On February 14, 2014 in Babalola v. Sharma, the US Court of Appeals for the Fifth Circuit held in a case of first impression that a relator cannot bring a qui tam action under the False Claims Act (FCA) if the government has already brought a criminal case seeking restitution for the same conduct (No. 13-20182 (5th Cir. Feb. 14, 2014)).

The two relators, Samuel Babalola and Kayode Adetunmbi, worked as medical assistants for the defendants, Dr. Arun Sharma and Dr. Kiran Sharma, and witnessed the Sharmas filing fraudulent medical claims. The relators drafted an anonymous letter detailing the fraud and sent the letter to various government agencies. The Sharmas were subsequently indicted and ultimately pleaded guilty to conspiracy to commit healthcare and mail fraud and one substantive count of health care fraud on April 26, 2010. At their sentencing in February 2011, the district court ordered the Sharmas to pay over $43 million in restitution. The Fifth Circuit vacated this restitution order and remanded the case to the district court for a recalculation.

On November 17, 2011, while the appeal in the criminal case was pending, the relators filed a qui tam action under the FCA based on the same fraudulent claims, seeking a share of the restitution. Under the FCA, a person can bring a civil action on behalf of the person and the government for false or fraudulent claims against the government. However, the government may elect to pursue the claim through an "alternate remedy." If it does so, the person initiating the action (the relator) has the same rights in the alternate proceeding (the restitution proceeding in this case) as that person would have had if the government had continued with the person's civil action.

The government filed a motion for partial summary judgment in the qui tam action. It argued that the relators were not entitled to a share of the restitution as a matter of law. The district court agreed and held that because there was no valid FCA complaint in existence at the time the restitution was awarded, the criminal proceeding did not constitute an "alternate remedy" under 31 U.S.C. § 3730(c)(5). The relators therefore had no right to share in the recovery. The relators obtained permission to take an interlocutory appeal under 28 U.S.C. § 1292(b).

The Fifth Circuit affirmed the grant of summary judgment and held that because there was no qui tam action pending at the commencement of the restitution proceeding, the restitution proceeding did not constitute an alternate remedy under the statute. In order for a remedy to be "alternate" to the qui tam proceeding, there must have been two proceedings to choose from. A qui tam suit therefore must necessarily be filed before the government elects to pursue the alternate remedy. Because the relators here filed their qui tam action after the government began its criminal prosecution, the criminal prosecution was not an alternate remedy in which the relators could exercise their rights to recovery. Accordingly, the relators cannot recover under the FCA.

Practitioners seeking to file a qui tam suit should be timely in filing their case. The longer the delay in filing, the greater the risk the relators may be precluded from recovery under the FCA.