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Appeals Court Rules Against Arbitrating False Claims Act Case

Those in the legal world have come to understand the increasing power of arbitration agreements for resolving disputes. Years ago, if you had a problem with another person or organization and negotiation wouldn’t work, both parties understood that court was the likely next step. Today, that is increasingly not the case. Thanks to arbitration agreements, more and more disputes are resolved outside the courthouse, in secret and away from the glare of the public spotlight.

Though some people herald the benefits of the arbitration process, noting its supposed speed and cost efficiency, others believe it is blatantly anti-consumer. By hiding arbitration language in standard boilerplate contractual terms, many potential plaintiffs fail to understand that they’re signing away their right to bring a dispute in court, something that many view has a fundamental right of redress. Courts are only now starting to grapple with this issue and think through whether and how limits should be placed on arbitration agreements.

One whistleblower case that recently made its way to the 9th Circuit Court of Appeals wrestled with this precise question. In that case, Welch v. My Left Foot Children’s Therapy, LLC, Mary Kaye Welch brought suit against her former employer, a children’s therapy service. According to Welch, My Left Foot had made fraudulent healthcare claims to federal healthcare programs. Welch argued that this amounted to violation of the False Claims Act.

After filing suit, My Left Foot responded by arguing the case should be dismissed and arbitrated. The reason? Welch had signed a lengthy employment contract with My Left Foot, one provision of which dealt with arbitration. The contract stated that Welch would agree to arbitrate any disputes she had with her employer, including those that dealt with other state or federal laws. My Left Foot argued that the False Claims Act qualified and that the dispute should thus be subject to arbitration. The district court that heard the case disagreed, siding with Welch that the claim should remain in federal court.

My Left Foot appealed the ruling, again arguing that the terms of the arbitration agreement were clear and that under the Federal Arbitration Act the court should dismiss Welch’s claim. The 9th Circuit sided with the district court and agreed the case ought to remain in court. Their reasoning was that the arbitration agreement signed between Welch and My Left Foot only concerned those claims brought by Welch. Though Welch is the one who raised the False Claims Act matter, the claim itself belongs to the government. As a result, the 9th Circuit said that the arbitration agreement could not prevent bringing such a claim in court unless the government was added as a party.

Though the ruling appears to shut the door on arbitration of False Claims Act cases, there was a note included in dicta that leaves a small crack. According to the Court, it is theoretically possible that the employer could have crafted an arbitration clause that said, “any lawsuits brought or filed by the employee whatsoever… including those brought on behalf of another party” would be subject to arbitration. Though it is possible that this language would do the job of keeping False Claims Act cases out of court, the 9th Circuit chose not weigh in on that question.

Source: Court says therapy service can't arbitrate whistleblower case,” by Nate Raymond, published at Reuters.com on September 11, 2017.

Source: United States ex rel. Welch v. My Left Foot Childrens Therapy, LLC,” published at Law.com on September 12, 2017.

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