Friday, August 1, 2014
False Claims Act suits come in two flavors – those brought by “relators” on behalf of the United States to recover for harm caused by false or fraudulent submission of claims to the government and retaliation suits seeking damages as the result of adverse employment actions resulting from plaintiff’s whistleblowing activity. 31 U.S.C. § 3730(h)(1). Of course, relators are typically, although not always, employees of the defendant since such persons are usually best positioned to know about fraudulent claims. And, of course, both kinds of claims can be, and often are, brought in the same action.
Where, if at all, does arbitration fit into this structure? A recent case raised, but did not exactly resolve, the question. United States ex rel. Paige v. BAE Sys. Tech., 2014 U.S. App. LEXIS 9676, 9-12 (6th Cir. May 22, 2014), involved an effort by defendant to shunt an FCA retaliation claim into arbitration. The Sixth Circuit refused to do so because the employment contract in question provided only for arbitral resolution of claims arising under that agreement. The FCA “is purely statutory and exists independent of the Agreement.” While the FCA bars retaliation with respect to “"terms and conditions of employment," it is not limited to breach of any given employment contract. Thus, the arbitration clause simply did not reach the FCA claim at bar.
If employment law teaches us anything, however, it is that employers are adept at responding to limiting judicial constuctions of the language of their agreements with workers, and we can be confident that, unlike the agreement in BAE, future arbitration agreements will explicitly require the arbitration of FCA claims. In fact, BAE’s form was odd because it did not refer to statutory claims at all, and the Sixth Circuit provided examples of language that apparently would reach such claims.
What happens when such clauses are written to embrace FCA claims? Although a district court opinion in 2000 found such a clause invalid, Nguyen v. City of Cleveland, 121 F. Supp. 2d 643, 647 (N.D. Ohio 2000), more recent authority – in line with the Supreme Court’s enshrinement of the Federal Arbitration Act as a “superstatute”-- goes the other way. For example, United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 381 (4th Cir. 2008), rejected the argument that the FCA barred waiver of rights to bring suit in federal court.
Both BAE and Kellogg Brown & Root involved FCA retaliation claims. In such cases the plaintiff is not merely a relator but, instead or in addition, is suing on his own behalf. Even assuming that the FAA permits employees to agree to arbitrate their own claims, would an agreement to arbitrate (if broadly enough framed) bar court suit by the employee acting as a relator?
This is a much more problematic scenario, both pragmatically and legally. Practically speaking, the FCA’s procedures cut against arbitration but probably don’t preclude it: a relator must file her complaint under seal, and the period of nondisclosure (in theory 60 days but almost always extended far longer, sometimes years) allows the Department of Justice to decide whether to intervene to pursue the litigation itself. Thus, the normal motion to stay a suit pending arbitration is not a good fit with this somewhat unusual procedure and filing for arbitration before bringing a qui tam suit might trigger the FCA’s public disclosure bar. See United States ex rel. Cassaday v. KBR, Inc., 590 F. Supp. 2d 850 (S.D. Tex. 2008). Further, should the DoJ in fact intervene, the suit becomes not only in name but also in reality one prosecuted by the government. It would seem that the original relator’s agreement to arbitrate, if not simply irrelevant at this point, could not limit the federal government’s right to proceed. EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) (individual employee’s arbitration agreement could not limit EEOC’s right to seek victim-specific relief for such an individual).
But what if Justice chooses not to intervene? In that case, the original relator (who, by hypothesis agreed to arbitrate all claims against the defendant) could be faced with a motion to stay pending arbitration, and the court would have to confront the conceptual objection. Put simply, that is that the government (represented by the relator) can’t be bound by an agreement entered into by the relator in her private capacity. And an FCA suit is not merely in the name of the government: even when the DoJ does not intervene, the bulk of any judgment will go to the United States Treasury and any settlement with the defendant requires Justice approval.
Some analogies cut in this direction. For example, an employee cannot waive his or her right to report legal violations to the government. Any agreement to do so is null and void. E.g., EEOC v. Frank's Nursery & Crafts, Inc., 177 F.3d 448 (6th Cir. 1999).
But perhaps the closest parallel to the FCA situation came recently out of the California Supreme Court. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (Cal. 2014), held that, while employees could agree to arbitrate their individual claims, they could not waive their right to bring a “representative action” under the state’s Private Attorneys General Act of 2004. Like the FCA, PAGA “authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer.” In this case for Labor Code violations. Again like the FCA, most of the proceeds of that litigation going to the state. The court held that an “arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”
While Iskanian involved a federalism question absent where the FCA is concerned – whether the FAA deprived California of the power to deputize employees to prosecute Labor Code violations on the state's behalf – the result seems correct and applicable to the FCA. Despite those problems, a recent district court decision in the FCA context held in favor of arbitration. Deck v. Miami Jacobs Bus. College Co., 2013 U.S. Dist. LEXIS 14845 (S.D. Ohio Jan. 31, 2013). Contra Mikes v. Strauss, 889 F. Supp. 746 (S.D.N.Y. 1995) (dicta suggesting that the plaintiff, as relator, stands as a private representative of the government and, since the government was not a party to any arbitration agreement, a plaintiff, suing on the government's behalf is not bound).
Assuming that FCA claims per se are not arbitrable but retaliation claims are, courts will have to struggle with questions of preclusion. The two claims in the two fora are almost certain to overlap, and, should the relator proceed with the arbitration (or the defendant move to compel arbitration), the arbitral award will almost always be issued before a court decision. Is it issue preclusive? A fascinating question for civil procedure buffs, but well beyond the scope of this post. FWIW, my instinct is that preclusion shouldn’t work. But, especially when it comes to arbitration’s reach, I’ve been wrong before!
Thanks to Angela Raleigh, Seton Hall class of 2016, for her help on this.