While all hoped the Fourth Circuit would finally provide some clarity regarding the use of statistical sampling in False Claims Act (FCA) cases, Valentine’s Day 2017 yielded some surprising events for those awaiting the Fourth Circuit’s opinion in United States ex rel. Michaels et al. v. Agape Senior Community Inc. et al. Over a year after announcing it would be the first appellate court to issue a ruling on the hotly contested issue of using statistical sampling to prove liability under the FCA without directly analyzing the underlying claims, the Fourth Circuit ruled that it should not have accepted this issue and dismissed it “as improvidently granted.” The hoped-for clarity on the state of statistical sampling in FCA cases remains unattained, with district courts taking differing stances.

In a surprising turn of events, the Court devoted that vast majority of its opinion to discussing the “unreviewable veto ruling” and ultimately affirmed it. In upholding the district court’s “unreviewable veto ruling,” the Fourth Circuit joined the Fifth and Sixth Circuits in finding that the Attorney General has an absolute right to reject a settlement. The Ninth Circuit remains the sole Circuit to hold that when the Government declines to intervene in a qui tam, the Attorney General’s objection to the settlement is subject to a reasonableness review.

The relevant statute, 31 U.S.C. § 3730 (b)(1), provides:

A person may bring a civil action for a violation of [the FCA] for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.

Adopting the Fifth and Sixth Circuits’ analyses, and relying “on the plain language” of the statute, the Court ruled that the “Attorney General possess an absolute veto power over voluntary settlements in FCA qui tam actions.” Citing the Sixth Circuit’s analysis, the Court found that “the power to veto a privately negotiated settlement of public claims is a critical aspect of the government’s ability to protect the public interest in qui tam litigation. The FCA is not designed to serve the parochial interests of relators, but to vindicate civic interests in avoiding fraud against public monies.”

The Court further reasoned that “the Attorney General’s absolute veto authority is entirely consistent with the statutory scheme of the FCA. Even where the Government declines to intervene, ‘the United States is the real party in interest in and [FCA] suit.’” Further emphasizing this point, the Court noted that the absolute veto power is necessary to prevent relators from “maximize[ing] their own rewards at the public’s expense.” Qui tam relators are not the same as the Government. As the Supreme Court has previously held, relators “are motivated primarily by prospects of monetary reward rather than the public good.”

The Fourth Circuit’s stance on the “unreviewable veto ruling” has negative consequences for both relators and defendants. The Government is able to sit idly by and not incur any expense in prosecuting the case, but can armchair quarterback when it does not like the amount a defendant will pay to settle. This forces both sides to spend significant sums in advancing the case, and forces courts to devote judicial resources to the case, unless the Attorney General agrees to a proposed settlement. Notably, the Government is not forced to intervene once it vetoes the settlement.

This ruling could become beneficial to those on the defense side as relators may be more reluctant to pursue qui tams where the government has declined intervention. While the relators will get to determine strategy, they basically have no final settlement authority and their litigation spend is ultimately mandated by the Government. Over half of 2016’s FCA recoveries were attributed to law suits brought by whistleblowers. If whistleblowers are required to spend more to obtain these recoveries, their share of the recovery after expenses is diminished and they will have to give serious consideration to the expected recovery versus the expected spend to fully litigate.