Jul 212016

Relator Not Entitled to a Portion of Funds Voluntarily Repaid by FCA Defendant

Gordon D. Todd and Jacquelyn E. Fradette
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The False Claims Act allows relators to share in a recovery even where the United States pursues an “alternative remedy” rather than direct FCA litigation.  In a recent decision, the District of Massachusetts determined that where an entity voluntarily repays stolen funds and takes action to do so as soon as the theft was discovered, that repayment does not constitute an “alternative remedy” requiring a relator’s share.

In United States ex rel. Willette v. University of Massachusetts,  No. 4:13-cv-40066 (D. Mass July 11, 2016), the relator learned that a former University employee had misappropriated approximately $3.8 million intended for remittance to the Commonwealth’s Executive Office of Health and Human Services (EOHHS).   The relator reported the theft to the former employee’s manager, who in turn reported it to the Executive Vice Chancellor of the University in January 2013.  The University immediately decided to repay the stolen money, and disclosed the theft to the Secretary of EOHHS and the Massachusetts Attorney General’s Office.  The University began an internal investigation and opened discussions with the Commonwealth regarding how best to repay the money.  These talks continued throughout 2013 and into early 2014.

In June 2013, the relator filed a qui tam action under seal against the University and the estate of the former employee, and later also added the Commonwealth as a defendant.  The relator met with and provided information to the Assistant United States Attorney for the District of Massachusetts and the Assistant Attorney General for the Commonwealth of Massachusetts.   The Government declined to intervene in April 2014 and in May and June of 2014, the University fully repaid the misappropriated $3.8 million.

All parties acknowledge that the relator was the first to report the fraud, he provided useful information during the investigation, and the Government ultimately recovered the stolen money.  As the Court noted, “[h]owever, the fact that Willette was the original source of the information is not sufficient to entitle him to collect a portion of the proceeds.”  The relator is only entitled to receive a portion if that money was obtained pursuant to an alternative remedy.   The Court found that the University’s repayment of stolen funds did not constitute an alternative remedy because “there is no evidence that UMass’s actions were motivated by Willette’s lawsuit.”  The particular factors the Court considered dispositive were that the University reported the theft to the Commonwealth immediately and voluntarily agreed to repay the funds – both of which took place long before the qui tam action was filed.  Moreover, the Commonwealth repaid a portion of those funds to the United States.  Ultimately “[t]here was no need for an alternate remedy, because UMass began investigating the fraud immediately and never exhibited an intent to withhold repayment of the stolen funds.”

This case establishes that where an entity discloses recently discovered fraud and immediately engages in discussions with the Government to repay the misappropriated funds, those discussions and subsequent repayment do not constitute an alternative remedy to a later filed qui tam action.

Gordon D. Todd

Washington, D.C.

gtodd@sidley.com

Jacquelyn E. Fradette

Washington, D.C.

jfradette@sidley.com

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