Do Whistleblowers Get a Share of What’s Recovered in Related Criminal Actions?

The federal government recovers hundreds of millions of dollars per year as a result of qui tam lawsuits filed by private individuals acting as whistleblowers under the False Claims Act (FCA). Sometimes that money comes right out of the qui tam suit itself; but sometimes it comes out of criminal or other related legal actions targeting the conduct or defendants involved in the qui tam suit. And that begs a question: How much, if any, should a whistleblower get of what the government recovers in these related actions?

The Alternate Remedy Rule 

Under the FCA, whistleblowers, aka relators, who file qui tam lawsuits are entitled to a share of the proceeds the government recovers, depending on whether the government intervenes in the case: 

• If the government intervenes, the share is between 15 percent and 25 percent, depending on the extent to which the relator “substantially contributed to the prosecution of the action”
• If the government doesn’t intervene and the relator wins without any government help, the share is between 25 percent and 30 percent, along with reasonable attorneys’ fees and costs.

There’s also a third possibility. Under Section 3730(c)(5) of the FCA, the government may decline intervention and elect to pursue its claim through an “alternate remedy.” The relator also gets a share of what the government recovers in the alternate proceeding. More specifically, the relator has the “same rights in such proceeding as [he/she] would have had if the action had continued under” the FCA.

Exactly what counts as an “alternate remedy” for purposes of Section 3730(c)(5) has become a controversial issue. The FCA language refers to “any alternate remedy available to the government, including any administrative proceeding to determine a civil money penalty.” However, it doesn’t say anything about criminal proceedings. And that’s a pretty big omission, given the millions of dollars the government can recover in forfeiture, restitution, and other criminal proceedings.  

The Turner Case

A case from the U.S. District Court of Southern Mississippi offers new insight on whether relators have valid claims to recoveries in criminal actions. The relator was a pharmacist who accused her company of violating the Anti-Kickback Statute (AKS) and Stark Law by paying commissions to marketing agents based on the volume of expensive compound drug formulations their physician clients prescribed for Medicare and TRICARE patients, and then violating the FCA by billing the programs for those ill-gotten prescriptions.

Although the government chose not to intervene, it ended up recovering nearly $40 million in criminal judgments, forfeitures, and restitution against the pharmacy, marketers, and doctors involved in the alleged scheme. I should get a share of that money if I win, the relator claimed. Criminal proceeds don’t count as an “alternative remedy” under the FCA, the government rebutted.

The court sided with the government. But it used the back door. Whether the relator’s “alternative remedy” rights extended to the criminal proceeds was a moot issue in this case, it ruled, because the relator failed to show that the scheme she alleged in her qui tam case was the same as the ones pursued by the government in those criminal proceedings.

The relator’s complaint focused on the pharmacy’s sales teams and their receipt of commissions for marketing higher-reimbursement compound drugs to prescribers. The government’s criminal case focused on schemes to substitute more profitable chemical compounds that weren’t medically necessary to bill TRICARE and Medicare Part D for more expensive prescriptions. Since this conduct was different, the criminal case stood on its own and wasn’t an “alternate remedy” to intervening in the relator’s case, the court concluded [United States ex rel. Turner v. Gardens Pharm., LLC, 2022 U.S. Dist. LEXIS 103109, 2022 WL 2079718].

Consensus View: Criminal Proceedings Aren’t Alternate Remedies

Although the Mississippi court was able to avoid the question, most of the other federal courts that have addressed the issue have held that a criminal proceeding is not an alternate remedy subject to a relator’s FCA recovery rights under Section 3730(c)(5). The one notable exception is a 2005 Indiana ruling called United States v. Bisig, 2005 U.S. Dist. LEXIS 38316 (S.D. Ind. Dec. 21, 2005), in which a relator got a share of the recovery in a criminal forfeiture action against the owners of the business accused in the qui tam suit. But as the Garden Pharm. court notes, Bisig seems to be an outlier that most other federal courts have been reluctant to follow.