Employment Releases and Impact on Qui Tam Case
Picture this common scenario: A company employee has reported suspicions of fraud up the chain of command and suddenly finds herself the subject of false or unfair allegations of misconduct and poor performance. As the employee is being pushed out the door, the company offers the employee an attractive severance package if the employee signs a broad waiver releasing any claims against the company that the employee may have. Standard procedure? Maybe. A company trying to protect itself from False Claims Act litigation? Probably. So what should the employee do? And what does it mean for the possibility of filing a qui tam case if the employee already signed a release?
There is no prohibition against a relator proceeding with a qui tam case if the relator’s case is filed before the relator signs a release. The False Claims Act – the law which allows for whistleblower or “qui tam” cases – specifically provides that, once a qui tam case has been started, it can only be dismissed with permission of the government and the court. 31 U.S.C. 3730(b)(1); see also U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1168 (10th Cir.2009)(“[T]he statute only governs the enforceability of settlement agreements made after the filing of a qui tam claim.”) This means that even if a relator signs a release after filing a qui tam case, the release cannot impact the status of the case, regardless of what the release language says.
However, there may be significant obstacles for a relator who signs a release before filing a qui tam case. (These documents are called “prefiling releases” in legal-speak.) The False Claims Act statute does not provide guidance on prefiling releases and the United States Supreme Court has yet to weigh in on this issue in the False Claims Act context. But, in 1987, the Supreme Court did issue a ruling about contracts in general which heavily influences how releases are evaluated in a qui tam case. The Supreme Court held that “a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.” Town of Newton v. Rumery, 480 U.S. 386, 392 (1987) This created the “Rumery test,” which is a balancing test to ensure public policy is not jeopardized by enforcement of any contract or agreement.
The Rumery test has guided how courts evaluate whether to allow a qui tam case to proceed if a prefiling release was signed. There are two main cases which have used the Rumery test to set up the balancing test that exists for qui tam cases today.
In a 1995 case called U.S. ex rel. Green v. Northrop Corp., a court evaluated a release that an employee signed following an employment termination lawsuit against Northrop, but before the employee brought a qui tam case. 59 F.3d 953 (9th Cir.1995). The Ninth Circuit held that it would be against public policy to enforce the settlement agreement and prohibit Green’s qui tam suit, largely because “the government only learned of the allegations of fraud and conducted its investigation because of the filing of the qui tam complaint.” Id. at 966.
Just a few years later, the same court did enforce a release that an employee had signed before filing a qui tam case. U.S. ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir.1997). In that case, the government knew about the allegations prior to the qui tam suit, so the court found that there was no public policy reason to allow the case to go forward in violation of the release agreement. The court in Hall found, “The federal government was aware of Hall’s allegations regarding false certifications. Therefore, the public interest in having information brought forward that the government could not otherwise obtain is not implicated.”
The result of the Rumery, Hall, and Green decisions is a so-called “government knowledge exception.” In 2010, the “government knowledge exception” was explained very concisely:
When the government is unaware of potential FCA claims, the public interest favoring the use of qui tam suits to supplement federal enforcement weighs against enforcing prefiling releases. But when the government is aware of the claims prior to suit having been filed, public policies supporting the private settlement of suits heavily favor enforcement of a prefiling release.
U.S. ex rel. Radcliffe v. Perdue Pharma., L.P., 600 F.3d 319, 332 (4th Cir.2010).
In practice, this means that whether a prefiling release will stop a potential relator from bringing a qui tam a case depends on whether the government would have had knowledge of the fraud if the case was not filed. This is a difficult evaluation to make in any case. As a result, a very careful fact-specific evaluation needs to be done prior to filing a qui tam case, so it is very important that a relator immediately tells his or her lawyer about the existence of any release, or about any pending release that the relator is considering signing.
If you believe you have information regarding fraud against the government and are considering bringing a False Claims Act case, contact James Hoyer for an evaluation of your claims. Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.
Written by Jillian Estes