by Kenneth J. Nolan
Unless you haven’t been paying attention, then you have heard and read about qui tam actions. Technically, what lawyers and scholars are talking and writing about is the qui tam provision of the Federal False Claim Act.1 To review, the qui tam provisions of the Federal False Claim Act permit any citizen who has knowledge of a fraud against the government to initiate a civil action in federal district court in the name of the United States against the perpetrators of the fraud.2 Numerous articles have discussed the specific requirements and parameters of a qui tam action.3 Despite the intricate and puzzling terms and requirements of the Federal False Claim Act, since the 1986 amendments to the act qui tam lawsuits have been remarkably successful. According to the Department of Justice, recoveries for the government in qui tam actions amount to almost $3 billion, since 1986.4 The growth of qui tam lawsuits has been explosive. In 1987, 33 qui tam lawsuits were filed under the Federal False Claims Act, while in 1998, 471 qui tam lawsuits were filed.5 In 1987, $200,000 was returned to the U.S. Treasury due to qui tam lawsuits, and in 1998, $331 million was recovered.6 These kinds of statistics are revealing for two reasons. First, despite all of the political rhetoric and posturing, fraud upon the government does not seem to be going away soon. Second, absent qui tam lawsuits, a significant amount of fraud upon the government would remain unremedied.
Considering the obvious effectiveness of qui tam lawsuits, why would the Supreme Court of the United States, on its own initiative, jump in and question the constitutionality of qui tam lawsuits? This is exactly what the Supreme Court has done in the case of State of Vermont Agency of Natural Resources v. United States ex rel. Stevens, 162 F.3d 195 (5th Cir. 1998). The issue accepted by the Supreme Court for certiorari review in this case was whether a state can be sued for a violation of the Federal False Claim Act. Additionally, the Supreme Court has now become concerned with the question of whether a private citizen plaintiff, or relator under the act, has standing to sue in federal court under the qui tam provisions of the act.7 This is a critical question.
Since the original version of the Federal False Claim Act was enacted in 1863 to curb fraud upon the government during the Civil War, the standing of private citizens to bring qui tam lawsuits has not been questioned by the Supreme Court.8 No doubt the plaintiff-friendly 1986 amendments to the act increased the use of the act. In addition, perhaps the Fifth Circuit Court of Appeals decision in Riley v. St. Lukes Episcopal Hospital et al., 196 F.3d 561 (5th Cir. 1999), “red flagged” this issue for the Supreme Court. The Riley court ruled that the relator, absent government intervention, did have standing to sue under Article III of the United States Constitution.9 However, the court went on to hold that a relator-only qui tam lawsuit was unconstitutional in that such a prosecution violated the separation of powers doctrine and the Take-Care Clause in Article II section 3 of the United States Constitution.10
Defendants’ Argument Against Standing
Defendants’ best challenge to a plaintiff’s standing in a qui tam action has typically concentrated on Article III of the United States Constitution. Article III states in part that “The Judicial Power [of the federal district court] shall extend to all Cases, in Law and Equity, arising under this Constitution [and] the Laws of the United States…made, or which shall be made….” The grant of judicial power in Article III is commonly referred to as limited by the “case or controversy” requirement. In short, the “case or controversy” requirement confines the judicial power of the federal courts to the adjudication of actual “cases” or “controversies.”
The Supreme Court in Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464 (1982), set forth the requirements to satisfy the “case” or “controversy” requirement. Valley Forge confirmed that plaintiffs in federal court must show that they have suffered some actual or threatened injury as a consequence of the defendant’s unlawful conduct to truly present a “case” or “controversy” to the federal court. The Valley Forge case involved a claim by a nonprofit interest group against a private sectarian school to whom the Department of Health, Education and Welfare conveyed a 77-acre tract of land. The plaintiff interest group claimed that the conveyance of this 77-acre tract violated the establishment of religion clause in the First Amendment of the United States Constitution. The Court found that the plaintiff lacked sufficient standing to sue, noting that the “injury in fact” requirement assures that the federal courts will only resolve disputes within a concrete set of facts from which the realistic ramifications of a decision can be assessed. The Court held that any injury to the plaintiffs was not specific to the plaintiffs, but rather was a generalized injury suffered by all citizens. Because the plaintiffs could not show that they had been deprived of an opportunity to purchase the 77-acre tract, they had no standing to sue to undo the conveyance.
