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Those familiar with the False Claims Act (FCA) may know that many FCA cases are litigated through a partnership between the government and a whistleblower, also known as a relator. After a relator files their complaint, the government investigates the allegations in the compliant and can choose to intervene in the case. However, even if the government ultimately declines to intervene, that does not necessarily mean its relationship with the case ends there.
Sometimes, the government will choose to address the harms it has suffered through other avenues, which it is allowed to do through the alternate remedy provision of the FCA. Often the alternate remedies the government pursues are other civil enforcement actions.
But what about when a relator's allegations in an FCA case become the basis for criminal prosecution? If the government pursues a parallel criminal proceeding, does this constitute an alternate remedy under the FCA? Read on to learn how courts have dealt with this tricky question and what the implications are for relators.
Table of Contents
- The Alternate Remedy Provision
- Parallel Criminal Proceedings
- Considerations for Alternate Remedy Provisions
- Intervention Vs. Recovery
- Relator Rewards
- Conclusion
The Alternate Remedy Provision
The alternate remedy provision of the FCA provides that “the 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. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.” 31 U.S.C. § 3730(c)(5).
It is noteworthy that this provision promises the relator the same rights in the alternate proceeding as the relator would have had if the harms done by the defendant had only been addressed under the FCA. One right the relator has under the FCA is of course the right to a share of the money recovered in the event of a successful case. Specifically, if the government intervenes in the case, the relator is entitled to 15% to 25% of the amount recovered, and if the government does not intervene, the relator is entitled to 25% to 30% of the recovery. 31 U.S.C. § 3730(d)(1)-(2). This means that, if the government makes a recovery through an alternate remedy, the relator is entitled to a share of that recovery.
Important policy considerations explain why a relator is entitled to a share of the recovery in an alternate remedy. One of Congress’s objectives in the FCA’s qui tam provision is to “encourage more private enforcement suits.” S. Rep. 99-345, at 23-23.
Congress recognized that private individuals with substantial information about fraud on the government are unlikely to come forward with information without the financial incentive of a relator’s share. If relators were often at risk of losing out on their share when the government chooses to pursue an alternate remedy, relators might think twice about initiating a qui tam action.
Relators might be particularly concerned about this if they believed the defendant’s assets could be exhausted by an alternate remedy recovery before the qui tam action even concludes, leaving the defendant judgement proof in the qui tam action. The alternate remedy provision is designed to guard against this concern by ensuring that relators get their share of any recovery that results from their efforts to file an FCA suit.
Parallel Criminal Proceedings
Often, if the government pursues an alternate remedy to the FCA, it pursues another type of civil enforcement action. However, sometimes FCA cases will give rise to parallel criminal proceedings, such as in the example below.
United States Vs. Couch Case Study
Let’s discuss a real-world example from United States v. Couch, 906 F.3d 1223 (11th Cir., 2018). Relator Lori Carver worked at a pain management clinic in Mobile, Alabama called Physician Pain Specialists of Alabama, P.C. She discovered that the two doctors who ran the clinic, Patrick Couch and Xiulu Ruan, were submitting fraudulent claims for payment to federal health insurance programs. Ms. Carver reported this information to the U.S. Attorney’s office, who encouraged her to file a qui tam action. In 2013, Ms. Carver filed her qui tam action and the government ultimately declined to intervene in this case. However, it did take the information Ms. Carver provided in her complaint and initiated a criminal investigation into Dr. Couch and Dr. Ruan. Then in 2015, the government criminally charged both doctors with conspiracy to commit healthcare fraud and conspiracy to distribute controlled substances. The charges in the indictment partially overlapped with the allegations in Ms. Carver’s FCA complaint, and of course it was Ms. Carver who initially alerted the government to this situation so that it could ultimately commence the criminal investigation
Are Parallel Criminal Proceedings Alternate Remedies?
The example above might lead one to wonder whether a criminal proceeding could be considered an alternate remedy under the FCA, and whether relators could recover a portion of any criminal penalties, fines, forfeitures or restitutions that result. The text of the FCA itself does not make clear whether criminal proceedings can be considered alternate remedies. It says only that alternate remedies include “any administrative proceeding to determine a civil money penalty.” 31 U.S.C. § 3730.
