Individuals who have been fired from their jobs for internal whistle blowing (or other reasons) often negotiate severance packages or settlement agreements that contain general releases of all claims, known and unknown, that they might have against their former employers. When they later focus on the possibility of reporting their former employer´s fraud on the government through the filing of a federal False Claims Act qui tam action, they wonder whether the general release bars such an action. Some never even bother to contact a attorney, believing a qui tam action is no longer a possibility. Others contact counsel who are new to qui tam law and may be unaware of the law discussed in this outline.

The general rule that has emerged from the case law since 1995 is that a general release of claims generally will not bar a subsequent, federal qui tam action provided that the government had not already learned of and investigated the allegations at the time the general release was signed. One Court of Appeals has created an exception to this rule for releases entered into as part of a bankruptcy proceeding.

The purpose of this outline is to summarize the key court decisions since the seminal 1995 decision by the U.S. Court of Appeals for the Ninth Circuit called U.S. ex rel. Green v. Northrop. Please note, however, that this memorandum is meant only to serve as a guide to some of the more important cases, and does not constitute legal advice concerning your particular circumstances.

Anyone considering a possible qui tam action who is also considering entering into a general release with the person they might sue in the qui tam action should contact an experienced False Claims Act attorney to ensure that the release does not bar future claims. Notwithstanding the case law summarized below, in many situations, the best course of action from a legal standpoint will be a release that either expressly or implicitly carves out the possibility of a qui tam action. Moreover, please note that this memorandum was prepared in November 2008. Other court cases may have addressed this issue since the date of this memo, and these cases may have disagreed with or qualified the judicial decisions discussed herein.

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KEY APPELLATE DECISIONS

I. U.S. ex rel. Green v. Northrop Corp., 59 3d 953 (9th Cir. 1995), cert. den. 518 U.S. 1018 (1996).

HOLDING: Release of a qui tam claim, when entered into without the United States´ knowledge or consent, and prior to the filing of an action based on that claim, is not enforceable.

ANALYSIS:

• Relies on ruling set forth by the U.S. Supreme Court in Town of Newton v. Rumery, 480 U.S. 386 (1987):

  A promise [will be found] unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement. (480 U.S. at 392.)

• Relies on interpretation of Town of Newton by Court of Appeals in Davies v. Grossmont Union High Sch. Dist., 930 F.2d 1390 (9th Cir.), cert. den. 501 U.S. 1252:

  If we conclude that a substantial public interest would be impaired, we need not engage in balancing absent the articulation of a public interest other than the ‘interest in the settlement of litigation’ for that interest ‘cannot by itself outweigh a substantial public interest on the other side of the scales. (930 F.2d. at 1399.)

• "formulation of a uniform federal rule is justified." (Id. at 961.)
• "When we consider… the release of a claim in the prefiling period, it is clear that our focus must be on what impact the release will have on the incentive effect Congress intended to create and the importance of that incentive effect in achieving the False Claims Act´s goals of detecting and deterring fraud on the Government." (Id. at 965.)
• "[e]nforcing the release at issue in this case would impair a substantial public interest. Specifically, we find that enforcing the Release would threaten to nullify the incentives Congress intended to create in amending the provisions of the False Claims Act in 1986." (Id. at 963).

CIRCUMSTANCES RELEVANT TO HOLDING:

• In October 1988, Northrop terminated Green. In November 1988, Green filed a wrongful termination action in state court alleged he was fired for reporting to Northrop´s Security Department and consulting with an attorney regarding Northrop´s alleged double billing of the U.S. Air Force for parts for the B-2 bomber.
• Settlement of Green´s wrongful termination claim in April 1990 included a general release, covering:
• "any and all claims … rights to payment… actions and causes of action of every nature, under any theory under the law, whether… statutory or other of any jurisdiction, whether known or unknown… which he held or held, or has or holds, or any claim to have or to hold by reason of any and all matters… including, but not limited to, those arising out of or relating to the Action and Green´s employment with and separation from Northrop." :
• Green filed qui tam complaint in January 1991 based on false claims for Automated Test Equipment for B-2 bomber, including double-billing.
• U.S. declined to intervene in February 1992.

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II. U.S. ex rel. Hall v. Teledyne Wah Chang Albany, 104 F. 3d 230 (9th Cir. 1997)

HOLDING: Qui tam action barred by pre-filing general release relator signed after government investigated alleged wrongdoing following relator´s disclosures.

