As discussed in the March 2012 edition of the White Collar Watch, the case of United States ex rel. Schweizer v. Océ N.V. highlights the tension between the interests of qui tam relators and the United States Department of Justice (“DOJ”) when it comes to settling qui tam actions. As of our March edition, the case was pending before the Court of Appeals of the D.C. Circuit on the question whether the DOJ could settle a qui tam action over the objection of a relator without the court reviewing the reasonableness of the settlement agreement. On April 20, 2012, the D.C. Circuit held that the DOJ could not exercise unfettered discretion. Lower courts must examine the reasonableness of a settlement agreement reached in a qui tam action. See United States ex rel. Schweizer v. Océ N.V., No. 11-7030, 2012 WL 1372219 (D.C. Cir. Apr. 20, 2012).
By way of background, Stephanie Schweizer and Nancy Vee filed a qui tam action in April 2006 against their former employer, Océ N.V. (“Océ”). Schweizer’s job responsibilities required her to monitor Océ’s supply contracts to provide copying and printing products to the government. Schweizer claimed that she discovered in early 2005 that Océ had offered significant discounts to private sector customers without passing the savings to the government as required. After Schweizer reported her concern internally, Océ terminated her because she “refused to follow orders” and “ignored the chain of command.” (Schweizer included a claim of retaliation in her complaint.) Initially, the United States declined to intervene. In 2009, Océ, Schweizer, Vee, and the United States attempted to negotiate a settlement. Océ offered to pay the United States $1.2 million, plus post-settlement interest. The United States agreed to pay 19 percent of this amount to Schweizer and Vee. All parties except Schweizer agreed to accept these terms.
When the negotiations broke down, the United States first intervened, and then moved to dismiss the case with prejudice. The DOJ cited its unlimited authority to settle and dismiss qui tam complaints in taking this action. Schweizer objected on the ground that the lower court should review and reject the settlement as unreasonable.
Section 3730(c)(2)(B) of the False Claims Act (“FCA”) requires district courts to hold a hearing to determine whether settlements are “fair, adequate, and reasonable under all circumstances” and permits dismissal “over the relator’s objection as long as the relator has been notified of the motion to dismiss and given an opportunity to be heard on the motion.” The lower court in Schweizer held a hearing but declined to rule on the reasonableness of the settlement. Instead, the court noted that there was a “serious question” regarding the constitutionality of requiring a hearing and court approval of a settlement. The lower court reasoned that the executive, rather than the judicial, branch traditionally controls the decision whether to settle. The lower court also reasoned that the DOJ had “unfettered dismissal power.” The lower court proceeded to grant the motion to dismiss all claims, including Schweizer’s retaliation claim.
In its appellate decision recently handed down, the D.C. Circuit reversed. It ruled that lower courts must conduct a hearing to determine whether proposed settlements of qui tam actions are “fair, adequate, or reasonable under all circumstances” if the relator objects. The court stated:
"Section 3730(c)(2)(B) contains no opt-out clause for rare cases or unusual circumstances. It does not permit the Attorney General to decide when there shall be a hearing on the settlement: the statute says that the government may settle a matter over a relator’s objection if the court holds a hearing and finds the proposed settlement reasonable. The meaning is clear. The government may not settle a case when the relator objects unless the court approves the settlement."
The D.C. Circuit also reversed the lower court’s dismissal of Schweizer’s retaliation claim, finding that a jury could find that Schweizer was fired at least in part because of her protected activity.
The D.C. Circuit’s ruling will provide relators’ counsel with additional leverage in their settlement negotiations with the government. DOJ can no longer “strong-arm” a settlement without judicial review. This new arrow in the relators’ quiver will require the government instead to engage in more diplomatic efforts to resolve even frivolous claims.