Gail D. ZirkelbachJason M. CrawfordMary Kate HealyStephanie Willis

On February 14, the Fourth Circuit issued an opinion in United States ex rel. Michaels v. Agape Senior Cmty. Inc. addressing only the first of the two issues that the district court had certified for interlocutory appeal: (1) whether the Department of Justice (DOJ) possesses an unreviewable veto authority over proposed settlements and (2) whether statistical sampling, the analysis of data from a subset of the population of interest in order to make projections across the population of claims at issue, is an appropriate methodology for establishing liability and damages in False Claims Act (FCA) cases.
In its decision, the Fourth Circuit became the third circuit to affirm that the DOJ has absolute, unreviewable authority to veto settlements in qui tam cases where it has declined to intervene. However, notwithstanding that the name of the defendant corporation is derived from the Greek word for love, the Fourth Circuit’s decision (on Valentine’s Day) not to opine on the statistical sampling issue showed no love for those that hoped that the court would bring needed clarity on the permissibility of statistical sampling in FCA cases. Instead, as the authors predicted in a recent Law360 article, the Fourth Circuit dismissed the interlocutory appeal as “improvidently granted” because the panel viewed statistical sampling as an evidentiary issue, rather than a pure question of law.

District Court Opinion

In Agape, the relators alleged that a chain of South Carolina nursing homes fraudulently billed Medicaid and Medicare for services that they either did not provide or that were medically unnecessary. During the relevant time period, Agape admitted over 10,000 patients to its various facilities and submitted over 50,000 claims for reimbursement. While the case was in discovery, the relators sought to use statistical sampling to prove Agape’s liability. The relators recommended that their experts review a small sample of claims to ascertain what percentage of the claims were medically unnecessary and then extrapolate that percentage across the universe of submitted claims to determine the number of false claims. The relators advocated for this statistical sampling to avoid the extraordinary time and monetary costs of performing a claim-by-claim review – a process that experts estimated would require between four and nine hours per patient chart, which the relators estimated would cost between $16.2 million and $36.5 million.
The district court rejected the relators’ proposed use of statistical sampling. In doing so, the court emphasized the “highly fact-intensive inquiry” required of experts to make a medical necessity determination. Moreover, the court determined that even if the relators did use sampling to support their case-in-chief, because the defendant would be entitled to introduce evidence about claims outside the sample, sampling would not necessarily result in a shorter trial. Yet, the court did not completely reject sampling as a tool to estimate damages, reasoning that statistical sampling would be proper under limited circumstances such as where “evidence has dissipated” and “direct proof of damages [is] impossible.”

While the district court considered the statistical sampling issue, Agape and the relators engaged in two separate mediation efforts: one in which the DOJ participated, and one in which it did not. During the second mediation, held without the DOJ’s participation or knowledge, Agape and the relators reached a proposed settlement under which Agape would pay $2.5 million in full settlement of all claims. DOJ objected to the proposed settlement because the settlement amount represented only 10 percent of what the DOJ believed to be recoverable at trial. (Notably, the DOJ used statistical sampling in its calculation of damages.) Agape filed a motion to enforce the proposed settlement, which the DOJ opposed.
The district court, considering the DOJ’s objection to the settlement, noted the “unique dilemma” that it faced: “[t]he government, claiming an unreviewable veto right over the tentative settlement in this case, objects to settlement in a case to which it is not a party, using as a basis of its objection some form of statistical sampling that this Court has rejected for use at the trial of the case.” Nonetheless, the district court determined that the DOJ’s veto authority is absolute and unreviewable. The court recognized that, as a result of its ruling, “the parties… face a trial of monumental proportions, involving a staggering outlay of expenses by the [relators] and a significant drain of the resources of [the court], which would possibly be unnecessary if th[e]… determination to reject statistical sampling were to be reversed.” Accordingly, the district court certified both the statistical sampling and the unreviewable veto authority rulings for interlocutory appeal.

Fourth Circuit Passes on Statistical Sampling

On appeal, the Fourth Circuit dismissed the interlocutory appeal on the statistical sampling ruling as improvidently granted. The Fourth Circuit emphasized that “the order being reviewed must involve ‘a controlling question of law as to which there is substantial ground for difference of opinion’” for interlocutory review to be appropriate. The Fourth Circuit focused on the district court acknowledgment that statistical sampling may be permissible in certain instances, noting that the district court concluded statistical sampling was impermissible “based on the particular facts and evidence in this case.” The Fourth Circuit also considered the relators’ argument that the district court should only have analyzed whether the proposed statistical sampling was to be conducted in a method compliant with Daubert and not whether statistical sampling was appropriate. This argument appears to have persuaded the Fourth Circuit that the district court’s statistical sampling ruling did not present a pure question of law. Despite “understand[ing] and appreciate[ing] the district court’s desire to obtain review of its statistical sampling ruling prior to undertaking complex trial proceedings,” the Fourth Circuit dismissed the appeal.

Fourth Circuit Finds that DOJ has Unreviewable Veto Power

The Fourth Circuit affirmed the district court’s ruling that the DOJ has absolute, unreviewable authority to veto settlements in non-intervened qui tam cases. In so ruling, the Fourth Circuit joined the Fifth and Sixth Circuits, which also have recognized the DOJ unreviewable veto authority, and diverged from the Ninth Circuit’s view that the DOJ’s veto authority is subject to a reasonableness review.
In reaching its decision, the Fourth Circuit relied on the plain language of §3730(b)(1), which provides: “[t]he action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.” The Fourth Circuit rejected Agape’s argument that unreviewable veto authority conflicted with the relator’s “right to conduct the action” in a non-intervened case under §3730(b)(4)(B), and agreed with the Fifth Circuit’s analysis that the “right to conduct an action” may, but does not necessarily, include the right to settle a claim. The panel also contrasted the §3730(c)(2)(B) provision, which allows the DOJ to settle a qui tam action over a relator’s objection only when “the court determines, after a hearing, that the settlement is fair, adequate, and reasonable under all the circumstances[,]” against the consent-for-dismissal provision. The Fourth Circuit emphasized the contrast: “Congress could have readily included similar language in §3730(b)(1); that it decided against doing so is enlightening.” Finally, the Fourth Circuit noted that the absolute veto authority is consistent with the statutory scheme of the FCA and prevents “relators from maximiz[ing] their own rewards at the public’s expense[.]”

What Comes Next

It will be interesting to see what happens in Agape as the litigation at the trial court resumes. Given the DOJ’s veto of the settlement and the lower court’s ruling to reject the relators’ proposed use of statistical sampling, the relators in Agape must now proceed with a case where the expense of proving the claims could exceed the value of the case.
On the issue of DOJ veto power, the Fourth Circuit’s ruling adds to the circuit split, increasing the chances that the Supreme Court may one day weigh in on this issue. In recent years, the high court has shown great interest in the FCA having ruled on FCA cases in the previous three terms. However, for now, companies hoping for appellate-level guidance on the controversial issue of sampling will have to wait.