ANALYSIS:

Distinguishes U.S. ex rel. Green v. Northrop because:

"The concerns that led us to deny enforcement in Green are not present. The federal government was aware of Halls allegations regarding false certifications. Therefore, the public interest in having information brought forward that the government could not otherwise obtain is not implicated. The public interest use of the qui tam suits to supplement federal enforcement of the FCA is also not disturbed, because the federal government already investigated the allegations prior to the settlement." (Id. at 233.)

CIRCUMSTANCES RELEVANT TO HOLDING:

• In January 1991, after relator complains to Teledyne of alleged false certifications relating to production of tubeshells for U.S. and other customers, both Teledyne and relator report relator´s concerns to the Nuclear Regulatory Commission (NRC). Teledyne then fires relator.
• In November 1991, NRC informs Teledyne that it could not substantiate Relator´s allegations.
• Relator files state law suit alleging wrongful termination based on his reporting of the alleged wrongdoing.
• Teledyne and relator settle state law suit, and relator executes general release that:
• "includes, but is not limited to, all claims which were, or could have been, brought as claims or counterclaims in the above-referenced action. This Mutual Release of Claims also includes, but is not limited to, any other claims or complaints which could have been brought in any other type of action or proceeding." (Id. at 232.)
• In October 1994, relator files qui tam action based on same allegations. NRC investigates again, and fails to substantiate allegations. United States declines to intervene.

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III. U.S. ex rel. Gebert v. Transport Admin. Services, 260 F. 3d 909 (8th Cir. 2001)

HOLDING: Qui tam action barred by release that relator signed in bankruptcy proceeding

Distinguishes earlier 9th Circuit decision in U.S. ex rel. Green v. Northrop because Gebert entered into settlement agreement in the context of bankruptcy proceeding, not through a general independent release of a claim for money. "The threat to the public interest that was essential to the holding in Northrop is not implicated by the instant agreement.

ANALYSIS:

• The law is clear that [once bankruptcy petition was filed all] all of their property rights and interests become assets of the bankruptcy estate." (Id. at 913.)
• After bankruptcy, the relator no longer has an interest in any damages because the claim is no longer is his; the relator´s right to the claim (including any money damages) is now property of the bankruptcy estate." (Id. at 914.)
• "the posture of this agreement as a small part of a larger bankruptcy proceeding implicates concerns that are unique to bankruptcy; creditors and other interested parties want debtors to be forthcoming about all of their assets, and enforcing the settlement agreement and release would serve as an incentive for debtors to be candid about their assets during bankruptcy proceedings." (Id. at 917.)

CIRCUMSTANCES RELEVANT TO HOLDING:

• Gebert was former officer and shareholder of defendant TAS.
• In Sept. 1993, TAS fired Gebert and claimed he had misappropriated over $500,000 in company assets.
• July 1994, Geberts filed for bankruptcy at a time when he "possessed of all information necessary to file the qui tam."
• In bankruptcy, Geberts resolved claims that they owed defendant TAS more than $506,000 in misappropriated assets, and claims that TAS owed Geberts $1.2 million. General release covered:

  .."any and all manner of action, causes of action, claims, debts, demands, damages, liabilities, controversies... suits, known or unknown, that the Geberts… now have or at any time heretofore had or held against… TAS [or] Steward… by reason of any cause, matter or thing whatsoever that occurred or existed as of [November 7, 1995.]."

• On Feb. 1998, Geberts filed a qui tam lawsuit alleging TSA fraud on SBA´s minority-owned business program.
• The United States declined to intervene.

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KEY DISTRICT COURT DECISIONS

I. United States ex rel. Pogue v. American Healthcorp., 1995 U.S. Dist. LEXIS 16710 (M.D. Tenn. Sept. 14, 1995)

HOLDING: Pre-filing, general release of claims relating to, or arising out of relator´s employment, or the termination of his employment, may not be enforced to bar qui tam claim even if interpreted to include release of qui tam claim.

ANALYSIS:

• Court assumes that the Agreement encompasses Mr. Pogue´s right to bring a qui tam action, but finds the Agreement unenforceable as against public policy. Court follows Green decision:
• Congress intended to set up incentives- "Upholding releases in which an employee agrees not to reveal the fraud engaged in by their employer would obviously stunt the Congress´ efforts to protect the national treasury and deter fraud" (Id. at 13.)
• "If the prevailing rule were that pre-filed releases were enforceable, the government may not ever because aware of allegations of fraud in the first place." (Id. at 13.)

