DC Circuit Requires Fairness Hearing Where Relator Objects To False Claims Act Settlement

Summary: The Court of Appeals for the DC Circuit ruled last week that the United States cannot settle a qui tam action over a relator's objection without a judicial finding that the proposed settlement is fair, adequate, and reasonable under the circumstances. The decision will potentially complicate efforts by the government and defendants to resolve cases under the False Claims Act, especially those with little merit or damage to the government.

On April 20, 2012, the US Court of Appeals for the DC Circuit held that the United States cannot settle a qui tam action over a relator's objection without a judicial finding that the proposed settlement is fair, adequate, and reasonable under the circumstances, United States ex rel. Schweizer v. Oce N.V., --- F.3d ---, 2012 WL 1372219, potentially complicating efforts by the government and defendants to resolve cases under the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., especially those with little merit or damage to the government.

Summary of the Decision

In April 2006, Stephanie Schweizer sued her employer, Oce North America, Inc., relying in part on the FCA's qui tam provisions. The government declined to intervene but later reached a settlement agreement with Oce and then moved to dismiss the qui tam claims. The district court granted the motion over Schweizer's objection after holding a hearing but without making a finding that the settlement agreement was fair, adequate, and reasonable.

The DC Circuit reversed and remanded, holding that the district court erred in not making a fairness determination. As an initial matter, the court rejected Schweizer's contention that the government could move to dismiss only if it had previously intervened in the case. Instead, the court held that intervention is necessary only if the government wishes to "proceed with the action." Schweizer, 2012 WL 1372219, at *4-*5. In so holding, the DC Circuit joined several other courts, including two other courts of appeals. See, e.g., Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 932-35 (10th Cir. 2005); U.S. ex rel. Kelly v. Boeing Co., 9 F.3d 743, 753 n.10 (9th Cir. 1993) (dicta); U.S. v. Shasta Services, Inc., 440 F. Supp. 2d 1108, 1112-13 (E.D. Cal. 2006); Friedman v. Rite Aid Corp., 152 F. Supp. 2d 766, 772 (E.D. Pa. 2001) (dicta).

The crux of the opinion focused on the interplay between two provisions of the FCA. Schweizer argued for the applicability of 31 U.S.C. § 3730(c)(2)(B), which provides that the...