Is it legal? Is it right?
While the Florida Legislature considers regulating litigation finance companies, the U.S. Justice Department is likewise taking a look at the role those financiers may be playing in federal whistleblower cases. It could lead to whistleblowers having to disclose any relationship they have with litigation funders when they pursue cases under the federal False Claims Act.
The False Claims Act (FCA – also known as the “Lincoln Law”) is the tool the Justice Department uses to prosecute fraud by individuals and companies against the U.S. government. To encourage reporting, it includes a “qui tam” provision, allowing people not affiliated with the government (called “relators”) to file actions on behalf of the government in exchange for a portion of any recovered damages. Nearly 72% of FCA actions have been initiated by whistleblowers since 1987, allowing the government to recover more than $62 billion.
Deputy Associate Attorney General Stephen Cox, speaking to a group of FCA lawyers last month, said the Department of Justice doesn’t know how frequently third-party backers are funding these cases. But there’s increasing pressure from the business lobby to regulate it, either through legislation or federal rules. Cox said DOJ has its own concern that litigation finance companies may be pushing unwarranted FCA actions. DOJ recently moved to dismiss 10 FCA cases backed by what Cox said was “a for-profit private investment firm.” A judge allowed only one of the cases to move forward.
As a result, Cox said DOJ is now “considering what, if any, interests the United States has with respect to third-party litigation funding in qui tam litigation and whether it is worth seeking some disclosure, at least to the department, of such arrangements,” according to a release.
Meanwhile, there’s a case before the 11th U.S. Circuit Court of Appeals in Atlanta that may end up having a say in the matter. Counsel for a Florida nursing home accused by a whistleblower of defrauding Medicaid and Medicare has filed for an appeal of the case to be dismissed, saying the whistleblower sold a share of any future settlement to a litigation funder. Lawyers for the whistleblower counter there’s nothing in the FCA that prohibits such a financial arrangement.
LMA Newsletter of 2-10-20