Release of Claims Barred Later FCA Qui Tam Action
SYNOPSIS: The Fourth Circuit dismissed a qui tam suit brought by a former employee who had signed a broad release as part of a severance agreement where the Government already had sufficient knowledge of the subject matter of those claims prior to when the former employee filed his qui tam suit. This “Government knowledge” rule, in an era of mandatory disclosure, could have a significant impact on the ability of former employees who have given their former employers a broad release to bring qui tam suits.
On October 12, 2010, the Supreme Court of the United States denied a petition for writ of certiorari to review the Fourth Circuit’s dismissal of a suit filed by former Purdue Pharma L.P. (“Purdue”) employee, Mark Radcliffe (“Radcliffe”).i Pursuant to the qui tam provisions, Radcliffe alleged that Purdue had defrauded the Government in violation of the False Claims Act (“FCA”) by making false statements regarding the relative price and effectiveness of two of its pharmaceutical products. Radcliffe had entered into a broadly worded release of all claims against Purdue on August 1, 2005,ii but did not file his qui tam suit against Purdue until September 27, 2005. Although by statute private parties to an FCA whistleblower suit may not settle their claims without consent of the Government, the statute does not settle whether a release signed prior to the filing of such a claim is enforceable. The Fourth Circuit found that this release was, in fact, enforceable.iii
The appellate court noted that there were two strong competing public interests: 1) not enforcing agreements where the public interest in enforcement is outweighed by the public interest in not doing so, such as in a whistleblower suit; and 2) enforcing private settlements of disputes. After considering the arguments of the parties and the previous case law on the matter,iv the Court sided with the Government,v holding:
When the Government is unaware of potential FCA claims the public interest favoring the use of qui tam suits to supplement federal enforcement weighs against enforcing prefiling releases. But when the Government is aware of the claims, prior to suit having been filed, public policies supporting the private settlement of suits heavily favor enforcement of a prefiling release. We therefore agree with the Government that ‘[t]he proper focus of the inquiry is whether the allegations of fraud were sufficiently disclosed to the Government, not on whether the Government’s investigation was complete.’ We find that the application of this ‘Government knowledge’ rule meets the balancing analysis required under [previous case law].vi
Because the Court found that the Government was sufficiently aware of the subject matter of Radcliffe’s suit prior to when he filed his suit, this satisfied the pertinent public interest in encouraging those with information of fraud to come forward.vii Therefore, the trial court should have dismissed his complaint based on the release.
As a result of the Fourth Circuit’s holding, when considering whether a release of a later-filed qui tam suit will be upheld, the relevant inquiry will be whether the Government was sufficiently aware of the grounds for the potential lawsuit to overcome the public policy of encouraging whistleblowers to expose frauds against the Government. The Government can become aware of such grounds through several avenues, including self-disclosure, but the extent of the knowledge will be crucial to a determination of whether a release will be upheld.
i U.S. ex rel. Radcliffe v. Purdue Pharma L.P., No. 09-1202 (4th Cir. Filed March 24, 2010).
ii Radcliffe signed the release as part of a severance agreement after Purdue dramatically downsized its sales staff. He opted for this agreement in lieu of another position at the company. The agreement included a release of “any and all liability to employee.” Radcliffe also agreed to “not seek and waive[ ] any right to accept any relief or award from any charge or action against [Purdue] before any federal, state, or local administrative agency or federal, state or local court whether filed by Employee or on Employee’s behalf…” Although Radcliffe argued that the claim was actually held by the Government, and therefore not within the scope of the release, the Court disagreed and found that because the qui tam claim was a claim by the relator and not the Government, it was within the scope of the release signed by Radcliffe.
iii Although the United States District Court for the Western District of Virginia had dismissed the suit for failure to satisfy Federal Rule of Procedure 9(b), which requires pleading with particularity allegations of fraud, with regard to the enforceability of the release, the trial court found that the Government did not have sufficient knowledge of Radcliffe’s claims because it had not “fully investigated them,” rendering the release unenforceable.
iv Key to this analysis at both the trial court and appellate levels were U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995) (refusing to enforce a release of claims against the former employer where it was against a strong public interest), and U.S. ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997) (enforcing a pre-filing release where the government had full knowledge of the allegations and had investigated them prior to the filing of relator’s suit).
v The Government appeared as amicus curiae because they had declined to intervene in Radcliffe’s suit.
vi (Internal citations omitted). In support of its method of distinguishing Hall and Green, the Fourth Circuit cited to a recent Tenth Circuit case in which that court had enforced a release entered into prior to the filing of a qui tam suit. U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1168 (10th Cir. 2009). In that case, the contractor had self-reported, and the relator had assisted the government in its investigation. After the relator was terminated, she entered into a settlement agreement with the contractor and then filed a whistleblower suit against it. In enforcing that release, the Tenth Circuit noted that, despite relator’s claims that the Government did not know the full extent of the violations, the Government had a sufficient knowledge of the facts such that the public interest in enforcing the private settlement outweighed other interests.
vii The record revealed that sometime around June, the Government had made a document request to Purdue that contained the request for documents pertaining to the cost/potency issue that was the substance of Radcliffe’s claims.
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