The False Claims Act (FCA) authorizes private parties known as relators to bring qui tam actions on behalf of the United States against entities alleged to be presenting false or fraudulent claims to the government for payment. The article addresses a scenario in which a new party is injected into a qui tam suit: a third-party litigation funder, who provides funding to the relator in exchange for part of the recovery. Third-party litigation funding (TPLF) arrangements are controversial in any context, as they create the risk that a financier will wrest control over the litigation away from the parties and gain access to privileged information. These concerns are heightened in the qui tam setting, where the relator brings suit in the name of the United States and where attorneys from the Department of Justice (DoJ) serve a key function.
This article argues that if TPLF is to play a role in qui tam litigation, then the DoJ should not operate in the dark. For the government to carry out its statutorily required function in qui tam actions, and for the relator’s role in qui tam actions to be constitutional, the government’s attorneys at the DoJ must have visibility into TPLF of a relator’s claim. Thus, DoJ has the authority to mandate disclosure of TPLF arrangements to the DoJ. Such a mandate is the minimum required to maintain the proper statutory function of qui tam suits in light of the risks that TPLF poses.
The False Claims Act (FCA) authorizes private parties known as relators to bring qui tam suits on behalf of the United States against entities alleged to be presenting false or fraudulent claims to the government for payment. If the qui tam suit succeeds, the relator becomes eligible to receive a share of the recovery. This article addresses the scenario in which a new party is injected into a qui tam suit: a third-party litigation funder, who provides funding to the relator in exchange for part of the recovery. Such scenarios raise the concern that funders whose interests do not align with the government’s will take a stake in the lawsuit.
Third-party litigation funding (TPLF) arrangements are controversial in any context, as they create the risk that a financier will wrest control over the litigation away from the parties and gain access to privileged information. In the qui tam setting, however, TPLF has distinctive pitfalls. Take a couple of pointed examples: what if competitors for government contracts fund qui tam suits against one another, or sue one another using TPLF? Especially in sectors in which staff often shift between contractors, staff may be incentivized to share derogatory information about other contracts with a new or prospective employer. What if an entity funds qui tam suits against a company and then shorts the company’s stock? More broadly, TPLF can drive a wedge between the interests promoted by the FCA and the aims of a third party maximizing its own profits. For instance, a TPLF provider hedging its bets on multiple lawsuits may push a qui tam relator to reject a settlement both the government and the relator consider reasonable.
TPLF has entered the domain of the FCA, where it poses distinctive issues for the U.S. government. The federal government, represented by the Department of Justice (DoJ), is deeply invested in FCA cases. Qui tam relators sue in the government’s name and purport to advance the government’s interests, so DoJ attorneys serve a key function in these suits. They decide whether to become involved and play a role in discovery, and they can move to dismiss an FCA case.
This article argues that if TPLF is to play a role in qui tam litigation, then the DoJ should not operate in the dark. This article argues for mandated disclosure of TPLF arrangements to the DoJ. For the government to carry out its statutorily required function in qui tam actions, and for the relator’s role in qui tam actions to be constitutional, the government’s attorneys at the DoJ must have visibility into TPLF of a relator’s claim. Elsewhere it has been contended that the FCA does not authorize the assignment of the government’s interest to a TPLF provider. Without suggesting that the FCA permits such an assignment, the article contends that the DoJ may require relators to provide information to it about TPLF arrangements.
Recently, the DoJ has adopted a new policy related to disclosure of TPLF in qui tam actions. In a June 26, 2020 speech, former acting Head of the Civil Division Ethan Davis noted that the United States had “an interest in knowing who is behind” qui tam suits and had therefore instructed its attorneys to ask certain questions about TPLF at relator interviews:
We will ask whether the relator or his or her counsel has any agreement with a third-party funder. If the answer is yes, we will ask for the identity of the funder, whether the relator has shared information relating to the [qui tam] allegations with the funder, whether a written agreement exists, and whether the agreement entitles the funder to exercise any direct or indirect control over the relator’s litigation or settlement decisions. We’ll also ask the relator to inform us if the answers to those questions change at any point over the course of the litigation.
At the time, Davis clarified, the DoJ was “engaged in a purely information-gathering exercise for the purpose of studying the issues.”
This article explains why the DoJ’s decision to ask these questions is a salutary development and identifies legal and policy support for the DoJ’s new practice. It also argues that the DoJ would be justified in going further: It has the authority to require relators to furnish copies of the TPLF agreement and communications between the relator and the TPLF provider to demonstrate the absence of any heightened risk to the government’s interests posed by the existence of the third-party funder.
