Courts Should Finally Rule That the False Claims Act Qui Tam Provisions Are Unconstitutional

Key Points:

• Notwithstanding that qui tam relators seek to maximize their own interests, rather than the public interest, Congress sought to expand their power to enforce the FCA to supplement the government’s law enforcement powers.
• Courts initially ruled that Congress’s delegation of law enforcement power to private citizens to enforce federal law was permissible because Congress may shift executive power to third parties to achieve important public policy goals and DOJ maintains residual power to petition courts to limit the private party’s authority to enforce the law.
• However, in more recent Supreme Court precedent, the Court has ruled that the executive branch must have complete control over investigation and prosecution of violation of federal law.
• In light of this more recent precedent, courts should rule that relator’s actions under the FCA are unconstitutional.

Last term, in U.S. ex rel. Polansky v. Exec. Health Res., Inc., three Justices noted that there are “substantial arguments” that the False Claims Act’s (FCA) qui tam provisions do not conform with Article II of the Constitution and suggested that the Court should consider their constitutionality in an appropriate case.¹ From roughly 1993 to 2004, multiple circuit courts ruled that the qui tam provisions are constitutional under Article II.² But given case law developments and the fact that Congress has, in qui tam actions, dispersed power from the executive branch to private persons acting not in the public interest but rather in their own self-interest, now is the time for the Court to consider this issue and to rule that the FCA’s qui tam provisions are unconstitutional.

FCA: Legislative Background and Early Court Decisions on FCA Constitutionality

The FCA arms law enforcement officials with the ability to impose treble damages and civil penalties—an essentially penal remedy—on those who knowingly or fraudulently present false claims to the government.³ It also empowers private citizens (known as relators) to file suits on behalf of the government (known as qui tam actions). The Department of Justice (DOJ) may intervene in a qui tam action or decline to pursue it.⁴ If DOJ intervenes, relator can fully participate as a party prosecuting the action unless DOJ moves the court to limit relator’s participation because it interferes with or delays DOJ’s prosecution of the action.⁵ If DOJ declines to intervene, the private person may prosecute the lawsuit on the government’s behalf and obtain a substantial bounty.⁶ In the event that DOJ initially declines to intervene, it may later intervene in an action brought on its behalf upon a showing of “good cause.”⁷ DOJ may move to dismiss or settle the lawsuit over relator’s objections, but dismissal or settlement is subject to judicial review after a statutorily required hearing.⁸

Throughout its history, Congress and courts have understood that relators generally seek to advance their own interest, rather than the public interest. Congress first enacted the FCA, with its qui tam provisions, during the Civil War.⁹ In establishing a bounty for relators to sue on the government’s behalf, Congress was under no illusion that relators would selflessly pursue the public interest. Instead, as a Senate Sponsor pointed out at the time, the qui tam provisions were based “upon the old-fashioned idea of holding out a temptation, and ‘setting a rogue to catch a rogue,’ which is the safest and most expeditious way … of bringing rogues to justice.”¹⁰ Similarly, the Supreme Court, in Hughes Aircraft Co. v. United States ex rel. Schumer, recognized that “[a]s a class of plaintiffs, qui tam relators are different in kind than the Government. They are motivated primarily by prospects of monetary reward rather than the public good.”¹¹

Notwithstanding relators’ self-interested motivations, Congress expanded the FCA in 1986 to enhance relators’ authority to direct litigation even when DOJ intervenes, believing it necessary to grant relators these powers to supplement scarce federal resources and believing that DOJ had exercised poor judgment in prosecuting and resolving FCA actions. Specifically, in determining to privatize law enforcement to some extent, the Senate Judiciary Committee Report noted that “available Department of Justice records show most fraud referrals remain unprosecuted and lost public funds, therefore, remain uncollected,” and that a “resource mismatch” exists between the federal government and large contractors who may marshal the efforts of large legal teams.¹²

To correct the problem of DOJ being “overmatched,” Congress sought to privatize law enforcement, under some circumstances, by empowering the private citizenry, who “can make a significant impact on bolstering the Government’s fraud enforcement effort,” with the ability to prosecute actions on behalf of the federal government.¹³ But Article II’s Vesting Clause and Take Care Clause unambiguously vest the “executive Power” in “a President of the United States,” who “shall take Care that the Laws be faithfully executed.”¹⁴ As Justice Scalia famously wrote in his dissent in Morrison v. Olson, “this does not mean some of the executive power, but all of the executive power.”¹⁵ Further, Article II’s Appointments Clause mandates that “Officers of the United States” must be nominated by the President “with the Advice and Consent of the Senate,” and that “Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”¹⁶ And the Court had previously ruled that “only Officers of the United States” appointed in accordance with the Appointments Clause—which does not include relators¹⁷—may discharge the “primary responsibility for conducting civil litigation in the courts of the United States for vindicating public rights.”¹⁸

