Appellate Decision Raises Questions for Relators Seeking a Share from Alternate Remedies
The Third Circuit caught industry headlines when it was reported to have ruled on October 28, 2019, that a whistleblower had no right to an award based on a portion of criminal fines or forfeitures. That would upend longstanding rights of relators to share in the proceeds of “related proceedings.”
Thankfully, the real scope of the opinion is less far-reaching, though it would be wise for relators to consider its implications.
The Underlying Cases
The saga of whistleblower Jean Charte, previously reported in these pages, encompasses three cases: the whistleblower’s civil case, the defendants’ defamation suit against the whistleblower, and the government’s criminal tax case against one of the defendants.
Charte worked for American Tutor, which arranged and provided tutoring services to students in public school in New Jersey, all paid for by federal Title I funding to provide supplemental educational services such as tutoring. While employed, Charte grew concerned with the company’s billing and recruiting policies. Seeking to fix the problem, she raised her concerns with management, and the company terminated her.
In the aftermath, she brought her concerns to both the federal and New Jersey Departments of Education and then filed a civil qui tam action in 2010. Her complaint alleged that the defendants billed the government for students who were not actually tutored, either because they were absent or because they were never enrolled.
After seven years of investigation, the government declined to intervene in the case in October 2017. Defendants successfully moved to dismiss the case on the grounds that it was barred by res judicata, because the relator had settled the second case—a defamation action brought in state court against her by the defendants. That dismissal was overturned on appeal.
During the investigation of the qui tam, the whistleblower provided information that led the government to prosecute American Tutor’s former CFO, James Wegeler, for tax fraud and evasion. As part of his guilty plea, he agreed to pay $1.5M in restitution. He was also sentenced to 19 months in prison.
The Appellate Question: Can a Relator Intervene in a Criminal Action?
Prior to the sentencing, the whistleblower moved to intervene in the criminal case.
Why would a whistleblower try to step into a criminal case, especially one with a plea deal in place? Whistleblowers have a right to a share in the proceeds of the action they bring and any “alternate remedy” pursued by the government. Charte sought to intervene in the criminal prosecution to protect her right to seek a share of the restitution as an alternate remedy.
The reason a whistleblower might want to do that was underscored when her FCA lawsuit was dismissed. At that point, she had no live FCA action in which to pursue her argument that she should be entitled to a share of the criminal restitution payment.
Nonetheless, the District Court denied her motion to intervene.
What the Third Circuit Did—and Did Not—Rule
The whistleblower’s appeal of that denial was taken up by the Third Circuit. Its decision grabbed some headlines in the legal press, but those have overstated the opinion’s reach, characterizing it as denying the whistleblower the ability to seek a share from related proceedings.
In fact, the court reaffirmed that longstanding principle, telling the whistleblower that she could “take solace” in the availability of awards based on alternate remedies. Indeed, it noted that the government has consistently maintained the same position in briefing to multiple courts.
The court, however, would not permit the whistleblower to step into the criminal case to make that claim. In the context of a criminal proceeding, it found that the alternate-remedy provision of the FCA does not create a right for a relator to intervene in related cases.
What Should Relators Do to Preserve their Right to a Share of Alternate Remedy Recovery?
The key takeaway from this decision for relators is that they should do everything in their power to ensure their primary litigation—their civil FCA qui tam suit—remain alive until all related proceedings are concluded.
The court clearly preserved the right to share in alternate remedies, but the opinion could, as a practical matter, chip away at that right. Although the opinion was heavily grounded in an analysis of the standing of an individual to intervene in a criminal prosecution, some language suggests the court might consider ruling the same way in an alternate civil proceeding. (Though it did note that a relator could intervene in criminal forfeiture proceedings.) Moreover, while the court had seemed to take comfort in the fact that “Charte may pursue her right to an award by conducting the FCA action,” that ignores the question of what to do when there is no live FCA action.
Charte’s own brush with dismissal makes clear that there may be situations in which a relator has a right to share in an alternate remedy but has no case in which to pursue that claim. That will present difficult questions for the relator—and for the presiding court.
So how can a relator protect herself? A smart first step would be to work closely with the government and monitor the likelihood of alternate proceedings. The sooner you know they exist, the more likely you are to position yourself appropriately. If a relator learns of alternate proceedings, then depending on the situation, she and her counsel should consider registering with the government an intention to seek a share. And if there is a possibility of dismissal of the qui tam, relator’s counsel should think about putting the court on notice of the potential alternate remedy and ask that the court retain jurisdiction to adjudicate a share, regardless of its disposition of the primary FCA case.
On that score, the Third Circuit’s opinion should be helpful, as it stated plainly that “the court overseeing the FCA suit determines whether and to what extent a relator is entitled to an award” from alternate remedies.
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