There is a dearth of analysis on the intersection of TPLF and qui tam litigation. Commentators have written about TPLF and disclosure requirements but without focusing on qui tam suits. In the most in-depth article written on the relationship between qui tam suits and TPLF, Mathew Andrews proposes making the TPLF provider into a “co–relator,” to assert that communications between the relator and the third-party provider would be protected by common interest privilege. Beyond the issue of whether “co–relator” status is statutorily authorized and the possible constitutional concerns raised by such a move, making the TPLF provider into a purported co–relator would heighten concerns about the proliferation of TPLF in qui tam litigation—concerns warranting disclosure to the DoJ. Other papers, which mention the relationship between qui tam suits and TPLF in passing, take the view that TPLF in qui tam suits “could help reduce fraud on the government.” This article, for its part, stresses that disclosure of TPLF arrangements to the DoJ in qui tam litigation is needed to help prevent fraud against the government and to otherwise safeguard the government’s interests.
Part II describes the growth of TPLF and concerns about this development, and identifies particular risks present in qui tam litigation. Part III argues that for the government to carry out its statutorily assigned role in qui tam suits, the DoJ must be able to learn of (a) the existence of a TPLF provider; (b) the relator’s agreement with the provider; and (c) the communications between the relator or its counsel and the TPLF provider relating to settlement or other critical litigation events, such as which kinds of discovery to conduct, which arguments to advance in motions practice, and whether to challenge conduct by the government contractor that is consistent with agency policies or programs. In making this argument, Part III discusses confidentiality and privilege issues raised when TPLF enters the qui tam arena. Part IV discusses the constitutional rationale for apprising the DoJ of TPLF funding arrangements in qui tam matters. Only with authority to mandate disclosure of TPLF arrangements to the DoJ can the Department maintain the control over qui tam litigation that keeps the relator’s role in these enforcement actions on the right side of constitutionality.
In recent years, the growth of TPLF has prompted controversy about control over litigation strategy, conflicts of interest potentially created by such funding, and other ethical issues. One source of controversy is the extent to which TPLF arrangements must be disclosed. Specific features of qui tam suits—notably the government’s status as a real party in interest and the requirement that qui tam suits be filed under seal—generate particular concerns about the introduction of TPLF into the qui tam setting.
In TPLF, as one provider has explained, a third party “financ[es] some or all of the legal expenses of one or more legal disputes in exchange for a share of the proceeds recovered from the resolution of the dispute(s).” TPLF is generally provided on a “nonrecourse” basis, meaning that “[i]f the plaintiff loses the case, the funder may get nothing.” TPLF has grown by leaps and bounds in the past decade; according to a recent survey, “private funders active in the [United States] have a whopping $9.52 billion under management for commercial case investments.” Moreover, mechanisms for delivering TPLF have become more varied. They include portfolio financing, which “gathers multiple litigation or arbitration matters in a single funding vehicle.” An example is a “deal[] in which an outside funder invests in a group of related plaintiff-side cases in exchange for a cut of any award or settlement.”
TPLF has engendered substantial controversy. TPLF implicates the doctrine of champerty, which prohibits “agreement[s] . . . in which a person without interest in another’s litigation undertakes to carry on the litigation at his own expense . . . in consideration of receiving, in the event of success, a part of the proceeds of the litigation.” The doctrine of champerty “was designed to prevent or curtail the commercialization of or trading in litigation and is intended to prevent officious intermeddlers from stirring up strife.” Courts have differed in their approach to TPLF and champerty. In a recent case, the Sixth Circuit held that a litigation finance agreement fell afoul of Kentucky’s champerty prohibition. Other courts have either distinguished TPLF from champerty or pointed to the eclipse of certain champerty prohibitions.
In addition to champerty, TPLF raises ethical questions about compliance with rules about fee-sharing with non-lawyers and financial conflicts of interest. Again, ethics authorities have expressed divergent views. For example, the New York City Bar Association, in July 2018, interpreted a fee-splitting provision in New York’s Rules of Professional Conduct to disallow lawyers “to enter into an agreement with a litigation funder, a non-lawyer, under which the lawyer’s future payments to the litigation funder are contingent on the lawyer’s receipt of legal fees or on the amount of legal fees received in one or more specific matters.” Maine, Nevada, Utah, and Virginia have all issued similar decisions. Yet in February 2020, the New York City Bar Association Working Group on Litigation Funding proposed changes, still requiring approval, to the fee-splitting provision that would loosen restrictions on TPLF.
