The federal False Claims Act (“FCA”) is the United States’ primary civil tool for prosecuting fraud against the government. It was enacted in 1863 during the Civil War and, from its inception, has included qui tam provisions that allow any person to prosecute an alleged violation on behalf of the United States. However, until amendments to the FCA in 1986 that were designed to entice more private enforcement, the qui tam provisions went largely unused. Indeed, when the FCA saw an uptick in private enforcement around World War II, the Executive Branch pushed for its repeal, and Congress tightened down on the qui tam provisions to save it. In this fight over the FCA, a key supporter in the Senate noted the Executive Branch’s opposition to the law: “I ask any Senator to name one case, from 1863 until 1942, in which the Attorney General of the United States tried to enforce the statute. From the day the statute went on the statute books to the present, the Attorneys General, whether Democrats or Republicans, fought it.” 89 Cong. Rec. 10,697 (1943).
Because the FCA’s qui tam provisions saw little use before 1986, they were not challenged in the courts. That changed shortly after 1986 when amendments triggered a flurry of qui tam activity. So much so that the Executive Branch began to weigh the position it should take with respect to the constitutionality of the qui tam provisions. In 1989, William P. Barr, then-Assistant Attorney General, Office of Legal Counsel (“OLC”), prepared a Memorandum Opinion for the Attorney General revealing a difference of opinion within the components of the Department of Justice (“DOJ”) about the constitutionality of the qui tam provision:
In several qui tam suits currently pending in federal district court, defendant contractors have moved to dismiss, contending that the qui tam mechanism is unconstitutional. Several courts have asked the Department of Justice to express a position. The Office of Legal Counsel, the Civil Division, and the former Office of Legal Policy all agree that the qui tam provisions in the False Claims Act are unconstitutional. We believe they violate the Appointments Clause, infringe on the President’s core Article II authority to execute the law, and violate Article III standing doctrine. The Civil Division would like to enter an appropriate case and, either as amicus or by intervention, present the executive branch’s arguments against the constitutionality of qui tam. The Solicitor General argues that we should intervene in district court to support the constitutionality of qui tam.
13 Op. O.L.C. 207, 208 (July 18, 1989) (the “OLC Memo”).
In 2000, the Supreme Court resolved the Article III standing question in favor of the qui tam provisions’ constitutionality. Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S. Ct. 1858, 146 L. Ed. 2d 836 (2000). However, this case reserved the Article II questions, which had not been raised by the parties. In the 24 years since Stevens, the Supreme Court has not been called upon to answer the Article II questions. However, in a decision last year, Justice Thomas issued a dissenting opinion and Justice Kavanaugh issued a concurring opinion (in which Justice Barrett joined) in United States ex rel. Polansky v. Executive Health Resources, Inc. that called upon the Court to consider, in an appropriate case, the “substantial arguments” that the qui tam provisions of the FCA are inconsistent with Article II.
Heeding that call to challenge the constitutionality of qui tam, defendants have since raised the defense, largely echoing the arguments in the OLC Memo and Justice Thomas’ dissent in Polansky. Until very recently, courts had uniformly rejected these challenges. These courts generally found that Congress’ delegation of law enforcement power to private citizens to enforce federal law was permissible because Congress may shift executive power to third parties to achieve important public policy goals and the DOJ maintains residual power to petition courts to limit the private party’s authority to enforce the law.
However, on September 30, 2024, the United States District Court for the Middle District of Florida terminated a relator’s five-year-long pursuit of qui tam litigation under the FCA, ruling that her self-appointment to the office of relator under the FCA’s whistleblower provision was not a valid appointment under the Article II of the Constitution. U.S. ex rel. Zafirov v. Fla. Med. Assocs., LLC, No. 8:19-cv-01236-KMM-SPF (M.D. Fla. May 20, 2019). Hewing closely to the analysis in the 1989 OLC Memo, the district court concluded that the FCA’s qui tam provision “directly defies the Appointments Clause by permitting unaccountable, unsworn, private actors to exercise core executive power with substantial consequences to members of the public.”
