1. INTRODUCTION

   On November 15, 1999, the U.S. Court of Appeals for the Fifth Circuit issued a groundbreaking decision striking down as unconstitutional those provisions of the Federal False Claims Act, 31 U.S.C. § 3729 et seq., ("FCA") that authorize qui tam plaintiffs to proceed with suits against government contractors for fraud where the government declines to intervene.

   While two members of the Fifth Circuit panel held that there is standing in such cases, one judge who joined in the opinion finding the qui tam provisions unconstitutional, also wrote a concurring opinion supporting the district court’s decision that relators lack standing when the government declines intervention. The case has already been scheduled for review en banc in the Fifth Circuit. This means that the entire court will rehear and redecide the case. In an interesting development, the Supreme Court has asked for briefs in a different, pending case (Vermont Agency of Natural Resources v. U.S., No. 98-1828) on the issue of relators’ standing in cases in which the government declines to intervene.

2. STATUTORY BACKGROUND
   1. Qui Tam Provisions Of The FCA Permit Private Relators To Sue On The Government’s Behalf

      The FCA makes anyone who presents a false claim to the federal government for money liable for double or triple damages and civil penalties. The qui tam provisions permit individual citizens to sue on behalf of the government to recover damages and penalties. The government is the party in interest, but the private plaintiff, known as the relator, serves as the government’s representative. If successful, the plaintiff receives a portion of the recovery, and attorney’s fees.

   2. Private Relator May Proceed, Even If Government Does Not

   To initiate a qui tam action, a relator must provide the government with a sealed preliminary statement of his or her information. The Attorney General has 60 days to decide whether to intervene in the matter. If the Attorney General intervenes, the government has "primary responsibility" for prosecuting the action. If the Attorney General does not proceed with an action, the relator may bring suit individually, and take full control of the litigation.

3. THE HOLDING
   1. District Court Dismissed Suit For Lack Of Standing

      Riley, a former nurse, sued a hospital and seven other defendants for allegedly defrauding the government. The government did not intervene in the case. The district court dismissed Riley’s complaint for lack of standing, because Riley had not herself suffered any injury-in-fact. On appeal, a majority held that it could not reach the standing issue, based on the recent decision of another panel. However, it affirmed the dismissal, finding the qui tam provisions of the FCA unconstitutional.

   2. Violation Of Take Care Clause And Separation Of Powers

      The majority ruled that the qui tam provisions of the FCA violate the Take Care Clause and the separation of powers doctrine. Article II of the Constitution requires the Executive to "take care that the laws be faithfully executed." The separation of powers doctrine prohibits one branch of government from intruding upon the constitutional powers of another branch. The court held that allowing relators to sue on behalf of the government, where the government chooses not to intervene, transfers power from the Executive to unaccountable individuals, and undermines its authority to execute the laws.

   3. Significant Encroachment On Executive’s Authority

      The court concluded that the qui tam provisions encroach on two aspects of executive authority -- discretion to decide whether to prosecute a claim, and control of litigation to protect the government’s interests. The court held that because the qui tam provisions permit private citizens to sue on behalf of the government when the Attorney General has decided not to do so, they remove the Executive’s prosecutorial discretion to execute the laws. They also limit the government’s ability to litigate, because the Executive may not freely dismiss or settle a suit, or restrict the relator’s participation, without a hearing and court order.

   4. Encroachment By Qui Tam Provisions Greater Than Those By Independent Counsel Statute

      The court compared the encroachment on the Executive’s power resulting from the qui tam provisions to that of the Independent Counsel statute as analyzed by the Supreme Court in Morrison v. Olson, 487 U.S. 654 (1988). It found that the intrusion by the qui tam provisions exceeded the Independent Counsel law’s encroachment on the Executive Power. The Attorney General exercises control over the independent counsel, including: (1) authority to remove the independent counsel for good cause; (2) power to request appointment of the independent counsel, which is an unreviewable decision; (3) power to define the jurisdiction of the independent counsel; and (4) a requirement that the independent counsel abide by Department of Justice policy, unless doing so is "not possible." Together, these factors give the Executive power over the initiation and termination of an independent counsel’s investigation, and some standards for the course of conduct while it takes place. None of these features are present in a qui tam suit in which the government does not intervene.

