2024 brought a handful of decisions involving False Claims Act (FCA) qui tam relator actions that may indicate some big changes to FCA enforcement. These decisions raise questions about who may bring an FCA claim and timing for alleging claims and may preview bigger changes to come.
The FCA has served as a tool to protect the U.S. Government against false or fraudulent claims for payment to the U.S. Government for nearly 150 years. Because fraud can be hard to detect, the FCA incentivizes private citizens to become whistleblowers. The FCA not only allows whistleblowers to bring FCA claims on behalf of the U.S. Government as “qui tam relators” but rewards them for doing so by giving the relators a percentage of the money recovered on behalf of the U.S. Government. According to Department of Justice reports, in the last three decades qui tam relators account for approximately 70% of all FCA matters and have received more than $8.9 billion dollars in compensation for their efforts.
Despite the prevalence of FCA qui tam actions (or perhaps because of the prevalence), 2024 saw jurisdictional and constitutional challenges to the qui tam portions of the FCA that may be indicative of what we can expect in the coming years.
A Circuit Split on the FCA’s “First to File” Rule May Be Reaching a Tipping Point
In 2024, the Ninth Circuit joined four other circuits holding that the “first to file rule” for actions under the FCA is not jurisdictional. The “first to file” rule permits the first relator to file and maintain an action against a defendant, while subsequent filers are excluded from bringing actions based on similar essential facts. This is to encourage relators to notify the government sooner rather than later to combat fraud and avoid copycat litigation.
In issuing its decision, the Ninth Circuit joined four other circuits (the First, Second, Sixth, and D.C. Circuits) leaving just three circuits with precedent holding the “first to file” rule is jurisdictional. One of these remaining three circuits is the Fourth Circuit which matters because it has jurisdiction over a large number of government contractors and contracting dollars and means qui tam relators. But, because the Fourth Circuit has not analyzed the issue recently, defendants in the DMV (District of Maryland, Virginia, and Washington, D.C.) may have to contend with two different sets of rules regarding whether or not being the first to file creates a statutory bar to other actions.
Because both the U.S. Government and private whistleblowers can file FCA matters, the “first to file” rule effectively ensures that a single defendant is not forced to defend multiple lawsuits over the same set of facts. Where more than one FCA action is filed, typically courts will stay or dismiss all but the first action at the request of the defendant.
This “first to file” rule comes from a section of the FCA that says only the United States may become a party to a qui tam suit or bring another suit based on the underlying facts of the first suit. In Stein v. Kaiser Foundation Health Plan, Inc., the Ninth Circuit held that the “first to file” rule was in fact not jurisdictional, overturning a 2001 decision and holding that the FCA’s “first to file” rule did not preclude the second qui tam relator action on jurisdictional grounds.
So, why does it matter if the “first to file” rule is or is not jurisdictional? Put simply, where the “first to file” rule is not jurisdictional, it makes it easier for qui tam relators to bring an FCA action and avoid dismissal. In courts where the “first to file” rule is jurisdictional, the defendant can move to dismiss the action for lack of jurisdiction and the onus is on the qui tam relator to affirmatively show that its suit was filed first. Relators must file suits under seal, which makes it more difficult to affirmatively show a suit is first because only the Department of Justice (DOJ) is fully aware of other actions, and it may not be in the DOJ’s interest to lift a seal.
In courts where the “first to file” rule is not jurisdictional, the defendant can move to dismiss the action on substantive grounds, but the onus is on the defendant to show that there is an earlier suit based on the underlying facts. The FCA’s seal obstacles noted above now shift to the defendant. Where the “first to file” rule is not jurisdictional, courts have more discretion to allow a case to proceed. Though this does not seem like a huge shift, it can have practical impacts for defendants such as added litigation and investigation costs to get an FCA action dismissed. In contrast, it gives qui tam relators a break from those additional investigative burdens to show no other suit was filed before and does less to discourage filing in multiple jurisdictions.
As of now, the Fourth Circuit views the “first to file” as jurisdictional, meaning the burden remains on a relator to show its suit is the first against a defendant under the essential facts. But the Ninth Circuit noted that the Fourth Circuit (along with the Fifth and Tenth Circuits) has not engaged in an analysis of the jurisdictional question since the Supreme Court’s guidance on jurisdictional questions in the past few years. In the future, it is possible all the Circuits follow suit and rule that the “first to file” rule is not jurisdictional, or this could be fertile ground for a Supreme Court challenge based on a Circuit split. But a more recent case may show that none of this may even matter.
Are Qui Tam Relator Actions Unconstitutional? District Courts Say Yes, No, and Maybe.
In 2024, various U.S. District Courts considered if the FCA’s qui tam relator provision is constitutional at all, and more decisions are expected in 2025. If courts determine that the qui tam relator provision is unconstitutional, it could severely limit the number of FCA matters pursued each year and could limit the FCA as a protection against fraud and corruption in the United States.
In September 2024, a decision out of the Middle District of Florida, held that the FCA’s authorization of qui tam relators was unconstitutional. But weeks later, we saw a decision out of the Eastern District of Tennessee upholding the FCA’s authorization of qui tam relators as constitutional. This later decision out of Tennessee criticized the earlier Florida decision as an unpersuasive “outlier trial-court decision that whistles past precedent” noting that the Florida decision largely relied on concurrent opinions and not binding precedent.
Presumably spurred by the Florida decision (and a 2023 Supreme Court dissent by Justice Thomas), there is another constitutional challenge of the FCA’s qui tam relator authority pending in the Western District of New York. With two conflicting decisions on the constitutionality of the FCA qui tam relator provision and others percolating at the trial-court level, FCA litigators and whistleblowers can expect more courts to weigh in on the issue in 2025 (and the foreseeable future) until this matter reaches the Supreme Court.
So, while it remains to be seen, if the decision out of Florida will remain an “outlier” decision or if other courts will also find the FCA qui tam relator position is unconstitutional, however, we have seen some signals that courts may be willing to consider the issue if presented with the “right” facts. We also anticipate that defendants will continue to offer this defense and fully anticipate that this issue will continue to evolve in the second half of this decade. In the meantime, qui tam relators may want to avoid filing in the U.S. District Courts in Florida for the time being and bring their cases elsewhere in the country to avoid dismissal of actions on constitutional grounds.
These FCA developments mean that an already complex set of laws, that overlays a complex set of regulatory requirements, continues to spark debate between courts in different parts of the country, and these shifts in the law do not even take into account possible new approaches taken by the incoming Administration. Fluet attorneys remain committed to guiding clients through this dynamic environment, helping them stay ahead of emerging developments while ensuring compliance and protecting their interests. Contact Fluet’s Government Contracts Practice to discuss how these recent developments may impact your organization.