Along with these specific ethics doctrines and rules, the costs and benefits of TPLF have been subject to dispute. Though some argue that TPLF helps broaden access to justice for plaintiffs who would otherwise lack sufficient resources to sue, others have noted that agreements with litigation funders could disadvantage parties, particularly less sophisticated ones. For example, litigation finance agreements could exploit parties’ need for financing through terms that heavily favor the provider, such as those giving the provider a very hefty cut of any recovery, possibly with interest. Critics have also charged (among other critiques of TPLF) that TPLF grants the funder control over the litigation, “deter[s] reasonable settlements,” creates conflicts of interest, endangers attorney-client privilege, and incentivizes frivolous litigation. For example, a TPLF provider seeking to maximize returns over a portfolio of investments in lawsuits may have a higher risk appetite than an individual plaintiff and may persuade the plaintiff to maintain the suit even when a reasonable settlement is on the table and the merits do not justify pressing on.
A subject of substantial interest within the broader debate over TPLF is the extent to which courts, or ethical rules, should require TPLF arrangements to be disclosed either to courts or to opposing counsel. There is no uniform approach to mandating disclosure.
On the side of disclosure, the U.S. District Court for the Northern District of California requires parties in class, collective, or representative actions to disclose “any person or entity that is funding the prosecution of any claim or counterclaim.” Similarly, in 2018, the Wisconsin Legislature enacted a statute requiring disclosure, “[e]xcept as otherwise stipulated or ordered by the court,” of “any agreement under which any person . . . has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.” Proponents of disclosure have compared such a requirement to the mandate in Federal Rule of Civil Procedure Twenty-Six that parties (in practice, usually defendants) disclose insurance agreements.
By contrast, some courts have declined to require disclosure because they viewed the TPLF arrangement as not relevant or as protected by the work product doctrine. Disclosure obligations for TPLF are the subject of ongoing debate. The Federal Judiciary’s Advisory Committee on Civil Rules is considering a proposal to amend Rule Twenty-Six to require automatic disclosure of TPLF agreements, and a bill requiring disclosure of TPLF arrangements in class actions and mass tort multidistrict litigation has been introduced in the U.S. Senate. A report on best practices for TPLF adopted by the American Bar Association (ABA) in August 2020, though it did not express a preference as to disclosure, stated that “the practitioner should assume that some level of disclosure may be required at some point—whether by court rules or standing orders, arbitral rules, discovery rulings, or events and proceedings extraneous to the ‘main event’ litigation.”
Regardless of how the debate over disclosure of TPLF generally is resolved, the injection of TPLF into qui tam actions gives rise to distinctive concerns relevant to the disclosure issue. By way of background on qui tam suits, “[a]n FCA action may be commenced in one of two ways.” The government may bring an action, or “a private person (the relator) may bring a qui tam civil action ‘for the person and for the United States Government’ against the alleged false claimant, ‘in the name of the Government.’”
“If a relator initiates the FCA action,” the relator must first present his or her evidence to the government. The relator’s complaint “shall be filed in camera, shall remain under seal for at least [sixty] days, and shall not be served on the defendant until the court so orders.” The government may then decide to intervene. If the government chooses to intervene, it assumes “primary responsibility for prosecuting the action.” If the government declines to intervene, the relator may nevertheless pursue the action. “The relator receives a share of any proceeds from the action,” with its magnitude depending on factors including the presence of government intervention and the court’s assessment of reasonableness. Even if the government declines to intervene, it may “dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the [g]overnment of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”
These qui tam procedures raise distinctive issues when it comes to the introduction of TPLF. First, the relator brings suit “in the name of the Government,” which is “a real party in interest.” Though there is always a risk that the interests of the relator will diverge from the interest of the government, the introduction of a TPLF stakeholder heightens that risk. In particular, TPLF creates a conflict of interest on the part of the relator, as the relator has an interest—and perhaps even a contractual obligation—to act in the best financial interest of the TPLF provider, rather than in the best interest of the government. Moreover, the funding structures of TPLF providers, which may consist of numerous outside investors, mean that their financial interests are much more likely to diverge from those of both the relator and the government. Second, qui tam suits are, as stated, filed under seal, and TPLF arrangements risk disturbing that arrangement. TPLF providers’ interest in information that would help them value the claim creates the possibility of pressure on the relator to disclose important information to its potential third-party funder that would undermine the statutory emphasis on keeping the suit under seal in its early stages. The next Part argues that these types of issues warrant the conclusion that the DoJ has the authority and the need to require disclosure of TPLF arrangements to the DoJ in qui tam suits.
