11th Circuit Court of Appeals Holds For Third-Party Litigation Funders in Qui Tam Actions

Written by: Ricky C Benjamin, Esq., and Leanne Livingston, Esq.

While False Claims Act (“FCA”) cases are expected to increase due to government funding for COVID-19 efforts, health care providers should also expect more litigation as the result of a recent 11th Circuit Court of Appeals ruling. Ruckh v. Salus Rehabilitation sets new precedent allowing a whistleblower to enter into monetary arrangements with third party litigation funders while pursuing fraud on behalf of the United States. This holding could be problematic for both the Department of Justice (“DOJ”) and health care providers.

The FCA is meant to combat fraud against the government. The law’s qui tam provision allows individuals (referred to as “relators”) not affiliated with the government, to file actions on behalf of the United States, known as “whistleblowers.” If the relator is successful, they could collect between 15% and 30% of judgment, which may be millions of dollars depending on the damages associated with the fraud. By entering into a financial arrangement with a third party litigation financer, the relator is essentially re-assigning part of the government’s claim to a third party. By doing so, these arrangements undermine the very purpose of the FCA.

Ruckh v. Salus Rehabilitation set a new standard by refusing to prohibit arrangements between third party litigation financers and relators in FCA cases. Whistleblower, Angela Ruckh, alleged that nursing facilities in Florida defrauded the government’s Medicare program. The District Court granted judgment as a matter of law to the defendant. Ruckh then appealed the decision with the help of third-party litigation financing from ARUS in exchange for less than 4% of her potential recovery. While the 11th Circuit does not specifically hold that such agreements are valid under the FCA, it declines to disallow them by refusing to, “interfere in Congress’s legislative prerogatives by engrafting any further limitations onto the statute; that task is appropriately left for Congress.”

Yet, the Court is ignoring previous guidance by Congress that has adopted several provisions aimed at the ultimate goal of striking a balance between encouraging people to come forward with information that suggests fraud, and preventing parasitic lawsuits. The Courts’ role has always been as gatekeepers to keep non-meritorious cases from proceeding. The 11th Circuit, by appearing to abdicate it’s function, is unwittingly handing relators a tool that can be used and abused to advance non-meritorious suits, by creating greater ease with which to initiate cases. This will result in consuming massive amounts of legal, judicial and corporate resources.

By declining to prohibit these third-party arrangements, the overall purpose of the FCA may be undermined. The DOJ has expressed concern over the inability to identify which funders are behind whistleblower cases. Whether relators are sharing info with these third parties, and to what extent a third party has control over litigation and settlement decisions, upends the foundation of the FCA. Such agreements pose a potential conflict of interest. Third parties may use new loophole as an opportunity to hijack qui tam litigation and use it as a tool against their competitors, draining them of resources under substantial monetary penalties. Further, all of this would be done without government oversight, or insight.

As a result of this decision, health care providers should be prepared for an influx of well-funded FCA qui tam suits, capable and incentivized to go the distance. Health care providers should follow all federal regulations, and keep meticulous records of deviation, to ensure limited exposure to whistleblower suits. Until this holding is challenged, or Congress decides to add limiting language to the FCA, the integrity and motives of FCA actions by relators will remain uncertain.