Federal District Court Finds False Claims Act Qui Tam Provision Unconstitutional

In a landmark decision, the United States District Court for the Middle District of Florida, in United States ex rel. Zafirov v. Florida Medical Associates, LLC, held that the False Claims Act’s (FCA) qui tam provision – which allows private individuals (relators) to sue on behalf of the government – violates the Appointments Clause of the U.S. Constitution. The Court determined that relators exercise significant executive authority by prosecuting fraud cases and binding the federal government to legal outcomes. However, since relators are not appointed by the President, the courts, or heads of departments, their self-appointment under the FCA is unconstitutional. Consequently, the Court dismissed the case, emphasizing the need for proper appointment procedures to ensure accountability and adherence to the separation of powers. This decision has significant implications for the enforcement of the FCA and the constitutional boundaries of executive power.

Overview of the False Claims Act

The FCA, 31 U.S.C. § 3729-3733, currently stands as the Government’s primary tool to combat procurement fraud. Under the FCA, as amended in 1986, the United States may recover treble damages and penalties against a government contractor, subcontractor, or supplier for the submission of false claims to any federal agency or entity using federal funds to pay such claims. The FCA applies to those who knowingly submit false or fraudulent claims for payment to the federal government. To this end, the FCA creates liability for any person who, inter alia, “(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” Thus, the party alleging an FCA violation must prove: (1) the defendant made false statements or engaged in a fraudulent course of conduct; (2) with the requisite knowledge; (3) the statements or conduct were material; and (4) it caused the government to pay out money or to forfeit monies due on a “claim.” 

The FCA contains a “qui tam” provision authorizing private citizens with evidence of fraud against the Government to file lawsuits in their own names (on behalf of themselves and the Government) and then keep a share of the Government's recovery. Since the 1986 amendments to the False Claims Act, which were revised to encourage the filing of qui tam suits, there has been an explosion in the number of these actions. For example, in 2023, relators filed 712 qui tam suits that resulted in judgments exceeding $2.3 billion. The steady presence of qui tam litigation, however, is not surprising, given the financial incentives for doing so – when the Government or the relator recovers money in an FCA suit, whether through settlement or judgment, the relator is generally entitled to a share of the proceeds in the form of a percentage of both the treble damages and civil penalties imposed. In a suit where the Government has intervened, a relator will receive between 15% and 25% of the proceeds of the action or the settlement of the claim. If the Government does not intervene in the suit, the relator is entitled to recover between 25% and 30% of the proceeds of the action or settlement.

United States ex rel. Zafirov v. Florida Medical Associates LLC, No. 19-1236 (M.D. Fla. Sept. 30, 2024)

Clarissa Zafirov, acting as a relator, filed a qui tam lawsuit under the FCA, alleging that Florida Medical Associates and other defendants misrepresented patients’ medical conditions to Medicare, thereby committing fraud. The government declined to intervene, leaving Zafirov to prosecute the case on behalf of the United States. Florida Medical Associates moved to dismiss.

The court’s decision hinged on the constitutionality of the FCA’s qui tam provision, which allows private individuals (relators) to sue on behalf of the government. The defendants argued that this provision violates Article II of the Constitution, which vests all executive power in the President and requires that officers of the United States be appointed by the President, the courts, or heads of departments.

The Court agreed with the defendants, finding that FCA relators are akin to an “Officer of the United States” under the Appointments Clause. This conclusion was based on two key criteria. First, the court determined that relators exercise significant authority by initiating and prosecuting enforcement actions on behalf of the United States. This includes the power to file lawsuits, direct litigation, and bind the federal government to legal outcomes. The court emphasized that such authority is quintessentially executive in nature, akin to the powers exercised by officers like U.S. Attorneys and other federal prosecutors. Second, the court found that the position of a relator is not transient or personal but rather a continuing position established by law. The FCA prescribes specific duties, powers, and emoluments for relators, similar to other federal officers. The court drew analogies to historical positions like bank receivers and special prosecutors, which were also considered officers despite their temporary nature.