CIRCUMSTANCES RELEVANT TO HOLDING:

• May 16, 1994, relator executes general release in settlement with defendant Diabetes Treatment Center of America, relying on his attorneys´ advice that the release would not affect his qui tam claim
• June 23, 1994, relator files qui tam alleging defendants were involved in an improper referral scheme that relied on kickbacks and Stark law violations
• Feb. 6, 1995, United States declined to intervene "at this time."

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II. United States ex rel. DeCarlo v. Kiewit/AC Enterprises, 937 F. Supp. 1039 (S.D.N.Y. 1996)

HOLDING: Pre-filing release does not bar qui tam action notwithstanding partial disclosure by relator prior to release and government declination.

ANALYSIS:

• Ninth Circuit argument in Green is convincing.
• Court must determine whether, although federal law governs, state law should be incorporated to provide content of that federal law. All three factors set forth in U.S. v. Kimbell Foods, 440 U.S. 715 (1979), militate in favor of a consistent federal rule; i) uniform rule needed as state courts might overemphasize interest favoring final, ironclad and enforceable releases; ii) application of state laws enforcing releases would undermine incentive structure in FCA, and frustrate FCA´s goal of deterring fraud and permitting recovery of federal funds; and iii) uniform federal rule will not disrupt commercial relationship based on state law.
• Applying Supreme Court´s Town of Newton test, Court opines: "it is clear that serious public interests are at stake, to wit, the interest of the taxpayers and the government in recouping lost proceeds, and the public interest in the disclosure of fraudulent activity " (Id. at 1046.)
• Government´s failure to intervene does not necessarily signal governmental disinterest and still would not have found out about possible fraud without qui tam complaint.

CIRCUMSTANCES RELEVANT TO HOLDING:

• April 23, 1993, relator, former Mass Electric manager for the Hutchinson River Parkway Bridge Rehabilitation Project, brings wrongful termination case against Mass. Electric and Kiewit, the federal general contractor for the project.
• During pendency of litigation, relator writes letters to NY and federal officials regarding conditions on the project site, including overpayments
• June 1, 1994, relator executes general release as part of settlement of wrongful termination case against the defendants
• June 28, 1994, relator files qui tam based on alleged false claims submitted by Kiewit to NY State Dept. of Transportation, the Fed´l Highway Administration, the U.S. Dept. of Labor and other federal and state agencies.
• After qui tam filing, United States commences investigation and declines to intervene.

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III United States ex rel. Chandler v. Swords to Ploughshares, 1999 U.S. Dist. LEXIS 3007 (N.D. Cal. March 11, 1999

HOLDING: Pre-filing release enforced to bar qui tam in light of prior government knowledge and investigation.

ANALYSIS:

• "The Ninth Circuit has made clear… that where the government is informed of the relator´s allegations and has had an opportunity to investigate them, a release entered into by the relator that covers the allegations made in the subsequent qui tam action will be enforced to bar the qui tam action." (Id. at *5-6.)
• Here, the government´s investigation and decision not to renew the defendant´s grant in light of the allegations "demonstrate that the government had the opportunity to investigate and redress the problem." (Id. at *8-9.)

CIRCUMSTANCES RELEVANT TO HOLDING:

• Through Dec. 1993, Legal Services Corp. audits Swords to Ploughshares (STP), and finds non-existent efficiency and effectiveness, and lack of adequate records, and declines to renew STP´s grant to provide legal representation to veterans in claims before the Court of Veterans Appeals (COVA).
• In November 1993, relator filed a complaint in San Francisco Superior Court alleging wrongful discharge by STP, and alleging STP had made false representations to obtain federal grant funds to represent veterans before COVA.
• In late 1993, relator disclosed to COVA and its grantee Legal Services Corporation the allegations regarding STP´s false representations to obtain federal grant money
• October 1994, relator executes general release as part of settlement of his wrongful termination claim (on which court had granted summary judgment in favor of defendant.)

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IV. United States ex rel. Bahrani v. Conagra, Inc., 183 F. Supp. 2d 1272 (D.Col. 2002), vacated on other grounds, and remanded 465 F.3d 1189 (10th Cir. 2006).

HOLDING: Pre-filing release unenforceable to bar qui tam claims even if Government had some prior knowledge of relator´s allegations.

