Government Wants to Settle, Whistleblowers Don’t

What happens when the government wants to settle a False Claims Act case, but the whistleblowers who filed the case don’t?  That was the question before the U.S. District Court for the District of Colorado.

Airport hangar owners David Shepard and William Marvel brought a whistleblower case against the airport authority alleging that its claims to the FAA for fence construction costs violated the False Claims Act.  They sought, among other things, treble damages totaling over half a million dollars.

The government intervened and then proposed a settlement which, among other things, called for no damages—only the minimum $5,500 penalty for each of three claim forms.  The whistleblowers objected, so the court held a fairness hearing as required by the FCA. The government argued that in determining fairness, its proposed settlement was entitled to the “highly deferential” standard of the Ninth Circuit’s Sequoia Orange v. Baird-Neece, 151 F.3d 1139 (1998), decision.  The whistleblowers argued for the F.R.C.P. Rule 23 standard for settlement of class actions, which would accord the proposed settlement less deference.

The court ruled for the Sequoia standard, holding that the government need only show a valid purpose rationally related to the settlement.  In reaching that conclusion, the court was heavily influenced by the government’s broad discretion to dismiss a case.  If it has broad discretion to dismiss a case, surely it has broad discretion to settle.  Moreover, the primary rationale of the Rule 23 standard—protection of class members who aren’t present to speak for themselves—is inapplicable in the whistleblower context.

The court found that the government had shown a valid purpose in settling the case and that the settlement was rationally related to that purpose.  Settlement approved.

The case is United States ex rel. Shepard v. Grand Junction Regional Airport Authority, No. 13-cv-00736-CMA (D. Colo. Feb. 27, 2017).

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