The FCA assigns the government a significant role in qui tam actions: the suits are brought in the government’s name, and the government decides whether to intervene or to move to dismiss the case based on its assessment of what is in the government’s best interest. To make an informed decision necessary to carry out this statutory role, the DoJ cannot be forced to proceed blindly when a TPLF entity is funding and, potentially, exercising control over the relator’s suit. The DoJ’s basis to require disclosure of TPLF arrangements to the DoJ follows from the FCA statutory scheme. The discussion below supports this point by drawing on (A) the prospect of a conflict of interest on the part of the relator due to its obligations under a TPLF agreement, and (B) the risks that TPLF poses to a qui tam suit’s confidentiality and the protection of the DoJ’s privilege.
In beginning to ask questions of relators regarding TPLF, the DoJ has taken an important step toward seeking important information from relators. This Section explains that the DoJ has full statutory authority to require such disclosure, including disclosure from relators of agreements and communications with third-party funders.
The FCA statutory scheme assigns the government a critical role in qui tam actions. Relators, as noted, bring suit “in the name of the Government.” Indeed, under current doctrine, relators have standing to redress “an injury in fact suffered by the United States.” As a consequence, “[w]henever a relator brings a [qui tam] suit to court, the government’s interest in the action comes along for the ride.” Under the statute, the government must be alerted of the action and decide whether to intervene. If the government intervenes, “it shall have the primary responsibility for prosecuting the action.”
Should the government decline to intervene, it nonetheless retains its stake in the action. As the DoJ has explained, relators in a non-intervened case “largely stand in the shoes of the Attorney General.” “[W]here the government chooses not to intervene, a relator bringing a qui tam action . . . is representing the interests of the government and prosecuting the action on its behalf.” What is more, “[e]ven if the United States does not intervene in a [qui tam] action brought pursuant to the FCA, ‘the United States is bound by the relator’s actions for purposes of res judicata and collateral estoppel.’”
Critically, because relators are “representing the United States,” the FCA does not permit relators to “pursue their interests . . . separately” from the government’s interest. To the contrary, the FCA reflects a “clear intent of Congress to align the interests of the relator with those of the government.” The FCA thus gives the government a key statutory role in qui tam suits. Under the FCA, the government has the “right to receive pleadings and deposition transcripts in cases where it declines to intervene,” and it may “intervene at a later date upon a showing of good cause.” Indeed, the Supreme Court has stated that the United States is “a ‘real party in interest’ in a qui tam action,” even when it is not a “party” to the litigation. In other words, the United States is “an actor with a substantive right whose interests may be represented in litigation by another.”
Given the government’s centrality in the FCA statutory scheme, a divergence of interests between the relator and the government threatens to undermine the scheme. A DoJ memorandum issued in January 2018 to codify its practice in invoking the government’s statutory authority to move to dismiss qui tam claims under 31 U.S.C. § 3730(c)(2)(A) (the “Granston Memo”) provides insight into situations that could create a conflict between the relator’s interest in prosecuting the suit and the government’s interests (which the relator is tasked with representing). These include scenarios in which a qui tam action would interfere with an agency’s policies, in which the action would interfere with the government’s ability to litigate a related suit, and in which the action would threaten the government’s ability to maintain sensitive national security information.
These scenarios are not merely hypothetical. As the Granston Memo recounts, the government successfully moved to dismiss a qui tam action that risked disclosure of classified documents related to a software development contract between the government and the defendant companies. The government also succeeded in dismissing a qui tam suit that, by requiring the government to shift resources to address the suit, would have “delay[ed] the clean-up and closure” of a facility that was manufacturing radiologically contaminated nuclear weapons. More generally, a qui tam suit may promise very little benefit to the government while wasting government resources that could otherwise be spent on matters with greater legal merit or the prospect of a higher recovery. An action brought by the relator in the government’s name, therefore, may generate a clash with the government’s interests. The FCA provides the government with tools to mitigate this clash, including bringing a motion to dismiss.
The introduction of TPLF only heightens the potential for the relator to pursue interests at odds with those of the government. A key reason is risk-based portfolio investing. The relator is akin to an investor who is invested in a single company. By contrast, the TPLF provider has an interest in maximizing its returns across an array of investments, often organized into a portfolio. The merit, certainty, and magnitude of the recovery in an individual qui tam suit are not necessarily the TPLF provider’s priority. This risk perspective affects the TPLF provider’s aims in funding the suit and, as discussed below, potentially wielding influence over the litigation. Portfolio investing is an activity in which TPLF providers increasingly engage. For instance, “[i]n 2018 alone, [TPLF provider] Burford committed over $450 million to portfolio finance investments.” Beyond portfolio investing, the divergence of interests between TPLF providers and the government may grow to the extent the TPLF providers have outside investors with their own interests in mind.