The legislative history also does not provide a clear answer. In a House Judiciary Committee Report from 1986, criminal prosecutions were listed as one example of an alternate remedy: “This section further provides that, notwithstanding the filing of a qui tam action, the Government may pursue its claim through alternate remedies available to it, such as criminal prosecution.” See H. Rep. 660, 99th Cong., 2d Sess. 2 (June 26, 1986). However, some argue that the fact that Congress contemplated whether criminal proceedings could be alternate remedies and ultimately did not explicitly include them in the statute indicates that Congress did not intend criminal prosecutions to qualify as alternate remedies.
Courts have been unwilling to make a blanket statement regarding whether parallel criminal proceedings can be considered alternate remedies. Instead, they have primarily limited themselves to narrower questions regarding whether relators can recover a portion of the proceeds of a criminal proceeding and whether relators can intervene in criminal proceedings. A number of important factors have influenced courts’ reasoning with respect to these questions.
Considerations to Determine If Parallel Criminal Proceedings Are Alternative Remedies
A lot goes into whether or not a parallel criminal proceeding is considered an alternate remedy. Important factors to consider include:
Timing
One important factor that influences whether courts consider a parallel criminal proceeding to be an alternate remedy is when the relevant qui tam action was filed in relation to the commencement of the criminal proceeding. In order for the criminal proceeding to be considered an alternate remedy to a qui tam action, the qui tam action must have been filed before the initiation of the criminal proceeding.
In U.S. ex rel Babalola v. Sharma, 746 F.3d 157 (5th Cir., 2014), the relators believed their employer was defrauding the government by submitting false claims to Medicare and Medicaid, in addition to private insurers. The relators drafted an anonymous letter setting forth these allegations, and then sent it to a number of government agencies in 2007. The government subsequently investigated the allegations and eventually initiated criminal proceedings against the relators’ employers. It was only after these criminal proceedings had commenced that the relators filed their qui tam complaint in November 2011. The relators attempted to argue that the criminal proceedings constituted an alternate remedy to their qui tam action, and that they were entitled to a share of the $43 million criminal restitution recovered by the government in February 2011. However, the 5th Circuit reasoned that, in order for a legal proceeding to constitute an alternate remedy, there must be an existing qui tam action to which it is an alternative.
If the qui tam action is not filed until after the government has already elected to pursue criminal prosecution, the criminal prosecution is not an alternate remedy.
Overlapping Claim
A second factor courts consider when determining whether a parallel criminal proceeding constitutes an alternate remedy is whether there is sufficient overlap between the claims in the qui tam action and the claims in the criminal proceeding.
In U.S. v. Kurlander, 24 F.Supp.3d 417 (D. New Jersey, 2014), relators in a corresponding FCA matter attempted to intervene in the criminal proceeding, arguing that the criminal proceeding constituted an alternate remedy. However, while the FCA complaint alleged that the defendant was defrauding the federal government, the criminal charges related to fraud against New Jersey schools that did not implicate federal dollars. There was no overlap in the money at issue in the two cases, so the court found that the criminal proceeding could not be considered an alternate remedy. In United States ex rel. Estate of Turner v. Gardens Pharmacy, LLC, No. 1:18cv338-HSO-RHWR, 2022 WL 2079718 (S.D. Miss., Jun. 9, 2022), the relator filed an FCA action alleging that the defendant submitted false claims for payment to TRICARE and Medicare as a result of illegal kickbacks to prescribing doctors. The government had charged the same defendant with criminal violations in several separate proceedings, and the relator attempted recover an award from the proceeds of those proceedings. However, the court found that the conduct the relator alleged in the FCA action was separate from the conduct at issue in the criminal proceedings and that the relator did not contribute in any way to the government’s investigation of the conduct at issue in the criminal proceedings. Therefore, the criminal proceedings did not constitute alternate remedies.
Government Intervention In The Qui Tam Action
A third factor that influences whether courts regard a criminal proceeding as an alternate remedy to a qui tam action is whether the government intervened in the qui tam action. Some courts have interpreted the alternate remedy provision to say that any parallel proceeding is only an alternate remedy if the government elected to pursue that proceeding instead of a qui tam action. That is, if the government does intervene in the qui tam action and yet also pursues additional remedies, those additional remedies are not alternate remedies.
In at least two cases, courts have found that a parallel criminal proceeding does not constitute an alternate remedy and that the relator is not entitled to a share of the proceeds because the government did not initially intervene in the qui tam action.
