DOJ Targets Funders as Eleventh Cir. Upholds Whistleblower Win

Posted August 27th, 2020.

As It Appeared On
publication logo

Daniel Seiden
Reporter/Editor

  • $255 million award stands after court denies rehearing request
  • Justice attorneys beginning to gather info on third party funders

A $255 million Medicare fraud award will stand after the Eleventh Circuit refused Thursday to reconsider a panel’s decision greenlighting a successful whistleblower’s outside funding agreement.

The U.S. Court of Appeals for the Eleventh Circuit wasn’t swayed by the skilled nursing facility defendants’ assertion in a petition for rehearing that the False Claims Act expressly disallows third parties from receiving assigned fraud claims pursued in the U.S. government’s name.

The panel’s June 25 decision is the “first and only” by a federal court to give a whistleblower “the unlimited right to secretly reassign the government’s claims to any third-party speculator gambling with the government’s money,” the nursing facilities said in their petition challenging standing.

The panel’s decision was right because the whistleblower, who sold a 4% share in any recovery she received, still maintained sufficient control and interest in the litigation, said H. Vincent McKnight, Jr., of Sanford Heisler Sharp LLP in Washington.

Had the Eleventh Circuit agreed with the nursing facilities, whistleblowers not only wouldn’t be allowed to enter into such agreements, they also couldn’t, for example, use a line of credit with a bank to finance an FCA case, McKnight said.

U.S. Examining Outside Funded Suits
The appeals court’s decision comes at a time when the Justice Department, which has the power to stop FCA cases it doesn’t support, has voiced concerns about not knowing when third parties are funding cases it is investigating and litigating.

Stephen Cox, deputy associate for Attorney General William Barr, said early this year the agency was weighing what interest the U.S. has in funding agreements, and if it should require disclosures in some instances.

More recently, Justice attorneys have been told to engage in a “purely information-gathering exercise” to ascertain when third party funders are working with whistleblowers, and how much control they have over the cases, Ethan P. Davis, deputy assistant to the attorney general, told the Chamber of Commerce’s legal arm June 26.

Counsel for whistleblowers, however, have expressed worry over such governmental inquiries.

“The DOJ’s interest in learning whether a whistleblower has an agreement with a third party funder is cause for concern because that information could lead to DOJ using that information to dismiss otherwise meritorious cases,” said Mike Bothwell of Bothwell Law Group PC in Roswell, Ga.

“Animus” toward a limited liability company whistleblower was one reason why an Illinois federal court rejected a DOJ motion to dismiss a false claims case alleging kickbacks by drug makers last year.

The Justice Department maintained that disapproval of professional whistleblowers—the suit was one of nearly a dozen filed on behalf of the National Health Care Analysis Group—is a valid governmental reason for stopping a suit from going forward, said Judge Staci M. Yandle of the U.S. District Court for the Southern District of Illinois.

But the U.S. Court of Appeals for the Seventh Circuit reversed Yandle Aug. 17, ruling that the motion to dismiss should be granted and that it didn’t violate due process law.

An attorney who represents false claims defendants, including pharmaceutical companies, says DOJ’s inquiries could help the U.S. reasonably conclude that a case should be dismissed, or help explain why a settlement is being held up.

When the DOJ assesses fraud claims, it looks at whether whistleblowers have useful information from being insiders, or if they are just being opportunistic, said Scott D. Stein of Sidley Austin LLP in Chicago.

“Knowing who is behind a whistleblower’s suit can have a significant impact on the DOJ’s ability to settle with a defendant,” he said.

“If a whistleblower has a secret third party agreement that requires handing over a large cash payment, the whistleblower could hold up a resolution by pushing for more money, and the DOJ won’t know why,” said Stein.

Funders’ Stake in Litigation Matters
In the Eleventh Circuit case, a Florida jury in 2017 returned an FCA verdict for Ruckh, finding Salus Rehabilitation LLC and other skilled nursing facilities should pay nearly $350 million for overbilling Medicare.

A district court tossed the verdict. Ruckh appealed, and the Eleventh Circuit’s three-judge panel largely reinstated the award June 25.

The panel said Ruckh’s litigation funding agreement with ARUS 1705-556 LLC didn’t deprive her of standing to pursue the appeal.

The defendants filed their petition for rehearing July 16. They argued that “the panel has effectively condoned the creation of a secondary market for clandestine trading and selling of the government’s FCA claims to the highest bidders, without any discernible limits or even the government’s knowledge.”

Attorneys for contractors say the Eleventh Circuit’s approval of outside funding may cause their clients, the courts, and the U.S., to spend more time on frivolous litigation.

More third party involvement “threatens to lead to even more meritless and burdensome litigation,” said Jeffrey Bucholtz of King & Spalding LLP in Washington.

In addition to contractors, this is a problem for courts who are becoming increasingly frustrated with how long it takes the government to decide whether to intervene in a case. The U.S., meanwhile, must deal with a large and growing backlog of whistleblower suits, Bucholtz said.

Additional outside funding may result in whistleblower attorneys “proceeding with a weak or marginal case in which the government declined to intervene because the lawyer’s costs would be effectively subsidized,” said Aaron Danzig of Arnall Golden Gregory LLP in Atlanta.

And other courts, or even another Eleventh Circuit panel, could find that different terms in other funding agreements don’t hold up.

A judge may, for example, look at an agreement where the whistleblower promises 40% or 50% of a recovery to a third party and decide that’s too much to conclude the plaintiff is still in charge of a suit, Danzig said.

The case is Ruckh v. Salus Rehab. LLC, 11th Cir., No. 18-10500, 8/27/20.

Share this News Article

Back to Top