The TPLF provider may, for example, encourage the relator to make more adventurous legal claims or to decline to settle a case even when the relator would otherwise have brought the suit to an end. These outcomes may not be in the government’s interest. Even if it has not intervened, the government may wish to conserve its investigative and litigation monitoring resources for other cases. For instance, the government recently moved successfully to dismiss a qui tam case in the pharmaceutical sector, noting that “attorneys from multiple offices would be required to monitor the litigation and likely coordinate third-party discovery, rather than pursue other (and in the [g]overnment’s view, more meritorious) cases.” In moving to dismiss, the government pointed to concerns regarding the relator’s financial interests in the case—namely, allegations that the relator “took short positions in the stock of one or more defendants, and then made public statements about his allegations and the unsealing of these cases in a manner designed to impact the price of various defendants’ stock.” When a relator’s financial interests are tied to those of an outside investor, concerns about potential conflicts of interest become more apparent.
A relator’s conflict of interest does not necessarily involve a risk of refusal to settle; the conflict could also run the other way. That is, a TPLF provider could exert pressure on a relator to settle (perhaps because of the performance of other investments in the provider’s portfolio) when doing so would not be in the government’s interest—or in the relator’s interest. This would run counter to the relator’s responsibility under the statute not to pursue other interests to the detriment of the interests of the government, whom the relator represents.
The potential for TPLF to force the relator to choose between its interest in or obligation to satisfy the TPLF provider and the relator’s obligation to represent the government provides a strong reason for the DoJ to have visibility into TPLF arrangements. The relator’s disclosure of TPLF structures to the government would help the DoJ monitor and mitigate these competing interests and guard against influences by funders on relators that would undermine the government’s statutorily allotted role. In mandating such disclosure, the DoJ could draw on existing structures in the FCA. The statute requires that “[a] copy of the complaint and written disclosure of substantially all material evidence and information the [relator] possesses shall be served on the [g]overnment.” That requirement is meant to provide the government “with enough information on alleged fraud to be able to make a well-reasoned decision on whether it should participate in the filed lawsuit or allow the relator to proceed alone.” Disclosure of TPLF arrangements is consistent with this precedent because it enables the DoJ to assess whether and how the government should be involved with the suit.
To elaborate: if the DoJ is aware of the existence and nature of the TPLF arrangement, it can take advantage of statutory provisions designed to protect the government’s interests in a qui tam action. Examples include: seeking to curb discovery for a period under 31 U.S.C. § 3730(c)(4), intervening in the qui tam action, or filing a motion to dismiss the action if constitutional or prudential considerations warrant it. The government could also ask the relator to alter the terms of its agreement with the TPLF provider, oppose the relator’s settlement agreement, or monitor the action more closely than it would have done otherwise. Disclosure of TPLF arrangements to the DoJ could also help the DoJ assess whether the judge overseeing the action could face a potential conflict of interest—a matter of significance not only to the judge, but also to the entity in whose name the action is brought (that is, the government).
These points suggest that the government could go further than it has currently done in seeking information from relators regarding TPLF. The DoJ could require the relator, in addition to informing the DoJ about the existence of the TPLF entity, to provide the DoJ with a copy of the financing agreements. In terms of timing, the relator could be required to disclose this information when he or she files the complaint, with supplemental disclosures of any modifications to the agreement throughout the duration of the suit. Moreover, the DoJ has the authority to require the relator to disclose communications between the relator or its counsel and the TPLF provider relating to settlement or other critical litigation events.
In terms of the authority for a disclosure requirement, the DoJ’s authority to mandate such disclosure would stem from the same statutory authority that (as noted earlier) requires a relator to serve “[a] copy of the complaint and written disclosure of substantially all material evidence and information the person possesses . . . on the Government.” The existence of TPLF arrangements and their nature, that is, constitutes “material . . . information” of which the DoJ should be aware. At a minimum, the authority to require disclosure of TPLF arrangements can be implied from the statutory direction that relators provide “material . . . information” to the DoJ.
The objection could be made that a TPLF provider may be merely a passive investor who does not control the lawsuit and who could not, therefore, push the relator to take the lawsuit in directions that would lead to a conflict of interest with the government. Indeed, some TPLF providers, such as Burford, describe themselves as “passive investors” who “do not control strategy or settlement decision-making.” Disclosure, on this line of thought, is unnecessary for the government to carry out its statutorily allotted role.
