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Criminal Forfeitures Are ‘Alternate Remedies’ Under The FCA

Criminal Forfeitures Are ‘Alternate Remedies’ Under The FCA

David J. Caputo

Zachary Arbitman

Law 360

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Published: 2.28.2019

Pursuant to the False Claims Act, an individual may file a qui tam suit on behalf of the government for losses incurred by the government.[1] If that suit is successful, the whistleblower who initiated it may share in any recovery obtained by the government.[2] Likewise, if the government obtains a recovery through legal action other than the qui tam lawsuit, the “alternate remedy” provision of the False Claims Act provides relators with the right to share in that recovery.[3]

The government sometimes pursues criminal prosecutions based on information provided by qui tam relators and such prosecutions can result in criminal forfeiture proceedings. The question thus arises whether a criminal forfeiture constitutes an “alternate remedy” within the meaning of the False Claims Act.

There is surprisingly little case law squarely addressing this issue. The U.S. Court of Appeals for the Eleventh Circuit recently had the opportunity to address this question in United States v. Couch.[4] The court ended up ruling on narrower procedural grounds, however, and declined to decide whether relief obtained in related
criminal forfeiture proceedings constitute the type of alternate remedy in which qui tam relators may share.[5]

Though this issue remains an open question at the appellate level,[6] the relevant statutory text and legislative history both signal that such recoveries should be read as falling within the definition of alternate remedies supplied by the False Claims Act.

The Scope of the Alternate Remedy Provision of the False Claims Act is Expansive

The False Claims Act imposes civil liability on any person who “knowingly presents … a false or fraudulent claim for payment or approval” to the federal government.[7] A private person, called a relator, may bring a False Claims Act action “in the name of the Government,” also known as a qui tam action.[8] The government may intervene to take over a qui tam action from the relator, but the relator “shall have the right to conduct the action” if the government opts not to intervene. [9]

A relator in a successful qui tam action is entitled to a share of any recovery by the government and is eligible for a larger share in those cases where the government declines to intervene.[10] Such rewards serve to encourage private individuals to come forward with evidence of fraud perpetrated on the government, as an incentive is sometimes needed particularly where reporting fraud puts their careers and livelihoods in jeopardy.[11]

When a private individual brings a qui tam action, the False Claims Act also authorizes the government to pursue remedies beyond simply intervening in that case. In defining the scope of such alternate remedies available to the government, the statute is broad: “[T]he Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty.”[12] If the government opts to pursue such an alternate remedy, the False Claims Act gives relators “the same rights in such proceeding as such person would have had if the action had continued under this section.”[13]

Whether a Criminal Forfeiture Constitutes an Alternate Remedy Remains an Open Question at the Appellate Level

In Couch, the Eleventh Circuit was called upon to determine whether the False Claims Act allowed a qui tam plaintiff to intervene in criminal forfeiture proceedings where the government pursued a criminal prosecution of the healthcare fraud at issue but declined to intervene in the whistleblower’s qui tam lawsuit.[14] The court ultimately affirmed the district court’s denial of the whistleblower’s motion to intervene in the criminal forfeiture proceedings, but did so on procedural grounds, holding that the applicable criminal forfeiture statutes specifically barred third parties from asserting any interest in those proceedings.[15] In so ruling, however, the Eleventh Circuit refrained from answering the substantive open question as to whether proceeds from criminal forfeiture cases could be construed as alternate remedies.[16] The court noted that this matter has “divided federal District Courts.”[17]

In dicta, the Eleventh Circuit implied that the relator should be entitled to share in criminal forfeitures secured by the government as a result of the information that she provided, but the court’s holding required the whistleblower to pursue her share through a legal mechanism other than intervention in the forfeiture proceedings themselves.[18] Relying on representations made by the government in briefing on this subject, the Eleventh Circuit endorsed the notion that a qui tam whistleblower could share in the full amount of damages paid by a defendant found civilly liable in a False Claims Act suit after being found criminally liable for the same fraud.[19] Indeed, even assuming that the defendant could deduct criminal restitution paid to the government as a credit against any False Claims Act damages award, the Eleventh Circuit emphasized that the relevant amount to be considered in determining the relator’s share should be the sum total of all criminal and civil recoveries obtained.[20]

Why the False Claim Act’s Alternate Remedy Provision Must be Read to Include Recoveries Made in Criminal Forfeiture Proceedings

The reasons why criminal forfeiture should be considered an alternate remedy are more fully fleshed out in United States v. Bisig — a landmark decision which the Eleventh Circuit cited in its opinion.[21] In Bisig, Judge John Tinder held squarely that a relator in a qui tam action is entitled to share in recoveries obtained by the government when it declines to intervene in a whistleblower case but recovers substantially all of a defendant’s available assets through criminal forfeiture proceedings.[22]

The Bisig court started its analysis with the text of the False Claims Act itself.[23] Though it first noted that the use of the word “any” in the alternate remedy provision suggested its breadth, the court ultimately determined that “the plain meaning of ‘alternate remedy’ is ambiguous.”[24] Given this, Tinder turned to the legislative history of the False Claims Act.[25] The court emphasized the overall intent of the 1986 amendments to the act — which was to encourage more qui tam suits — and the need to read the alternate remedy provision in line with this purpose.[26] Thus, the court held, “because the United States has achieved a monetary recovery from the Defendant in a manner outside of the qui tam action, and that recovery made an actual monetary recovery by the relator in the qui tam action either impossible or futile, the United States, in effect, elected to pursue its claim through an alternate remedy under § 3730(c)(5).”[27] The court further noted that this interpretation proved particularly fitting there because the government initiated the stay of the whistleblower’s suit so that it could pursue the criminal forfeiture proceedings through which it ended up recovering substantially all the defendant’s assets.[28]

The court’s reasoning in Bisig is unassailable, as reaching a contrary conclusion would undermine the False Claims Act’s goal of incentivizing qui tam suits. Practically speaking, the government may in some instances exhaust all assets available to satisfy a judgment in criminal forfeiture proceedings, leaving behind only judgment-proof shells from which a relator cannot recover civilly in the qui tam action.[29] Depriving whistleblowers the right to share in collected proceeds, despite making the government’s recovery possible in the first place, would undermine the public-private partnership at the heart of the False Claims Act.[30] Indeed, even where criminal forfeiture proceedings do not leave the defendant judgment proof against a civil recovery in a qui tam case, the alternate remedy provision should still be read to include criminal forfeiture. It would be inconsistent with both the text and the legislative intent of the False Claims Act to disadvantage those whistleblowers who report fraud that is so serious that it warrants criminal prosecution in addition to civil recovery under the False Claims Act.

David J. Caputo is a founding partner and Zachary Arbitman is a senior associate at Youman & Caputo LLC

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