Wednesday, January 23, 2019

Partially Intervened Qui Tam Cases Cannot Have Two Masters: Court Bars Relators From Proceeding With Their Non-intervened Claims

Dear Readers,

I commend to you a remarkable case, U.S. ex rel. Wride v. Stevens-Henager College, Inc., 2019 U.S. Dist. LEXIS 6783, 2019 WL 186663 (D. Utah 2019), which addresses the question of whether a qui tam in which the government has partially intervened has “two masters,” the government and the relator, each controlling their own sphere of the litigation, or just one. The District Court held that only one master — the government — can conduct the litigation in a partially intervened qui tam and relator cannot proceed with its own non-intervened claims or amend to bring new claims. The Court specifically found that where the government has intervened in a qui tam “action,” including where the government has intervened in only some but not all of the relators’ qui tam claims, the False Claims Act (FCA) provides that the government alone has the “primary responsibility for conducting the action” and the relators do not have the right to “amend his or her complaint to add defendants and claims to the government’s action.”

In Wride, two relators filed a FCA qui tam against a for-profit school and its successor (herein “for profit schools”). The government intervened in some but not all of their claims against the for-profit schools and filed its own complaint in intervention, which it later amended. Subsequently, relators filed amended complaints (four in all) adding new claims and new defendants. The Court observed that the complaint against the for-profit schools had “two masters,” the government and the relators. Additionally, relators had also been pursuing its separate claims against the for-profit schools and other defendants. The defendants moved to dismiss, and in the process of considering that motion, the Court asked the parties to brief whether the FCA permitted the relators to independently pursue claims against the defendants after the government elected to intervene in the lawsuit. Finding that the relator cannot maintain a separate complaint against the defendant, the Court struck all of the relators’ post-intervention complaints.

The Court observed that nothing in the FCA or its legislative history suggests that “a relator can maintain the non-intervened portion of an [qui tam] action. In fact, the plain language of the statute suggests otherwise.” The FCA, the Court concluded, “is clear that the Government either ‘elect[s] to intervene and proceed with the action,’ sec. 3730(b)(2), or it ‘declines to take over the action,’ sec. 3730(b)(4)(B). There is no in-between.”
The government contended that 31 USC 3730(b)(1) “allows a realtor to maintain the non-intervened portion of the action in the name of the United States.” (Emphasis added.) The references to “the action” here and in other parts of the FCA, the government argued, mean “cause of action” as opposed to “civil action.” The Court rejected that argument and conducted a plain language analysis of the FCA references to “action.” The Court found that the FCA’s text and “its structure” undermine the government’s interpretation because the FCA “unambiguously uses ‘action’ to mean ‘civil action.’”

The government’s chief argument was that Congress’ silence in the FCA as to whether a relator may prosecute the non-intervened portion of an action “suggests that the relator retains a right to do so.” In support of its argument, the government cited 31 USC 3731(c) which in discussing government intervention provides “the Government may file its own complaint or amend the complaint of [the relator] to clarify or add detail to the claims in which the Government is intervening and to add any additional claims. . . .” The Court did not read the provision to permit the relator the right to proceed with claims of its own once the government intervenes. Congress, the Court asserted, “would not have given relators the primary responsibility for prosecuting the non-intervened claims in such a cryptic fashion. . . .[its] silence as to the relator’s right to prosecute non-intervened claims leads to the conclusion that no such right exists.”

Analyzing the portion of the FCA that deals with awards to relators, 31 USC 3730(d), the Court found that “[n]either the statute nor the legislative history suggests that a relator can pursue claims that are separate from the Government’s to recover an increased award” which “undermines the idea that the relators can pursue non-intervened claims.” Key to the Court’s conclusion was that the FCA provides only limited rights to the relator to “continue as a party to the [intervened] action” which the Court distinguished from the government’s right to “conduct the action” when it intervened. Once the government intervenes, the relator has only limited rights and according to the FCA, the Court can limit the relator’s “participation” in the intervened case. In sum, once the government intervened in the qui tam, its complaint “superseded the relators’ complaint and became the operative pleading. The relators then lost the right to add defendants and claims to the action” and “any pleading filed by the relators” thereafter “lacked legal effect.”

This interesting case and the Court’s exhaustive analysis sheds light on an area of FCA litigation that has long needed closer review:  just who controls FCA claims and what is the role of the relator? The FCA appears to provide that a relator’s qui tam must be moored to his or her original disclosure statement. Section 3730(b)(2) requires that at the beginning of the case, the relator “serve” the government with a “written disclosure of substantially all material evidence and information the person possesses.” Presumably when his or her claim is filed, the relator is blowing the whistle on that alleged misconduct about which she or he has knowledge and is presenting their knowledge to government for its investigation.

When relators start bringing in new parties, asserting new theories and new claims beyond the scope of their disclosures, however, then relators are transforming the qui tam provision into an independent vehiclelike a search warrantthat they can use to search for and assert new claims and add new parties about which they may know little or nothing. That is what occurred in Wride. Relators essentially used their “right” to bring a qui tam to independently bring new claims that were unmoored from their original disclosure statement to the government and without first submitting their new claims under seal to the government. When the government argued that relators’ new complaints simply “added detail to the fraudulent schemes already described and thus did not have to filed under seal,” the Court described that argument as “at best, a misstatement.” Indeed, ruling on alternative basis, the Court struck the relators’ fourth amended complaint as a sanction for the relators’ failure to first file it under seal in violation of 31 USC 3730(b)(2).

Unfortunately, I give the Court’s decision in Wride a 50/50 chance of surviving. My prognosis does not result from the decision running afoul of any case law already out there, but simply because it violates that most powerful rule, “this is the way we’ve always done things.”

A. Brian Albritton
January 23, 2019

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