28 July 2020

Department of Justice Intends To Scrutinize Role of Litigation Funding in Qui Tam Lawsuits

We recently reported on the Eleventh Circuit’s decision in Ruckh v. Salus Rehabilitation LLC, which was the first case to assess the role of litigation funding agreements in qui tam litigation.  In that case, the Eleventh Circuit rejected a challenge to the relator’s standing based on the existence of a litigation funding agreement.

However, the Department of Justice recently announced that it would be undertaking its own review of the role of litigation funding in qui tam suits.  In a recent speech before the United States Chamber of Commerce’s Institute for Legal Reform, Principal Deputy Assistant Attorney General Ethan P. Davis expanded upon prior comments by then-Deputy Associate Attorney General Stephen Cox earlier this year regarding the role of litigation funding.  [Original Source reported on Cox’s remarks here.]  Noting that the Civil Rules Advisory Committee’s MDL Subcommittee is considering a proposal to require disclosure of third party litigation funding agreements in civil litigation, Davis explained that DOJ has been actively evaluating the role that litigation funding plays in qui tam litigation.  The Department is seeking to learn more about the extent to which third party litigation funders are behind qui tam cases, and whether and to what extent the funders are exercising control over relators’ litigation and settlement decisions.  He stressed that the Department is interested in knowing who is behind qui tam cases because those cases are brought in the name of the United States.

Thus, the Department has instructed its attorneys to ask questions at each relator interview to determine whether the relator or relator’s counsel has any agreements with a third party funder, and if so, whether the relator has shared information relating to the qui tam allegations with the funder, whether a written agreement exists, and whether the agreement entitles the funder to exercise any direct or indirect control over the relator’s litigation or settlement decisions.  The Department will also ask the relator to inform the Department if the answers to those questions change.  While Davis explained that, at this point, the Department is engaged in a purely information gathering exercise to study the issues, this development suggests that DOJ may be more open to arguments in particular cases about the role that litigation funding plays, particularly in the context of “Granston Memo” arguments.  Indeed, as we reported here, DOJ cited concerns about qui tam cases spearheaded by “a partnership comprised of limited liability companies set up by investors and former Wall Street investment bankers” in moving to dismiss a series of qui tam lawsuits challenging pharmaceutical manufacturers’ patient support services.

We will continue to closely monitor and report on these developments.

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