The district court reached three conclusions regarding the Appointments Clause argument. First, it determined that an FCA relator is an officer of the United States because relators exercise significant authority on behalf of the United States and occupy a continuing position. Second, the historical examples of qui tam provisions highlighted by the relator “do not exempt an FCA relator from the Appointments Clause.” Third, the only permissible remedy for the relator’s unconstitutional appointment was dismissal. In conclusion, the court noted that the FCA qui tam provision has been described as “unusual” and “unique” and asserted this description was “no surprise” given that “[a]n FCA relator’s authority markedly deviates from the constitutional norm” by “permit[ting] anyone—wherever situated, however motivated, and however financed—to perform a ‘traditional, exclusive [state] function’ by appointing themselves as the federal government’s ‘avatar in litigation.’” It further asserted “[t]hat arrangement directly defies the Appointments Clause by permitting unaccountable, unsworn, private actors to exercise core executive power with substantial consequences to members of the public.” Citing several sources calling into question the constitutionality of the qui tam provisions, including the concurring and dissenting opinions in Polansky as well as the 1989 OLC Memo, the court stated that the “conclusion that an FCA relator is an officer of the United States is neither novel nor surprising.”
The decision in Zafirov conflicts with other decisions since Polansky considering the same issue, including one from the Southern District of Florida reaching the opposite conclusion. See, e.g., United States ex rel. Butler v. Shikara, No. 9:20-cv-80483 (S.D. Fla. Sept. 6, 2024). Zafirov is almost certainly headed to the Eleventh Circuit and, given Justices Thomas, Kavanaugh, and Barrett’s practical invitation in Polansky, perhaps to the Supreme Court. Whether its analysis will remain an outlier or is a harbinger of things to come is anyone’s guess. However, the implications of Zafirov’s decision — if it were to be adopted widely — are massive.
As noted earlier, at its inception, the FCA’s qui tam provisions were rarely invoked. That changed in 1986 with a package of amendments aimed at enticing whistleblower participation in FCA litigation. If the 1986 amendments ushered in a flurry of activity from whistleblowers, that flurry has become a blizzard. In the fiscal year ending September 30, 2023, DOJ obtained more than $2.68 billion in settlements and judgments from civil cases involving fraud and false claims against the government. (Press Release, U.S. Dep’t of Just. Off. of Pub. Affs., False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023 (Feb. 22, 2024)). Of those settlements and judgments, over $2.3 billion stemmed from lawsuits filed under the qui tam provisions of the FCA. If the qui tam provisions were invalidated, then to maintain the level of activity under the FCA, Congress would have to make amendments to either provide resources to DOJ sufficient to take over cases that previously would have been prosecuted by relators or, if possible, enact a process for the appointment of relators to act on behalf of the Executive Branch consistent with Article II’s Appointments Clause. Given the vast sums recovered through the FCA, it would not be surprising to see bipartisan efforts at a legislative fix. What that would look like remains to be seen.
Common targets of FCA litigation include participants in complex and highly regulated industries, such as healthcare, defense spending, and government contracting. FCA suits in these industries often depend on interpretation of complex, vague, and ambiguous rules or regulations governing payment. Even in the hands of a relator in a declined case, unclear payment rules are fodder for qui tam suits that are not easily susceptible to resolution at the pleading stage even if the relator’s interpretation is doubtful. Thus, FCA suits and decisions entered on them — including decisions on motions to dismiss or for summary judgment — may shape the way an entire industry views its obligations. When the interpretations that shape those views are proffered by the United States directly, there is some expectation that the litigation reflects the views of the United States and the pertinent agencies. And presumably the United States’ pursuit of the litigation indicates that the government views the alleged noncompliance (at least by the time the suit is filed) as material. A relator who is not appointed, whose reward for pursuing the case is determined primarily on the amount of recovery, and who is not accountable to the public for the functioning of the programs involved in his litigation, on the other hand, may shape the way critical services such as healthcare are delivered without the same accountability and without consultation or approval of the relevant governing agencies. In short, litigation pursued by relators may not reflect the views and priorities of the government. Thus, moving enforcement of federal contracting requirements away from self-interested and unaccountable private parties would be a welcome change to those who contract with the government and are subject to complex and often unclear rules.