In U.S. v. Lustman, No. 05-40082-GPM, 2006 WL 1207145 (S.D. Ill., May 4, 2006), the relators attempted to intervene in the criminal proceeding parallel to their qui tam action. However, the Southern District of Illinois found that, because the government intervened in the qui tam action, in addition to pursuing criminal prosecution, the criminal prosecution did not constitute an alternate remedy. The relators were therefore not permitted to intervene in the criminal prosecution or receive a portion of any potential recoveries.
In United States ex rel. Koo v. GC Caltex, No. 2:18-cv-00174, 2020 WL 8477217 (S.D. Ohio, March 23, 2020), the relevant FCA matter settled for $120,669,000 and the government also obtained three guilty pleas in a parallel criminal proceeding, resulting in $82,137,754 in fines. The relator sought a share of the total $202,806,754, which included the criminal fines. The court found that, because the government intervened in the qui tam action, rather than pursue an alternate remedy, the criminal proceeding was not itself an alternate remedy. Therefore, the relator was only entitled to a share of the $120,669,000 settlement from the qui tam action.
There is, however, at least one case in which a court has found that a parallel criminal proceeding constitutes an alternate remedy even when the government intervenes in the qui tam action as well. In United States ex rel. Rushing v. Lick, No. 1:20-CV-210-SA-DAS, 2024 WL 170762 (N.D. Miss., Jan. 16, 2024), the relators filed a qui tam action and the government intervened only after the parallel criminal proceeding concluded and the defendant was required to pay a criminal restitution. The relator and the government ultimately entered an agreement under which the relator would receive 15% of the net proceeds of the criminal forfeiture. The court approved of this agreement. It reasoned that the alternate remedy provision entitles the relator to 15% to 25% of the recovery in a parallel criminal proceeding when the government intervenes in the qui tam action, and noted that the agreement between the relator and the government satisfied this entitlement. The court emphasized the importance of not undermining the purpose of the qui tam provision by endangering the relator’s ability to receive an award. It also highlighted the fact that, because the relator was not attempting to intervene in the criminal proceeding, the typical concerns that arise when a private party tries to intervene in a criminal case do not arise.
There are other examples of relators managing to recover a portion of the criminal damages in cases where the government intervened in their FCA cases. In U.S. v. WellCare Health Plans, Inc., No. 8:09-CR-203-T-27EAJ, 2011 WL 4431157 (M.D. Fla., Sept. 21, 2011), the relator in a parallel FCA case sought to intervene in the criminal proceeding and receive 15% to 25% of any ultimate recovery. The court ruled that, because the government intervened in the FCA case, the criminal proceeding did not constitute an alternate remedy, and the relator was not entitled to intervene in the criminal proceeding. However, the government escrowed 25% of the $40 million restitution to be used to pay a relator’s share in the event the FCA case was successful. Although the court did not require this result, it suggests that the government can be persuaded to reserve part of the damages in a criminal proceeding for the relator in some circumstances.
Possibility that Defendant will be Judgement Proof
A final factor courts have sometimes considered when determining whether a parallel criminal proceeding is an alternate remedy, or at least whether the relator should receive a share of the recovery from the criminal proceeding, is whether there is a risk that the defendant will be judgement-proof by the time the FCA case concludes. If there is such a risk, the very purpose of the qui tam provision may be undermined.
This provision is meant to incentivize private individuals to come forward with information about fraud on the government, and this incentive may be diminished if relators regularly cannot receive their award because the government exhausts the defendant’s assets through parallel criminal proceedings prior to the conclusion of the FCA case. Some courts have been sensitive to this concern, and have awarded relators a share of the proceeds from criminal prosecution as a result.
In U.S. v. Bisig, No. 100CV335JDTWTL, 2005 WL 3532554 (S.D. Ind., Dec. 21, 2005), relator FDSI filed a qui tam complaint alleging that defendant Home Pharm-Assist, Inc. submitted fraudulent claims to Indiana Medicaid in 2000. The United States then investigated Home Pharm further and ultimately declined to intervene in the qui tam action. However, the government did eventually charge Home Pharm with various violations of criminal statutes, including Health Care Fraud and Unlawful Payment of Kickbacks, and it recovered about $916,000 in property forfeited in the criminal action. As a result of the criminal action, the government recovered substantially all of the defendant’s available assets, meaning the defendant would not have been able to pay the damages that could result from a successful FCA verdict. The relator therefore asked the Southern District of Indiana to find that the criminal action constituted an alternate remedy and that the relator was entitled to a share of the proceeds from the criminal action.
