At first glance, it looks nonsensical. How could it be bad news for False Claims Act whistleblowers that the defendant pleaded guilty to violating that statute—to committing the very Medicare fraud the whistleblowers alleged?
The explanation lies in two legal principles and one fact. First, there’s a difference between being convicted criminally of violating the FCA and being found civilly liable. Second, a whistleblower has no legal interest in a criminal forfeiture resulting from a conviction, as confirmed by a recent Ninth Circuit decision. Third, it was a sad fact for these whistleblowers that in light of the criminal forfeiture and the expenses of the criminal and civil cases, the defendant ran out of money.
In 2011 a Medicare contractor referred podiatrist Neil Van Dyck to HHS for suspected Medicare fraud. In 2015 the government charged him with criminal violation of the FCA, 18 USC § 1347. He pleaded guilty, and the court issued a personal forfeiture money judgment against him for $1.23 million.
Back in 2012, more than a year after the Medicare contractor began its investigation, two of Van Dyck’s employees had filed a qui tam action against him for Medicare fraud. The government’s attempts to negotiate a settlement with Van Dyck came to nothing. The whistleblowers’ lawyer reported that an Asst. US Atty. quoted Van Dyck’s lawyer as saying, “Van Dyck wants to resolve everything but recognizes there won’t be enough funds to cover all of the loss.”
So the whistleblowers moved to intervene in the criminal forfeiture case, seeking an unspecified amount of the recovered funds, plus expenses and attorneys’ fees. The district court denied the motion, ruling that the relators had no recognizable interest in the forfeiture proceeding.
On appeal the Ninth Circuit affirmed, holding that the relators had no standing in the forfeiture case. The court invoked the general rule that third parties have no standing in criminal forfeiture proceedings, subject to only two narrow exceptions: parties with a vested interest in the property that is the subject of forfeiture, and bona fide purchasers of the property. The relators didn’t fall within either exception.
The case is United States v. Van Dyck, No. 16-10160 (9th Cir. Aug. 10, 2017).
