Government Contracts Monitor

False Claims Act Relators Get A Piece Of The Action, Even After The Government Tries To Cut Them Out

May 16, 2014

It is standard under the False Claims Act that if the government takes over a relator’s claims and later gets a recovery on the claim, the relator is entitled to a percentage of the recovery. 31 U.S.C. § 3730(d)(1). In United States ex rel. Norman Rille v. PricewaterhouseCoopers LLP, et al., No. 11-3514 (8th Cir. April 10, 2014), the federal government unsuccessfully tried to get out of its obligation to pay the relators.

The relators originally filed suit against PricewaterhouseCoopers, LLP and a number of other systems integration consultants and computer equipment and software manufacturers alleging fraud against the government by means of kickback and defective pricing schemes in violation of the False Claims Act, the Anti-Kickback Act, and other federal statutes.

In 2005, the relators amended their complaint to add Cisco Systems, Inc. as a defendant. The relators conducted discovery and provided hundreds of thousands of documents allegedly supporting claims against Cisco and its distributor Comstor.

In 2008, the government intervened in the case against Cisco, expressly acknowledging that its intervention was at least partially based on having “received and considered additional information from the Relators.” Instead of filing its own complaint against Cisco, the government simply adopted the relators’ complaint against Cisco.

In 2010, the government settled the Cisco action against both Cisco and its distributor Comstor. The government collected a total of $48 million from Cisco and Comstor and the settlement was expressly conditioned upon the dismissal with prejudice of the relators’ lawsuit. Shortly thereafter, the relators filed a motion to recover their statutory share of the settlement proceeds pursuant to 31 U.S.C. § 3730(d)(1). Instead of paying, the government moved to dismiss the relators’ lawsuit – which the government had adopted – for an alleged failure to plead defective pricing with sufficient particularity. The district court denied the government’s motion and awarded the relators their statutory share of the settlement for a total award of $8,081,200. The government appealed.

The U.S. Court of Appeals for the Eighth Circuit made short work of the government’s appeal. First, the Court held that the government could not attempt to use technical pleading defects, after the government has intervened and after the government has settled, as a way to cut relators out of their share of the settlement. Second, the Court held that because the government’s settlement with Cisco was expressly conditioned on the dismissal of the relators’ claims, then the $48 million paid by Cisco and Comstor to the government must be considered “proceeds of the action” from which the relators are entitled to their statutory share. Finally, the Court held that even though Comstor was not originally named in the relators’ lawsuit, the relators were still entitled to their statutory recovery from Comstor’s settlement payments to the government. This is because the relators were the original source of the defective pricing scheme between Cisco and Comstor and the relators’ revelations ultimately led to the settlement. As the Court held, “as long as the relator is an original source of the information on which the fraud allegations are based, the relator is still entitled to the minimum ‘finders’ fee’ for doing nothing more than bringing the information regarding the fraud forward and filing the action in federal court.”

The moral of this story is that the government should think twice before attempting to cut any relator out of his share of any False Claims Act case-ending settlement proceeds.

Michael J. Schrier is the attorney responsible for the content of this article.