The problem with this argument is that, if accepted, it would impede the DoJ’s ability to verify the argument’s premises. To the extent TPLF providers are offering financing on a hands-off basis, they can prove this to the DoJ by disclosing the TPLF agreements and providing more information as the DoJ deems appropriate.
Indeed, public information surrounding TPLF arrangements, and the text of agreements that have been disclosed thus far, reveal that funders may in fact influence litigation strategy. For example, the Sixth Circuit recently struck down as champertous litigation funding agreements that gave the funder “substantial control over the litigation[;]” the agreements limited the plaintiff’s “right to change attorneys without [the funder’s] consent, otherwise [the plaintiff] would be required to repay [the funder] immediately.” In fact, TPLF provider Bentham IMF’s “Code of Best Practices” states that litigation funding agreements should “state plainly whether and in what circumstances the Funder may be entitled to participate in the Claimant’s settlement decisions.”
To take another example, when a court required attorney Steven Donziger to disclose a litigation finance agreement in litigation between Donziger and Chevron Corporation, it came to light that the agreement effectively “penalize[d] the claimants if they settle[d] for less than $1 billion.” And in a different suit against Chevron, a litigation funding agreement with Therium Litigation Funding provided that the plaintiffs’ attorneys could not engage co–counsel or certain experts without the funder’s prior written consent, and that “[s]ubject to the [attorneys’] not breaching the Claimants’ Legal Privilege,” the attorneys needed to “give reasonable notice of and permit Therium, where reasonably practicable, to attend as an observer at internal meetings, which include meetings with experts and send an observer to any mediation or hearing relating to the Claim.”
Thus, the possibility that TPLF providers will wield influence over the litigation is a genuine one. The ABA’s report on best practices for TPLF explicitly warns against such control, explaining that “the litigation funding arrangement should assure that the client remains in control of the case.” Further, if TPLF arrangements vary in terms of the providers’ control over the suit, disclosure of these agreements to the DoJ in qui tam cases could make it less likely for TPLF providers to insert provisions into the agreements permitting funder influence. In sum, the involvement of a TPLF provider in qui tam litigation increases the chances that a conflict of interest will exist between the relator’s statutory obligation to stand in the government’s shoes and its contractual obligation to the third party funder. To prevent such a conflict or to mitigate its effects, the DoJ, at a minimum, must be able to learn of TPLF arrangements.
Other sources of conflict between a relator’s obligations under a TPLF agreement and the government’s statutory role in qui tam actions relate to confidentiality and privilege. First, TPLF arrangements risk undermining a critical feature of qui tam suits: namely, the requirement that they remain under seal while the government investigates the claim. Second, the relator’s interaction with TPLF providers could jeopardize the privileged nature of communications between the relator and the government. These points support disclosure of TPLF arrangements to the DoJ, so that the DoJ can act to maintain confidentiality and safeguard privilege.
As stated, a relator must file a qui tam complaint in camera; the complaint remains under seal for a period of time, while the DoJ investigates the allegations. While the complaint remains under seal, a relator cannot divulge the existence of the qui tam suit.
The Supreme Court has explained that “the seal requirement was intended in main to protect the Government’s interests,” such as the government’s concern that the relator’s complaint “would alert defendants to a pending federal criminal investigation.” Other purposes of the seal requirement include “to permit the United States to determine whether it already was investigating the fraud allegations (either criminally or civilly)[,]” and “to permit the United States to investigate the allegations to decide whether to intervene[.]” In fact, the government’s interest “in protecting the integrity of ongoing fraud investigations” is sufficiently “compelling” to overcome a challenge to the FCA based on the First Amendment right of access to certain judicial proceedings.
The presence of TPLF, however, risks jeopardizing the seal arrangement. TPLF providers need information about the claim to decide whether to invest and, if so, how much. This puts pressure on relators interacting with a TPLF provider to violate the seal.
Disclosure of TPLF arrangements to the DoJ would help the government determine whether there is a risk that the seal requirement is being violated. Given that the seal requirement is intended (in significant part) to protect the government’s interests, the DoJ should be aware of a possible breach. Such a breach could affect the government’s investigative strategy. The government could also wield the array of tools the FCA provides (intervening, seeking to curb discovery, seeking to dismiss the suit) to mitigate the risks of disturbing the seal. As a result, the DoJ has the authority to require relators to disclose their funding agreements with TPLF providers to the DoJ, at least while the seal is in effect. Moreover, disclosure of the agreement is not a panacea; even with access to the agreement, the DoJ may have to seek additional information (including communications with such providers) to determine the extent to which the seal risks being broken. Thus, authority to impose a disclosure requirement should include such communications as well.
