Settling with Prospective Qui Tam Relators: The Normal Rules of Settlement Do Not Apply

A recent court opinion here in the Middle District of Florida illustrates that normal rules for settlement do not apply to qui tam relators, even if a relator has purportedly induced a defendant into entering a settlement based in part on the relator’s false representation to the defendant that they have not filed a qui tam against the defendant.

 In United States ex rel. Scott v. Cancio, 2011 WL 5975782 (M.D.Fla. 11/28/11),  the Court refused to grant a motion to dismiss the relator from the qui tam suit she had filed against the defendant and in which the Government had declined to intervene, even though the relator (1) had previously entered into a settlement agreement with the defendant in an employment discrimination matter which contained a broad release and a representation that she had not filed a “any complaint, claim, or charge” against the defendant in any “state or federal agency or court;” (2) had received compensation from that settlement; and (3) had failed to reveal to the defendant that she had filed a qui tam three weeks before she signed the settlement agreement.  The Court refused to dismiss citing the “plain language” of 31 U.S.C. § 3730(b)(1) which provides: 

A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.

Essentially, the Court held that absent the Attorney General’s “written consent,” the relator could not voluntarily dismiss a filed qui tam case, even if the relator had previously released the defendant.  In turn, the Court relied on United States ex rel. Dillahunty v. Chromalloy Oklahoma, 2011 WL 227648, at * 1 ( W.D.Okla. Jan. 21, 2011), which also held that the relator was not permitted to waive his qui tam claim without the Government's and court's consent.

Several facts make this case and its holding especially troubling for defendants and others who enter into settlements on collateral issues with persons who may have secretly filed a qui tam.

First, though not reflected in its Order, while not opposing the motion to dismiss, the Government apparently could not bring itself to actually consent to dismissal or even break its silence on a matter in which an action was brought on its behalf.  Rather, the Government informed the defendant that the U.S. Attorney’s Office did not take a position on the Defendant’s Motion to Dismiss, and the defendant related the Government’s position to the Court. See Defendant’s Motion to Dismiss at 3 n. 2.  

Second, the Government's refusal to take a position along with its silence is all the more strange since the defendant only sought to dismiss the relator’s claim “and not the Government’s claim.”  Acknowledging that the defendant sought dismissal without prejudice to the Government,  the Court stated that it was bound by the plain language of § 3730(b)(1) which “requires the Attorney’s General’s written consent to a qui tam action’s dismissal and does make a distinction on whether the dismissal is without prejudice to the Government’s interest.”

Third, faced with what defendant termed as the “duplicity” of the relator in signing an agreement in which she made “blatant misrepresentations and clearly false, and likely made . . . to induce [defendant] to agree to the confidential settlement amount,” neither the Government nor the Court expressed any reservation about the plaintiff’s conduct.  The Court did observe that defendant could seek “appropriate relief in the separate employment action to set aside the Settlement Agreement . . . based on any misrepresentations or fraud.”  As to defending its own court and docket from such alleged conduct, however, it said nothing.  The Government, as noted above, did not file anything, thus giving the appearance that it was untroubled by a relator engaging in such conduct in a matter brought on behalf to the United States.

In her response to the Motion to Dismiss, the relator explained her silence and representations in the settlement as a result of the seal pending in her recently filed qui tam.  Additionally, the relator relied on the adage that the "False Claims Act is principled on 'setting a rogue to catch a rogue,'" and she further relied on Mortgages, Inc. v. U.S. District Court for the District of Nevada, 934 F.2d 209, 213 (9th Cir. 1981), which provides that the False Claims Act is "in no way intended to ameliorate the liability of wrongdoers by providing defendants with a remedy against a qui tam plaintiff with 'unclean hands.'" Seeking relief from the settlement she signed, the relator amended her qui tam complaint to add a count for declaratory judgment and obtain a determination of her qui tam rights in light of the settlement that she signed. 

The Cancio case and the issue of settlement merit further analysis and reflection, and I will return to this in my next blog entry.