DOJ, itself, has recognized that qui tam relators can act, and have acted, contrary to the public interest when wielding executive power in instituting actions on the government’s behalf. For example, in what is known as the Granston Memo, the then-Director of DOJ’s Commercial Litigation Branch, Fraud Section—which has nationwide jurisdiction over the FCA—identified multiple qui tam cases where relator’s actions undermined executive agency policies or interfered with the administration of its programs, risked the exposure of classified information or military secrets, posed significant economic harm by potentially causing a critical supplier to exit a government program, or caused DOJ to expend significant resources in participating or monitoring cases that DOJ would choose not to incur because it believes the underlying actions to be meritless. DOJ asserts in the memorandum that it should have unfettered discretion to dismiss such actions—a power it does not possess under the FCA.¹⁹

Because of the FCA’s unique structure—which empowers private relators to wield substantial executive power to select which actions to prosecute, to participate actively in the prosecution of those cases, and to play a role in opposing settlement or dismissal—multiple courts, shortly after Congress’s 1986 amendments, considered whether this structure satisfied Article II of the Constitution. As to the Take Care Clause, courts found that DOJ maintains effective control over the litigation because (i) if it initially declines, it can later petition the court to intervene upon a showing of good cause;²⁰ (ii) if it intervenes, it can move to dismiss or settle the action, over relator’s objection, if a court approves; and (iii) relators lack the power of typical plaintiffs (e.g., cannot settle or dismiss without DOJ oversight). As to the Appointments Clause, courts observed that relators are not officers because they have temporary, not continuous power.²¹

Recent Supreme Court Decisions Undermining Rationale Previously Used to Affirm Qui Tam Provisions’ Constitutionality

However, since these prior court decisions were rendered roughly two decades ago, the Supreme Court has moved decidedly away from the principle enunciated in these decisions—that Congress may shift executive power to third parties to achieve perceived important public policy goals—and far closer to the principle of a unitary executive Justice Scalia articulated in his dissent in Morrison: namely, that “the inexorable command of Article II is clear and definite” that “the President’s constitutionally assigned duties include complete control over investigation and prosecution of violations of the law.”²² This conclusion, Scalia observed, flows not just from constitutional text but our democratic structure. Under our system of government, “the primary check against prosecutorial abuse is a political one,” and those “who exercise this awesome discretion are selected and can be removed by a President, whom the people have trusted enough to elect”.²³ This is inconsistent with a process “set in motion that is not in the full control of persons ‘dependent on the people’, and whose flaws cannot be blamed on the President.”²⁴

For example, in Free Enterprise Fund v. Public Company Accounting Oversight Bd., the Court found that a dual layer of for-cause removal restrictions for members of the Public Company Accounting Oversight Board (an independent agency within an independent agency) breached the Constitution.²⁵ The Court observed that permitting third parties to “execute the laws” beyond the President’s control “is contrary to Article II’s vesting of the executive power in the President.”²⁶ Instead, “the executive power include[s] a power to oversee executive officers through removal.”²⁷ Indeed, without the power of removal, the President cannot “be held fully accountable” for the exercise of executive power, “‘greatly diminish[ing] the intended and necessary responsibility of the chief magistrate himself’.”²⁸

More recently, in Seila Law LLC v. Consumer Fin. Prot. Bureau, the Court considered whether an independent agency, the Consumer Financial Protection Bureau (CFPB), may be led by a single director whom the President can only fire for-cause.²⁹ The Court ruled that this arrangement violates the Constitution’s separation of powers. The Court noted that among the powers the CFPB’s Director possessed were “to seek daunting monetary penalties against private parties on behalf of the United States in federal court—a quintessentially executive power.”³⁰ The Court found that “by vesting significant governmental power in the hands of a single individual accountable to no one,” the Constitution’s carefully calibrated system of making the President accountable for the exercise of executive power was undermined.³¹

Conclusion

These recent Supreme Court cases’ unifying principle is that our democratic structure requires that those who wield core executive power must be ultimately accountable to the chief executive: the elected President. But the FCA endows non-accountable, non-elected, self-interested, profit-maximizing relators, who have no bosses, peers or voters to whom they must report, with the power to determine whom to prosecute in actions seeking knee-buckling penalties against private citizens. Further, as DOJ acknowledges, relators have filed multiple actions that directly undermine executive branch policies and programs and, under the FCA, DOJ has no at-will, unfettered ability to dismiss relator’s lawsuit or limit relator’s ability to participate in an FCA lawsuit. Indeed, the President has greater power over the Attorney General, whom he can discharge at will, than over relator, whom he cannot discharge for breaching policy, and can only eliminate a relator’s qui tam lawsuit that breaches policy after obtaining court approval.

