In United States ex rel. Ashton v. Everglades College, Inc., Nos. 16-10849/16-11839, — F.3d —, 2017 U.S. App. LEXIS 7842, 2017 WL 1658478 (11th Cir. May 3, 2017), the Eleventh Circuit recently determined that the United States is not required to satisfy the good-cause intervention standard in 31 U.S.C. § 3730(c)(3) when settling a qui tam action brought under the False Claims Act (“FCA”) over a relator’s objections. The Court also articulated the standard for determining when a settlement between the United States and an FCA defendant is “fair, adequate, and reasonable” under 31 U.S.C. § 3730(c)(2)(B).

In Ashton, two relators brought a qui tam lawsuit against defendant Everglades College, Inc., d/b/a Keiser University (“Keiser” or “the University”) under the FCA, alleging that the University, which participated in federal student financial aid programs, falsely certified its compliance with a federal law that banned incentive payments to university employees working in admissions. The United States initially declined to intervene. The relators prevailed at trial but received no damages and only $11,000 in penalties. While the relators’ appeal was pending, the United States settled the case with Keiser for $335,000. The Court of Appeals remanded the case back to the district court, whereupon the district court allowed the government to intervene and approved the settlement after holding a statutorily-mandated fairness hearing. The relators then appealed from that judgment.

On appeal, the relators argued that the United States had failed to satisfy the good-cause intervention requirements under 31 U.S.C. § 3730(c)(3). The Eleventh Circuit rejected this argument, concluding that the government did not need to satisfy the good-cause standard because § 3730(c)(3) does not apply to settlements. Rather, subsection (c)(3) “applies only when the government intervenes for the purpose of actually proceeding with the litigation—not when it is stepping in only for the purpose of settling and ending the case.” A “straightforward reading of the text” supported this conclusion. In particular, the language of § 3730(b)(2) expressly ties intervention to the government’s taking control of the actual litigation. By contrast, subsections (c)(2)(A) and (B), which concern settlement and dismissal of a qui tam case by the government, do not condition the government’s rights on formally intervening in the case. The Court of Appeals thus declined to “import the good-cause intervention requirement from subsection (c)(3)” into the subsections that expressly govern settlements and dismissals. The Eleventh Circuit noted that its holding was consistent with other circuits, which have reached the same conclusion.

The Court of Appeals also articulated the standard for determining when a settlement between the United States and an FCA defendant is “fair, adequate, and reasonable,” as required by 31 U.S.C. § 3730(c)(2)(B). The relators argued that the standard used to evaluate proposed class settlements between private parties under Rule 23(e)(2) of the Federal Rules of Civil Procedure should apply. The Eleventh Circuit rejected this position, concluding that Rule 23’s purposes were inapplicable in the qui tam context. Rule 23 is applied “without deference to the parties settling the dispute because the purpose of [the] judicial review is to protect absent class members from an unfair bargain.” By contrast, in a qui tam FCA suit, the government should be given deference because it is the government, not the relator, who is the real party in interest. Moreover, “unlike with private plaintiffs, the government’s interests are not confined to maximizing recovery against the defendant,” but may include interests such as proportionality of the award to the seriousness of the misconduct, public policy considerations, political ramifications, and limited prosecutorial resources. Because such considerations are “entirely absent when evaluating a proposed class settlement between private parties,” the Rule 23 standard for class settlements was not the proper framework for evaluating FCA settlements between the government and a qui tam defendant.

The Court of Appeals held that, in the FCA context, there must be both “considerable deference to the settlement rationale offered by the government” and sufficient judicial review of the settlement’s fairness, as required by § 3730(c)(2)(B). As such, when reviewing whether a settlement is “fair, adequate, and reasonable,” a court must “ask whether the government has advanced a reasonable basis for concluding the settlement is in the best interests of the United States, and whether the settlement unfairly reduces the relator’s potential qui tam recovery.” Applying this standard, the Court of Appeals concluded that the proposed settlement was fair, adequate, and reasonable because the government’s rationale for settling was reasonable—the government secured a recovery thirty times larger than the relators’ award, and the government wanted to prevent the “precedential impact of a potentially adverse appellate decision.” The proposed settlement agreement did not unfairly reduce the relators’ potential recovery because the relators’ theory of the case hinged on a proposition that remained an open question in the Circuit, and the settlement agreement actually resulted in a higher recovery for relators than what they received at trial.

The relators argued that the district court erred by denying them an evidentiary hearing and discovery in relation to the settlement hearing. The Eleventh Circuit concluded that the fairness hearing “does not include the right to unearth new evidence . . . to attack the proposed settlement” but, rather, “‘serves a more limited purpose of forcing the government to provide some reasoning behind its decision to settle the case and giv[es] the plaintiff-relators an opportunity to direct the court’s attention to facts or allegations that would suggest the settlement was’ unreasonable.” The fairness hearing is not a “mini-trial on the merits.” The Court noted, however, that a district court has the “inherent equitable power to give more than the FCA minimally commands” and can allow an evidentiary hearing and even limited discovery if the relator makes “colorable and non-speculative” claims that the government failed to investigate the allegations or acted with improper motives in settling the action and demonstrates a “substantial and particularized need” for the evidentiary hearing or limited discovery.

A copy of the Eleventh Circuit’s opinion can be found here.