In what many had initially hoped would be a landmark decision regarding whether statistical sampling can be used to assess False Claims Act (FCA) liability, the Fourth Circuit—consistent with comments at oral argument—declined to address the issue and instead joined two other circuits in holding that the government has an unreviewable right to veto a settlement between a relator and defendants. This is critical for FCA defendants—particularly those in the health care industry—because it means that qui tam plaintiffs will continue to advance the controversial theory of using statistical sampling to prove liability (as opposed to merely damages) in FCA cases. The Fourth Circuit’s decision in United States ex rel. Michaels v. Agape Senior Community, Inc., Nos. 15-2145, 15-2147, 2017 U.S. App. LEXIS 2570 (4th Cir. Feb. 14, 2017) also means that both relators and defendants will remain at risk of being forced to litigate cases that they’d prefer to settle, because DOJ does not approve of the settlement amount.
In Michaels, relators alleged that Agape, a group of senior-care facilities, fraudulently billed Medicare for thousands of services that they either did not provide or were provided to patients who were ineligible for the particular treatment. The government declined to intervene. Relators tried to use statistical sampling to assess Agape’s liability instead of independently reviewing each patient’s medical record, which they claimed would cost millions of dollars—and more than the case was worth. Defendant Agape opposed the use of statistical sampling and argued that relators must prove each element of every false claim they allege, consistent with the plain language of the FCA. After the parties briefed the issue, the district court decided, “Based on the facts of this case, statistical sampling would be improper.” The court noted that statistical sampling is appropriate only “where the evidence has dissipated, thus rendering direct proof of damages impossible.” Meanwhile, while they were litigating the statistical-sampling issue before the district court, the relators and Agape entered mediation and reached a proposed settlement without the government’s knowledge. But citing its unreviewable right to veto a settlement under 31 U.S.C. § 3730(b)(1), the attorney general objected to the proposed settlement. The government’s basis for the objection was that the settlement was substantially less than its estimate of the value of the case. Agape filed a motion to enforce the proposed settlement over the attorney general’s objection.
In ruling whether the government has an unreviewable right to veto an FCA settlement, the district court took a side on a deepening circuit split on the issue and rejected the Ninth Circuit’s reasoning in United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994). In Killingsworth, the Ninth Circuit held that when the government declines to intervene the attorney general’s objection to a settlement is subject to a review by the district court for reasonableness. Rather than follow the Ninth Circuit’s lead, the Michaels district court agreed with the Fifth and Sixth Circuits that the plain language of 31 U.S.C. § 3730(b)(1) gives the attorney general an absolute veto power over voluntary settlements in qui tam actions under the FCA. The district court also noted that if it were able to review the government’s reasoning for objecting to the settlement, it would likely find the objection unreasonable. The district court certified both issues for interlocutory appeal sua sponte. The relators then submitted a petition for permission to appeal both rulings, and Agape petitioned to appeal only the unreviewable-veto ruling. The Fourth Circuit granted both petitions.
The Fourth Circuit relied on the statutory text in holding that the government has an unreviewable right to veto a settlement in an FCA case. The court stated that nothing led it “to doubt that Congress meant exactly what it said in § 3730(b)(1)—that a qui tam action ‘may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.’” It dismissed the Ninth Circuit’s reasoning in Killingsworth as “cobbling” a standard from irrelevant provisions. Moreover, the court noted that the FCA’s statutory scheme supported its conclusion on the issue, as the government’s unreviewable right to veto a settlement is consistent with the fact that the United States is a real party in interest in a qui tam lawsuit. The court also acknowledged that unlike the government, qui tam relators are primarily motivated by monetary gain rather than public good.
With regard to the district court’s statistical-sample ruling, the court determined that the issue was inappropriate for interlocutory appeal, as that issue involved a matter for the discretion of the trial court rather than “a pure question of law,” something that 28 U.S.C. § 1292(b) requires for interlocutory review. Thus, the court declined to review the district court’s ruling on an interlocutory basis. This means that defendants will have to continue to wait for clarification regarding whether FCA plaintiffs can take a shortcut to liability through statistical sampling or will be forced to prove every element of every alleged false claim, as the text of the FCA requires.