United States: Fourth Circuit Declines To Address FCA Sampling Dispute As "Issue Of Fact" While Affirming That United States Has "Unreviewable Veto Power" To Deny Settlements

On February 14, 2017, after nearly two years of appellate proceedings, the US Court of Appeals for the Fourth Circuit declined to address the substance of an appeal related to the use of statistical sampling to prove liability in a False Claims Act (FCA) case in United States ex rel. Michaels, et al. v. Agape Senior Community, Inc., et al. (4th Cir., Case No 15-2145). In the same opinion, the appellate court affirmed the district court's holding that the Attorney General has the power to veto settlements between relators and FCA defendants, even when the United States has elected not to intervene in the case.

We have been reporting on the developments in this high-profile FCA case as it has proceeded in the Fourth Circuit. From the Court's acceptance of the appeal, to a summary of opening briefs, to amicus briefs filed by hospital trade associations, to the oral arguments last fall, we have keenly followed this case because of its potentially far-reaching implications for FCA defendants.

Regarding the use of statistical sampling to prove liability, the Fourth Circuit dismissed this question as "improvidently granted" for interlocutory review under 28 U.S.C. § 1292(b). The Court held that § 1292(b) review was not appropriate in this case because the use of sampling is a question of fact left to the discretion of the trial court. Citing to the relator's own appellate brief, the Court determined that the appeal "raises the question of whether the district court may, in its discretion, allow the relators to use statistical sampling to prove their case." In light of this assessment, the Court determined that the relator's appeal "does not present a pure question of law that is subject to our interlocutory review under § 1292(b)." While lawyers for both FCA plaintiffs and defendants alike were initially expecting the Fourth Circuit to directly address the sampling question, comments by the Court at oral argument foreshadowed the result here, with the Court declining to substantively address the issue. That leaves the district court's ruling intact, denying the relators in Agape Senior Community the ability to use statistical sampling to prove their case.

On the secondary issue—whether the United States has the authority to derail a settlement reached directly between a relator and defendant in a non-intervened case—the Fourth Circuit issued a lengthy opinion affirming the district court's ruling. Consistent with precedent from the Fifth and Sixth Circuits, the Fourth Circuit held that "the Attorney General possesses an absolute veto power over voluntary settlements in FCA qui tam actions." The Court emphasized that the plain language of the operative statute was controlling here: "Simply put, nothing else in [31 U.S.C.] § 3730 leads us to doubt that Congress meant exactly what it said in § 3730(b)(1) — that a qui tam action 'may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.'" (emphasis added). After expounding on the principles of statutory construction leading to this holding, the Fourth Circuit also included a reminder that "the Attorney General's absolute veto authority is entirely consistent with the statutory scheme of the FCA." The Court noted that "the United States is the real party in interest in any [FCA] suit," United States ex rel. Milam v. Univ. of Tex. M.D. Anderson Cancer Ctr., 961 F.2d 46, 50 (4th Cir. 1992), and "[a]s a class of plaintiffs, qui tam relators are different in kind than the Government. They are motivated primarily by prospects of monetary reward rather than the public good." See Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 949 (1997). Therefore, the Court held, "[i]nstead 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."

In light of the Fourth Circuit's ruling, it is not clear how the case will proceed in the district court. The relators' argument for using statistical sampling to prove their case was based on estimates that a full medical record review of over 50,000 claims for more than 10,000 patients would cost an estimated $36 million or more. The district court found this argument unavailing and the Fourth Circuit has declined to reverse that decision. Meanwhile, the United States estimated likely damages at $25 million which would be substantially exceeded by the estimated discovery costs alone. Relator could attempt to take the case to discovery or we may see the parties—including the Department of Justice this time around—engage in settlement discussions in an attempt to reach a mutually agreeable amount somewhere north of the earlier $1.5 million deal that led to the United States exercising its "absolute veto power." We will continue to monitor the case for further developments.

Fourth Circuit Declines To Address FCA Sampling Dispute As "Issue Of Fact" While Affirming That United States Has "Unreviewable Veto Power" To Deny Settlements

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