New programs and rulings may impact whistleblowers' willingness and ability to stop fraudulent practices

As a former consumer protection prosecutor, I have regularly witnessed the critical role that whistleblowers can play in uncovering complex fraud schemes that impact consumers, businesses, and the government. Because whistleblowers often risk retaliation, government agencies have increased confidentiality protections and financial incentives to encourage and protect them.

In 2023 alone, whistleblowers filed over 700 qui tam cases under the False Claims Act (FCA), 31 U.S.C.§3729-3733. According to the US Department of Justice, "[s]ettlements and judgments under the False Claims Act exceeded $2.2 billion in the fiscal year ending Sept. 30, 2022 . . . Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $72 billion."

On Aug. 1, 2024, the US DOJ launched a new Corporate Whistleblower Awards Pilot Program to crack down on corporate crime, modeled after existing whistleblower programs offered by the Securities and Exchange Commission, the Commodities Futures Trading Commission, and FinCEN. This program offers incentives for reporting crimes and wrongdoing that are not covered by other programs, such as private insurer health care fraud, certain financial institution crimes, foreign corruption involving privately held companies, and domestic corruption involving companies. This program also promises that "the DOJ is committed to protecting the confidentiality of those who submit information through the whistleblower program" and also allows for anonymous submissions by attorneys. If a whistleblower reports the misconduct to the company, and the company reports the misconduct to the DOJ's Criminal Justice Divisions within 120 days (before the government reaches out to them), the company may also be eligible for an award even if the whistleblower already reported it to the government. Whistleblowers can receive up to 30% of net proceeds from forfeitures over $1 million and up to 5% of net proceeds between $100 million and $500 million.

Despite the benefits of the whistleblower process, a recent district court ruling in Florida could undermine their role. In United States ex rel. Zafirov v. Florida Medical Associates, LLC, Case No. 8:19-cv-01236-KKM-SPF (M.D. Fla. Sept. 30, 2024), the plaintiff alleged that his employer and others violated the False Claims Act by misrepresenting patients' medical conditions to Medicare to obtain excess payments. The court found that because the United States chose not to intervene, it was improper for the plaintiff to proceed qui tam as an FCA "relator" because he "initiated the FCA action when unconstitutionally appointed." The court held that the qui tam arrangement "directly defies the Appointments Clause by permitting unaccountable, unsworn, private actors to exercise core executive power with substantial consequences to members of the public." The United States filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit in the Zafirov case, which could result in this matter creating a circuit split that may ultimately need to be resolved by the Supreme Court.

Justice Thomas' dissenting opinion in the Polansky case on this issue expressed his view that "[t]here is good reason to suspect that Article II does not permit private relators to represent the United States' interests in [qui tam] suits." United States ex rel. Polansky v. Exec. Health Resources, Inc., 599 U.S. 419 (2023). Although Justice Kavanaugh and Justice Barrett concurred with the majority opinion in that case, they agreed with Justice Thomas that, "[t]here are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation." They further proposed that: "the Court should consider the competing arguments on the Article II issue in an appropriate case." Given this indication that at least three votes on the Court are willing to examine the role of whistleblowers, as well as other recent expansive readings of the Appointments Clause in various contexts by federal courts, the important role of whistleblowers faces potential court challenges, even as US DOJ seeks to expand the use of this important tool to uncover hidden wrongdoing.