More than once I have had occasion to write about qui tam actions on this site, primarily in connection with the complicated insurance coverage questions the cases can present. Now, in unexpected and provocative ruling, a federal district court judge has held the False Claims Act’s qui tam provisions to be unconstitutional. While just the opinion of a single district court judge, and therefore without precedential effect outside of the federal district in which it was rendered, the ruling nonetheless is groundbreaking and potentially significant. The potential significance of this development is discussed below. A copy of Middle District of Florida Judge Katherine Kimball Mizelle’s September 30, 2024, opinion can be found here.
Background Regarding Qui Tam Actions
The False Claims Act is a civil-war era federal statute that imposes liability on individuals and companies that defraud the federal government. The statute includes so-called qui tam provisions that allow private individuals not affiliated with the government – known as “relators” – to file actions on behalf of the government. If the relator prevails on his or her claim, they can receive a portion of the damages recovered (typically from 15% to 30%).
In order to pursue a qui tam action, a prospective relator must file his or her complaint under seal, in order to allow the government time to investigate the allegations without alerting the defendant. The U.S. Department of Justice reviews the allegations and decides whether to intervene in the case. If the government elects not to intervene, the relator can continue the lawsuit independently. Because the claims are often filed against the relator’s own company, relators are sometimes referred to as whistleblowers.
As of 2019, over 71% of all False Claims Act claims were filed by whistleblowers. More significantly, these qui tam lawsuits are an important part of False Claims Act enforcement. Of the $2.68 billion in False Claims Act awards the federal government recovered in 2023, more than $2.3 billion originated from qui tam suits.
The District Court Action
Clarissa Zafirov sued Florida Medical Associates and certain other medical care providers for alleged Medicare fraud. Zafirov alleged that the providers had submitted false claims by misrepresenting patients’ medical conditions to Medicare. The government declined to intervene and leaving Zafirov to proceed on her own on behalf of the government, pursuant to the False Claims Act’s qui tam provisoins. The defendants moved for judgment on the pleadings. As the Husch Blackwell law firm’s October 7, 2024, memo about the court’s ruling noted, there is extensive authority, much of it quite recent, holding that the qui tam provisions of the False Claims Act are constitutional.
However, Judge Mizelle reached a different conclusion, holding the qui tam provisions to be unconstitutional. In reaching this conclusion, Judge Mizelle noted that Zafirov herself had not suffered any direct injury from the defendants’ alleged fraud. In Judge Mizelle’s view, Zafirov was not seeking relief for her own private harm. Rather, she was, in the court’s view, acting as an officer of the United States working on the government’s behalf. As an officer of the government, Zafirov, was subject to the U.S. Constitution’s Appointments Clause, which provides the President with the authority to nominate, with the advice and consent of the Senate, and appoint officers of the Unites States, with the added proviso that “Congress may by law vest the appointment of such inferior officers, as they thing proper, in the President alone, in the courts of law, or in the hands of the departments.”
Because Judge Mizelle found that neither the executive branch nor a court appoints an individual as a False Claims Act relator, she concluded that the qui tam provision of the False Claims Act violates the Appointments Clause and therefore is unconstitutional. The court then concluded that Zafirov lacked authority to prosecute the case and accordingly dismissed the case with prejudice.
Discussion
On my first quick read of Judge Mizelle’s opinion, my initial reaction was that the defense counsel certainly should get credit for creativity, in managing to come up with an constitutional argument sufficient to strike down a statutory provision that has been in effect for over 160 years.
As it turns out, however, defense counsel may not in fact deserve all of the credit for creativity. It turns out, as several law firms noted in memos discussing Judge Mizelle’s opinion, that in a June 2023 dissenting opinion in United States ex rel. Polansky v. Executive Health Resources, Inc., Supreme Court Justice Clarence Thomas said that there are “substantial arguments that the qui tam device is inconsistent with Article II,” noting that “there is good reason to suspect that Article II does not permit private relators to represent the United States’ interests in FCA suits.” Justices Kavanaugh and Barrett added, in a concurring opinion, that “the Court should consider the competing arguments on the Article II issue in an appropriate case.”
