A Florida federal judge issued a ruling this week that threatens to dismantle a key part of the federal False Claims Act, a Civil War-era law designed to combat fraud against the U.S. government and reward whistleblowers who expose it. The law’s whistleblower provisions, strengthened by Congress in 1986, have created a lucrative practice for a segment of the U.S. plaintiffs bar. Last year, whistleblowers and their attorneys collected approximately $350 million in awards for successfully bringing cases on behalf of the government, according to U.S. Justice Department records.
On Monday, U.S. District Judge Kathryn Mizelle declared the whistleblower, or qui tam, provisions unconstitutional. In a False Claims Act Medicare fraud case, Mizelle ruled that the qui tam provisions improperly grant whistleblowers the authority to exercise federal executive power without accountability to the president. She argued that whistleblowers, by deciding whether to appeal and which arguments to pursue, shape the legal landscape for the federal government with more independence than federal prosecutors.
This case may soon move to the 11th U.S. Circuit Court of Appeals and could eventually reach the U.S. Supreme Court. The federal government, which has recovered more than $75 billion under the False Claims Act since 1986, continues to defend the constitutionality of the whistleblower provisions. However, Mizelle’s analysis, which defendants in False Claims Act cases have increasingly supported, could potentially prevail in the high court.
“False Claims isn’t going away, but qui tam might,” said Craig Margolis, a partner at Arnold & Porter Kaye Scholer who defends companies in False Claims Act cases. Millions of dollars are at stake for whistleblower attorneys, who typically have a contingency interest in the qui tam award their client receives for a successful case. These awards range from 15% to 30% of the amount the government recovers, depending on whether the Justice Department intervenes directly in the case.
The False Claims Act also includes a fee-shifting provision that requires defendants to cover a whistleblower’s “reasonable” legal fees for a successful case, potentially giving attorneys two paydays: their contingency interest in the whistleblower’s award and their regular hourly fees. Attorneys representing whistleblowers told Reuters that contingency arrangements vary widely in False Claims Act cases. Some firms rely more on the statutory fee provision and offer lower contingency fees than others.
H. Vincent McKnight Jr., vice-chair of the qui tam practice at Sanford Heisler Sharp, said the variety in practice makes it difficult to provide a standard answer on how firms charge clients in these cases. McKnight and Gordon Schnell, a partner at Constantine Cannon, both downplayed the potential impact of qui tam’s demise on their firms, noting they have diversified practices. Schnell predicted that Mizelle’s ruling would not survive on appeal, as both the Justice Department and Congress strongly support the False Claims Act. He also suggested that Congress could amend the law’s qui tam provisions to address constitutional concerns.
“The essential role of whistleblowers in helping the government uncover and prosecute fraud will not disappear,” Schnell said.
Mizelle’s ruling stems from a False Claims Act case filed by former Florida physician Clarissa Zafirov, who accused her former employer and several other Florida healthcare providers of defrauding Medicare by misrepresenting patients’ medical conditions. Zafirov’s attorneys at Morgan Verkamp and Rabin Kammerer Johnson did not immediately comment on their plans regarding an appeal or their potential stake in any whistleblower award.
The defendants in the Zafirov case, represented by Foley & Lardner and O’Melveny & Myers, received support from the U.S. Chamber of Commerce. Jason Mehta, a partner at Foley, told Reuters that Mizelle’s ruling recognized how qui tam litigation has expanded beyond the intentions of the Constitution’s framers.
In other legal fee news, Baltimore County agreed to pay 15% of any gross recovery it secures from litigation related to the collapse of the Francis Scott Key Bridge to its private-sector attorneys. The county hired Grant & Eisenhofer and Bekman Marder Hopper Malarkey & Perlin to pursue claims against Grace Ocean Pte Ltd and Synergy Marine Group, the owner and operator of the cargo ship that struck the bridge in March. Several parties, including Maryland, the U.S. Justice Department, and victims’ families, have filed related lawsuits in Maryland federal court.
