Aug 132018

Massachusetts Prohibits Entities From Being Relators

Scott D. Stein
,

We are increasingly seeing the use of entities as relators, in lieu of individuals.  In some instances these relator entities are actual businesses, though frequently they are special purpose entities formed for the sole purpose of pursuing qui tam litigation.  There are a number of reasons for this trend, including that the use of an entity may be used to keep secret the names of individual relator-plaintiffs secret even after unsealing, and the belief that by using a corporate entity, individual whistleblowers can be added or replaced in the event of jurisdictional problems.

However, the Massachusetts Supreme Court recently dealt a serious setback to the use of corporate entities as relators pursuing claims under the Massachusetts False Claims Act.   The Massachusetts FCA authorizes qui tam actions, stating that “[a]n individual, hereafter referred to as relator, may bring a civil action” for a Massachusetts FCA violation.  G. L. c. 12, § 5C(2).  This formulation differs from the federal FCA, which provides that a “person” may bring a civil action for a violation of the federal FCA.  31 U.S.C. § 3730(b).

The Massachusetts Supreme Court held that the distinction between “individual” in the Massachusetts FCA and “person” in the federal FCA is significant.  While both federal law and the Massachusetts FCA define a “person” to include corporate entities, the Massachusetts FCA only permits an “individual” to bring a qui tam suit.  Accordingly, the court held, entities may not bring qui tam claims under the Massachusetts FCA.

The August 7, 2018 opinion in Phone Recovery Services LLC v. Verizon of New England, Inc. can be found here.

Scott D. Stein

Chicago

sstein@sidley.com

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