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A whistleblower who had arranged a monetary deal with a third-party litigation funder still enjoys the authority to pursue fraud claims in the interest of the United States under the federal False Claims Act, a federal appeals court ruled Thursday.

The U.S. Court of Appeals for the Eleventh Circuit's ruling in Ruckh v. Salus had been eagerly awaited by the Department of Justice and lawyers in the government contracts and health care space. The whistleblower, Angela Ruckh, a registered nurse who alleged various skilled nursing facilities in Florida had bilked the U.S. government's Medicare program, had agreed to give a litigation funder, ARUS, less than 4% of her share of the potential recovery.

The role of litigation funding in FCA cases, which can yield damages in the millions, or more, had generated some discussion within the DOJ in recent months. The DOJ filed a brief in the appeal backing the whistleblower, but the government's papers did not take any stance on the role of outside financing under the FCA.

The rise of litigation finance agreements have given courts myriad novel issues to confront and resolve, including disputes over fees and transparency. The defendants in Ruckh's case learned about the financing arrangement in a "certificate of interested persons" filing in the Eleventh Circuit.

The ruling Thursday, which confronted "materiality" provisions of the FCA, reinstated a jury verdict and an award of damages totaling $85.1 million. After trebling and statutory penalties, the resulting judgment is more than $255 million.

Ruckh had alleged the nursing centers misrepresented various services they provided to Medicare beneficiaries.

As a threshold matter, the nursing centers' lawyers at Skadden, Arps, Slate, Meagher & Flom had urged the Eleventh Circuit to dismiss Ruckh's appeal on the ground that she could not stand in the shoes of the United States based on her arrangement with the litigation financing company. The Skadden lawyers argued that Ruckh forfeited legal "standing" to pursue interests of the United States.

Despite the litigation funding arrangement, the appeals court said, "these facts remain essentially unchanged: the relator retains sufficient interest to meet the 'irreducible constitutional minimum' of standing under Article III" of the U.S. Constitution.

"The relator has given only a small interest—less than 4% of her share of the potential recovery in this case—to ARUS in exchange for immediate liquidity," the appeals court said. "And, as the relator acknowledged, the agreement is clear that the relator retains sole authority over the litigation and ARUS has no power to control or influence it."

None of the provisions in the FCA controlling the behavior of whistleblowers restricts the ability of a tipster to enter into a litigation funding arrangement, the appeals court said. "Indeed, the statute is silent as to this point," the court said. "It also does not require a court to dismiss a qui tam action upon learning of such an agreement."

"We decline to interfere in Congress's legislative prerogatives by engrafting any further limitations onto the statute; that task is appropriately left for Congress," the judges said.

Derek Ho of Kellogg Hansen Todd Figel & Frederick argued for Ruckh in the Eleventh Circuit, whose case arrived from the U.S. District Court for the Middle District of Florida.

"We are gratified by the court of appeals' reinstatement of the jury's verdict and proud of our client's hard-fought efforts to ensure that taxpayer dollars are not wasted due to fraudulent business practices," Ho said in a statement.

Skadden's Gregory Luce, a Washington partner in the health care and life sciences group, declined to comment about the circuit's ruling. Luce argued for the defendants, including Salus Rehabilitation LLC. It was not immediately known whether the Skadden lawyers would ask the full appeals court to take up the unanimous panel decision.

"No provision of the FCA authorizes a relator to re-assign any part of that claim to a third party," Luce argued in a court filing. "Relator's re-assignment of part of the government's claim to a third party therefore transgresses the narrow bounds of the statutory assignment and forfeits relator's standing."

The Trump-era Justice Department has raised broad questions about whistleblowers and litigation financing, especially regarding disclosure and transparency.

"We have dealt with some qui tam litigation where there were investors funding the relator entity, and with a relator accused by his employer of attempting to profit from qui tam litigation through short selling stock," Stephen Cox, then a senior leader at Main Justice and now a U.S. attorney in Texas, said in a speech in January. "But aside from what the litigation finance industry says publicly, we have little insight into the extent to which they are backing the qui tam cases we are investigating, litigating, or monitoring."

A representative from the Justice Department was not immediately reached for comment.

 

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