ANALYSIS:

• For release to be enforced under Hall, Defendant must demonstate that the United States had "full knowledge" of Bahrani´s allegations and fully investigated them before Bahrani executed release. Defendant did not meet burden. Id. at 1277-78.
• "The public´s interest in providing incentives for Bahrani to disclose fully to the Government inside information concerning alleged fraud was very much in place at the time Bahrani executed the Release. That the Government had some knowledge of the alleged fraud does not negate this interest" Id. at 1278.
• "The public´s interest in Bahrani maintaining the ability to bring a qui tam action to supplement the federal enforcement of the FCA also remained as there was no guarantee when Bahrani executed the release that the Government was ever going to investigate, let alone prosecute, the fraud he had briefly alleged to FBI agent Christianson. Id. at 1278.
• "Furthermore, enforcement of the Release to bar this action would impair the public´s interest in deterring fraud by making perpetrators potentially liable to qui tam actions." Id. at 1278,

CIRCUMSTANCES RELEVANT TO HOLDING:

• In June 1999, Bahrani settles "national origin discrimination" claim with defendant Monfort and executes general release
• At time of release, the federal government did not have "full knowledge" of relator´s allegations. (Court rules inadmissible an Affidavit prepared by one of the defendant Monfort´s in-house counsels concerning an Aug. 1998 conversation with FBI Agent Christianson in which the agent purportedly inquired about the relator´s allegations.)
• In 2000, relator files qui tam case alleging Defendants´ falsification of Export Certificates for animal product shipments
• Feb. 2001, United States declines to intervene

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V. United States ex rel. Whitten v. Triad Hosps., Inc., 2005 U.S. Dist. LEXIS 26208 (S.D. GA. Oct. 27,2005), rev´d (on issue of scope of release), and remanded, 2006 U.S. App. LEXIS 30931 (11th Cir. Dec. 13, 2006)

HOLDING: Pre-filing general release between Whitten and Glynn Brunswick Mem. Hosp. Authority ("the Authority") could be enforced to bar pursuit of declined qui tam against Quorum. Quorum released by the release as it was the agent of the Authority. Release covered qui tam claims notwithstanding exception in release for claims against Quorum based on matters arising out of relator´s employment

ANALYSIS:

• "The Green court did not consider whether a relator who has assigned a release ought to be able to maintain a qui tam action in cases where the government has declined to intervene." (Id. at *14.)
• "At least in cases where the government has declined to intervene, public policy favors the enforcement of agreements like the one entered into by Whitten and the Authority. The public policy interest identified in Green, encouraging disclosure of allegations of fraud against the government, is served adequately by a rule that prohibits a litigant who has agreed to release his right to serve as a relator from maintaining a qui tam action if the government declines to intervene in the action." (Id. at *15.)

CIRCUMSTANCES RELEVANT TO HOLDING

• January 3, 2001, Whitten and the Authority resolve relator´s wrongful termination claims and execute general release.
• Whitten files qui tam subsequently.
• Government declines case.

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VI. United States ex rel. Amin v. George Washington University, 2007 U.S. Dist. LEXIS 32166 (D.D.C. May 2, 2007)

HOLDING: Release, which became effective after qui tam-filing, is unenforceable to bar a qui tam.

ANALYSIS:

• Applying City of Newton principle, and relying heavily on district court opinion in Longhi, Court concludes the interest in enforcing the release is clearly outweighed by three public policy interests:
• Enforcement of release akin to voluntary dismissal without consent of the United States, which is prohibited by the FCA. Id. at *20.
• Release entered into during this 60-day window in which the case is under seal"would eviscerate" the purposes for which Congress created the seal requirement Id. at 22.
• "Enforcing a release entered into before the United States decides to intervene would frustrate the financial incentives designed to encourage relator participation. This might hinder the government´s ability to investigate the matter and, should it elect to do so, intervene and proceed with this action" Id at 24.

CIRCUMSTANCES RELEVANT TO HOLDING:

• On Oct. 19, 1995, El Amin executed a general release as part of a severance agreement with GW University
• On Oct. 24, 1995, El Amin and three other relators filed a qui tam complaint after signing the release but before it became effective
• The release became effective 2 days after qui tam complaint was filed under seal and thus during the 60-day statutory evaluation period.
• No evidence that the United States was aware of El-Amin´s allegations before she signed the release, nor is there any suggestion the Government had an opportunity to investigate fully the allegations before the release became effective (as in Hall).

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VII. United States ex rel. Longhi v. Lithium Power Technologies, 481 F. Supp. 2d 815 (S.D. Tex. 2007)

HOLDING: Post-filing general release unenforceable to bar qui tam.

