United States: Fairness Hearing Required Prior to Dismissal of Settled FCA Case Over a Relator’s Objection

Originally published on April 26, 2012

Keywords: fairness hearing, False Claims Act, FCA, GSA, schedule contracts, relator

The US Court of Appeals for the District of Columbia has issued an opinion involving False Claims Act (FCA) allegations related to General Services Administration (GSA) schedule contracts. In United States ex rel. Schweizer v. Océ N.V., No. 11-7030 (Reissued April 20, 2012), the court held that when the government and a defendant settle False Claims Act allegations and want to dismiss the lawsuit, an objecting relator has a right to a substantive hearing prior to dismissal. Although counsel for government contractors and the Department of Justice (DOJ) should be able to satisfy the "fairness" requirement in cases they settle, this ruling could provide additional leverage for relators' counsel in the context of settlement.

Background 

Océ North America, Inc., sells copying and printing products under two supply contracts with GSA. In December 2004, the company hired Ms. Schweizer to serve as the "GSA contracts manager" responsible for monitoring compliance with the contracts. Ms. Schweizer came to believe that Océ was violating two provisions of its GSA contracts—the Price Reduction Clause and the certification provisions regarding the Trade Agreements Act—and reported her concerns to her immediate superior. He allegedly forbade her from investigating the matters further and stated that "management would 'destroy' her if she disobeyed."

Ms. Schweizer went over her immediate superior's head, addressing her concerns to the next higher-level supervisor. She was then referred to (and discussed her concerns with) Océ's human resources director, in-house counsel, and outside counsel for government contracting issues. Ms. Schweizer repeatedly "reiterated her claim that Océ was violating the False Claims Act," but the company's personnel and counsel did not agree. Finally, Ms. Schweizer made an "emotional plea" during a meeting with the next-higher-level supervisor regarding the alleged problems. He rejected her allegations; shortly thereafter, she was suspended then terminated.

Claims and Decision

Ms. Schweizer filed a qui tam lawsuit against Océ under the FCA. After an "extensive investigation," DOJ declined to intervene in the case, though the government continued to participate in settlement discussions. Eventually, DOJ, Océ, and a co-plaintiff who had been added to the lawsuit reached a settlement. But Ms. Schweizer objected, arguing that the deal reached by the other parties understated the extent of Océ's violations—and that she was entitled to a hearing in which the court should examine the fairness of the settlement. The trial court rejected Ms. Schweizer's arguments, holding that the FCA does not require a hearing to evaluate the fairness of a settlement reached by DOJ prior to dismissing the relator's complaint. The DC Circuit reversed.

The relevant FCA provision, 31 U.S.C. § 3730(c)(2)(B), states that "[t]he Government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances." Although that language is relatively straightforward, the DC Circuit, in Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003), had previously held, with respect to a different subsection of section 3730(c)(2), that DOJ has "unfettered" discretion to dismiss an action, provided the person who initiated the lawsuit is given notice. The statutory language in section 3730(c)(2)(A) did not specify the purpose of the "opportunity for a hearing" described in the statute, and the Swift court had ruled that it "is simply to give the relator a formal opportunity to convince the government not to end the case." But section 3730(c)(2)(B)'s language at issue in Schweizer makes clear that, to settle over the objection of the relator, the district court must "determine, after a hearing, [whether] the proposed settlement [is] fair, adequate, and reasonable under all the circumstances." Recognizing the odd circumstance that DOJ has unfettered discretion to dismiss a relator's complaint absent a settlement (when the relator receives nothing) but must have judicial approval when the relator objects to the amount she will receive, the court explained that differing statutory language "leaves no space for the [government's and defendant's] interpretation."

The DC Circuit's decision is important to government contractors primarily because it enables an objecting relator to force a fairness hearing with respect to a settlement. Many contractors believe qui tam relators already have leverage that allows them to obtain settlements in cases with little or no merit, or when damages are small; Schweizer could provide an additional impediment to settling such cases by giving relators additional leverage.

Notably, the DC Circuit also reversed the grant of summary judgment with respect to the relator's retaliation claims. Section 3730(h) protects "acts by the employee 'in furtherance of' a suit under" the FCA and prohibits "retaliation by the employer ... 'because of' those acts." The court held that a factual question concerning whether Ms. Schweizer had given Océ sufficient "notice" of her investigation such that the employer could have formed a retaliatory intent—an issue complicated by the fact that her "normal job responsibilities" involved "ensur[ing] compliance with government contracts"—precluded summary judgment.

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