False Claims Act: Zafirov Decision’s Impact on Qui Tam Litigation

In a recent development that could reshape federal whistleblower litigation, the Eleventh Circuit Court of Appeals is considering whether a cornerstone of anti-fraud enforcement—the False Claims Act’s qui tam provisions—violates constitutional principles.

The appeal stems from the case United States ex rel. Zafirov v. Florida Medical Associates, LLC, where a federal judge made the unprecedented ruling that qui tam provisions are unconstitutional. The Eleventh Circuit heard oral arguments on December 12, 2023, bringing this potentially landmark legal question one step closer to resolution.

Qui tam provisions represent a unique legal mechanism within American jurisprudence. Under these provisions, private citizens—known as “relators” or whistleblowers—can file lawsuits on behalf of the U.S. government against individuals or entities allegedly defrauding federal programs. What distinguishes qui tam actions from other whistleblower programs is the authority granted to these private citizens to essentially step into the government’s shoes and litigate as if they were the government itself.

This unusual arrangement allows whistleblowers to pursue cases even when the Department of Justice declines to intervene. As compensation for their efforts in uncovering fraud, successful whistleblowers typically receive 15-30% of any recovered funds—a significant incentive that has made the False Claims Act one of the government’s most effective tools in combating fraud against federal programs.

The constitutional challenge in Zafirov centers on separation of powers concerns. Critics argue that qui tam provisions improperly delegate the executive branch’s enforcement authority to private citizens who lack accountability to voters and may be motivated primarily by financial gain rather than public interest.

During the December hearing, the three-judge panel reportedly explored several critical questions about the constitutionality of this arrangement. Their inquiries focused on whether private individuals should have the authority to litigate on behalf of the government, especially when the government itself has declined to pursue the case.

This case doesn’t exist in isolation. Similar constitutional challenges to qui tam provisions are pending in other federal circuits, creating the potential for a circuit split that would likely attract the attention of the Supreme Court. The high court hasn’t directly addressed the constitutionality of qui tam provisions in modern times, though the mechanism has roots dating back to English common law and has been part of American jurisprudence since the nation’s founding.

The stakes of these cases extend far beyond legal theory. Since the False Claims Act was substantially strengthened in 1986, qui tam lawsuits have become a cornerstone of government anti-fraud efforts, particularly in healthcare and defense contracting. The Department of Justice reports that whistleblower-initiated cases have recovered more than $70 billion in fraudulently obtained government funds, with healthcare fraud comprising the largest portion of these recoveries.

If the Eleventh Circuit upholds the lower court’s ruling—or if the Supreme Court eventually determines that qui tam provisions are unconstitutional—it would dramatically alter the landscape of fraud enforcement. Government agencies would lose a vital detection mechanism that has uncovered schemes that might otherwise have remained hidden from regulators.

The business community, particularly in heavily regulated industries like healthcare and defense, is watching these developments closely. While many companies have criticized aspects of qui tam litigation as encouraging frivolous claims motivated by potential whistleblower rewards, others acknowledge that the threat of such suits serves as a powerful deterrent against corporate fraud.

As the Zafirov case proceeds through the appellate process, legal experts anticipate that regardless of the Eleventh Circuit’s decision, the constitutional question surrounding qui tam provisions will ultimately require Supreme Court resolution, potentially setting the stage for one of the most significant government enforcement decisions in decades.