The court sided with the relator and interpreted the alternate remedy provision in the context of the FCA’s purpose, which is to encourage private enforcement against parties that defraud the government. It reasoned that, if it decided against the relator, this would defeat the purpose of the FCA by eliminating the primary incentive the relator had to pursue the case in the first place. The Court drew heavily on United States ex rel. Barajas v. United States, 258 F.3d 1004 (9th Cir., 2001) and United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634 (6th Cir., 2003). Those cases both considered parallel civil proceedings, rather than parallel criminal proceedings. However, they both emphasized the importance of ensuring relators are able to recover their fair share in the event that an alternate remedy exhausts the defendant’s assets in order to preserve the purpose of the qui tam provision.
Intervention Versus Recovery
One important distinction to be made is that between intervention in a parallel criminal proceeding and recovery from a parallel criminal proceeding. Because the alternate remedy provision guarantees relators the same rights in an alternate remedy as they would have in an FCA case, many courts have been concerned that designating a parallel criminal proceeding as an alternate remedy would mean allowing the relator to intervene in and be party to the criminal proceeding, just as the relator is party to an FCA action. Because private parties are generally not allowed to intervene in criminal prosecutions, this could create significant problems.
For this reason, courts have rarely if ever allowed relators to intervene in criminal proceedings. Three circuit court cases – United States v. Van Dyck, 866 F.3d 1130 (9th Cir., 2017), United States v. Couch, 906 F.3d 1223 (11th Cir., 2018), and United States v. Wegeler, 941 F.3d 665 (3rd Cir., 2019) – all considered very similar situations. In each case, the relator attempted to assert a right to intervene in the parallel criminal forfeiture proceedings in order to recover a share of the proceeds. Each court ruled that relators may not intervene in criminal proceedings. However, each court also noted that intervention is a separate issue from recovery, and that they were not commenting on whether relators could recover a portion of the proceeds in a criminal case. These cases suggest that, while a relator very likely will not be allowed to intervene in a parallel criminal proceeding, this is a separate issue from the recovery of criminal damages and need not rule out the possibility of receiving a share of the criminal damages in the qui tam action itself.
Relator Rewards When Criminal Proceeding Is Not An Alternate Remedy
The examples above illustrate that it is not always certain whether courts will find that a parallel criminal proceeding constitutes an alternate remedy, and that often they do not. However, this does not mean that relators have no options. Sometimes, the government agrees to give the relator a share of the criminal proceeds in the event that the FCA case is successful.
In Rushing, the government entered an agreement with the relator under which the relator would receive 15% of the net proceeds of the criminal forfeiture. In WellCare, the government escrowed 25% of the criminal restitution to be used to pay the relator in the event of a successful FCA verdict. In United States v. Patel, No. 19-CR-80181-RAR, 2024 WL 1468490 (S.D. Fla., Mar. 18, 2024), the relators filed a qui tam action in the District of South Carolina that resulted in a default final judgement of $616 million.
There was also a parallel criminal proceeding filed in the Southern District of Florida. A South Carolina judge awarded the relators a share of 25% to be paid out of any recovery obtained by the government in the criminal proceeding. Although the Southern District of Florida found that the parallel criminal proceeding was not an alternate remedy, it did note that the relators could enforce the South Carolina order once funds were forfeited to the United States. Finally, in Van Dyck and Couch, the government promised in its briefs that, if the defendant was found liable for FCA violations, the defendant could deduct restitution paid to the United States in the criminal proceedings as a credit against the FCA damages award and that the relator would be entitled to a share of the full amount of the damages award.
Conclusion
When the government pursues criminal prosecution for conduct that a relator notified the government of by filing a qui tam action, complex legal questions can arise. Although it is rare for courts to recognize parallel criminal proceedings as alternate remedies, relators are sometimes still able to receive their award by taking a share of the proceeds of a criminal proceeding. This is just one of many issues an experienced FCA attorney can help clients navigate.
At Goldberg Kohn, we are committed to helping individuals fight fraud against the government. We assist people in recovering as large a share of recoveries as possible while protecting their rights. Our attorneys have years of experience and resources to take on even the largest corporations in the United States. We understand taking initiatives against illicit activities can be challenging, but the law is on your side, and our attorneys can provide the needed support. If you believe you may have witnessed fraud on the government, please contact us for a free consultation.