SYNOPSIS: The Fourth Circuit dismissed a qui tam suit brought by a former employee who had signed a broad release as part of a severance agreement where the Government already had sufficient knowledge of the subject matter of those claims prior to when the former employee filed his qui tam suit. This “Government knowledge” rule, in an era of mandatory disclosure, could have a significant impact on the ability of former employees who have given their former employers a broad release to bring qui tam suits.

On October 12, 2010, the Supreme Court of the United States denied a petition for writ of certiorari to review the Fourth Circuit’s dismissal of a suit filed by former Purdue Pharma L.P. (“Purdue”) employee, Mark Radcliffe (“Radcliffe”).i Pursuant to the qui tam provisions, Radcliffe alleged that Purdue had defrauded the Government in violation of the False Claims Act (“FCA”) by making false statements regarding the relative price and effectiveness of two of its pharmaceutical products. Radcliffe had entered into a broadly worded release of all claims against Purdue on August 1, 2005,ii but did not file his qui tam suit against Purdue until September 27, 2005. Although by statute private parties to an FCA whistleblower suit may not settle their claims without consent of the Government, the statute does not settle whether a release signed prior to the filing of such a claim is enforceable. The Fourth Circuit found that this release was, in fact, enforceable.iii

The appellate court noted that there were two strong competing public interests: 1) not enforcing agreements where the public interest in enforcement is outweighed by the public interest in not doing so, such as in a whistleblower suit; and 2) enforcing private settlements of disputes. After considering the arguments of the parties and the previous case law on the matter,iv the Court sided with the Government,v holding:

When the Government is unaware of potential FCA claims the public interest favoring the use of qui tam suits to supplement federal enforcement weighs against enforcing prefiling releases. But when the Government is aware of the claims, prior to suit having been filed, public policies supporting the private settlement of suits heavily favor enforcement of a prefiling release. We therefore agree with the Government that ‘[t]he proper focus of the inquiry is whether the allegations of fraud were sufficiently disclosed to the Government, not on whether the Government’s investigation was complete.’ We find that the application of this ‘Government knowledge’ rule meets the balancing analysis required under [previous case law].vi

Because the Court found that the Government was sufficiently aware of the subject matter of Radcliffe’s suit prior to when he filed his suit, this satisfied the pertinent public interest in encouraging those with information of fraud to come forward.vii Therefore, the trial court should have dismissed his complaint based on the release.

As a result of the Fourth Circuit’s holding, when considering whether a release of a later-filed qui tam suit will be upheld, the relevant inquiry will be whether the Government was sufficiently aware of the grounds for the potential lawsuit to overcome the public policy of encouraging whistleblowers to expose frauds against the Government. The Government can become aware of such grounds through several avenues, including self-disclosure, but the extent of the knowledge will be crucial to a determination of whether a release will be upheld.