When can a qui tam whistleblower share in an alternate remedy?
Today’s post is another in our on-going series concerning the requirements for being a successful qui tam relator. More specifically, it looks at the requirements for claiming a share of the government’s recovery under the alternate remedy provisions found in 31 U.S.C. § 3730(c)(5) as discussed in a recent Fifth Circuit opinion.
The Court’s opinion in US ex rel. Babalola v. Sharma, et al. is an important reminder to any and all potential qui tam relators out there. The simple fact is that there are an exacting set of requirements that a potential relator must meet in order to be successful, and most of them are non-negotiable.
But first, a bit of background on alternate remedies and why this concept is so important to qui tam relators and the lawyers that represent them.
What is, and is not, an alternate remedy in qui tam litigation
The alternate remedies provision in the federal False Claims Act provides that if a relator files a qui tam case and the government elects to pursue its claims against the defendant in a manner other than intervening in the qui tam case, the relator is entitled to share in any monetary recovery obtained by the government through the alternate remedy.
It certainly sounds simple enough. Because qui tam relators are required to share all of the information they have with the government — for example, relators are required to serve a disclosure memorandum on the state prior to filing the case, and are then required to file the case under seal of the Court and serve the sealed complaint on the government, but not on the defendant –the government will have an enormous amount of information in its possession about the case.
And in most contexts, the government will have some method of addressing the fraud other than intervening in the qui tam action. Such recoveries can take many other forms, including but not limited to criminal penalties and fines, debarment proceedings, imposing administrative fines, withholding payment due to the contractor, and so forth. If a government agency were allowed to study closely all of the relator’s allegations and evidence, and then proceed with a case against the same defendants without sharing the recovery with the relator, government agencies might be tempted to never cooperate with a relator.
This would for the obvious reasons discourage relators from filing cases in the first place, which would not be in the public interest.
Broadly speaking then, an “alternate remedy” is the government’s exercise of an alternate method to deal with a relator’s qui tam case other than intervening in the relator’s case. Given that the alternate remedies provision is designed to protect the interests of qui tam relators directly and the interests of the government indirectly, it needs to be said that the scarcity of case law interpreting this provision of the federal FCA is a true testament to the community of interests that has arisen between United States Department of Justice lawyers and lawyers in private practice representing qui tam relators. One example is U.S. ex rel. Bledsoe v. Community Health Systems, Inc. 342 F.3d 634, 647 (C.A.6, 2003) but such cases are few and far between, largely because the federal government knows and understands that it is in everyone’s interests not to try using an alternate remedy to cut out a relator.
With that background, we now proceed to examine the recent Fifth Circuit opinion in US ex rel. Babalola v. Sharma.
A look at U.S. ex rel. Babalola v. Sharma
This case was initiated by two relators, Dr. Babalola and Dr. Adetunmbi, who were employed by the defendants, Arun Sharma and Kiran Sharma, from 2007 to 2009. During their employment, relators witnessed tens of millions of dollars in fraudulent healthcare claims by their employers, and resolved to do something about it. What they did, however, was to complain directly to the government in the form of a detailed – and anonymous — letter sent to various government agencies.
Normally, such letters from anonymous sources are more or less ignored, but every now and again the system actually works and – surprise! – the government conducted an extensive investigation into the allegations of the letter.
To make a long story short, on April 26, 2010, the Sharmas both pleaded guilty to conspiracy to commit healthcare and mail fraud and one substantive count of health care fraud in violation of 18 U.S.C. §§ 371 and 1347. In February 2011, at their sentencing, the district court ordered the Sharmas to pay over $43 million in restitution to Medicare, Medicaid, and certain private insurers. Despite their early interest in their employer’s fraudulent practices, Dr. Babalola and Dr. Adetunmbi did not file a qui tam Complaint under the federal FCA and the Texas Medicaid Fraud statute until November, 2011. In other words, after investigation, the indictment, and the criminal sentencing was a done deal.
That is not to say that relators dropped off the map or were not helpful to the government during its investigation. To the contrary, relators met with government officials several times during the investigation and provided input and various kinds of assistance to the government.
Proceedings before the U.S. District Court
As mentioned above, the relators didn’t file their qui tam complaint until the criminal sentencing and restitution were in the bag. What happened next is important – the government simply announced its non-intervention in the qui tam case and asked that the Court unseal the Complaint. This is important because the alternate remedy provision only applies when the government pursues an alternate remedy that precludes the relator from pursuing his or her claims.
In other words, had the government filed a motion seeking to dismiss the case because it had already prosecuted it, the relators would have been in luck. But that is not what the government did.
The next move by relators counsel was to move the court to compel depositions of certain department of justice officials, as if this were a relator’s share dispute. In response, DOJ moved for partial summary judgment, arguing that relators were not entitled to any share whatsoever.
The Babalola case provides clear guidance for qui tam whistleblowers and their counsel everywhere
Besides the above-referenced reason – i.e., the government’s proceeding with the criminal indictment did not preclude the relators from proceeding with their qui tam case – there is an additional, more important, reason why the relators in this case were unsuccessful.
The reason is simply this – the alternate remedies provision of the FCA applies only when there is a pending qui tam case and DOJ determines whether it will pursue the same sorts of claims made in the qui tam Complaint via something other than intervening in the qui tam case filed by the relator.
Notice also that we are well outside the bounds of the “original source” analysis here. Meaning, it does not matter if a relator is the original source of the information that leads to the criminal indictment or not.
As it turns out, I think the Court reached the right opinion in this case. We don’t need to go so far as the law for that – to me, it doesn’t feel right that a relator would be able to send an anonymous letter to the government, and then watch comfortably from the sidelines until the fight is over…
