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Do Pre-Filing Releases in Private Agreements Bar False Claims Act Lawsuits?

Agreements such as non-competes, confidentiality agreements, settlement agreements, or severance agreements commonly require employees to release future claims against their employer. For instance, a severance agreement, which is entered into upon termination of employment, may require the employee to release all future claims against the employer in exchange for the continuation of benefits or a payout.

Is the employee who signs such a release still allowed to pursue a False Claims Act as a whistleblower? Can the employer enforce such a release to require dismissal of the False Claims Act complaint, or to foreclose the employee's ability to share in the proceeds of the case? The answer provided by the courts is, "it depends." Signing a release of all future claims does not necessarily prevent signees from bringing a False Claims Act suit against a former employer. In some circumstances, employees who have previously released claims against their former employer can still serve as whistleblowers in a False Claims Act ("FCA") suit against that former employer. Most courts apply the "government knowledge" test to determine whether to enforce releases in private, pre-filing agreements. 

When are releases not enforced in an FCA context?  

The FCA’s public policy role is pivotal when considering whether a release is enforceable. The FCA serves to incentivize individuals aware of potential fraud against the government to come forward with such information. The government recognizes that "[c]omplex economic wrongdoing cannot be detected or deterred effectively without the help of those who are intimately familiar with it," therefore, "insiders who are willing to blow the whistle are the only effective way to learn that wrongdoing has occurred." It follows that releases, if enforced, interfere with the FCA's public policy role by preventing potential whistleblowers from providing the government with information about fraud. 

As a result of the FCA’s public policy purpose, releases in an agreement entered into without the United States' approval may be unenforceable if the whistleblower provides information about fraud that the government would not know about otherwise. For example, in United States ex rel. Green v. Northrop Corp (9th Cir. 1995), the court found that in the absence of the FCA suit, the government would be unaware of the fraud allegations the whistleblower brought forth. Therefore, the court concluded that it is contrary to public policy to enforce the release Green had signed with his former employer, Northrop, as part of a settlement agreement in response to a separate lawsuit Green filed concerning his termination. The settlement agreement stated that, in exchange for $190,000, Green would agree to: 

release, acquit and forever discharge Northrop [and its] employees . . . from any and all claims . . . rights to payment . . . actions and causes of action of every nature, under any theory under the law, whether . . . statutory or other of any jurisdiction, whether known or unknown . . . which he had or held, or has or holds, or may claim to have or to hold by reason of any and all matters . . . including, but not limited to, those arising out of or relating to the Action and/or Green's employment with and separation from Northrop.

The court held that regardless of whether Green’s release “encompassed both Green's right to bring a qui tam action as well as any recovery that might flow from that action… this aspect of the Release is unenforceable because its enforcement would impair impermissibly a substantial public policy.” Id. 

More recent cases have applied a similar standard to that in Green. In United States ex rel. Class v. Bayada Home Health Care, Inc. (E.D. Pa. 2018), Bayada filed a motion to dismiss claiming that "Relators do not have standing to pursue their claims because they signed enforceable "[s]eparation Agreements … which released Bayada from 'any and all claims.'" The Court denied Bayada's motion, finding that even though the release signed by the relators implicated claims brought under the FCA, "the Government appears to have initiated and performed its investigation only while the case has been pending before me." Id. Because the government only knew of the fraud because of the FCA suit, the Court held that "the underlying policy of encouraging laypeople to come forward with information to assist the Government with uncovering fraud would not be served by enforcing the Separation Agreements." Id.

Green and Class highlight the importance of the government knowledge rule when evaluating whether to enforce a private release of all claims—when the government is not aware of the fraud, the public policy interests of the FCA may take priority over those of a private agreement.  

When are releases enforced in an FCA context?

If the government already has some knowledge of the fraud prior to the FCA suit, releases in private agreements may be enforced, thus restricting the whistleblower’s suit. The public policy role of the FCA is diminished if the government already had knowledge of the fraud. In such cases, courts have held that the public policy benefits of enforcing the releases outweigh those of allowing the FCA suit to proceed. 

United States v. Purdue Pharma L.P. (4th Cir. 2010) provides an example of when releases in severance agreements are enforced to require the dismissal of a whistleblower's FCA claims. In this case, another source had already informed the government of the fraud allegations, and the government was in the process of investigating them. The court found that “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 pre-filing release,” even though the government’s investigation was not yet complete.  

While this article provides an overview of when a release is enforceable under the FCA, consulting an attorney is the only way to determine the merits of your particular agreement. The whistleblower attorneys at Goldberg Kohn have experience handling FCA cases in which the whistleblower has signed an agreement releasing claims against the defendant. If you are aware of fraud against the government but are hesitant to proceed with an FCA case due to a release you have signed, call Goldberg Kohn at 312-284-3258 or contact us online. We are always willing to provide you with a free, confidential consultation to discuss a potential case.

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 1United States ex rel. Green v. Northrop Corp., 59 F.3d 953, 962-69 (9th Cir. 1995).

2United States ex rel. Class v. Bayada Home Health Care, Inc., No. CV 16-680, 2018 WL 4566157 (E.D. Pa. Sept. 24, 2018).

3United States v. Purdue Pharma L.P., 600 F.3d 319, 332 (4th Cir. 2010).

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