Does the Government Have to Agree to the Settlement of a Non-Intervened False Claims Act Case?

Does the Government Have to Agree to the Settlement of a Non-Intervened False Claims Act Case?

The False Claims Act provides that an action “may be dismissed only if the court and the Attorney General [of the United States] give written consent to the dismissal.” 31 U.S.C. 3730(b)(1).  In a recent case, the court considered the impact of this provision in connection with its decision that a settlement had been reached between a relator and a defendant, United States  ex rel Osheroff v. MCCI Holdings, LLC, 2013 U.S.Dist Lexis 108741(S.D. Fl. Aug. 2, 2013).

Government Did Not Intervene in False Claims Act; Settlement was Reached at First

Osheroff as relator, brought his case against various healthcare entities.  The government declined to intervene.  At a mediation held on May 24, 2012, the relator reached a settlement only with the defendant MCCI.  The terms of the settlement were stated in a handwritten memo of understanding and included a payment of $1.6 million to resolve the relator’s claims with Relator to receive 25% of that amount. Read more about recent False Claims Act and whistleblower trends.

Government Requested Provision and Would Not Consent to False Claims Case

The parties notified the court that they had reached a settlement and that they would seek dismissal upon consent of the Government.  They submitted the memo of understanding to the Government for approval.  The Government agreed to the monetary terms of the settlement, asked to review the draft settlement agreement, and suggested that the parties refer to recent False Claims Act settlement agreements with the government to be certain all applicable provisions would be included.  The relator and MCCI exchanged draft agreements with Osheroff agreeing to delete provisions barring MCCI from charging back to the Government “unallowable costs” stemming from the settlement as well as a statement concerning the potential tax treatment of the settlement.  The Government, however, insisted that it would not consent to the agreement without these provisions.

No Enforceable Agreement Because No Approval by Attorney General

In the meantime, the court had granted a motion to dismiss the remaining defendants.  Presumably as a result of this ruling, MCCI took the position that the parties could not agree on the settlement language and that “all prior offers are withdrawn.”  Relator moved to enforce the settlement.  The Magistrate Judge to whom the motion was referred found there was no enforceable agreement because the condition precedent of approval by the Attorney General had not been met.

District Court Disagrees

The district court disagreed, stating that “The statute says that the Government must consent todismissal, not that it must consent to the parties’ settlement in order for a binding agreement to result.” Id at *19.  It separated the question of whether the government could undo the settlement by withholding consent to dismissal from the question of whether the parties had reached a settlement.  Finding that there had been agreement on the essential terms, including payment in exchange for mutual releases and dismissal, the court held there was a binding, enforceable settlement.

More interesting was the court’s evident disapproval of the position taken by the government regarding the provisions of the agreement.  It characterized the unallowable costs and tax neutrality provisions as mere boilerplate not essential to protect the government’s interests, noting that the government had not been able to explain how it would be impacted by their absence.

The Court Answers: Is Government Consent Necessary in a False Claims Act Case?

The judge gave the government the opportunity to consent to dismissal with a warning that if it did not consent, the court would consider the question of whether consent is necessary in a declined case.  In the event  the government did not take the hint, the judge went on to indicate he was inclined to doubt such consent was required, citing United States ex. rel. Killingsworth v. Northrop Corp, 25 F. 3d 715 (9th Cir. 1994) and United States ex. rel Fender v. Tenet Healthcare Corp., 105 F. Supp. 2d 1228 (N.D. Ala. 2000). He apparently  was not persuade by the cases taking the opposite view, see, United States  v. Health Possibilities, P.S.C., 207 F.3d 335, 343  (6th Cir. 2000); Searcy v. Phillips Electronics of N. Amer. Corp., 117 F. 3d 154, 159 (5th Cir. 1997).  In Killingsworth, the court decided the government could only object to a dismissal during the time it was granted to intervene.   It went on to note that while the government cannot obstruct a settlement and force a qui tam plaintiff to continue litigation , it is entitled to a hearing,  even in a non -intervened case, upon showing good cause such as an allocation of settlement proceeds that was unfair to the United States, 25 F. 3d at 724-725.

The Court Has Final Say

Osheroff demonstrates that while the government has a right to consent to dismissal of a false claims act case where it has not intervened, that right may not be considered absolute when the government takes a position that the court considers unreasonable. This is especially true where the relator and the defendant have reached a reasonable settlement.

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By |2020-08-24T14:14:11-04:00April 18th, 2018|False Claims Act Information|