D.C. Circuit: Courts Must Hold Fairness Hearing When Relator Challenges Adequacy of False Claims Act Settlement

The highly influential D.C. Circuit Court of Appeals recently held that courts must hold fairness hearings when a relator challenges the adequacy of a False Claims Act settlement. See United States ex rel. Schwizer v. Océ N.V., No. 11-7030 (D.C. Cir. April 20, 2012). The Court simply applied the explicit statutory language of the Act:

The settlement agreement here falls squarely within § 3730(c)(2)(B): the government reached an agreement with the defendant to “settle the action . . . notwithstanding the objections of the person initiating the action.” In that circumstance, the statute required the district court to “determine, after a hearing, [whether] the proposed settlement [was] fair, adequate, and reasonable under all the circumstances.” 31 U.S.C. § 3730(c)(2)(B)

Id. at 10.

In turn, the D.C. Circuit followed the mandates of Congress and determined that it could not simply tune out the voiced concerns of the relator when it comes to adequacy of a False Claims Act settlement.

As for the constitutional concerns, the D.C. Circuit noted the courts regularly play a role in scrutinizing settlement agreements. For example, in the criminal context, under Federal Rule of Criminal Procedure 48(a), the government can only “dismiss an indictment, information, or complaint” “with leave of the court.” Moreover, the Court noted that in this particular case, the government invoked the court’s supervisory powers by urging the district court to “retain jurisdiction to . . . enforce the terms of the settlement agreement by and between the parties.”

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