ANALYSIS:

• Release invalid due to public policy concerns:
• As in Rumery, public policy must be harmed and outweigh interest of enforcing release
• The public interest implicated is the ability of the Government to obtain information from relators it could not otherwise obtain,
• If this type of release were enforced, effective fraud investigations under the FCA would be acutely compromised
• Defendant claims Green draws line between post-filing and pre-filing releases. Line between Hall and Green is the fullness of the investigation, not the timing of the release.
• Release invalid under plain language of FCA
• Statutory construction suggest a release entered into during the proscribed 60-day investigatory period unduly interferes with the United States exclusive and unilateral right during that time to evaluate whether to join qui tam action

CIRCUMSTANCES RELEVANT TO HOLDING:

• On Nov. 18, 2002, Relator filed action under seal.
• On Nov. 29, 2002, Relator signed general release with regard to sale of defendant LPT´s stock from trust for which relator was trustee to defendant Munshi.
• Dec. 17, 2002, Government obtained search warrant and began earnest investigation.
• 2005: Government decided to intervene.

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VIII. U.S. ex rel. McLean v. County of Santa Clara, 2008 U.S. Dist. LEXIS 53101 (N.D. Cal. April 30, 2008)

HOLDING: Pre-filing release not enforced to bar qui tam.

ANALYSIS:

• Follows 9th Circuit opinions in U.S. ex rel. Green v. Northrop and U.S. ex rel. Hall v. Teledyne:
• "In the Ninth Circuit, a prefiling release of qui tam claims generally cannot be enforced to bar a subsequent qui tam action where the release was entered into without the government´s knowledge or consent.… Green´s rational [does] not apply where the Government had full knowledge of the relator´s charges and investigated them before a release was signed." (Id. at *10 and *15).

CIRCUMSTANCES RELEVANT TO HOLDING:

• In 2004, relator executed general release with County of Santa Clara resolving her lawsuit arising out of the Country´s removal of her children from her home and events during juvenile dependency proceedings.
• In 2005, relator filed qui tam lawsuit alleging County of Santa Clara´s Department of Children & Family Services made false claims to the United States and State of California for programs for state and federal funds.
• Court finds no evidence suggesting the state or federal governments knew of McLean´s allegations or had an opportunity to investigate them prior to 2004 settlement.

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IX. U.S. ex rel. Radcliffe v. Purdue Pharma, L.P., 2008 U.S. Dist. LEXIS 81688 (W.D. Va. Oct. 14, 2008)

HOLDING: Under circumstances, pre-filing general release is unenforceable to bar subsequent qui tam action., notwithstanding prior government knowledge and partial investigation of the relator´s allegations.

ANALYSIS:

• Enforcement of release implicates three public policy interests:
• Interest in disclosure of inside information of alleged fraud against the Government;
• Interest in private citizens supplementing government enforcement efforts, through investigation and prosecution of the claim; and,
• Interest in deterring fraud against the Government
• "To determine whether the circumstances of a case fall within the general rule articulated in Green or the exception in Hall, the critical issue is the completeness of the government´s knowledge or the fullness of its investigation. … Partial knowledge or investigation on the part of the government is insufficient to remove a case from the purview of Green into the exception created by Hall. (Id. at *41.)
• When the release was executed, there was no guarantee the Government would end up prosecuting based on the relator´s allegations. Public interest lies with maintain the ability of a relator to supplement the Government´s investigation.
• US declination to intervene is not basis for enforcement as it doesn´t necessarily indicate disinterest in action.
• Enforcing a release in this situation would deprive the public of a potential relator to enforce the False Claims Act and recover monies for the Treasury.

CIRCUMSTANCES RELEVANT TO HOLDING:

• Beginning in 2002, United States investigated Pursue´s manufacturing, marketing and distribution of Oxycotin, seeking documents and interviews some of which, as early as June 2005, dealt with the drug´s potency.
• On August 1, 2005, Relator and Purdue executed severance agreement with general release.
• Government was aware of substance of Radcliffe´s allegations and had begun, but not finished investigation as of date of Release.
• When the release was executed, there was no guarantee the govt would end up prosecuting based on the relator´s allegations
• On August 2, 2005, Relator was subpoenaed by United States concerning government investigation of Pursdue´s manufacturing, marketing and distribution of OxyCotin. Was not asked about drug´s potency.
• On Sept. 27, 2005, Relator filed qui tam regarding Purdue´s misrepresentation of OxyContin´s potency. He attached a document the government already had. This was his first disclosure of his allegations to the United States.
• Relator cooperated with the United States´ preexisting criminal investigation.
• On May 8, 2007, United States declined to intervene..
• On May 10, 2007, the United States filed a criminal information and plea agreement with Purdue. . No charges dealt with potency issue.

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