Based on an application of recent Supreme Court case law and clear, unambiguous constitutional text, the days of the qui tam provisions being found constitutional are appropriately numbered.

Read past issues of The Salcido Report

July 12, 2023 – False Claims Act Knowledge Element after Schutte: What Is Lost, What Remains, What Companies Should Do Next to Minimize Exposure to Liability

April 28, 2022 – Multiple Appellate Courts Now Rule that Government and Relator Cannot Take Advantage of Ambiguous Law to File False Claims Act Lawsuit to Obtain Treble Damages and Civil Penalties

January 18, 2022 – OIG Joint Venture Advisory Opinion Does Not Consider Multiple Court Decisions That Undermine the Conclusions in Its Opinion

November 24, 2020 – When Can Opinions be “False” and Result in False Claims Act Liability: Three Circuit Courts Provide Conflicting Guidance

January 27, 2020 – False Claims Act – Year In Review: Five Decisions That Will Affect the Future of FCA Litigation

October 10, 2019 – 11th Circuit’s Decision in AseraCare: Important in Determining When Clinical Judgment Regarding Medical Necessity Can Result in an Overpayment and How Evidence Regarding Corporate Knowledge Must be Tied to Claims to Establish False Claims Act Liability

June 24, 2019 – Three Years After Escobar: Lessons Learned Regarding Plaintiffs’ Efforts To Neutralize Escobar and Opportunities This Practice Raises for Defendants

February 12, 2018 – False Claims Act Circuit Splits—FCA Issues That May Soon Reach The Supreme Court Or Lead To Congressional Amendment

October 9, 2017 – Under What Circumstances Can A Private Qui Tam Plaintiff Overrule Government Agency Experts’ Use Of Administrative Discretion To File False Claims Act Actions In The Post-Escobar FCA World?

September 26, 2016 – Recent Significant Case Law Developments Regarding What Constitutes a Reckless Interpretation of a Law and When Retention of an Overpayment Violates the False Claims Act

February 25, 2016 – What Must the Government Prove to Establish that a Defendant Recklessly Interpreted a Statute or Regulation in Violation of the False Claims Act?

December 21, 2015 – Understanding When An Overpayment Can Result in False Claims Liability and Why Current Court Precedent and Regulatory Guidance Is Mistaken

October 28, 2015 – Minimizing Exposure to Stark Law Liability in False Claims Act Cases by Isolating Those Who Determine Fair Market Value From Those Who Measure Contribution Margin or Other Similar Operational Data

October 1, 2015 – When a Violation of a Rule or Regulation Becomes an FCA Violation: Understanding the Distinction Between Conditions of Payment and Conditions of Participation

September 25, 2015 – False Claims Act Public Disclosure Alert

About the Author

Robert Salcido is a leading FCA practitioner.

Robert has been lead counsel in several FCA actions in which he successfully defended clients in FCA actions that the government or relator filed at trial or summary judgment. Some of those cases include:

• Lead counsel for Golden Living in an FCA action where the federal government had sued Golden Living’s predecessor company, Beverly Enterprises, for $895 million, alleging that Beverly had engaged in an unlawful kickback scheme with McKesson Corp. in violation of the Anti-Kickback Act and the FCA. After 14 days of trial, the court ruled that Beverly and McKesson did not violate the FCA or the Anti-Kickback Act because their business negotiations were fair, reasonable and conducted in good faith. See United States of America ex rel. Jamison v. McKesson Corp., 900 F. Supp. 2d 683 (N.D. Miss. 2012).
• Lead counsel for Aegis Therapies and a Golden Living skilled nursing facility where the federal government had alleged that defendants provided medically unnecessary rehabilitation therapy. The district court granted defendants’ summary judgment motion, ruling that the government had used the wrong standard to assess whether the services were medically necessary and failed to prove that defendants’ certification regarding medical necessity was objectively false. See United States ex rel. Lawson v. Aegis Therapies, Inc., 2014 U.S. Dist. LEXIS 45221 (S.D. Ga. Mar. 31, 2015).
• Lead counsel for a defendant physician and multispecialty group practice that the government accused of FCA violations. The district court dismissed all the government’s claims on summary judgment. Ultimately, because the United States’ action lacked “substantial justification,” the U.S. was ordered to pay defendants more than $500,000 in legal fees. In making the ruling, the court ruled that Medicare fraud law is an area of expertise and ruled that it was undisputed that Robert possessed such expertise. See United States v. Prabhu, 442 F. Supp. 2d 1008 (D. Nev. 2006).
• Lead counsel for Golden Living in an action where the relator and the government sued multiple defendants alleging that they violated the FCA because they knowingly created and operated a supply company in violation of Medicare Supplier Standards. The district court granted defendants’ FCA summary judgment motion regarding the Supplier Standards allegations, finding that the government’s prior administrative proceedings demonstrated that the defendant supply company was entitled to payment. See United States ex rel. Jamison v. McKesson Corp., 784 F. Supp. 2d 664 (N.D. Miss. 2011).

