The U.S. Court of Appeals for the Eighth Circuit recently vacated an award of settlement proceeds to relators of several related qui tam actions because the district court failed to make factual findings as to whether the government’s settlement with one of the defendants was based on claims that factually overlapped with the claims brought by the relators. Rille v. PricewaterhouseCoopers LLP, et al., No. 11-CV-3514, 2015 WL 5778810 (8th Cir. Oct. 5, 2015). The decision may make it more difficult for relators to recover a bounty in cases that are settled by the government (as opposed to cases that proceed to judgment).

Norman Rille and Neal Roberts (the “Relators”), brought suit under the False Claims Act (“FCA”) on behalf of the United States against certain technology contractors who they alleged had cooperated in an effort to defraud the government through the use of kickbacks and a failure to disclose their best pricing.

The government intervened in the case and settled with one of the defendants, Cisco Systems, Inc., and its distributor, Comstor, with Cisco paying $44.16 million and Comstor $3.84 million in return for the dismissal of Relators’ action against Cisco. The settlement agreement alleged, inter alia, that Cisco and Comstor had: “made inaccurate and/or incomplete disclosures and/or false statements, and/or presented or caused to be presented false claims to the United States”; and “failed to disclose relevant discount, rebate, true-up, benefits, credits, value-added, and pricing information to the United States”; and that “as a result of the defective disclosures of pricing information, submitted or caused to be submitted false or fraudulent claims for payment.”

Relators claimed that they were entitled to a share of the total settlement proceeds pursuant to 31 U.S.C. § 3730(d)(1) of the FCA, which provides that a relator may recover a percentage “of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action.” The district court awarded Relators $8 million, rejecting the government’s objection that they were not entitled to anything because the settlement was based on neither the kickback scheme nor the specific defective pricing scheme alleged in Relators’ complaint. United States ex rel. Rille v. Cisco Sys., Inc., No. 4:04CV00988-BRW, 2011 WL 4352309, at *4 (E.D.Ark. Sept. 19, 2011).

On appeal, the Eighth Circuit initially affirmed the district court’s award. However, in its recent en banc decision, the Eighth Circuit vacated that award and remanded the case to the district court for further consideration.

The Eighth Circuit rejected Relators’ argument that if the government proceeds with an action brought by a relator, the relator may automatically recover a percentage of any proceeds that the government recovers, regardless of whether the claim settled by the government is factually related to that brought by the relator. Rather, in analyzing § 3730(d)(1), the Court proclaimed it was clear that “the relator’s share [of settlement proceeds] is based only on the proceeds of ‘the claim.’ The use of the definite article refers back to the claim that is ‘brought by’ the relator in ‘an action’ that he initiates.” Finding no evidence that § 3730(d)(1) covers “a different claim that is settled by the government when that claim was not originally ‘brought by’ the relator,” the Court held that a relator can recover only a share of the settlement of the claim that it brought.

The Court acknowledged that § 3731(c) of the FCA allows the government, when intervening in an action brought by a relator, to “clarify or add detail” to a relator’s claims or to “add any additional claims.” However, the Court emphasized that a relator’s recovery under § 3730(1) does not extend to proceeds of any settlement that “resulted from” or was “caused by” the relator’s claim. A relator’s claim is limited to a portion of the “proceeds of the…settlement of the claim” brought by the relator.