5th Circuit: A Whistleblower’s Dismissal with Prejudice Does Not End FCA Litigation for Government

The Fifth Circuit recently ruled that a qui tam relator’s voluntary dismissal of a False Claims Act (FCA) case with prejudice does not mean the government also has to be dismissed with prejudice, even though the government declined to intervene in the action.

In United States ex rel. Vaughn v. United Biologics, LLC, the Fifth Circuit addressed a complex intersection of issues involving two separate whistleblower cases filed in Texas and Georgia against a defendant that owned and operated remote allergy centers. The Texas whistleblowers are board-certified allergists that alleged the defendant was improperly billing government healthcare providers for unnecessary medical treatment at the allergy clinics.  The Texas whistleblowers filed their case in the Southern District of Texas in April 2013.  Unbeknownst to the Texas whistleblowers, the government had already started investigating the defendant in Atlanta, Georgia in January 2013.  Also, while the original Texas case was still under seal, in May 2014, a second whistleblower filed suit against the defendant in the Northern District of Georgia.

False Claims Act cases filed by a whistleblower are brought “in the name of the Government.”  When the whistleblower case is filed, the government investigates the underlying allegations in order to decide whether the government will intervene and prosecute the action.  The government may also decline to intervene, or even move to dismiss the case.  If the government declines to intervene, then “the person who initiated the action shall have the right to conduct the action.”   However, while the whistleblower may continue the case, the whistleblower does so by standing in the place of the government, and thus the government remains the “real party in interest.”

In Vaughn, the government declined to intervene in the original Texas qui tam case.  After the two separate qui tam cases were unsealed, the whistleblowers from each state entered into a “Sharing Agreement” to share any statutory awards resulting from the qui tam actions.  However, as described by the Fifth Circuit, the Texas whistleblowers eventually “grew tired” of the litigation and moved to dismiss the action with prejudice.  The district court in Texas granted the motion and dismissed the case with prejudice, but only as to the original Texas whistleblowers.  The district court refused to dismiss the government with prejudice.

The defendant appealed, arguing that because the government declined to intervene, and because the Texas whistleblowers dismissed their case with prejudice, the government should have been dismissed with prejudice as well.  The Fifth Circuit held that although the government is a “passive beneficiary” of a qui tam lawsuit when it declines to intervene, the district court did not err by refusing to dismiss the government with prejudice because the government was never a formal “party” to begin with.

The procedural posture of Vaughn was unique in many respects.  However, the case is an instructive reminder that even when the government declines to intervene, the government retains vested interests in False Claims Act actions and is not necessarily bound by decisions made by the whistleblower.