The future of qui tam actions under the False Claims Act (FCA) may be in jeopardy due to a groundbreaking case out of the Middle District of Florida. In U.S. ex rel. Zafirov v. Florida Medical Associates, LLC, No. 8:19-CV-01236-KKM-SPF (M.D. Fla. Sept. 30, 2024), a federal judge found that the qui tam or whistleblower provisions of the FCA, which have been around since the Civil War, are unconstitutional.
This comes as the Department of Justice’s (DOJ) Civil Fraud Division recently announced that its False Claims Act settlements and judgments totaled a record-breaking $2.68 billion in 2023. Qui tam lawsuits, where a private citizen brings a suit under the FCA in place of the government, made up 87% of those recoveries. This case, and ones to surely come after it, have the potential to disrupt the landscape of FCA litigation as we know it.
Background
In Zafirov, the plaintiff accused the defendants, a small physician practice, of violating the False Claims Act by submitting false claims to the Medicare program by misrepresenting their patients’ conditions. The government declined to intervene in the lawsuit, so the plaintiff brought the lawsuit under the qui tam provisions of the FCA.
The defendants moved to dismiss the allegations on the grounds that the qui tam provisions were unconstitutional. The judge agreed, holding that the qui tam provisions violated the Appointments Clause of Article II of the Constitution because the whistleblower was not a properly appointed “officer” of the United States.
In her analysis, the judge compared qui tam plaintiffs to bank receivers from an older line of cases. Bank receivers were officials charged with winding up a specific insolvent bank and entrusted with “statutory authority to bring suit” and were found to be “officers” of the United States. The judge reasoned that, like bank receivers, “relators are empowered to initiate litigation on behalf of the United States to enforce a complex regulatory scheme with serious implications for the public fisc and for targeted defendants,” making them officers of the United States. The 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.” The judge concluded that there was no exception for bringing cases under the False Claims Act.
Future of the Whistleblower Provisions in the False Claims Act
The Zafirov decision goes against numerous other courts that have examined constitutional challenges to the FCA’s qui tam provisions, most similarly in the United States Court of Appeals for the Fifth Circuit. In that case, the Fifth Circuit held to the contrary that the FCA’s qui tam provisions do not violate the Appointments Clause. Riley v. St. Lukes Episcopal Hospital, 252 F.3d 749 (5th Cir. 2001). The Fifth Circuit reasoned that qui tam plaintiffs do not draw a government salary and are not required to establish their fitness for public employment. Therefore, the court was persuaded that the FCA’s qui tam provisions do not violate the Appointments Clause.
However, the Zafirov decision is in line with a dissent written by Justice Clarence Thomas in an FCA case before the Supreme Court. In that dissent, Justice Thomas argued that the qui tam provisions of the FCA may be unconstitutional, noting that “[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation.” United States ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419 (2023) (Thomas, C dissenting). Justices Kavanaugh and Barrett separately concurred with the majority’s opinion, adding only that they agree with Justice Thomas’s argument above and the Supreme Court should consider arguments on the Article II issue in an appropriate case.
With the DOJ allowing most qui tam actions under the FCA to proceed, even when it declines to intervene, the Zafirov decision could serve as a stop mechanism for the proliferation of qui tam lawsuits. The case will likely be appealed, and in the meantime, qui tam litigants will be hesitant to bring lawsuits in jurisdictions known for checking Executive Branch power, as the judge was in Zafirov. Venue shopping will likely lead to the disparate treatment of defendants, which would fast track this case to the Supreme Court, where the door has already been opened to support this line of reasoning. A Supreme Court ruling in favor of Zafirov would impact how the DOJ allows qui tam actions to proceed, and could even lead Congress to amend the False Claims Act, building to a showdown between the Executive, Judicial, and Legislative branches of government.
Powers will continue to monitor developments in this case and its impact on FCA litigation.
For questions about this article, please contact Natalie Lorenz at Natalie.Lorenz@PowersLaw.com. If you would like assistance with a potential False Claims Act issue or other fraud and abuse matters, please contact Natalie Lorenz at Natalie.Lorenz@PowersLaw.com, Mark Fitzgerald at Mark.Fitzgerald@PowersLaw.com, or the Powers attorney with whom you normally work with.