Second Circuit Dicta Concerning FCA “Alternate Remedy” Provision May Create Perverse Incentive for Government to Increase Criminal Prosecution

The Second Circuit’s decision in U.S. v. L-3 Communications EOTech, Inc., included ominous dicta pertaining to the “alternate remedy” provision of the False Claims Act (FCA), which may lead to an increase in government determinations to prosecute FCA matters criminally, rather than joining or “intervening” in an ongoing civil suit.

The “alternate remedy” provision reads, in pertinent part, that “the Government may elect to pursue its claim [under the FCA] through an alternate remedy available to the Government, including any administrative proceeding to determine a civil monetary penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.” In L-3 Communications, the Second Circuit appears to have construed this provision to exclude criminal prosecution, noting: “[i]t is hardly clear that ‘any alternate remedy’ was meant to include a criminal prosecution . . . [since] [w]e would find it difficult to infer that Congress intended a private qui tam relator to be entitled to, for example, conduct discovery and cross-examine the witness in a criminal prosecution.”

The Second Circuit’s interpretation of the “alternate remedy” provision is concerning for two reasons: First, it may incentivize the government to pursue criminal prosecutions predicated on civil claims brought by relators in lieu of intervening in those civil suits in an effort to foreclose a relator’s ability to share in the government’s recovery. Second, as a result of the foregoing, whistleblowers will lose any incentive to come forward with inside information of alleged fraudulent activity against the federal government, as they will presume that the government will cut them loose after the “whistle has been blown” and the government has acquired the intel necessary to proceed unilaterally with a criminal prosecution. This stands to harm both FCA plaintiffs and FCA defendants, in that it could lead to a reduction in payments to whistleblowers while increasing the number of criminal prosecutions against defendants.

 If you are currently facing FCA civil or criminal investigation or prosecution, contact Frier Levitt today to speak to an attorney.