Robert has authored a number of books and chapters in leading publications (including the American Health Lawyers Association, BNA Books and Bloomberg BNA) regarding the application of the FCA, including:

• False Claims Act & the Health Care Industry: Counseling & Litigation (5th ed. American Health Law Ass’n 2024) (forthcoming).
• “The False Claims Act in Health Care Prosecutions: Application of the Substantive, Qui Tam and Voluntary Disclosure Provisions” in Health Care Fraud and Abuse: Practical Perspectives, Ch. 3 (3d ed. BNA Books 2013) (with annual supplements).
• “False Claims Act: Health Care Applications and Defenses” in Bloomberg BNA Health Law and Bus. Series No. 2650 (2012).

Because of his work successfully defending a number of FCA lawsuits, Robert has been recognized in the following:

• Selected for inclusion in The Best Lawyers in America 2021.
• Recognized by BTI Consulting Group as 2020 Client Service All-Star which is based on in-depth interviews with general counsel and recognizes lawyers who have been identified as “delivering the absolute best levels of client service.”
• Recognized by The National Law Journal in its 2019 inaugural list of Health Care Law Trailblazers regarding those who have made an impact through new strategies or innovative court cases for several notable FCA wins.
• Recognized by The National Law Journal in its 2018 Winning Litigators chosen for their “great results for clients in high stakes matters” for obtaining a successful trial verdict in an FCA lawsuit.
• Chambers USA: America’s Leading Lawyers for Business (2006–2023). In the 2011–2023 editions of Chambers USA, Robert is listed under Healthcare: Regulatory & Litigation, Leading Individuals (Nationwide) (Band 1) or as Healthcare Leading Individuals (District of Columbia) (Band 1).
• Recognized by The National Law Journal in its 2014 Litigation Trailblazers & Pioneers as one of 50 “people who have made a difference in the fight for Justice” for his outstanding work in defending FCA lawsuits.
• Law360, which selected Robert as one of the four Health Care MVPs for 2012 based upon a successful trial verdict obtained in defense of a national skilled nursing facility chain in an $895-million FCA lawsuit the government filed.
• Recognized by Washington, D.C., Super Lawyers in the health care practice area (2008–2011; 2013–2020).

Robert also won awards for his governmental service, including:

• 1993 Department of Health and Human Services Office of Inspector General (OIG) Integrity Award (highest award OIG bestows to individuals outside of the OIG).
• 1992 United States Department of Justice Special Achievement Award (for Sustained Superior Performance of Duty).
• 1991 United States Department of Justice Special Achievement Award (for Sustained Superior Performance of Duty).

Before entering private practice, Robert served as trial counsel for the DOJ Civil Fraud Section, which has nationwide jurisdiction over the FCA, where he led several successful prosecutions of the FCA on the United States’ behalf.

^{1 599 U.S. 419, 442 (2023) (Kavanaugh, J., concurring); see also id. at 447-50 (Thomas, J., dissenting).}

^{2 See, e.g., U.S. ex rel. Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 753-758 (5th Cir. 2001) (en banc); U.S. ex rel. Taxpayers Against Fraud v. General Elec. Co., 41 F.3d 1032, 1041 (6th Cir. 1994); U.S. ex rel. Kelly v. Boeing Co., 9 F.3d 743, 753-759 (9th Cir. 1993); U.S. ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1155 (2d Cir. 1993).}

^{3 Universal Health Servs. v. U.S. ex rel. Escobar, 579 U.S. 176, 182 (2016); Cook Cnty. v. U.S. ex rel. Chandler, 538 U.S. 119, 130 (2003); Vt. Agency of Natural Res. v. U.S. ex rel. Stevens, 529 U. S. 765, 784 (2000).}

^{4 See 31 U.S.C. § 3730(b)(4).}

^{5 Id. § 3730(c)(2)(C). Note, however, that DOJ cannot remove the relator from the action entirely.}

^{6 Id. § 3730(c)(3) (“If the Government elects not to proceed with the action, the person who initiates the action shall have the right to conduct the action.”).}

^7 Id.

