Can a Qui Tam Relator Share in Non-Monetary Proceeds of a False Claims Act Settlement?

The False Claims Act Provides Awards to Successful Whistleblowers

The False Claims Act provides for an award to a qui tam plaintiff in the event the government settles a qui tam suit. If the Government settles a qui tam action brought by a whistleblower notifying the government of fraud, the whistleblower (often called a “relator”) is entitled to “receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action.”  31 U.S.C. § 3730(d)(1).

When the settlement involves the payment of cash to the government, this calculation is straightforward. But what if the settlement involves the provision of services by the qui tam defendant, or some other non-monetary compensation to the government?

Qui Tam Relators Can Recover a Share of the Value of Non-Cash Settlements of Qui Tam Suits

Several courts have held that the term “proceeds” in the False Claims Act has the same broad meaning as in other contexts, and that a successful whistleblower is entitled to a share of the value of non-cash components of a settlement as part of his/her relator’s award for reporting fraud.

For example, in U.S. ex rel. Barajas v. U.S., 258 F.3d 1004, 1010-13 (9th Cir. 2001), the qui tam defendant, a defense contractor, agreed in a settlement to repair and replace faulty flight data transmitters for missiles. The Court of Appeals for the Ninth Circuit held that the successful relator was entitled to recover a share of the value of the cost of repairs agreed to by the defendant.

Similarly, the Fifth Circuit held in United States v. Thornton, 207 F.3d 769, 770 (5th Cir.2000), that the value of claims released pursuant to a settlement agreement should be deemed part of the proceeds of the agreement, and that a whistleblower was entitled to share in those proceeds.

The Government Should Value Any Non-Cash Recoveries From a Qui Tam Settlement

Finally, when a qui tam settlement involves non-cash proceeds, a question arises: who should value the non-cash portion of any settlement? The Fifth Circuit in Thornton held that the government should place a value on non-cash proceeds, preferably before any settlement approval hearing. 207 F.3d at 772. The qui tam relator may then accept or challenge the government’s valuation.

By allowing non-monetary aspects of a qui tam settlement to count as “proceeds” in which a relator can share, purposes of the False Claims Act are served by providing qui tam whistleblowers with strong incentives to report and prosecute fraud against the government.

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