Updates on Third Party Involvement in Litigation Funding for FCA Cases

McGuireWoods LLP

On January 27, 2020, Deputy Associate Attorney General, Stephan Cox, provided key note remarks at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement. In his remarks, Mr. Cox noted that the Department of Justice (“DOJ”) recovered over $3 billion from False Claims Act (“FCA”) qui tam actions in the past fiscal year.

In his speech, Mr. Cox stated that the DOJ was “considering what, if any, interests the United States has with respect to third-party litigation financing in qui tam litigation,” also noting if it is worth seeking disclosure of qui tam litigation arrangements. Specifically, Mr. Cox was referring to the status of funding from third-parties in relation to qui tam complaints.  Later this year, on June 30, 2020, Ethan Davis, the principal deputy assistant attorney general, delivered remarks on the FCA, mirroring some of the sentiments Mr. Cox had previously alluded to. A few key takeaways are as follows:

New Questions for DOJ Attorneys to ask Relators. Davis noted that since qui tam FCA cases are brought in the name of the United States, the United States has an interest in knowing who is behind those cases. For that reason, DOJ attorneys have been instructed to ask the following questions at each relator interview:

  1. Whether the relator or his or her counsel has any agreement with a third-party funder. If yes, then the following questions will also be asked:
  2. Identity of the funder;
  3. Whether the relator has shared information relating to the qui tam allegations with the funder;
  4. Whether a written agreement exists; and
  5. Whether the agreement entitles the funder to exercise any direct or indirect control over the relator’s litigation or settlement decisions

The DOJ will also ask the relator to inform them if answers to the questions highlighted above changes at any point over the course of litigation.

DOJ May Dismiss Increased Numbers of Cases. The DOJ may move to dismiss qui tam actions brought by relators who have entered into agreements with third-party funders. Although the DOJ did not dismiss many qui tam actions in the past, since the publication of the January 2018 Granston Memorandum, the DOJ has been aggressive in dismissing qui tam cases if dismissal were to advance government interests, preserve government resources, and avoid adverse precedent.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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