by Ben Vernia | April 1st, 2010
On March 24, the Fourth Circuit decided, in U.S. ex rel. Radcliffe v. Purdue Pharma, L.P., that a general release signed by a whistleblower upon accepting a severance package barred his qui tam action against his former employer, because the government was aware of the conduct he later alleged to be fraudulent. The decision affirmed the dismissal of his case, although the lower court’s action had been based on his failure to plead fraud with particularity, under Rule 9(b).
The relator was a former sales representative for Purdue Pharma, and alleged that the company falsely claimed to physicians that OxyContin was twice as potent – and therefore cheaper per dose – than its predecessor drug, MS Contin. In January, 2005, the relator had, through an anonymous email, offered to settle his claims with the company, though he had neither disclosed the conduct to the US nor filed a qui tam then. Later that year, he accepted a buyout as part of a workforce reduction, and signed a very broad release of claims. At around the same time, the US was independently investigating the company’s promotion of OxyContin, including the potency claims. The relator thereafter filed his qui tam suit, but the US declined to intervene in it in 2007. Instead, two days later the government announced guilty pleas and a settlement which focused on other false statements.
The company moved to dismiss on the grounds of bar and release, but the district court denied the motion (granting, however, the company’s 9(b) motion). The district court acknowledged that the government knew of the alleged fraud concerning potency, and that the US had investigated it, but the court reasoned that the relator’s continued ability to supplement the federal enforcement by prosecuting his allegations best served the public interest, and that the fullness of the government’s investigation was a necessary precedent to enforcing the release.
The Fourth Circuit disagreed. It first noted that all parties – the relator, the company, and the U.S. as amicus – agreed that the test was one of the public interest, under Town of Newton v. Rumery, 480 U.S. 386 (19897). Relying largely on U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009), the Court first rejected the whistleblower’s arguments that the release was ineffective without the government’s consent, and that he did not possess a legally cognizable claim subject to the release’s terms. Turning to the question of the government’s knowledge of the allegations, the court agreed with the position of the US as amicus, that the district court had erred by looking to the completeness of the government’s investigation, instead of to the fact of the government’s knowledge prior to the relator’s execution of the release.
Comment: The government’s amicus brief makes the rather odd claim that its proposed “government knowledge” rule would promote “the orderly and efficient private resolution of FCA cases.” Under the facts of this case, the employee’s release was a general one, given in exchange for a single payment of cash and enhanced benefits. The US clearly did not share in this release. The relevant question from the government’s perspective should be whether, after giving such a release, a person with knowledge of fraud, will be more or less likely to report it to the government. By adopting a position which counts government knowledge from any source as sufficient to bar such a would-be relator from filing a qui tam, the US is putting those whistleblowers in the position of having to choose between a certain sum of money from their employer and a highly contingent payday from a qui tam suit down the road, without knowing whether the government already has knowledge of the allegations.
The government’s brief also makes the comment:
But as explained, even a relator who settles an FCA qui tam action is ‘enforcing’ the FCA, because the threat of paying such settlements deters fraud no less than paying FCA judgments does. And even when an FCA relator settles with a potential defendant, the government or another relator is still free to bring an FCA suit and recover funds for the government.
This is apropos of what, exactly? The US received nothing in exchange for the release the relator gave to his company here. Does the US really want to encourage potential FCA defendants to enter into undisclosed pre-suit settlements with potential relators? Does the government truly believe now that whistleblowers are so fungible and ubiquitous that removing one imposes no costs to the US?
A far more sensible approach would be to restrict the application of the “government knowledge rule” to the circumstances which confronted the Ninth Circuit in U.S. ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir.), where the relator himself had notified the government (in that case, the NRC) of his allegations, and they had been investigated. By promoting the enforcement of broad settlement agreements without conditioning their enforcement on the relator’s own disclosures to the US, the government in this case has endorsed a substantial impediment to whistleblower suits.