Defendants in qui tam actions rely on this sort of legal analysis to argue that the plaintiff-relator cannot establish a personal, specific, and actual injury, but rather is merely claiming that the government has suffered specific and actual injury. Consequently, the plaintiff-relator, absent proof of actual or threatened personal injury, lacks standing to sue in federal court for a violation of the Federal False Claim Act. Defendants also argue that Congress’ attempt to confer standing on the plaintiff-relator (by enactment of the False Claim Act) must be struck down as unconstitutional. The Supreme Court has reaffirmed this analysis recently in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), where the Court struck down as unconstitutional Congress’ attempt to confer standing on private citizens to enforce environmental protection statutes.11
Although the defendant’s argument against standing is precedent-based and persuasive, the plaintiff’s argument begins with distinguishing the “relator” in a qui tam lawsuit from the plaintiff in the Valley Forge case, the Lujan case, or any other plaintiff in a federal court lawsuit. Unlike other plaintiffs, “qui tam relators cannot and do not sue for FCA [False Claim Act] violations on their own behalf. Rather, they [relators] sue on behalf of the government as agents of the government, which is always the real party in interest.”12
The statutory scheme of the False Claim Act supports this contention. The False Claim Act delineates the differences between the plaintiff-relator and other plaintiffs.13 The act requires that a relator initiate a qui tam lawsuit on behalf of and in the name of the government, through the relator. The act grants to the government the right to intervene in a qui tam lawsuit.14 The act further authorizes the government to settle or dismiss a qui tam lawsuit without the consent of the relator.15 In addition, the government has the right to limit the relator’s involvement in the actual prosecution of the case.16 In short, the relator, which means “informer,” is just that and not the real party to the qui tam lawsuit.17
The standing of a qui tam relator is difficult because application of the standing doctrine must ensure that the court has the power to redress the injury alleged by a qui tam plaintiff. In all False Claims Act cases, however, the plaintiff is the United States of America, through the relator, even though relators are sometimes referred to as a co-plaintiff. Accordingly, the relator’s argument for standing to bring a False Claims Act lawsuit is that the government’s injury, not the relator’s, controls the question of standing.18 This “standing by representation” may also be referred to as “standing by assignment.” Courts adopting this theory rely on the provisions of the False Claims Act that assign a portion of the government’s interests in such a claim to the qui tam relator.19 By assigning a portion of the recovery for False Claim Act violations to relators,20 Congress has conferred standing to the relator to pursue government claims that fall within the False Claims Act.21
On May 22, 2000, the Supreme Court issued its opinion in the Stevens case. The Court held that private individuals do have standing to sue under the False Claims Act.22 The Court ruled that because the False Claims Act allowed for a partial assignment of the government’s damage claim to the relator, the relator as assignee, has standing. Justice Scalia also added that the long tradition of qui tam realtor lawsuits in England and the United States confirmed the Court’s conclusion that such lawsuits are cases or controversies upon which the standing a qui tam relator can be based. The left unresolved two other major constitutional challenges to qui tam relator standing: Appointment Clause arguments and Separation of Powers arguments.23
The Supreme Court’s decision as to whether a relator’s standing to sue under the False Claim Act will have great impact. There is no question that government resources are expended to review and investigate qui tam lawsuits. However, if the only method for successful prosecution of False Claim Act claims is if the government intervenes, then the government will no longer have the direct benefit of recouping almost $3 billion attributable to qui tam cases since 1986.
In short, if the Supreme Court determines that relators do not have standing to pursue qui tam claims after the government has declined to intervene, the only winners will be dishonest government contractors, and the losers will be their competitors, the United States government, and us, the taxpayers. q
1 31 U.S.C. 3729-3736.
2 31 U.S.C. 3730(b)(1).
