Deputy Associate Attorney General Stephen Cox of the Justice Department gave a speech on Monday to False Claims Act (FCA) attorneys, and Cox expressed concern that DOJ doesn’t know the extent to which FCA attorneys are using litigation funding. Cox mentioned that Justice is considering mandating disclosure of litigation funding agreements for FCA whistleblowers.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Deputy Associate Attorney General Stephen Cox of the Justice Department gave a speech on Monday to False Claims Act (FCA) attorneys, and Cox expressed concern that DOJ doesn’t know the extent to which FCA attorneys are using litigation funding. Cox mentioned that Justice is considering mandating disclosure of litigation funding agreements for FCA whistleblowers.
As reported in Reuters, DOJ is acting on the heels of a disclosure push in Congress (there is a Senate bill that seeks to disclose all funding in class actions and MDLs, which has been idling in committee for some time), as well as the pressure exerted by business entities like the U.S. Chamber of Commerce.
Cox further noted that DOJ recently became increasingly concerned that funders are facilitating spurious litigation after Justice moved to dismiss 10 FCA claims which were backed by a litigation funding entity. Nine of the 10 claims were dismissed by the court.
Disclosure of litigation funding in FCA claims could swing both ways. On the one hand, prosecutors may be more likely to seek dismissal of funded claims knowing that DOJ is critical of whistleblower/funder partnerships. On the other hand, if a litigation funder has vetted the claim and invested in it, that might give prosecutors some sense of certainty that the claim has merit.
There’s one more wrinkle here: in the case of Ruckh v. Salus Rehabilitation, which is currently before the 11th U.S. Circuit Court of Appeals, there is a motion before the court to dismiss Ruckh’s appeal because she partnered with a litigation funder. Ruckh allegedly sold 4% of her stake in the claim to a newly-formed LLC called ARUS. Law firm Skadden is arguing that the the U.S. Supreme Court’s ruling in Vermont Agency of Natural Resources v. U.S. asserts that whistleblowers are not permitted to sell any stake in their claim to a third party. Rukh’s attorneys have countered that nothing in the statute prohibits the sale of a minority stake in an FCA claim to a litigation funder.
Should the 11th Circuit agree with Skadden’s interpretation of the statute, however, that would essentially nullify all funding in FCA whistleblower claims.