The Polsinelli law firm, in an October 8, 2024, memo about the ruling, noted that following law school and other judicial clerkships, Judge Mizelle clerked for Justice Thomas at the Supreme Court. The law firm memo also notes that in her opinion in the Zafirov case, Judge Mizelle relied heavily on the concurring and dissenting opinions in the Polansky case.
A second reaction I had to Judge MIzelle’s opinion was that, in my humble opinion, it takes a lot of brass to declare a statute that has been around and in active use for over 160 years to be unconstitutional. As the Lowenstein Sandler law firm put it in their October 15, 2024, memo about the ruling, Judge Mizelle’s opinion represents “an astonishing break from decades of False Claims Act (FCA) precedent.”
Judge Mizelle addressed this concern. In seeking to oppose the defendants’ motion, Zafirov argued that the qui tam provisions should withstand constitutional challenge because of the “historical pedigree” of the False Claims Act and its qui tam provisions going all the way back to the Civil War. Judge Mizelle dismissed this argument, saying “the Constitution prevails over practice, especially when the text is clear.”
Although, as I noted at the outset, Judge Mizelle’s opinion is without precedential effect outside of the Middle District of Florida, this precedential impact is not insubstantial. According to the Polsinelli law firm’s memo, during the period 2016 to 2020, the Middle District of Florida had the highest number of FCA cases filed, largely due to “the prevalence of Medicare fraud cases in Florida, reflecting the state’s significant health care industry and the corresponding oversight challenges.”
In all probability, Zafirov will appeal the district court’s ruling to the Eleventh Circuit, which potentially could create a split of authority in the Circuit courts, as several other Circuit courts have upheld the constitutionality of the qui tam provisions. Given that at least three justices have publicly expressed their interest in seeing the question of the constitutionality of the qui tam provisions taken up by the court, these issues could well end up before the court.
Judge Mizelle’s opinion is likely to make waves outside the Middle District of Florida, as well. Defendants, armed with this opinion, may now seek to have the False Claims Act cases pending against them dismissed on similar grounds. As the Faegre Drinker law firm put it in their October 10, 2024, memo about the decision, Judge Mizelle’s opinion signals a “new, high-stakes battle for the federal government and relators and the potential future for companies that do business with or receive payment from the federal government.” The decision, the law firm memo states, “will likely trigger a wave of Article II challenges to qui tam suits across the country.”
Interestingly, defendants seeking to challenge that actions filed against them in reliance on the same Article II arguments that prevailed in Judge MIzelle’s court will face a potential procedural hurdle. As the Faegre Drinker law firm’s memo notes, Fed. R. Civ. Proc. 5.1(a) requires, when a litigant challenges the constitutionality of a federal statute in which the United States (or one of its agencies or officers or employees in an official capacity) is not a party, the litigant must notify the attorney general, in order to give the attorney general a 60-day period in which to intervene. (There is an ironic twist here, because if in fact the relator is an officer within the meaning of Article II, Rule 5.1(a) notice would not be required.)
In any event, it seems likely that Judge MIzelle’s opinion could have significant impact on pending and future False Claims Act cases in which the U.S. government has chosen not to intervene. There also would seem to be a substantial likelihood that the Article II issue will wind up before the U.S. Supreme Court, possibly in a relatively short time frame. If the Supreme Court were to strike down the qui tam provisions of the False Claims Act, it seems likely that False Claims Act litigation would substantially decrease, which in turn would, as the Faegre Drinker law firm memo put it, “disrupt a multibillion dollar a year revenue stream for the federal government and change the incentives for whistleblowers to come forward.” The Zafirov case and its inevitable copycats “have become ones to watch in the next couple of years.”
Special thanks to a loyal reader for flagging this case for me.
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