Zafirov Ruling Strikes Down FCA Whistleblower Suits in Middle District of Florida

At a Glance

• The court ruled that FCA whistleblowers act as officers of the United States when they sue on behalf of the federal government. The decision reasoned that because FCA whistleblowers “self-appoint” as officers, the FCA whistleblower scheme violates the Appointments Clause.
• Although the case has no direct precedential effect outside the Middle District of Florida, courts should anticipate defendants will rush to raise the same constitutional challenge in other FCA cases throughout the country.
• This new challenge comes with some potential procedural hurdles, including mandatory notice to the U.S. attorney general where the government is not yet a party; this requirement may generate an influx of notices to the U.S. Department of Justice, particularly in non-intervened cases.
• While this ruling is unprecedented, at least three Justices of the U.S. Supreme Court previously signaled their interest in an Article II challenge to the FCA in their nonmajority opinions in United States ex rel. Polansky v. Exec. Health Res.

The Zafirov Ruling and Whistleblowers of Fraud

On September 30, 2024, a federal district court in Florida ruled that the False Claims Act (FCA) violates the U.S. Constitution when it permits private citizens to sue on behalf of themselves and the United States. United States ex rel. Clarissa Zafirov v. Florida Medical Associates, LLC, Case No. 8:19-cv-01236 (M.D. Fla. Sept. 30, 2024). These suits (known as qui tam suits) dangle a carrot for the private citizens (known as relators) in the form of a personal share of any money awarded to the government in the case. Awards in such cases can be very substantial. Of the over $2.68 billion in FCA awards that the federal government recovered in fiscal year 2023, more than $2.3 billion originated from qui tam suits.

Against this background, this latest federal court decision from Florida signals a new, high-stakes battle for the federal government and relators and the potential of future relief for companies that do business with or receive payment from the federal government, such as health care companies and defense contractors. As do so many FCA cases, the Florida case involved allegations of fraud by a health care sector company. Specifically, the relator Clarissa Zafirov sued her employer, a primary care practice, and other defendants for an alleged Medicare-fraud scheme.

So-called whistleblower qui tam cases such as that brought by Zafirov are quite typical, and the FCA explicitly incentivizes insiders with unique knowledge of fraud to come forward and file such a suit on behalf of the federal government to initiate recovery of federal funds that were fraudulently procured. The federal court in the Zafirov case, however, took issue with the fact that the plaintiff/relator Zafirov had not suffered any personal injury and had served a five-year tenure as relator in the case. To the court, Zafirov acted not as a plaintiff seeking relief for a private harm but as an officer of the United States working on behalf of the government. The court therefore ruled that Zafirov was subject to the Appointments Clause of the U.S. Constitution. The Appointments Clause in turn provides that the president has the power to nominate, with the advice and consent of the Senate, and appoint officers of the United States except that “Congress may by law vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.” U.S. Const., Art. II. Because the court found that neither the executive branch nor a court appoints an FCA relator, the court ruled that the qui tam provision of the FCA violates the Appointments Clause.

Future Qui Tam Challenges Across the Country?

The Florida decision will likely trigger a wave of Article II challenges to qui tam suits across the country. Defendants wishing to take advantage of this newly recognized argument will have to jump through some hoops, however.

Under Rule 5.1(a) of the Federal Rules of Civil Procedure, each time a litigant challenges the constitutionality of a federal statute in a case in which the United States (or one of its agencies or officers or employees in an official capacity) is not a party, the litigant must notify the U.S. attorney general. The notice triggers a process by which the court certifies the constitutional issue to the attorney general and a 60-day period commences for the attorney general to intervene. Fed. R. Civ. P. 5.1(b), (c).

In cases where the United States declined to intervene, some courts have ruled that the United States is not a “party” to the lawsuit, and therefore, Rule 5.1 notice applies. Of course, in a bit of irony, the Article II affirmative defense — if accepted by a court — would mean that the relator is in fact a U.S. officer appearing in an official capacity, and would therefore, obviate the need for Rule 5.1 notice.

A Future Supreme Court Ruling?

The rush of litigation may generate a circuit split, making the issue a prime candidate for consideration by the U.S. Supreme Court in the future. Indeed, U.S. Supreme Court Justice Clarence Thomas invited defendants to litigate the issue in his 2023 dissent in United States ex rel. Polansky v. Exec. Health Res., 599 U.S. 419, 428–39 (2023). At least two others, Justice Amy Barrett and Justice Brett Kavanaugh, expressed agreement with Justice Thomas’s concern in Polansky that FCA qui tam suits conflict with Article II of the U.S. Constitution.

A future Supreme Court decision striking down the whistleblower aspects of this Civil War-era law would substantially decrease the primary source of current FCA litigation, disrupt a multibillion dollar per year revenue stream for the federal government, and change the incentives for whistleblowers to come forward. Due to the consequential nature of such an outcome, the Zafirov case and its inevitable copycats have become ones to watch in the next couple of years.