ALM Properties, Inc.
Page printed from: Corporate Counsel
Select 'Print' in your browser menu to print this document.
Taking The Whistle Out of Her Hand
Whistle-blower Stephanie Schweizer wasn't interested in settling her government-contracting fraud suit for $1.2 million, an amount far from the $165 million in claims she lodged against the international copy and printing equipment company where she had worked.
Over Schweizer's objection, the U.S. Department of Justice last year successfully asked a federal trial judge in Washington to end the litigation, saying that the government has unfettered power to settle and dismiss a False Claims Act complaint. Schweizer disagreed with the terms of the deal and the dismissal of the case, and, as a result, has not received any money.
Schweizer's lawyers at Washington's Bailey & Ehrenberg now want a federal appeals court to revive the suit, arguing that Chief Judge Royce Lamberth of Washington's federal trial court shirked his obligation to determine the fairness of the agreement.
Schweizer's dispute in the U.S. Court of Appeals for the D.C. Circuit tests the scope of the government's authority to abruptly end a whistle-blower suit to protect the interests of the United States. A three-judge panel heard Schweizer's complaint on January 13, but the court did not immediately rule in the closely watched litigation. There is no timetable for a decision.
A ruling against the government could erode the Justice Department's control of False Claims Act litigation, encourage plaintiffs to reject settlements, and create a potential separation-of-powers conflict in an area of the law that has seen explosive growth in recent years. Last year the department secured more than $3 billion in settlements and judgments under the False Claims Act, one of the largest recoveries on record.
Jason Ehrenberg argued for Schweizer, a former contracts manager at Océ North America Inc. He told the D.C. Circuit that the Justice Department does not have unlimited authority to dismiss a complaint amid a whistle-blower's rejection of settlement terms. By law, federal trial judges must assess and rule on the reasonableness of a proposed deal after a hearing, Ehrenberg said. Lamberth held a hearing, but the judge dismissed Schweizer's suit in 2010 without issuing a judgment on the merits of the agreement. "It's not saying the court is deciding whether or not you can bring a case," Ehrenberg said in the appeals court. "It's just allowing the court to play a role to make sure that justice is served."
A top Justice Department civil division appellate lawyer, Douglas Letter, countered that a whistle-blower's trial court hearing is meant not to convince a judge to keep a case going, but, rather, to get the government to change its mind about dismissing a suit. "Clearly, by the time we get to court, the government has decided what it's going to do," Letter said in the D.C. Circuit. "I think instead it's to give the relator an opportunity and a forum to publicly say, 'We don't think the government is properly enforcing the False Claims Act, and here's why.' "
The Justice Department sat on the sidelines for more than three years before submitting a notice to intervene in Schweizer's suit, which was filed in April 2006 in Washington federal district court. Schweizer alleged that Océ falsely certified that its printers and copiers were made in the Netherlands, where the company is based, when in fact the products were made in China and Malaysia. She also claimed that the company failed to offer to the government the same reduced rates provided to nongovernment buyers, violating the contracts' price reduction clauses.
Justice reached an agreement to settle the False Claims Act counts with Océ and with a coplaintiff, an account manager at the company who joined the suit after Schweizer filed it, in early 2009. But Schweizer did not want to settle for $1.2 million.
Schweizer's opposition to the agreement threatened the deal, and so Justice moved to dismiss the whistle-blower part of Schweizer's suit. (The department did not take a position on Schweizer's retaliation claim, which alleged that Océ unfairly terminated her after she notified management that she thought the company's conduct was illegal.)
In January 2010, shortly after Lamberth met with Schweizer and Justice Department lawyers for a hearing about the proposed settlement, the judge ruled against Schweizer. He expressly declined to rule on the substance of the settlement. Lamberth said in his decision that there is a "serious question" of whether the part of the False Claims Act law that requires a hearing and court approval of a settlement is constitutional.
If the law is valid, Lamberth said, it puts the judiciary in a spot where it infringes on the ability of the government to litigate cases. "This is an area that has been traditionally controlled by the executive, and indeed is mandated by the Constitution itself," Lamberth said. "Even were the court to adopt an extremely deferential standard in reviewing settlements, this might impinge on the government's ability to settle a case. All this renders the section's constitutionality doubtful."
The Justice Department only intervenes in about 20 percent of the hundreds of False Claims Act cases filed every year, and it's even more rare for the government to ask a judge to dismiss a suit, department lawyers say. Schweizer's case, Letter said in an appellate brief, was all the more complicated because the coplaintiff agreed to the settlement, while Schweizer opposed it.
"It is obviously awkward for the government to contend in litigation against a relator over the merits of a particular case brought for the United States," Letter said. "It is even more troubling to do so when the government and one relator on one side must battle against a second relator on the other."
Justice has the power to dismiss a whistle-blower suit after executing a side agreement with a defendant, Letter said. Such a move would circumvent judicial oversight altogether. But litigating cases in that manner, he said, would discourage whistle-blowers from coming forward to report misconduct. "Yes, we could shut down all qui tam cases. But we don't," Letter said in the appeals court. "It would be totally inconsistent to make the statute work."
Océ's appellate team, including Reed Smith counsel Tillman Breckenridge, supported the department's position in the D.C. Circuit. At the hearing in January, Breckenridge described Schweizer's suit as frivolous and urged the appeals court to uphold its dismissal. He called the $1.2 million settlement reasonable. "The claim was asserted as being worth $165 million," he said. "We're talking about less than 1 percent of the claim."
"Did your company want to pay $1.2 million to settle a claim that had no merit?" D.C. Circuit chief judge David Sentelle asked. "If it has no merit, is there an opportunity to lose $165 million [at trial]?" Breckenridge responded: "With respect to the judicial system, Your Honor, sometimes it can go awry."
Longtime whistle-blower attorney Robert Vogel of Vogel, Slade & Goldstein says Lamberth got it right when he dismissed Schweizer's suit. Policy reasons underpin the decision. The government wants to control cases that whistle-blowers litigate on behalf of the United States, he says, rather than "ceding some of that authority to people who have no institutional interest in making good policy choices for the government."
"You can get some wild qui tam cases with wild lawyers who make wild legal allegations that can result in very bad case law," Vogel says. "Those cases can create precedent that is harmful to the United States."
Justice, he continues, should use its "dismissal authority more frequently rather than less frequently." Schweizer's suit "is an important case to establish that right."