Given that relators are deemed officers, the court held that their self-appointment under the FCA’s qui tam provision violates the Appointments Clause. The Constitution requires that officers be appointed by the President, the courts, or heads of departments. Since relators are not appointed through these channels, their self-appointment is unconstitutional.

The court addressed the historical use of qui tam provisions, acknowledging that early Congresses enacted similar statutes. However, the court emphasized that historical practice cannot override clear constitutional mandates. The court noted that while some early statutes allowed private enforcement, these practices were not continuous or unchallenged, and they do not justify contemporary violations of the Appointments Clause.

Thus, the court dismissed the case, reasoning that since the relator was not properly appointed, she lacked the authority to prosecute the action on behalf of the United States.

Implications of the Decision

The decision has several significant implications for the enforcement of the FCA and the broader legal and constitutional landscape. The ruling directly challenges the constitutionality of the FCA’s qui tam provision, which has been a cornerstone of fraud enforcement in the United States. By allowing private individuals to sue on behalf of the government, the qui tam provision has enabled the recovery of billions of dollars lost to fraud. By declaring the qui tam provisions unconstitutional, the court has opened the door for increased challenges to similar cases across the country. This decision may embolden defendants to file motions questioning the constitutionality of qui tam actions, potentially leading to a wave of dismissals. Furthermore, the ruling could shift the dynamics of FCA enforcement, as the Department of Justice might feel compelled to intervene more frequently in qui tam cases to maintain control and mitigate risks associated with the constitutional challenges posed by relators.

Prior to the Zafirov ruling, several district courts upheld the constitutionality of these provisions, often emphasizing the historical precedent and the significant role relators play in enforcing federal laws. For instance, courts like the Southern District of Florida in U.S. ex rel. Butler v. Shikara, 2024 WL 4354807 (S.D. Fla. Sept. 6, 2024), rejected similar constitutional challenges, arguing that qui tam relators do not possess the defining qualities of federal officers and that the government maintains sufficient control over their actions. However, the Zafirov decision marks a notable departure, as it aligns with recent Supreme Court sentiments expressed in U.S. ex rel. Polansky, where justices hinted at substantial constitutional concerns regarding the delegation of executive power to private individuals. This evolving judicial landscape suggests that while many courts have historically supported the FCA’s qui tam provisions, the recent ruling may prompt a reevaluation of these cases, potentially leading to a circuit split as more courts consider the implications of the Zafirov decision.

Looking ahead, the potential for appeals and Supreme Court involvement looms large. As the Eleventh Circuit reviews a very likely forthcoming appeal of the Zafirov decision, the outcome could set a precedent that either reinforces or dismantles the current framework of qui tam litigation. If the Supreme Court ultimately addresses the constitutionality of the FCA’s qui tam provisions, it could lead to a landmark ruling that reshapes the role of relators and the government’s enforcement capabilities. Stakeholders, including relators, defendants, and the government, will need to navigate this evolving legal landscape carefully, as the implications of this ruling could reverberate for years to come, influencing how whistleblower claims are pursued and defended.

Conclusion

The decision, while surprising, is only the decision of one District Court, and is very likely to be appealed. However, this could be the crack in the foundation that has been forecasted for quite some time and most recently in Justice Thomas’ dissent in United States, ex rel. Polansky questioning the constitutionality of the qui tam provisions as being inconsistent with Article II. See 599 U.S. 419, 449, 143 S. Ct. 1720, 1741, 216 L. Ed. 2d 370 (2023)(“The FCA’s qui tam provisions have long inhabited something of a constitutional twilight zone. There are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation.”). Thus, while a fascinating ruling, there is more to come as other District Courts take notice, and the appellate courts weigh in, on what will likely be a long road to having the US Supreme Court adjudicate the fate of the FCA qui tam provision.