Substance Over Form In Relator Share Dispute With Government
Over the summer, the U.S. District Court for the Middle District of Florida issued an important victory for relators in terms of their right to collect a share of proceeds from a settlement between the Government and defendants in a qui tam whistleblower case. In U.S. ex rel. Mustafa v. Najjar, No. 6:10-cv-00414, 2015 WL 4606265 (M.D. Fla.), the relator filed a complaint against defendant Samir Najjar alleging that Mr. Najjar violated the “reverse” False Claims Act by purchasing vast quantities of real estate through various dummy corporations to hide his assets to avoid paying a judgment he owed to the Government. Although Samir Najjar was the only defendant named in the Complaint, the Complaint also alleged that Samir Najjar’s brother, Lee Najjar, helped him carry out this scheme by assisting in transferring the properties and serving as the nominal head of the dummy corporations.
The Government intervened in the case and filed its own Complaint against Samir Najjar and also added Lee Najjar as a defendant. The Government’s Complaint alleged the same fraudulent scheme alleged in the relator’s complaint and contained essentially the same factual allegations—except the Government made some additional factual allegations it learned through its investigation while the case was under seal, many of which were developed with the relator’s assistance.
The Government eventually entered into a settlement agreement with Samir Najjar in which Samir agreed to entry of a $10 million judgment against him. As part of the settlement, the Government agreed that the relator was entitled to 20% of any funds collected to satisfy the judgment.
After additional litigation and after the case was set for trial, the Government entered into a settlement agreement with Lee Najjar. As part of the settlement, Lee agreed to pay the Government $250,000. The relator took the position that he was entitled to a 20% share of the settlement with Lee, just as he had received from the settlement with Samir, because the settlement was for the same claims and same underlying allegations that the relator had brought to the Government’s attention in his original Complaint. The Government disagreed, taking the position that because Lee Najjar was not actually named as a defendant on the relator’s Complaint, even though his involvement in the scheme was disclosed, the relator was not entitled to a share.
The dispute was brought before the district court and in a matter of first impression, the court found that the relator was entitled to a 20% share of the settlement with Lee Najjar. In so ruling, the court reasoned that “[i]n substance, though not necessarily in form, Mustafa acted in accord with the purpose of the FCA.” Even though Lee Najjar was not technically named as a party, the relator disclosed the fraudulent scheme and both brothers’ involvement therein to the Government. Thus, the court found that the relator had provided a valuable public service to the Government and was entitled to compensation. US ex rel. Mustafa, 2015 WL 4606265 *4-5.
It was unfortunate the Government took such a narrow interpretation of the False Claims Act to deny a relator share. Blowing the whistle is risky. It can often come at great personal cost and the outcome uncertain. This case was no exception. Whistleblowers and their counsel expect a vigorous defense from the alleged fraudster. The case should not end with a fight with the Government. Hopefully other courts will follow the lead of the Middle District of Florida and look to the substance of what the whistleblower has disclosed, instead of the form of the disclosure, when deciding whether the relator is entitled to share in the proceeds of a False Claims Act case.