Arent Fox clients and friends involved in Government contracting, health care, Federal grant or entitlement programs, or regulated industries should be aware of the November 15, 1999 decision of the U.S. Court of Appeals for the Fifth Circuit in Riley v. St. Luke's Episcopal Hospital, No. 97-20948, 1999 U. S. App. LEXIS 29820 (decided November 15, 1999). There, a by a 2 to 1 vote, a panel of the Court held that the qui tam or "private attorney general" provisions of the Federal False Claims Act ("FCA"), 31 U.S.C. § 3730(b) through (f), are unconstitutional to the extent they allow a purely private person to conduct a civil False Claims Action on behalf of the Government where the U.S. Department of Justice has declined to intervene and prosecute the action directly.
The civil enforcement provisions of the FCA are set forth in 31 U.S.C. § 3729 et seq. Most civil FCA actions involve allegations that a defendant knowingly submitted a false or fraudulent claim to the Government for payment or approval or caused another person to do so [§ 3729(a)(1)], knowingly made or used a false record or statement to get a false or fraudulent claim paid or approved [§ 3729(a)(2)], conspired to defraud the Government by getting a false or fraudulent claim paid or approved [§3729(a)(3)], or knowingly made or used a false record or statement to conceal, avoid, or decrease an obligation to the Government [§ 3729(a)(7)]. Violations normally result in an assessment of treble damages plus penalties of up to $10,000 per violation.
One of the more controversial provisions of the Act is that it allows private parties to file civil False Claims Act litigations as "relators," i.e., private attorneys general, and grants these parties a share of any monetary recovery. Where the Government intervenes and takes over the case, the "relator" may be awarded 15 to 25 percent of any recovery. Where the Government declines to intervene the private relator may pursue the case with minimal or no involvement by the Government thereafter, and if there is a recovery the relator may be awarded 25 to 30 percent of the recovery. 31 U.S.C. § 3730(d).
In the Riley case, the relator (a nurse) sued a hospital, physicians, and other health care providers claiming that the defendants defrauded the Government in violation of the False Claims Act in billing for health care services under Medicare or Medicaid. The Government declined to intervene. The defendants then filed a motion to dismiss contending, among other arguments, that the qui tam or private attorney general provisions of the False Claims Act violate Article II, Section 3 of the U.S. Constitution (the "Take Care" Clause) to the extent that the Act permits a private party to conduct the litigation when the Government declines to intervene. The Take Care Clause provides that "[the President] shall take Care that the Laws be faithfully executed."
Two judges of the three-judge panel agreed with the defendants. Chief Judge Smith's majority opinion looks first to the Supreme Court's decision in Morrison v. Olson, 487 U.S. 654 (1988), where the independent counsel provisions of the Ethics in Government Act were found to be constitutional under the "Take Care" Clause. Judge Smith first analyzes "the extent to which [the qui tam] provisions reduce the Executive's control of litigation." The opinion notes a profound loss of control and "prosecutorial discretion" inherent in the False Claims Act qui tam provisions, observing that the power to bring suits by private individuals "removes from the Executive Branch the prosecutorial discretion that is at the heart of the President's power to execute the laws." The Government may not freely dismiss a qui tam action and may not freely settle the case (this requires Court approval). The Government has no authority to remove the private relator from the case.
Second, the court "compare(s) [the] loss of control to the degree of loss the Morrison Court found to be constitutionally acceptable" in the case of the independent counsel law. In the Court's view, "important safeguards that ensure the Attorney General's control of the independent counsel are lacking." In the independent counsel case, the Attorney General retains power to remove the independent counsel for "good cause." An independent counsel may not be appointed without a specific request by the Attorney General and the decision not to make such a request is committed to the Attorney General's unreviewable discretion. Further, an independent counsel's jurisdiction is defined with reference to the specific facts of the case submitted by the Attorney General, and finally, an independent counsel must in almost all cases abide by Justice Department policy. According to the Fifth Circuit majority, "[n]one of these features is present in the FCA's qui tam provisions." Further, the independent counsel law was "narrowly tailored to achieve its purpose" of avoiding conflicts of interest in cases that would otherwise be prosecuted by the Attorney General. The FCA qui tam provisions are not narrowly tailored but rather they "simply aim to increase protections against fraud." Hence, the qui tam provisions of the FCA do not withstand analysis under the "balancing test" contained in the Supreme Court's Morrison decision. Because the law is unconstitutional as applied in the qui tam context where the Government does not intervene, such cases must be dismissed.
The dissent argues that no precedent in the Supreme Court or elsewhere supports the majority opinion's reasoning and outcome. Further, in the dissenting judge's view, "[t]he qui tam relator provision do not violate separation of powers because they neither ‘impermissibly undermine[]' the executive's power nor ‘prevent the Executive from accomplishing its constitutionally assigned functions.'" Further, according to the dissent, the majority opinion ignores the principle that Congress may "delegate executive power to entities independent of any formal branch of Government." The dissenting judge reasons that the qui tam provisions do not violate the "separation of powers" principle.
As significant a ruling as it is, the Riley panel's decision faces hurdles. The relator in that case may seek a rehearing by the panel as well as a rehearing en banc (by all judges of the Court). Further, if the panel's ruling stands, the losing party may seek review in the U.S. Supreme Court. Such a request would not be unexpected since the other courts have reached the opposite result. See, e.g., United States ex rel. Kelly v. The Boeing Company, 9 F.3d 753 (9th Cir. 1993).
The Riley decision marks the first time a Court of Appeals has held the qui tam provisions of the False Claims Act unconstitutional. The case is certainly worth following as it would very substantially limit the role of qui tam enforcement under the False Claims Act.