator-negotiated qui tam settlement.
These holdings are in sharp conflict with twenty-year-old Ninth Circuit precedent holding that the
Government’s veto authority is both limited and reviewable.
Background: The Circuit Conflict on the Government’s Settlement Veto Authority
The conflict over settlement authority is unique to non-intervened qui tam cases. Most FCA cases are
initiated by qui tam relators, and, in most of those qui tam cases, the Government declines to intervene.
Under the FCA, once declined by the Government, the qui tam relator has “the right to conduct the
action,” and the Government, even though the United States remains the real party in interest, can only
re-enter the case “upon a showing of good cause.” 31 U.S. C. § 3730(c)(3). Along with the relator’s right
to conduct the action, of course, comes the opportunity to attempt to resolve the case, either through
mediation or settlement. But before any voluntary dismissal of the qui tam claims can occur pursuant to
settlement, the FCA requires the Government’s consent:
The action may be dismissed only if the court and the Attorney General give written
consent to the dismissal and their reasons for consenting.
31 U.S. C. § 3730(b)(1).
Fried Frank FraudMail Alert® No. 17/02/16
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02/16/17
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Before the Michaels ruling, three circuit courts had weighed in on this so-called “veto” provision. The Fifth
and Sixth Circuits held that the provision allows the Government to object to and veto a settlement for any
or no reason at all—i.e., an absolute veto. See Searcy v. Philips Elecs. N. Am. Corp., 117 F.3d 154 (5th
Cir. 1997); United States v. Health Possibilities, P.S.C., 207 F.3d 335 (6th Cir. 2000). Both circuits
rejected the contrary ruling by the Ninth Circuit in United States ex rel. Killingsworth v. Northrop Corp., 25
F.3d 715 (9th Cir. 1994), where the court held that the consent provision applies only to the initial period
when the qui tam action remains under seal. Thereafter, according to the Killingsworth court, once the
Government declines to intervene, the Government’s veto authority is limited to obtaining a district court
review of the proposed settlement for fairness and reasonableness. Per the Ninth Circuit, the
Government can weigh in on this question, but its veto authority is curtailed by judicial review.
The Fourth Circuit’s Decision in Michaels
In Michaels, the relators and the defendants negotiated a settlement, sought the Government’s approval,
and then asked the court to enforce the settlement after the Government objected on the grounds that the
settlement amount was too low. The district court then certified for interlocutory appeal the proper
interpretation of the Government’s veto authority under § 3730(b)(1), as well as the statistical sampling
issue that was driving the Government’s objection. On appeal, the relators and defendants argued that
the Government should not be permitted to unreasonably withhold its consent to a qui tam settlement.
The Fourth Circuit disagreed, finding instead that § 3730(b)(1) gives the Attorney General absolute and
unreviewable power to veto voluntary settlements in qui tam actions. The court reasoned that the
relator’s “right to conduct the action” does not create an unfettered right to settle the claim, finding it
significant that Congress could have included statutory language similar to the “fair, adequate, and
reasonable” standard that applies to government settlements over a relator’s objection. Michaels, 2017
WL 588356, at *8 (citing 31 U.S.C. §§ 3730(b)(4)(B), 3730(d)(2), 3730(c)(2)(B)). Finally, the Court found
its interpretation entirely consistent with the statutory scheme in which the United States, not a qui tam
relator, is the real party in interest:
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.
2017 WL 588356, at *8. The Michaels court did not address the apparent contradiction between its
holding that the Government can veto a relator-defendant settlement and the Supreme Court’s holding in
United States ex rel. Eisenstein v. City of New York, 556 U.S. 928 (2009), that the Government is not a
“party” (as opposed to the real party in interest) to the litigation in a non-intervened qui tam case.
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Although important to the potential for future Supreme Court review of the “veto” power question, the
practical impact of the Fourth Circuit’s decision is limited. As noted, the decision is consistent with
existing law in two circuits. At most, the Fourth Circuit decision will preclude relators and defendants from
attempting to force a settlement through the court over Government objections in those rare instances
where such a strategy was an option. In most circumstances, FCA defendants make their settlement
agreements contingent on government approval, to avoid the uncertainty, expense, and unwanted
publicity attendant to having further litigation after reaching a tentative settlement. For that reason, the
Justice Department is often consulted during the course of settlement negotiations in an attempt to
determine whether approval will be forthcoming, and counsel are wise to involve the Justice Department
or the local U.S. Attorney’s Office early on in the settlement process. If the Government is unwilling to
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participate in those settlement discussions, counsel for defendant or relator may seek judicial help in
getting government participation.
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Authors:
Douglas W. Baruch
John T. Boese
Jennifer M. Wollenberg
Kayla Stachniak Kaplan
This memorandum is not intended to provide legal advice, and no legal or business decision should be
based on its content. If you have any questions about the contents of this memorandum, please call your
regular Fried Frank contact or the attorney listed below:
Contacts:
Washington, D.C.
Douglas W. Baruch
+1.202.639.7052
[email protected]
John T. Boese
+1.202.639.7220
[email protected]
Jennifer M. Wollenberg
+1.202.639.7278
[email protected]
Fried Frank FraudMail Alert® No. 17/02/16
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