^{8 Id. §§ 3730(c)(2)(A)-(B).}

^{9 Act of March 2, 1863, Ch. 67, 12 Stat. 696.}

^{10 CONG. GLOBE, 37th Cong., 3d Sess. 956 (1863).}

^{11 520 U.S. 939, 949 (1997).}

^{12 S. REP. NO. 345, 99th Cong., 2d Sess. 4–8 (July 28, 1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5269, 5273.}

^13 Id.

^{14 U.S. Const. art. II, §§ 1, 3.}

^{15 Morrison v. Olson, 487 U.S. 654, 705 (1988) (Scalia, J., dissenting).}

^{16 U.S. Const. art. II, § 2, cl. 2.}

^{17 The Supreme Court later held in Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S. Ct. 1507, 1514 (2019) that “a private relator is not an ‘official of the United States.’”}

^{18 Buckley v. Valeo, 424 U.S. 1, 140 (1976).}

^{19 Memorandum from Michael Granston, Dir., Commercial Lit. Branch, Fraud Div., Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018); see also Memorandum Op. for the Att’y Gen. from William P. Barr, Assistant Att’y Gen., Off. of Legal Couns., Constitutionality of the Qui Tam Provisions of the False Claims Act 207-08, 217-18 (Jul. 18, 1989) (observing that a “relator is empowered to prosecute the government’s claim even when the Attorney General has determined there is no valid claim or that pursuing the suit is not in the interests of the United States” and citing to United States ex rel. Hyatt v. Northrop Corp., No. CV 87-6892 KN (Jrx), 1989 U.S. Dist. LEXIS 18940 (C.D. Cal. Dec. 27, 1989) as “an example of a case in which the qui tam provisions have allowed a relator to force a suit that this Department would not have pursued,” where “extensive investigations of Northrop’s operations by the U.S. Attorney and the Air Force failed to produce evidence of fraud” and the records rebutted relators’ fraud allegations, but “[n]evertheless, the relators are permitted by the qui tam provisions to continue to pursue their suit on behalf of the Government to satisfy their personal purposes, whether for harassment or in hopes of forcing Northrop to pay them a settlement award”).}

^{20 A court may limit DOJ’s rights upon intervention or reject its ability to intervene altogether to prosecute an action brought on its behalf. See Robert Salcido, FALSE CLAIMS ACT & THE HEALTHCARE INDUSTRY: COUNSELING & LITIGATION at 3:03.B.3 (5th ed. AMERICAN HEALTH LAW ASS’N 2024) (forthcoming).}

^{21 See above at n.2. Following the Supreme Court’s ruling in Polansky, several courts have continued to rule that qui tam lawsuits do not breach the Take Care and Appointments clauses relying on precedents, at n.2, which were issued roughly two decades ago. See, e.g., U.S. ex rel. Wallace v. Exactech, Inc., No. 7:18-cv-01010-LSC, 2023 U.S. Dist. LEXIS 207881, at *10-17 (N.D. Ala. Nov. 20, 2023); U.S. ex rel. Miller v. Manpow, LLC, No. 2:21-cv-05418, 2023 U.S. Dist. LEXIS 179199, at *5-13 (C.D. Cal. Aug. 30, 2023); see generally U.S. ex rel. Thomas v. Mercy Care, No. CV-22-00512, 2023 U.S. Dist. LEXIS 201363, at *12-13 (D. Ariz. Nov. 9, 2023) (refusing to consider issue because defendant failed to develop the argument other than cite to the nonbinding concurrence in Polansky and dissent).}

^{22 487 U.S. at 710 (emphasis in original).}

^{23 Id. at 728.}

^{24 Id. at 728-29.}

^{25 561 U.S. 477 (2010).}

^{26 Id. at 484.}

^{27 Id. at 492.}

^{28 Id. at 514 (quoting The Federalist No. 70). The Court reasoned:
The President cannot “take Care that the Laws be faithfully executed” if he cannot oversee the faithfulness of the officers who execute them. Here the President cannot remove an officer who enjoys more than one level of good-cause protection, even if the President determines that the officer is neglecting his duties or discharging them improperly. That judgment is instead committed to another officer, who may or may not agree with the President’s determination, and whom the President cannot remove simply because that officer disagrees with him. This contravenes the President’s constitutional obligation to ensure the faithful execution of the laws.}

^{29 140 S. Ct. 2183 (2020).}

^{30 Id. at 2200 (footnote omitted).}

^{31 Id. at 2203.}