A judge in the District of South Carolina has invited the Fourth Circuit to become the first appellate court to rule on when statistical sampling can appropriately be used to establish FCA liability. The district court also certified for interlocutory appeal the question of whether the Attorney General’s decision in a non-intervened qui tam suit to reject a proposed settlement is subject to judicial review, an issue on which the circuit courts are split. See United States ex rel. Michaels v. Agape Senior Cmty., Inc., No. 12-3466 (D.S.C. June 25, 2015). Both issues became intertwined in this case when the government rejected a $2.5 million settlement agreed to by the defendants and the relator, citing its own extrapolated calculations (based on an undisclosed statistical sampling) as the basis for concluding that damages to the government were $25 million, and that the settlement was therefore inadequate. The resolution of these questions has the potential to significantly impact bargaining dynamics when investigating and negotiating resolutions to qui tam suits.

While the government did not intervene in the relator’s suit, which alleges that Agape submitted false claims for nursing-related services that were medically unnecessary, the government actively participated in the matter, including by filing substantive briefs and attending depositions. Establishing the falsity of these claims would require an expert’s review of individual patient charts. The relator argued that such a claim-by-claim review would be untenable, and she moved for the court to permit the use of statistical sampling to establish both liability and damages. During oral arguments on the motion in October 2014, the court initially indicated that it was inclined to follow the then-recent decision in U.S. ex rel. Martin v. Life Care Centers of America (discussed here) and permit such use of statistical sampling, with defendants relegated to attacking the weight of the extrapolation at trial.

Without having yet ruled on the motion, the court recommended that the parties conduct a bellwether trial. The parties agreed to this course of action, but the trial was stayed through early 2015 as they engaged in settlement negotiations. Although the relator and the defendants reached a settlement agreement to dismiss the case for a payment of $2.5 million, the government refused to approve the dismissal of the suit, citing its authority under 31 U.S.C. § 3730(b)(1) (a qui tam suit “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.”).

On March 16, 2015, the court issued a two-paragraph order denying the relator’s motion to permit the use of statistical sampling. During subsequent negotiations, the government continued to withhold its approval of the settlement. The government’s position was apparently driven by a commitment to its own, far larger, extrapolated calculation of damages. The government contended that its own (undisclosed) extrapolation analysis demonstrated that total damages were at least $25 million, and therefore that the proposed settlement payment, which was only 10% of the government’s estimate of total damages, was inadequate. Agape then filed a motion to enforce the settlement, prompting the court to consider whether the government’s settlement review authority under the FCA was subject to a judicial review for reasonableness.

The district court determined that the plain language of the FCA includes no limitation on the Attorney General’s authority to withhold consent to a dismissal, and therefore, the court was not at liberty to enforce a settlement over the government’s objection. The Fifth, Sixth, and D.C. Circuits have all reached similar conclusions, rejecting an earlier opinion in the Ninth Circuit that limits the government’s unfettered veto authority to the time period prior to its decision to intervene. Nonetheless, the court decided that both the question of whether the Attorney General’s veto was reviewable and the question of whether statistical sampling could be used to establish FCA liability in this case warranted interlocutory appeal. As the court explained, it was placed in a “unique dilemma,” because the government, “claiming an unreviewable veto right over the tentative settlement in this case, objects to a settlement in a case to which it is not a party, using as a basis of its objection some form of statistical sampling that this Court has rejected for use at the trial of this case.”

With respect to sampling, the court acknowledged that statistical sampling may appropriately be used to calculate FCA liability in certain cases. By way of example, the court cited another FCA case on its docket where significant underlying evidence was no longer available to the parties, supporting the use of sampling as a proxy for the missing evidence. However, the court took the position that sampling was not appropriate in the instant case, given the highly fact-intensive questions involving the medical necessity of care provided to patients and the fact that all of the medical records at issue were available to the parties for review. Underlying the court’s posture seems to be “a gut sense,” articulated during the hearing on the relator’s original motion, that “the plaintiff has brought this case, they have taken on the burden of proof, the records are there [and] . . . not going anywhere, [and] if the plaintiffs want to prove their case . . . that’s what we’ll have a trial for.”

In support of its approach, the court cited United States v. Friedman (D. Mass. July 23, 1993), which declined to allow statistical sampling where discrete claims could be analyzed and subjected to cross examination. In its lengthy opinion, the Life Care Centers of America court specifically distinguished Friedman, explaining that the judge’s task had been made feasible only by the fact that there were a mere 676 claims at issue, and therefore the opinion could not support a ruling prohibiting statistical sampling of a far larger pool of claims. Others have agreed with this distinction (as reported here). These competing interpretations of Friedman highlight the tension the Fourth Circuit will face when balancing a plaintiff’s burden of proof under a law that has as its sine qua non an actual false claim, and objections that proving the falsity of each claim would sap judicial and federal resources to an unreasonable extent.

We will continue to monitor developments in this case. A copy of the court’s opinion can be found here.