Legal Update

LEGAL UPDATE By: Kathleen Keough Griebel

Tennessee Valley Authority Office of the General Counsel

QUI TAM! A CIRCUIT SPLIT! SIXTH CIRCUIT HOLDS THAT FORMER EMPLOYEES ARE PROTECTED BY THE FALSE CLAIMS ACT

The modern version of the federal False Claims Act (FCA) traces its roots back to the American Civil War.1 It was first enacted in 1863 in response to rampant fraud against the United States Army by war profiteers through the procurement process. The Army would often receive defective shipments of goods like “artillery shells filled with sawdust rather than explosives.”2 Today, instead of fraudulent shipments of minié balls or hardtack, alleged violations of the FCA will mostly likely involve payments through government healthcare programs like Medicare, Medicaid, and TRICARE.3

In addition to civil enforcement by the Attorney General, the FCA also empowers private citizens to bring actions on behalf of the government for suspected violations.4 Through these qui tam complaints, the whistleblower may be entitled to a percentage of the funds recovered by the federal government, and the FCA provides protection from retaliation for bringing such claims.5

In 2010, David Felten, M.D., Ph.D., filed a qui tam complaint in the Eastern District of Michigan alleging that his employer, William Beaumont Hospital, was engaged in illegal kickback schemes by making payments to various physicians and physicians’ groups for patient referrals in violation of the FCA.6 Felten also alleged the hospital retaliated against him during his employment.7 As is customary in qui tam complaints, the United States and Michigan intervened and eventually settled the case against the hospital. Pursuant to the settlement, the district court dismissed most of the case except for Felten’s claims of retaliation and attorneys’ fees and costs.8

By this point in the litigation, Felten’s employment at the hospital had come to a frosty conclusion. In 2018, Felten amended his complaint to include allegations that the hospital wrongly terminated him and blacklisted him from employment in academic medicine by sabotaging his attempts for employment at almost forty institutions.9 The district court dismissed Felten’s allegations of post-termination, retaliatory conduct, and with a portion of the case still pending, Felten sought an interlocutory appeal to the Sixth Circuit on the question of whether the FCA applies to post-employment conduct.10

In a matter of first impression, the Sixth Circuit answered Felten’s question in the affirmative and ruled that the FCA does protect former employees from a former employer’s post-termination retaliation. Looking to Supreme Court precedent in the context of Title VII, the court first determined the term “employee” as used in the FCA is ambiguous and the lack of temporal qualifier meant that the term could apply “to any person who has ever been employed.”11 Given this ambiguity, the court then determined that the broader context of the FCA compelled protection of former employees from retaliatory conduct by vengeful employers.12 As the court stated, “[i]f employers can simply threaten, harass, and discriminate against employees without repercussion as long as they fire them first, potential whistleblowers could be dissuaded from reporting fraud against the government.”13

The court acknowledged that its decision created a circuit split. In 2018, the Tenth Circuit considered the exact question and came to the opposite conclusion.14 The Tenth Circuit determined that the FCA’s “antiretaliation provision unambiguously exclude[d] relief for retaliatory acts occurring after the employee has left employment.”15 Now, eleven years after this case was originally filed and while portions of the matter are still pending before the district court, the hospital has filed a petition for certiorari with the Supreme Court challenging the Sixth Circuit’s decision. The American Hospital Association and the Federation of American Hospitals, in conjunction with all the state hospital associations in the Sixth Circuit, filed an amici brief in support of the petition.16 They argued that hospitals are “uniquely vulnerable” to baseless FCA lawsuits because they are heavily regulated and receive much of their reimbursement from government healthcare programs.17 According to the amici, hospitals incur significant costs even when FCA lawsuits are meritless, particularly those alleging retaliation by former employees, and the Sixth Circuit’s expansion of the FCA’s antiretaliation provision will invite more costly and meritless claims.18 No matter the merit of Felten’s claims, the case certainly demonstrates that FCA qui tam lawsuits can be lengthy endeavors.

Perhaps the Supreme Court will resolve this new circuit split or perhaps not. Regardless, United States ex rel. Felten v. William Beaumont Hosp., is now the law in the Sixth Circuit.

1 31 U.S.C. §§ 3729-3733. 2 J. Randy Beck, The False Claims Act and the English Eradication of Qui Tam Legislation, 78 N.C. L. Rev. 539, 555 (2000). 3 See, e.g., Press Release, Dep’t of Justice, Office of Public Affairs, Pharmaceutical Companies Pay Over $400 Million to Resolve Alleged False Claims Act Liability for Price-Fixing of Generic Drugs (Oct. 1, 2021), https://www.justice.gov/opa/pr/ pharmaceutical-companies-pay-over-400-million-resolve-alleged-false-claims-actliability. 4 31 U.S.C. § 3730. 5 Id. at § 3730(d), (h). 6 Id. at 430. Felten also alleged violations of the Michigan Medicaid False Claims Act. 7 Id. 8 Id. 9 Id. 10 Id. 11 Id. at 432 (discussing Robinson v. Shell Oil Co., 519 U.S. 337 (1997)). 12 Id. at 435. 13 Id. 14 See Potts v. Ctr. for Excellence in Higher Educ., Inc., 908 F.3d 610 (10th Cir. 2018). 15 Id. at 618. 16 Brief of Amici Curiae in Support of Petitioner at 2-3, William Beaumont Hosp. v. United States ex rel. Felten, --- U.S. --- (2021) (No. 21-443), https://www. supremecourt.gov/DocketPDF/21/21-443/196367/20211014130938985_ Beaumont%20Final%20Brief.pdf. 17 Id. 18 Id. at 6-10.