The U.S. Court of Appeals for the Fourth Circuit recently declined to rule on the validity of statistical sampling as a method to establish liability and damages in a False Claims Act (FCA) whistleblower case that was closely watched within the FCA bar, U.S. ex rel. Michaels v. Agape Senior Community, Inc. et al. (Nos. 15-2145, 15-2147). In a victory for the government, however, the Court did hold that the FCA grants the Department of Justice (DOJ) an “unreviewable veto” over proposed settlements of FCA cases – even cases in which the DOJ declines to intervene.
The case was brought in 2012 by former employees of Agape Senior Community Inc. and its affiliated entities (collectively, Agape), who own and/or operate elder care facilities throughout South Carolina. The plaintiffs, who were qui tam relators, alleged violations of the federal Anti-Kickback Statute (42 U.S.C. 1320a-7b), the FCA (31 U.S.C. 3729-3733), and Health Care Fraud law (18 U.S.C. 1347) related to claims filed by Agape for services provided to ineligible individuals or for services not actually provided. Because the allegations implicated up to 50,000 claims involving over 10,000 patients, the relators (plaintiffs in FCA cases are known as “relators”) sought to establish damages via the use of statistical sampling in lieu of having to review every claim. The relators argued that a comprehensive review of each patient’s chart for evidence of fraud could cost over $30 million, potentially exceeding the actual damages in the case. In 2015, a federal district court in South Carolina rejected the relators’ argument and sided with Agape, finding that the use of statistical sampling in this case would be improper because the relevant patient medical records were available for the relators to review.
During the pendency of the proceedings, the relators and Agape entered into mediation, and unbeknownst to the government reached a tentative settlement agreement in 2015. After being notified of the proposed settlement, the government sought to veto it on the basis that the settlement amount (which was not disclosed) was “appreciably less” than the government’s preliminary estimate of $25 million in total damages. Interestingly, the government’s basis for vetoing the relators’ settlement with the defendants – its damage estimate of $25 million – was determined using statistical sampling. The relators argued that because the government declined to intervene in the case, under the FCA the relators were afforded the “right to conduct” the FCA action, and that right necessarily included a right to settle the case. The government countered that a suit filed under the FCA can only be dismissed “if the court and the Attorney General give written consent to the dismissal and their reasons for consent.” The trial court agreed, finding that the Attorney General possessed an unreviewable veto authority over proposed settlements of FCA actions, even where the government had declined to intervene. The trial court then certified its rulings regarding statistical sampling and the government’s unreviewable veto authority for appeal to the Fourth Circuit.
The Fourth Circuit heard arguments in this case on October 26, 2016, and issued its decision on February 14, 2017. The Court first reviewed the validity of the trial court’s affirmation of the government’s veto authority over proposed FCA settlements. After reviewing precedents from other Circuits, the Court affirmed the trial court’s ruling, holding that the plain language of the FCA grants the Attorney General “an absolute veto power over voluntary settlements” in these cases. The Court noted in part that the government is ultimately the party in interest, and that a relator’s right to conduct an FCA action in which the government does not intervene does not create “an unfettered right to settle on the part of the relator.”
The Court then considered the trial court’s rejection of the relators’ request to use statistical sampling to determine damages. Instead of analyzing the merits of that decision, the Court re-examined whether this question was appropriate for immediate, interlocutory review by the Fourth Circuit under 28 U.S.C. 1292(b), which requires that an order being reviewed involve “a controlling question of law as to which there is a substantial ground for difference of opinion” and where an immediate appeal from that order promises to “materially advance the ultimate termination of the litigation.” Ultimately, the Court decided that the appeal on this question had been “improvidently granted,” because it did not present a pure question of law subject to immediate appellate review under Section 1292(b).
The Fourth Circuit dismissed the appeal of the statistical sampling ruling and affirmed the trial court’s unreviewable veto holding. In doing so, the Court reserved for another day an in-depth review and determination of the propriety and scope of statistical sampling as a tool to establish liability and damages in FCA whistleblower suits.