An Indiana Federal District Court just published an opinion on an issue of first impression in the Seventh Circuit, the ability of the government to reject or approve a settlement in a case in which they did not intervene. The court also opined on the ability of a whistleblower to enter into a settlement that delivered none of the proceeds to the government.

In Howze v Sleep Centers, the whistleblower and the Defendant entered into settlement discussions, which reached the point of an unsigned draft settlement agreement. Neither the US nor the State of Indiana had approved the settlement. Defendant changed counsel, and new counsel immediately rejected the proposed agreement.

The whistleblower moved to enforce the agreement, arguing that the government was made aware of the agreement, that it would not be harmed by it and that the government lacked veto authority because it refused to intervene in the case.

The plain language of the statute, 31 USC sec. 3730(b)(1), states a whistleblower case under the False Claims Act “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.” However, the Ninth Circuit Court of Appeals, in the Killingsworth case,  held that the government’s refusal to consent to a settlement was subject to a court’s review for reasonableness. However, the Fifth and Sixth Circuit Courts of Appeal, as well as the D.C. District Court, have all rejected the Ninth Circuit’s interpretation, accepting instead the plain language of the statute.

The District Court rejected the Ninth Circuit’s interpretation, stating:

“This Court is persuaded by the plain language of the statute as well as the policy purposes behind the FCA to side with the Fifth and Sixth Circuits in their upholding the requirement for government consent to dismiss FCA claims. Where, as here, the Agreement attempts to dismiss FCA claims over the government’s objection, this Court cannot enforce the Agreement.”

The settlement agreement the whistleblower hoped to enforce did not provide any money to the government – 100 percent of the settlement proceeds went to the whistleblower and his counsel. He argued that there was nothing in the statute that prohibited such an agreement. The court disagreed, again based upon the plain language of the statute:

“If the Government does not proceed with an action under this section, the person brining the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds.” 31 U.S.C. § 3730(d)(2)

The court stated:

“These (FCA) claims belong to the United States and the State of Indiana, and as such Howze is only entitled to a portion of these claims, not 100%. The Agreement is not enforceable.”

While this decision was made at the District Court level, the reasoning behind it, as well as the precedent from the Fifth and Sixth Circuits, suggest that it will be persuasive in Seventh Circuit courts.

Health Care Takeaway

Health care providers must always be conscious of potential False Claims Act risk. This case is persuasive in Seventh Circuit courts in Wisconsin, Illinois and Indiana and stands for the propositions that the government cannot be excluded from settlements, either in their approval or in their award of settlement proceeds.