Whistleblowers' wings clipped by Fifth Circuit.

THE U.S. COURT OF APPEALS FOR THE FIFTH CIRCUIT HAS DECLARED that whistleblower's suits brought under the False Claims Act are unconstitutional when the federal government declines to intervene. The November 15 ruling, Riley v. St. Luke's Episcopal Hospital, is at odds with other courts of appeals that have considered the issue.

A divided panel concluded that a suit brought by a private party under the False Claims Act's "qui tam" provisions, absent government intervention, violates the Take Care Clause of Article II of the U.S. Constitution, and the separation of powers doctrine.

The decision brings into greater focus the ongoing constitutional challenges to qui tam suits under the False Claims Act. If the ruling stands, it may force the U.S. Justice Department, which intervenes in 20 to 25 percent of the qui tam suits filed, to join in more claims.

The False Claims Act is used by the federal government to combat fraudulent monetary claims presented to it for payment. Originally enacted in 1863, the act has been a potent weapon to redress health care fraud. It imposes civil liability against "[a]ny person who knowingly presents, or causes to be presented, to an officer or employee of the United States Government... a false claim for payment... ."

Aside from recouping monies wrongfully paid by the government, the statute provides for stiff civil penalties. It empowers the U.S. Attorney General to bring a lawsuit. It also allows a private party, or qui tam plaintiff (also known as "relator"), to file an action in the name, and on behalf, of the government. The government may elect to intervene and prosecute the civil action. In that case, the private plaintiff retains the right to continue to participate as a party. If the government decides not to intervene, the private plaintiff may proceed. Either way, the qui tam plaintiff may receive as much as 25 or 30 percent of the government's total recovery.

A majority of the three-judge panel found the qui tam provisions of the False Claims Act unconstitutional. Judge Jerry E. Smith wrote the opinion for the court, with Judge Harold R. DeMoss, Jr., filing a separate concurring opinion. Judge Carl E. Stewart filed a dissenting opinion, declining to find any constitutional infirmities in the qui tam provisions.

The Take Care Clause states that "[the Executive] shall take Care that the Laws be faithfully executed." The doctrine of separation of powers prohibits one branch of government from intruding on the constitutionally granted powers of another.

In concluding that the False Claims Act's qui tam provisions compromise these principles when the government declines to intervene, the majority emphasized several points. First, it rejected the argument that past practice alone lends legitimacy to the qui tam provisions. Deference to history to validate constitutional status is proper, the majority wrote, when, unlike the case of qui tam actions, the practice "was extensively debated by the adopting Congress and had become part of the fabric of our society."

The majority treated the Take Care Clause and the separation of powers doctrine as kindred principles. The panel explained that the Take Care Clause speaks to the executive branch's power to enforce the laws. For the separation of powers analysis, the panel wrote that Congress cannot improperly usurp powers assigned by the Constitution to the executive, or "impermissibly undermine" those powers.

Applying the "control" test in the 1998 U.S. Supreme Court decision of Morrison v. Olson, the majority determined that the qui tam provisions do not survive constitutional scrutiny. Allowing a suit by the relator without government participation, the majority explained, negatively impacts on the executive branch's exercise of prosecutorial discretion and its ability to control the litigation. On the latter point, the panel observed that the government may not freely dismiss a qui tam action. The relator could object to such an attempt, in which case the court must grant a hearing before deciding on whether to grant dismissal. Nor may the government freely settle a qui tam action since the relator may object. If that happens, the government must obtain court approval, which entails a hearing, and a finding by the court that the settlement is "fair, adequate, and reasonable..." Finally, the government cannot restrict the relator's participation in the qui tam action without first obtaining court approval, and may not remove the relator from the litigation. For these reasons, the panel concluded that both the Take Care Clause and separation of powers doctrin e were violated.

The full bench of the Fifth Circuit is scheduled to review the panel's decision. Ultimately, the U.S. Supreme Court may well consider and resolve any conflict among the circuits.

Stuart I. Silverman practices law with Greenberg Traurig in Washington, D.C.