Some might argue that relators could interact with TPLF providers before the complaint is filed (and therefore before the seal is instituted and its confidentiality obligations are triggered). Some courts have held, for instance, that “the seal provisions limit the relator only from publicly discussing the filing of the qui tam complaint[,]” as distinct from “disclosing the existence of the fraud.” Though there is a plausible argument against this conclusion—namely, that the statutory seal requirement should not be interpreted to permit relators to circumvent it so readily—relators might seek to escape the strictures of the seal by informing TPLF providers about the fraud before suing.
This possibility, however, does not eliminate the risk that the presence of TPLF poses a distinctive risk in terms of undermining the seal. First, the fact that a relator may have interacted with TPLF providers before filing its complaint does not mean that the relator would have no reason to share or update information with the TPLF providers during the period the seal comes into effect. Thus, the concern with the integrity of the seal is present no matter if the relator had preliminary discussions with TPLFs before the complaint was filed. Second, the FCA (including its seal requirement) is structured so that relators inform the government about potential fraud without tipping off the defendant or publicly sharing the allegations. The FCA’s seal requirement therefore reflects a congressional interest in keeping the suit away from the public eye until the government can investigate and decide whether to intervene.
Though a relator’s discussion of the potential suit with a TPLF provider is not identical to disclosure to (for example) the media, discussion with a TPLF provider regarding the suit increases the likelihood that information about the suit will leak more broadly. A relator may end up providing information to a TPLF provider with whom the relator does not ultimately form an agreement; indeed, a TPLF provider may balk precisely because it lacks sufficient information about the suit before the seal is instituted and the government’s investigation begins. A relator’s provision of information concerning a suit to a range of potential TPLF providers increases the risk of more widespread awareness. There is also a possibility that potential TPLF providers could share information with outsider investors, further exacerbating concerns about dissemination of the information.
Moreover, a relator’s discussion of his or her claim and associated information with a TPLF provider could jeopardize the government’s confidentiality interests independent of the statutory seal requirement. These interests include the protection of the government’s privilege, as discussed in the next section. The risk that information about the suit will be publicly distributed underscores the need for the DoJ to have visibility into TPLF arrangements.
The government’s statutory role in qui tam actions means that the government must be able to protect the privileged status of its confidential communications with the relator and the relator’s counsel. The relator’s release of information to a TPLF provider threatens the government’s privilege, further supporting the DoJ’s authority to require disclosure of TPLF arrangements to the government so that the DoJ can assess the risk that its privilege will be compromised and attempt to mitigate this risk.
Confidential communications between the DoJ and the relator or the relator’s counsel are generally understood to be protected from discovery under either a joint prosecutorial privilege (a species of common interest privilege) or the attorney work-product doctrine. However, some courts have declined to recognize a common interest privilege covering communications between plaintiffs and actual or prospective TPLF providers. This creates a risk that the relator would waive privilege over confidential communications with the DoJ by disclosing these communications to TPLF providers. Such communications would then be discoverable by the defendant—an outcome that would hardly advance the government’s interest or the aims of the FCA statutory scheme. More generally, the ABA’s report on best practices warns attorneys against providing to “potential or agreed-upon funder[s] any attorney-client or otherwise privileged materials that would risk waiver of any privilege.”
One commentator, Mathew Andrews, has proposed a way to circumvent privilege issues in the context of TPLF of qui tam suits. As Andrews notes, the Supreme Court has stated that “[t]he FCA can reasonably be regarded as effecting a partial assignment of the Government’s damages claim to the relator.” Andrews suggests that the relator could, in turn, partially assign its portion of its damages claim to the TPLF provider; in that way, the relator could develop a common interest with the TPLF provider. As a result, in Andrews’s view, communications between the relator and the TPLF provider could be protected by the common interest privilege.
Beyond the question of statutory authority for “co–relator” status and possible constitutional concerns, this proposal does not eliminate the potential for discussions between a relator and a TPLF provider to lead to a waiver of the DoJ’s privileges. Discussions (if any) between the TPLF provider and its outside investors support a similar concern. Even if the FCA permits a relator to further assign (subassign) a portion of the government’s claim—perhaps without even the government’s knowledge, let alone its assent—such a subassignment might not create a common interest between the relator and the TPLF provider sufficient to withstand a waiver argument.
