Summary: The Court of Appeals for the DC Circuit ruled last week that the United States cannot settle a qui tam action over a relator's objection without a judicial finding that the proposed settlement is fair, adequate, and reasonable under the circumstances. The decision will potentially complicate efforts by the government and defendants to resolve cases under the False Claims Act, especially those with little merit or damage to the government.
On April 20, 2012,
the US Court of Appeals for the DC Circuit held that the United
States cannot settle a qui tam action over a relator's
objection without a judicial finding that the proposed settlement
is fair, adequate, and reasonable under the circumstances,
United States ex rel. Schweizer v. Oce N.V., --- F.3d ---,
2012 WL 1372219, potentially complicating efforts by the government
and defendants to resolve cases under the False Claims Act (FCA),
31 U.S.C. § 3729 et seq., especially those with
little merit or damage to the government.
Summary
of the Decision
In April 2006,
Stephanie Schweizer sued her employer, Oce North America, Inc.,
relying in part on the FCA's qui tam provisions. The
government declined to intervene but later reached a settlement
agreement with Oce and then moved to dismiss the qui tam
claims. The district court granted the motion over Schweizer's
objection after holding a hearing but without making a finding that
the settlement agreement was fair, adequate, and reasonable.
The DC Circuit
reversed and remanded, holding that the district court erred in not
making a fairness determination. As an initial matter, the court
rejected Schweizer's contention that the government could move
to dismiss only if it had previously intervened in the case.
Instead, the court held that intervention is necessary only if the
government wishes to "proceed with the action."
Schweizer, 2012 WL 1372219, at *4-*5. In so holding, the
DC Circuit joined several other courts, including two other courts
of appeals. See, e.g., Ridenour v. Kaiser-Hill Co., 397
F.3d 925, 932-35 (10th Cir. 2005); U.S. ex rel. Kelly v. Boeing
Co., 9 F.3d 743, 753 n.10 (9th Cir. 1993) (dicta); U.S. v.
Shasta Services, Inc., 440 F. Supp. 2d 1108, 1112-13 (E.D.
Cal. 2006); Friedman v. Rite Aid Corp., 152 F. Supp. 2d
766, 772 (E.D. Pa. 2001) (dicta).
The crux of the
opinion focused on the interplay between two provisions of the FCA.
Schweizer argued for the applicability of 31 U.S.C. §
3730(c)(2)(B), which provides that the "Government may
settle [a qui tam] action with the defendant
notwithstanding the objections of the person initiating the action
if the court determines, after a hearing, that the proposed
settlement is fair, adequate and reasonable under all the
circumstances." (emphasis added). The government and the
defendant, by contrast, pointed to 31 U.S.C. § 3730(c)(2)(A),
which states that the "Government may dismiss [a
qui tam] action notwithstanding the objections of the
person initiating the action if the person has been notified by the
Government of the filing of the motion and the court has provided
the person with an opportunity for a hearing on the motion."
(emphasis added). The DC Circuit had previously held that §
3730(c)(2)(A) gives the government an "unfettered" right
to dismiss qui tam claims, Swift v. United
States, 318 F.3d 250, 252 (D.C. Cir. 2003), and that the only
function of a hearing under that provision is to give the relator a
formal opportunity to convince the government not to end the
case.
The
Schweizer court's reasoning focused on the text of
§ 3730(c)(2)(B). The court held that the text establishes just
two conditions to trigger the requirement of a fairness
determination following a hearing: (1) the government and the
defendant agree to settle the case; and (2) the relator objects. If
both conditions exist, as in the Schweizer case, a
fairness determination following a hearing is required. The court
recognized that under this interpretation, judicial approval is
required when the government tries to settle a case over a
relator's objection but is not required when the government
tries to dismiss a case outright. In the latter situation, when the
relator will not receive any compensation, he is nevertheless
entitled to less protection than when some compensation to
the relator may be at issue. But the court concluded that the text
of § 3730(c)(2) dictated this reading.
Finally, the court
rejected the argument that under its reading of §
3730(c)(2)(B) the FCA would unconstitutionally infringe on the
President's obligation to "take Care that the Laws be
faithfully executed." U.S. Const. art. II, § 3. The court
pointed to Federal Rule of Criminal Procedure 48(a), which permits
the government to dismiss an indictment, information, or complaint
only with leave of the court, and noted that the Rule has been
upheld even though it vests some discretion in the court as to
whether the government may terminate an action brought in its name.
As other examples of judicial scrutiny of settlements, the court
referred to oversight of plea agreements, antitrust consent
decrees, and class action settlements.
Implications
- The Schweizer decision may complicate efforts by FCA defendants to settle qui tam actions over the objections of relators. Rather than facing the essentially pro forma hearing mandated by § 3730(c)(2)(A), settling defendants (and the government) must now be prepared for a hearing at which they must defend the fairness of the settlement.
- The decision may lead the government and FCA defendants to avoid having courts approve the terms of, and thus retain jurisdiction over, settlement agreements. The government argued that a fairness determination under § 3730(c)(2)(B) is required only when a settlement is made a part of the judgment in the case. The Schweizer court considered it unnecessary to rule on this argument because the settlement agreement before it was incorporated into a judgment in this way. But the court thus left open the possibility that the government and FCA defendants could perhaps escape the fairness determination requirement of § 3730(c)(2)(B) by settling out of court and seeking straight-out dismissal.
Finally, FCA defendants in other circuits may still press the Take Care Clause argument advanced by Oce but rejected by the DC Circuit. The current Administration was unwilling to join that argument, and the government normally defends the constitutionality of federal statutes, but it is conceivable that a different administration would choose to support that constitutional objection to § 3730(c)(2)(B).
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