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FCA Qui Notes
February 21, 2019

Settling a False Claims Act Case? Be Sure to Read the Fine Print!

Qui Notes: Unlocking the False Claims Act

The Eastern District of New York recently had to implement corrective measures when the parties in a Federal False Claims Act (FCA) proceeding settled too much. Specifically, they inadvertently agreed to settle away claims of another party that had not joined the settlement.

The court was presented with a proposed Stipulation of Dismissal and Order to resolve FCA proceedings in United States v. AMERISOURCEBERGEN, et al., 2019 WL 624921 (Feb. 6, 2019). Careful monitors of our running list of FCA recoveries will recognize this as the single highest recovery of FY2018 coming in at more than $580 million, and one that DOJ hurried to finalize just as the fiscal year came to a close. In the rush to get this one in the books, the parties apparently failed to notice that they were settling away claims that were not in fact theirs to settle.

The stipulated dismissal was represented as implementing a settlement agreement amongst the United States, relator, and multiple Defendants. Although not stated in the proposed stipulation, the settlement agreement included a fairly boilerplate and not uncommon provision "irrevocably" releasing all relator's claims against the defendants "on behalf of any state, or political subdivision or municipality, under any state, political subdivision or municipality False Claims Act or similar law…." This presented a problem because the City of Chicago had claims against the same defendants under Chicago's "False Claims Ordinance" (FCO)—its municipal equivalent of the FCA.

Not surprisingly, Chicago was not pleased. In November 2018, the city filed an objection to the formal dismissal implementing settlement that purported to resolve claims under its municipal ordinance. The court solicited responses from the parties, and they all challenged Chicago's standing to object to the settlement agreement. The relator agreed with the city, however, that it could not settle and dismiss claims under the FCO without Chicago's consent, and claimed that it had not done so. The defendants and the Federal government, going a step further, both stated their view that the settlement agreement in fact did not resolve and release FCO-based claims.

In view of the disconnect between the settlement agreement's plain language—releasing relator's claims under any municipal FCA equivalent—and the parties' positions that this was not intended, the court refused to enter the stipulated dismissal stating that it is "in accordance with the terms and conditions of the … Settlement Agreement." The court found the parties' later statements insufficient to mitigate Chicago's concerns.

To address Chicago's objections more substantively, the court ordered the parties to file an amended stipulated dismissal clarifying that their underlying settlement agreement does not apply to Chicago's claims under the FCO. The settlement agreement provides for amendment only by written agreement of the parties, but the court did not order the parties to amend their agreement as a condition to entering the stipulated dismissal. Consequently, unless the parties take action, the settlement agreement and the stipulated dismissal purporting to implement it will forevermore remain inconsistent.

While awkward, Chicago is not likely to face complications based on the settlement agreement should it pursue an FCO claim against the defendants. The parties could have avoided the adverse order, and cleared up everything, by themselves voluntarily amending the settlement agreement to address Chicago's concerns rather than making standing objections. Easier still would have been for the government and relator to settle from the beginning only the claims they were authorized to settle.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.