A valuable tool in filing whistleblower claims against companies related to government fraud took a potentially major hit this week when a federal judge in Florida ruled that a significant portion of the statutory scheme known as the False Claims Act (FCA) is unconstitutional.

In Zafirov v. Florida Medical Associates LLC, a judge in the Middle District of Florida held that the private whistleblower, or relator, who filed a "qui tam" complaint qualified as an "officer" of the United States and thus must have been appointed under the Appointments Clause of Article II of the U.S. Constitution. The judge’s ruling was the first time a court has agreed that private whistleblowers pursing qui tam actions where the government has declined to intervene are "officers" who act outside of accountability of the executive branch, such that a large portion of the FCA’s statutory framework is unconstitutional.

The Zafirov ruling only applies to qui tam matters before one judge in one federal district, and it likely will be appealed to the Eleventh Circuit Court of Appeals and possibly the U.S. Supreme Court. The extent of the ruling’s impact, if any, on the FCA landscape remains unclear in the near term. But it does create case law further opening the door to other litigants and courts relying on the same arguments, thus creating a path to significantly hobbling the use of the FCA to allow private individuals to file lawsuits on behalf of the federal government against entities that commit fraud against federal programs.

FCA tends to hit the health care industry the hardest. According to the DOJ, of the more than $2.68 billion in FCA settlements and judgments reported by the Department of Justice in the fiscal year ending September 30, 2023, over $1.8 billion related to matters that involved the health care industry, including managed care providers, hospitals, pharmacies, laboratories, long-term acute care facilities, and physicians.

The qui tam provision "permits anyone — wherever situated, however motivated, and however financed — to perform a 'traditional, exclusive [state] function' by appointing themselves as the federal government's 'avatar in litigation,'" the Florida judge stated in her decision. "That arrangement directly defies the Appointments Clause by permitting unaccountable, unsworn, private actors to exercise core executive power with substantial consequences to members of the public." According to court filings in Zafirov, the plaintiff was a family care physician whose complaint centered on a claim the defendant falsely increased the risk adjustment scores of thousands of Medicare Advantage patients for the purpose of obtaining more funding from the United States than was rightfully owed.

In an amicus briefing filed in the Zafirov case, the U.S. Chamber of Commerce urged the district court to hold that qui tam provisions are unconstitutional because they take enforcement of the country’s laws out of the Executive Branch’s hands, describing relators as "unaccountable bounty hunters."

The ruling is yet another example of continuing efforts over the past decade to rein in the power of the federal government and administrative agencies to regulate and take enforcement actions against businesses. The Zafirov decision, following Justice Clarence Thomas’s recent dissenting opinion in a separate FCA case, is the latest in a series of cases using the Appointments Clause as a "sword" to restrict government action — in issues ranging, for instance, from who has the authority to approve a guilty plea in a case brought under the Military Commissions Act to whether administrative law judges can rule on cases brought before their agency. Other issues include whether the Consumer Financial Protection Bureau is a legitimate agency because the president does not have unfettered discretion to remove the agency’s director. It is also in line with the Supreme Court’s recent decision overruling the 40-year-old legal framework known as the Chevron deference, which allowed courts to give minimal, if any, special weight to an implementing federal agency’s interpretation of ambiguous statutes.

Going forward, and until resolution by higher courts, we expect to see defendants using this same argument that whistleblowers are not constitutionally appointed officers of the United States. If the ruling catches fire in other courts, it could have a chilling effect in terms of disincentivizing individuals from bringing qui tam claims in the first place.

Qui tam claims have accounted for a significant share of fraud settlements, according to the DOJ. In 2023, there were 712 new qui tam complaints filed by private whistleblowers, compared to 500 FCA matters commenced by the government. Even in matters that the government declined to intervene, those qui tam complaints resulted in about $442 million in settlements, demonstrating the potential magnitude of this ruling and its effect on both private litigants and the government.

It remains to be seen how those dollar figures will be impacted as a result of further rulings on the topic.

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