For example, a court might hold (as the Northern District of Illinois did) that the relationship between a party and a TPLF provider gives rise to a common commercial interest, but not a common legal interest sufficient to ground application of the common interest doctrine. Even the chance that a court could find that privilege had been waived because of communications between a relator and a TPLF entity creates a concern for the government. Moreover, if relators purport to sub–assign the government’s claim to a TPLF provider, the provider could become more likely to assert control over the litigation. This would exacerbate the concerns about divergent interests between relators (and TPLF providers) and the government and thus about the conflict of interest on the part of relators in qui tam suits.
These conditions strengthen the case for the DoJ’s authority to mandate disclosure of TPLF arrangements to the DoJ in qui tam suits. In other words, to ensure that its privileges are not being waived, the DoJ must be able to obtain communications between the relator and the TPLF provider. Suppose the DoJ discovers that its protected communications have been or will be disclosed by the relator to a TPLF provider. In that case, it could take several steps to prevent or remedy that situation. For example, the DoJ could instruct the relator not to send the privileged communications to the TPLF provider, intervene in the case to exercise more effective control over the relator, or move to dismiss the action. In these ways, disclosure of TPLF arrangements to the DoJ would protect the confidentiality interests so critical to qui tam suits under the FCA.
The DoJ’s authority to require disclosure of TPLF arrangements to the DoJ, along with being necessary for the government to exercise its statutorily assigned role in qui tam suits, bears on the constitutionality of the FCA. In general, the relator’s role in non-intervened qui tam suits represents a potential threat to executive enforcement authority under the Executive Vesting Clause and the Take Care Clause of the Constitution. Appellate courts that have addressed this issue have largely reconciled non-intervened qui tam suits with Article II by pointing to the government’s tools to control these suits (for instance, the government may seek the relator’s evidence, intervene, or move to dismiss the case).
Yet the assumption that the government exercises adequate control over a non-intervened qui tam action may not be warranted where a TPLF provider is involved in the action. For example, the FCA entitles the DoJ to a stay of relator discovery that “would interfere with the Government’s investigation or prosecution of a criminal or civil matter arising out of the same facts.” But if the DoJ is unaware of the existence or the terms of a TPLF agreement, it will be unable to stay information requests by the third-party funder to the relator. Additionally, the FCA entitles a defendant to recover its legal fees and expenses if it prevails in the action and the court finds the relator’s claims to be frivolous, vexatious, or brought mainly for the purpose of harassment. The FCA provides no such remedy for a third-party funder that may have driven or influenced a relator’s litigation decisions. This means that a TPLF provider may not be subject to the same incentives not to bring frivolous claims as the relator would be. The TPLF provider may thus pursue outcomes at odds with the government’s interest in avoiding frivolous qui tam litigation. This provides another example of how the involvement of TPLF providers can threaten the government’s ability to exercise the control needed for qui tam suits to pass constitutional muster.
More generally, the DoJ cannot properly wield its statutory tools for control if it cannot learn of TPLF arrangements that may cause control of the suit to fall into the hands of a TPLF provider. This creates a risk that the statute (or particular applications of it) could be declared unconstitutional. According to the canon of constitutional avoidance, “[w]hen a serious doubt is raised about the constitutionality of an act of Congress, . . . this Court will first ascertain whether a construction of the statute is fairly possible by which the question may be avoided.” Here, the FCA should be interpreted—at a minimum, as a matter of constitutional avoidance—to permit the DoJ to require disclosure of TPLF arrangements from relators, including a copy of the agreement itself and the relator’s communications with the third-party funder. If disclosure of these documents reveals that the TPLF provider has been assigned undue influence or control over the litigation, the DoJ could intervene or move to dismiss the case in order to avoid constitutional risk to the statutory scheme.
The government should be able to require relators to disclose TPLF arrangements in qui tam suits to the DoJ. The introduction of TPLF into qui tam actions creates the potential for conflicts of interest on the part of the relator, as well as breaches of confidentiality that could undermine the government’s ability to carry out its statutorily allotted role under the FCA. In addition, the involvement of TPLF in qui tam suits threatens to divest the government of statutory tools for control that are critical to the FCA’s constitutionality. These concerns justify the DoJ’s authority to require relators to disclose TPLF arrangements to the DoJ—including the agreement and relators’ communications to funders.
When it comes to an action brought in the government’s name, the DoJ should not be forced to fly blind. The DoJ has already taken important steps toward increased visibility into TPLF in qui tam suits. These efforts have a sound legal and policy basis, and so do more extensive steps to understand outside financial sources of influence over relators in qui tam litigation.
