Florida District Court Declares False Claims Act Qui Tam Provision is Unconstitutional

On September 30, U.S. District Court Judge Kathryn Mizelle issued an order in the Middle District of Florida case, United States ex rel Zafirov v. Florida Medical Associates, LLC, et al., finding that the whistleblower or “qui tam” provision of the False Claims Act (FCA) violated the Appointments Clause of the Constitution.  

The Zafirov qui tam alleged that five defendants violated the FCA by acting in concert to defraud the government by submitting false claims in the form of unsupported risk-adjustment diagnosis codes to obtain reimbursement from the federal Medicare Advantage program. The plaintiff or “relator” filed the qui tam complaint under seal in 2019.  The government declined to intervene in 2020, prompting the relator to proceed with the case independently. 

The litigation has been hotly contested.  Earlier this year, the defendants filed a motion for judgment on the pleadings challenging the constitutionality of the FCA’s qui tam provision.  Taking their cue from Justice Clarence Thomas’s dissent in U.S. ex rel Polansky v. Executive Health Resources, Inc., 599 U.S. 419, 449 (2023), the defendants urged Judge Mizelle to rule that qui tam “relators” infringe upon Article II of the Constitution, specifically the “Appointments Clause.” Article II requires that “Ambassadors, other public Ministers and Consuls, Judges of the Supreme Court, and all other Officers of the United States” be appointed by the President subject to the advice and consent of the Senate, although Congress “may vest the Appointment of such inferior officers . . . in the President alone, in the Courts of Law, or in the Heads of Departments.” 

The defendants argued that qui tam relators exercise “power that only an officer of the United States may wield without satisfying the Constitution’s appointment requirements for such Officers.”

The FCA’s qui tam provision, 31 U.S.C. § 3730, authorizes a private person to file an FCA case on behalf of the United States.  The relator presents the matter under seal to the federal government for investigation.  The government then has the option to intervene or decline. If the government intervenes, it takes over the case, and together with the relator, litigates or settles the matter. If the government declines to intervene, the FCA empowers the relator to pursue the FCA matter on the government’s behalf.  The qui tam provision grants the relator a share in any settlement or judgment, with the size of that share contingent in part on whether government intervened in the matter.

Congress enacted the FCA’s qui tam provision during the Civil War to combat widespread fraud by government contractors. Known as “Lincoln’s Law,” the FCA’s qui tam provision was used sporadically until Congress amended it in 1986.  Since then, FCA enforcement increased exponentially, leading to over $75 billion in total FCA recoveries by the government, with nearly $53 billion stemming from qui tam actions.  Since 1986, relator-initiated qui tam cases have comprised the majority of FCA filings: 15,964 qui tams compared to 6,742 cases initiated by the government.  Last year was typical. Of the more than $2.68 billion in FCA settlements and judgments reported by the government in 2023, over $2.3 billion arose from lawsuits that were filed under the FCA’s qui tam provisions.  In releasing the 2023 annual FCA statistics, the U.S. Department of Justice (DOJ) once again acknowledged “the hard work and courage of whistleblowers who play a critical role in identifying fraud” and that DOJ’s enforcement efforts “benefit greatly from their actions.”

In granting the defendants’ motion, the Court concluded that relators hold a “continuing position” of “core executive power” and thus qualify as “officers” who must be appointed in accordance with the Appointments Clause.  The Court expressed concern over the relator’s ability to “not only to direct litigation, but also to bind the federal government without direct accountability to anyone in the Executive Branch.”  The Court criticized relators for having “unfettered discretion to decide whom to investigate” or “charge in the complaint,” and for choosing “which claims to pursue and which legal theories to pursue.”  It described relators as “self-appoint[ed] special prosecutors” that seek to “recover punitive damages against private parties on behalf of the federal government.”

According to Zafirov, though the Court did not explicitly state it, the constitutional infirmity of the qui tam provision applies to all qui tam relators under the FCA statutory scheme.  Relators, the court found, qualify as “officers” of the Executive by virtue of their powers and length of their service but they are “improperly appointed.”  Specifically, the FCA statute does not provide for the appointment of a qui tam relator by the Executive Branch or a court.  Rather, the qui tam provisions “permit[] any ‘person’ to self-appoint by initiating” an FCA action, and “self-appointments,” the Court stated, “do not satisfy the Appointments Clause.” Consequently, because the Zafirov relator was not authorized to bring the matter and the United States did not intervene, the Court dismissed the relator’s case with prejudice.

Observations and Key Takeaways

• The immediate impact of the Court’s decision declaring qui tams unconstitutional is limited. It applies solely to this district court unless and until other courts adopt similar rulings. As the Middle District of Florida is one of the leading districts in the nation for qui tam filings, however, relator counsel may seek more legally friendly jurisdictions to file their qui tams.
• Whether Zafirov constitutes the veritable shot heard round the legal world of False Claims Act cases remains to be seen. DOJ will not easily relinquish “the government’s most powerful tool in fighting and deterring fraud.” Zafirov will likely be appealed to Eleventh Circuit, and regardless of the outcome, the case may reach the U.S. Supreme Court.
• Zafirov’s Appointments Clause challenge is clearly inspired by constitutional originalists like Justice Thomas in Polansky. Justices Amy Coney Barrett and Brett Kavanaugh have signaled their support for Justice Thomas’ call for the Supreme Court to review the False Claims Act qui tam provision.  Only one more vote is needed to grant certiorari, paving the way for Supreme Court review.
• Though limited to one court, defendants in qui tams regardless of jurisdiction will want to assert this constitutional defense and rely on Doing so preserves the issue for potential circuit or Supreme Court review and invites other courts to conduct their own analyses.
• In striking down the FCA’s qui tam provision, the Court showed no reluctance or sympathy toward Congress, the Executive Branch, decades of FCA practice, or the potential loss of DOJ’s valued anti-fraud tool.
• The Court’s finding that relators exercise “core executive powers" appears to reflect some of the realities of DOJ/relator practice in qui tam cases. Though it exercises some scrutiny over qui tams, the DOJ permits both meritorious and non-meritorious qui tams to proceed after declining to intervene.  Regardless of the merit of the matter, relators, in the name of the government, are permitted to threaten defendants with the FCA’s thermonuclear-type sanctions. The Court noted that relators’ ability to threaten punitive penalties demonstrates executive authority.  A related aspect of the court’s finding is that relators can assign a portion of any qui tam judgment to litigation funding companies, underscoring that the “office is not personal to the original relator.”

Please contact A. Brian Albritton, Raquel Ramirez Jefferson or any member of the Phelps Health Care or White Collar Defense and Investigations teams if you have questions or need advice or guidance.