3 Mary Thompson and Michael Siemer, Qui Tam Litigation: Pursuing Public Claims for Private Gain Under The Federal False Claim Act, 37 Houston Lawyer 18 (2000); John T. Boese and Beth McClain, Scope of Civil False Claim Act is Cause of Strife, N.Y. L.J. (Nov. 8, 1999); Gregory Meyers, Qui Tam Litigation, 10 S.C. Lawyer 26 (1999); Elizabeth Dudek, Medicaid Fraud and Abuse in Florida: A New Approach to an old Problem, 72 Fla. B.J. 44 (1998); Gretchen Forney, Quit Tam Suits: Defining the Rights and Roles of the Government and the Relator Under the False Claim Act, 82 Minnesota L. Rev. 1357 (1998); Patricia Meador and Elizabeth Warren, The False Claim Act: A Civil War Relic Evolves Into a Modern Weapon, 65 Tennessee L. Rev. 455 (1998); Marc S. b
7 Questions about the constitutionality of the qui tam provision of the Federal False Claim Act almost always arise when the government declines to intervene in a relator initiated qui tam lawsuit, and the relator proceeds without the participation of the government.
8 In fact, the Supreme Court denied certiorari on the issue of the constitutionality of relator prosecuted qui tam lawsuits in United States ex rel. Shumer v. Hughes, 520 U.S. 939 (1997).
9 Riley v. St. Lukes Episcopal Hospital et al., 196 F.3d 514 at 523 (5th Cir. 1999).
10 Id. at 531. The Fifth Circuit Court of Appeals opinion in Riley was issued just days before the Supreme Court’s Order in Stevens requesting briefing on the issue of relator standing to sue. An en banc hearing concerning the Riley opinion was granted by the Fifth Circuit Court of Appeals but the hearing was deferred until the Supreme Court rules in the Stevens case.
11 The Lujan court particularly noted that the case before the court was not “the unusual case in which the Congress has created private interest in the outcome of a suit against a private party for the government’s benefit, by providing a cash benefit for a victorious plaintiff.” Lujan, supra at 572-573.
12 United States ex rel. Hyatt v. Northrop Corporation, 91 F.3d 1211 at 1217 n.8 (9th Cir. 1996).
13 31 U.S.C. §3730.
14 31 U.S.C. §3730(b)(4)(A).
15 31 U.S.C. §3730(c)(2)(A) and 31 U.S.C. §3730(c)(2)(B).
16 31 U.S.C. §3730(c)(2)(C).
17 Black’s Law Dictionary at 1453 (West 4th Ed. 1968).
18 United States ex rel. Kelly v. Boeing Co., 9 F.3d 743,748 (9th Cir. 1993); United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1154 (2d Cir. 1993), cert. denied, 113 S. Ct. 2962 (1993); United States ex rel. Robinson v. Northrop Corp., 824 F. Supp. 830 (N.D. Ill. 1993); United States ex rel. Givler v. Smith, 775 F. Supp. 172, 180 (E.D. Pa. 1991); United States ex rel. Truong v. Northrop Corp., 728 F. Supp. 615, 619 (C.D. Cal. 1989).
19 Kelly, 9 F.3d at 748; Robinson, 824 F. Supp. at 836; Givler, 775 F. Supp. at 180-81.
20 Pursuant to 31 U.S.C. §3730(d), the relator is entitled to 15-30% of the government’s recovery.
21 See Caminker, The Constitutionality of Qui Tam Actions, 99 Yale L.J. 341, 383 n.211 (1989); and Lee, The Standing of the Qui Tam Relators Under the False Claims Act, 57 U. Chi. L. Rev. 543, 563-71 (1990).
22 Vermont Agency of Natural Resources v. United States ex rel. Stevens, No. 98-1828 (May 22, 2000).
23 Id. at n.8.
Kenneth J. Nolan is a member of the Consumer Protection Law Committee of he Florida Bar. He practices in Ft. Lauderdale and concentrates in qui tam lawsuits.
Michael Flynn is a professor of Law at the Nova Southeastern University Shepard Broad Law Center. He is a member and past chair of the Consumer Protection Law Committee.
This column is submitted on behalf of the Consumer Protection Law Committee, Adam J. Kohl, chair.