Appeals Court Weighs Constitutionality of False Claims Act Qui Tam Provisions

A panel of judges from the U.S. Court of Appeals for the Third Circuit heard oral arguments on Wednesday in a case that could fundamentally reshape how fraud against the federal government is prosecuted.

The appeal stems from a 2025 District of New Jersey decision that upheld a jury verdict favoring qui tam relators – private individuals who sue on behalf of the government. The case, United States ex rel. Penelow, presents the court with an opportunity to address whether the False Claims Act’s qui tam provisions violate Article II of the Constitution, specifically the Appointments, Vesting, and Take Care Clauses.

Legal observers are closely monitoring the outcome, as this case runs parallel to a similar constitutional challenge in the Eleventh Circuit’s pending United States ex rel. Zafirov decision. Together, these cases represent the most significant examination of qui tam provisions in over two decades.

In the underlying decision, the New Jersey District Court dismissed the constitutional challenge, characterizing the Eleventh Circuit case as a “singular non-precedential and out-of-circuit court decision.” Instead, it relied on five circuit court decisions from more than 20 years ago. Notably, the district court did not address recent comments from three Supreme Court justices who described the qui tam provisions as raising “substantial” constitutional questions.

The Department of Justice has intervened specifically to defend the constitutionality of the qui tam provisions, while also addressing a related Eighth Amendment excessive fines question. In its briefing, the DOJ acknowledged that if the qui tam mechanism were a modern development, it would “give rise to substantial questions” about its constitutional compatibility, but argued its historical pedigree should preserve its validity.

During oral arguments, the parties focused primarily on other issues, leaving the constitutional challenge to be argued by counsel for the Chamber of Commerce, appearing as amicus curiae, and the United States.

Much of the panel’s questioning explored whether any potential ruling should apply narrowly to cases where the government declines to intervene – as happened in Penelow – or more broadly to all qui tam actions. The Chamber argued that constitutional problems exist regardless of government intervention, while acknowledging the court could limit its ruling to non-intervention cases.

The judges also probed the historical foundations of qui tam provisions. While the government emphasized their roots dating back to the nation’s founding as justification for their constitutionality, at least one judge appeared skeptical of whether those early precedents truly parallel the role of today’s qui tam relators.

Another significant line of questioning addressed whether relators qualify as “Officers” subject to the Appointments Clause. The panel appeared to challenge the government’s assertion that relators cannot be “Officers” because they don’t occupy transferable “offices” – noting the term “office” doesn’t appear in the Appointments Clause itself.

The outcome of this case could create a circuit split with older decisions that previously upheld qui tam provisions. Legal experts believe the constitutional question is ultimately destined for Supreme Court review, regardless of how the Third Circuit rules.

A finding of unconstitutionality would significantly impact non-intervened qui tam cases, though the specific consequences would depend on the ruling’s scope and whether the Justice Department could implement additional oversight measures to prevent dismissal of pending cases.

Despite these challenges, analysts suggest any constitutional limitations on qui tam provisions would likely prompt swift action from Congress and the DOJ to preserve this vital fraud enforcement mechanism. The False Claims Act has become the government’s primary civil fraud enforcement tool, recovering billions in fraudulent claims with substantial assistance from qui tam relators who initiate many of these cases.

The Third Circuit is expected to issue its decision later this year, potentially reshaping the landscape of federal fraud enforcement.