   5. Not A Valid Delegation Of Authority

   The court rejected the argument that the qui tam provisions marked a legitimate delegation of power. Congress may not unilaterally delegate the Executive’s power. The decision by the Attorney General not to intervene is not delegation because it is so ambiguous in its purpose. Moreover, the decision not to intervene provides no "intelligible principle" to guide the relator. In the absence of guidance to constrain the relator’s discretion, there is no valid delegation of executive authority.

4. THE CONCURRENCE
   1. Additional Bar Based On Standing

      The concurrence agreed with the majority in its conclusion, and with its analysis regarding the Take Care Clause and separation of powers. However, it disagreed on the issue of standing, concluding that the district court was correct in ruling that the plaintiff lacked the requisite injury to bring suit.

   2. No Injury-In-Fact To Relator

      Under Article III of the Constitution, the federal courts only have jurisdiction over "cases and controversies." The Supreme Court has set three elements to satisfy this threshold requirement: (1) the plaintiff must have suffered injury-in-fact; (2) causation; and (3) redressability. Because Riley suffered no injury herself, the concurring judge felt that she failed to meet the first prong.

   3. Relator Cannot Assume Government’s Injury

   The concurring judge rejected the relator’s contention that she could meet the standard by "stepping into the shoes" of the government, which had suffered injury. Supreme Court decisions on standing and injury-in-fact have required a personal involvement. Congress does not have authority to rewrite this requirement.

5. THE DISSENT
   1. Executive’s Authority Not Undermined

      The dissent argued that the qui tam provisions do not impermissibly undermine the Executive’s power or prevent it from accomplishing its constitutionally assigned duties. Taking issue with the majority’s Morrison analysis, the dissent noted that the government has the opportunity to review the relator’s case, and a chance to intervene. If it intervenes, then it bears primary responsibility for the suit. This gives the Attorney General sufficient oversight authority over the private suit to perform its duties.

   2. Permissible Delegation Of Authority

   The dissent viewed the Attorney General’s choice not to intervene as an effective delegation of authority to the relator. Congress authorized the transfer of power, and the Executive approved it by not intervening. The Attorney General retains sufficient control over the litigation, based on its power to intervene, that the Take Care Clause is not compromised.

6. SIGNIFICANCE OF THE DECISION
   1. Dramatically Alters The State Of Play For Qui Tam Litigants

      If the majority decision is adopted by the en banc court, Riley would strike down a law that is nearly 150 years old and close off litigation to a large class of plaintiffs. Defendants in qui tam suits in the Fifth Circuit where the government has not intervened would likely file motions to dismiss. Defendants in other Circuits -- except those where the courts have already ruled the qui tam provisions constitutional -- will likely file similar motions based on Riley.

   2. Two Possible Bases For Affirmance On Appeal

      On appeal, Riley will provide reviewing courts with two possible bases for affirmation -- lack of standing, or the unconstitutionality of the qui tam provisions. The adoption of either view will effectively prevent further litigation by relators in whose suits the government has not intervened.

   3. Possible Wider Application

If upheld, the Riley decision could have implications beyond the limited issues of standing and constitutionality for qui tam plaintiffs where the government does not intervene. Some of the court’s reasoning could be applied to bar all private suits by relators, even where the government does intervene. The concurrence’s position on standing should apply regardless of whether the government proceeds with a suit. In both cases, the private party has suffered no injury-in-fact. With the government directly involved in the litigation, there is little need for a private plaintiff to go forward to protect its interests.

Please do not hesitate to contact Kathleen McGuan (202/414-9230) or any other member of the Reed Smith health care group with whom you work if you have any questions or would like additional information.