The Second Circuit examined the False Claims Act’s “alternate remedy” provision for the first time yesterday, holding that a fugitive who had dismissed his qui tam action was not entitled to a share of a $25.6 million FCA settlement. In United States v. L-3 Communications EOTech, Inc., the Second Circuit held that relator Milton DaSilva’s government coercion claim failed and that he could not share in the government’s recovery from L-3 Communications EOTech because he had voluntarily dismissed his qui tam action.

DaSilva’s Qui Tam Action

DaSilva was a quality control engineer at EOTech for a short time in 2013. In August 2013, his attorneys submitted information to the SDNY alleging that EOTech manufactured and knowingly sold defective holographic weapon sights to the government, in violation of the FCA.  Later that month, DaSilva was convicted of an unrelated charge in Michigan state court and then fled to Brazil before sentencing.

In April 2014, DaSilva filed a sealed qui tam action in the SDNY, while still a fugitive. The government indicated that it would move to dismiss the qui tam complaint due to DaSilva’s fugitive status if counsel refused to dismiss it voluntarily. Before the government made a motion, DaSilva’s attorneys voluntarily dismissed the qui tam action without prejudice. The district court dismissed the action in September 2014.

DaSilva Seeks A Share of the Government’s FCA Settlement

Fourteen months later, in November 2015, the SDNY filed an FCA complaint and a settlement agreement providing for EOTech to pay the government $25.6 million. DaSilva later filed a motion in the district court asserting that he dismissed his qui tam action only after intense pressure from the government, and asserted that he should have a share of the settlement under the FCA provision allowing a relator to share when the government pursues an alternate remedy.

The government argued that an alternate remedy analysis under the FCA is triggered only if a qui tam action is pending at the time the government pursues some other remedy. The district court agreed, holding that “when there is no qui tam action for the government to ‘take over,’ the government’s filing of its own action is not an ‘alternate’ to taking over (or not taking over) a qui tam action.”

Claim of Coercion Unsupported

On appeal, the Second Circuit rejected DaSilva’s assertion that the government coerced his dismissal of the qui tam action.  The alleged coercion was a belief that an AUSA claimed DaSilva’s attorneys were in violation of ethical duties by representing a fugitive, and counsel believed a bar grievance would be filed if the complaint were not dismissed. The Court, however, observed that the government attorneys correctly cited Michigan Bar ethics principles providing that a “lawyer may not represent [a] client in collateral or unrelated matters while the lawyer knows the client remains a fugitive.” In addition, DaSilva’s attorneys did not suggest that the government lacked a legitimate concern about (1) the United States being represented in a qui tam case by a fugitive, and (2) having the government represented by attorneys who seemed willing to proceed in violation of ethical restraints.  The Rule 41(a) voluntary dismissal left “the situation as if the action had never been filed.”

Relator Could Not Recover Under “Alternate Remedy” Theory

DaSilva based his claim for a share of the government recovery on FCA section 3730(c)(5), which provides that if the government elects to pursue its claim through “any alternate remedy available,” the relator has the same rights as he would have if the qui tam action had continued. While the Second Circuit has not previously interpreted this section, the Court noted that the consensus among other circuits is that it applies only when there is a pending qui tam action into which the government could have intervened.

In examining section 3730(c)(5), the Court found that the use of the word “alternate” implied that the government is expected to choose between or among existing options, allowing the government to choose between (1) the qui tam action option, and (2) an alternate or substitute remedy. “If no qui tam action is pending, a qui tam remedy is thus not ‘available’ to the government and is not an ‘alternate’ to any other remedy.”

The Second Circuit held that section 3730(c)(5) only allows a relator to share in an alternate remedy recovery “if the relator’s qui tam action was pending when the government was choosing what course to pursue.” DaSilva’s qui tam action was no longer pending when the government filed its own FCA complaint and settlement, so he was not entitled to any share of the government recovery.