Third Circuit Holds False Claims Act Relator Lacks Standing and Right to Intervene in Related Criminal Case

Case Law Developments

Third Circuit Holds False Claims Act Relator Lacks Standing and Right to Intervene in Related Criminal Case

In a matter of first impression, the Third Circuit held last week that a relator who filed an action under the qui tam provisions of the False Claims Act (the FCA) lacked standing to intervene and seek a share of a $1.5 million recovery in a subsequent and related criminal tax case filed by the Department of Justice.

In United States v. Wegeler, 2019 WL 5538568, --- F.3d --- (3d Cir. Oct. 28, 2019), the court explained that the text and legislative history of the FCA supports the conclusion that a “relator lacks standing to intervene in the criminal prosecution of another,” and that “the FCA does not provide a right to intervene to recover a share of the proceeds derived from a proceeding that the government pursues under the alternate-remedy provision” set forth in 31 U.S.C. § 3730(c)(5) of the FCA. The court ruled that the relator would therefore need to seek her recovery in the FCA action that she filed, not the criminal case, but declined to “opine on whether a criminal proceeding is an alternate remedy such that a relator” can obtain a share of the proceeds, or whether the FCA’s exception for tax-related claims precluded her recovery.

District Court in Pennsylvania Grants Government’s Motion to Dismiss Relator’s FCA Action

A federal district court in the Eastern District of Pennsylvania granted the government’s motion to dismiss an action brought by a relator against Executive Health Resources, Inc., under the qui tam provisions of the False Claims Act. In United States ex rel. Polansky v. Executive Health Resources, Inc., Civil Action No. 12-CV-4239, 2019 WL 5790061 (E.D. Pa. Nov. 5, 2019), the government moved for dismissal under 31 U.S.C. § 3730(c)(2)(A), which provides that the “Government may dismiss the [FCA] action notwithstanding the objections of the [relator] if the [relator] has been notified by the Government of the filing of the motion and the court has provided the [relator] with an opportunity for a hearing on the motion.”

In granting the motion, the court declined to decide whether the government had “unfettered discretion” to dismiss or needed to show a “rational relationship” between dismissal and a valid government purpose, the two common standards adopted by the courts, ruling that the government satisfied both standards. The court also found that, independent of dismissal, summary judgment was appropriate on certain of the relator’s claims. The Polansky decision comes on the heels of an increase in § 3730(c)(2)(A) motions by the government following the January 2018 leak of the DOJ “Granston Memo,” which provides government attorneys with guidance on when such motions may be appropriate.  

DOJ Update

DOJ Announces Creation of Procurement Collusion Strike Force (PCSF)

On November 5, the Department of Justice announced the creation of a new Procurement Collusion Strike Force (“PCSF”) that will focus on deterring, detecting, investigating, and prosecuting antitrust crimes, including bid-rigging conspiracies and related fraudulent schemes, that undermine competition in government procurement and grant and program funding.

Assistant Attorney General Makan Delrahim of the DOJ Antirust Division stated: “The investigation and prosecution of individuals and organizations that cheat, collude and seek to undermine the integrity of government procurement are priorities for this administration,” adding that “[t]he PCSF will train and educate procurement officials nationwide to recognize and report suspicious conduct in procurement, grant and program funding processes. We will aggressively investigate and prosecute those who violate our antitrust laws to cheat the American taxpayer.”

PCSF will reportedly include thirteen partner U.S. Attorney’s Offices, as well as investigative partners that include the FBI and the Inspectors General for DOD, GSA, DOJ, and USPS.

The DOJ press release can be found here.

SEC Update

SEC Division of Enforcement Reports $4.3 Billion in Orders and Judgments in FY 2019

On November 6, the SEC’s Division of Enforcement published its annual report for fiscal year 2019, reporting that it brought a diverse mix of 862 actions, including 526 standalone actions, resulting in judgments and orders totaling more than $4.3 billion in disgorgement and penalties, and returning roughly $1.2 billion to harmed investors as a result of enforcement actions.

SEC actions over the past year related to a range of issues, including issuer disclosure/accounting violations, auditor misconduct, investment advisory issues, securities offerings, market manipulation, insider trading, and broker-dealer misconduct. Steven Peikin, Co-Director of the SEC’s Enforcement Division, stated; “The actions and initiatives described in the report reflect our deliberate, principled approaches to investigations, litigation, and case resolutions. We are proud of the work Enforcement staff did in enabling the SEC to punish misconduct, deter future wrongdoing, and obtain relief for harmed investors.”

The SEC press release and a copy of the report can be found here.