Big 2025 FCA Cases Ponder Constitution, Causation, Cybersecurity

False Claims Act litigants are closely watching developments in several disputes that will be fought or resolved in 2025.

A federal appeals court will decide the stringency required of a causation standard in a suit alleging kickbacks, and the US Department of Justice will pursue its first-ever litigation under its cyber-fraud initiative.

Perhaps the most important case to watch involves the fallout after a Florida federal district court found the FCA’s whistleblower provisions unconstitutional.

Article II

The US government in 2025 will seek to convince the US Court of Appeals for the Eleventh Circuit that Article II of the US Constitution allows for the FCA’s whistleblower provisions, without which the government would be deprived of billions of dollars in fraud recoveries.

Of the $2.68 billion the DOJ recovered from FCA suits in 2023, $2.3 billion came from suits filed by whistleblowers, according to the DOJ.

A whistleblower’s suit alleging Medicare fraud, United States ex rel. Zafirov v. Fla. Med. Assocs. LLC, was dismissed in September by the US District Court for the Middle District of Florida.

The suit “defies the Appointments Clause by permitting unaccountable, unsworn, private actors to exercise core executive power with substantial consequences to members of the public,” the federal court said.

Several FCA defendants—including Fluor Corp. and Planned Parenthood Federation of America—have raised constitutional challenges to whistleblower suits following the US Supreme Court’s 2023 ruling in United States ex rel. Polansky v. Executive Health Resources Inc., in which Justices Clarence Thomas, Brett M. Kavanaugh, and Amy Coney Barrett expressed doubt about whether Congress could authorize whistleblower suits.

In a possible preview of what’s to come, prosecutors in United States ex rel. Muhawi v. Pangea Equity Partners said Dec. 4 that FCA whistleblowers are private litigants, and aren’t transformed into US officials because they further the federal interest of deterring government fraud in pursuit of private interests.

It’s unlikely Zafirov will be a one-off case, said Paul D. Werner, who represents FCA defendants with Buttaci Leardi & Werner LLC. Attorneys will want to expand on the circuit split on this issue to make a stronger argument to get the Supreme Court involved, he said.

Attorney Jaime L.M. Jones is watching to see whether the DOJ in the next administration will endorse Zafirov. William Barr, attorney general during the first Trump administration, wrote a 1989 memorandum stating that the FCA’s whistleblower provisions violate the appointments clause, said Jones, who represents FCA defendants with Sidley Austin LLP.

If the whistleblower provisions in the FCA are deemed unlawful, existing DOJ-run whistleblower reward programs could expand or new programs from the US Department of Health and Human Services, Office of the Inspector General could launch “to bring tips forward that could be reviewed and prosecuted by Civil Frauds directly,” she said.

The government’s and whistleblower’s briefs in Zafirov are due at the Eleventh Circuit Jan. 8, according to the docket.

Kickback Causation

A case before the US Court of Appeals for the First Circuit could tip the balance on an existing circuit split concerning how tough a causation standard should be applied when the government or a whistleblower alleges a kickback-tainted payment to a US agency.

The winner on this causation issue—Regeneron Pharmaceuticals Inc., or the DOJ— would have the upper hand when this $200 million case returns to the trial court, and the loser could try to bring this matter to the Supreme Court, which rejected a petition in 2023, identifying a causation circuit split.

Regeneron —accused of paying a charity to reimburse patients’ Medicare copays for one of its drugs— said for the government to prevail, it must show a but-for causal relationship between the kickback and a claim for services submitted for reimbursement—a causation standard adopted by the Sixth and Eighth Circuits.

The government urged the First Circuit to follow the Third Circuit’s more plaintiff-friendly “intended-results materialize” standard, contending it only must show a claim for payment represented compliance with the AKS, that the representation was material, and that it was false, within the law’s parameters.

Jones, anticipating the First Circuit will adopt but-for causation, said the appeals court during oral argument in July showed “skepticism of DOJ’s request to look to legislative history and to the extreme consequences of applying a broad standard of causation.”

The outcome will be particularly relevant to life sciences and healthcare companies, which have sustained FCA enforcement scrutiny for 30 years—with “the lion’s share” coming from AKS matters, she said.

The government and whistleblowers would say, however, that a broader causation standard puts a proper focus on the alleged wrongdoing.

Courts should “focus on the conduct of the defendant,” said Kate Scanlan, who represents whistleblowers with Keller Grover LLP. “Requiring the government or the relator to prove but for causation incorrectly shifts the focus to a third party,” Scanlan said.

Cybersecurity

Another case to watch, United States ex rel. Craig v. Ga. Tech. Research Corp., is the “first matter the United States has litigated as part of the Civil Cyber-Fraud Initiative,” the DOJ said in an August announcement.

The case, alleging that Georgia Institute of Technology and Georgia Tech Research Corp. failed to satisfy cybersecurity requirements under US Department of Defense contracts, may serve as a warning to contractors to ramp up cybersecurity compliance and to clarify their obligations with US agencies.

The DOJ said Georgia Tech’s cybersecurity plan was insufficient, and the defendants sent in a false cybersecurity assessment score—the submission of which was a condition for most DOD contracts.

The DOJ joined the whistleblowers’ suit in February and filed its complaint in August. The defendants moved to dismiss Oct. 21.

The case shows the “DOJ is willing to push the limits on cybersecurity enforcement by bringing FCA cases even when there is no alleged injury-in-fact,” said Kendra Perkins Norwood, who represents FCA defendants with Reed Smith LLP. It’s a “wakeup call to federal contractors and grant recipients.”