Does a General Release Bar Your Case?

Are you a potential whistleblower who has signed a general release as part of a severance agreement? Or perhaps you are contemplating settling a wrongful termination case and don’t know what the effect of signing a general release as part of the settlement will be? The general consensus is that what matters is not whether you sign such a release, but when. As we shall see, in ascertaining the enforceability of a release, courts will look especially at whether the government had knowledge of the fraud prior to the signing of the release. 

Could a General Release That Does Not Specifically Mention Qui Tam Claims Nevertheless Bar Them?

The first question courts generally consider in these cases is whether the language of the release encompasses qui tam claims. Most courts have held that they do.  In U.S. ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir. 2010), for example, the Fourth Circuit considered a general release that stated, in relevant part, that whistleblower released his employer from “all liability to Employee for . . . claims . . . which Employee . . . ever had, may now have or hereafter can, shall or may have . . . as of the date of the execution of this Agreement.” 

The whistleblower argued that this language did not encompass the qui tam claims because those claims belonged to the government, not the whistleblower. The Fourth Circuit rejected this argument, holding that once the government suffered injury and the whistleblower became aware of the fraud causing the injury, the whistleblower “had a statutory claim, and the necessary legal standing as partial assignee, to file a qui tam lawsuit.” Thus, he “had ‘an interest in the lawsuit’ regardless of when he opted to vindicate it.” The Tenth Circuit in U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161, 1167 (10th Cir. 2009), has come to the same conclusion. 

Can a Whistleblower Release His Qui Tam Claims?

Assuming, then, that a whistleblower’s qui tam claims are considered to be contemplated by a general release, the next question is whether the whistleblower has the power to release the qui tam claims without government consent. In U.S. ex rel. Longhi v. Lithium Power Technologies, Inc., 575 F.3d 458 (5th Cir. 2009), the court noted that the clear language of the False Claims Act prevents a whistleblower from releasing qui tam claims post-filing, since the Attorney General must consent to such release.[1] Specifically, 31 U.S.C. § 3730(b)(1) provides that an FCA action “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.” Thus, if a whistleblower signs a release after filing a qui tam case (or the release goes into effect after the filing), and the government is unaware of and does not consent to the release, the release may be considered invalid.[2]  This may be particularly true if the release is signed during the period during which the government is investigating the case.[3]  Thus, if a release is signed during the 60-day investigative period (or if a seal extension has been requested, during the duration of the seal extension) without the government’s knowledge and consent, it is not enforceable because it explicitly violates section 3730(b)(1).


Conversely, the courts have held that if the release is signed prior to the qui tam filing, the release will be considered binding unless, as explained below, it is considered to violate public policy.[4]

When Does a Pre-Filing Release Violate Public Policy?

Even if a release is binding, courts will refuse to enforce it if it violates public policy. In U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995), the whistleblower filed a qui tam case after settling a state-law suit against his employer and signing a general release. The court ruled that a pre-filing release signed before the government has any knowledge of the fraud allegations is unenforceable because it violates several public policies underlying the FCA. The Court concluded that “permitting a prefiling release when the government has neither been informed of, nor consented to, the release would undermine this incentive, and therefore, frustrate one of the central objectives of the Act.”[5]

Thus, under Green, a release that is signed before you file your case and before the government is informed of the fraud is contrary to public policy and will not be enforced. But what if the government is already aware of the fraud when the whistleblower signs the release? Are the same public policies implicated?

1.      Signing the Release Prior to Filing—Government Knows of and Has Investigated Allegations

In U.S. ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997), the Ninth Circuit held that if the government is informed of the fraud allegations and has investigated them at the time the whistleblower signs the pre-filing release, the public policies underlying the FCA are vindicated the release will be enforced to bar the whistleblower’s claims. 

Hall therefore suggests that where the government is not only informed of the fraud, but completes its investigation prior to the signing of the release, the public policy concerns raised in Green are not implicated. Thus, if you have already filed your qui tam case and the government has investigated your claims, signing a release will release your claims. But what if the government is apprised of the fraud and has not yet conducted an investigation? Unfortunately, two recent decisions by the Fourth and Tenth circuits have extended the Hall exception to enforce releases and bar qui tam suits under these circumstances as well.

2.      Signing the Release Prior to Filing—Government Knowledge, but Investigation Not Complete

In U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009), the whistleblower initially brought her concerns about the defendant’s fraudulent conduct to the defendant. Based on her complaints, the defendant self-reported to the government, which thereafter conducted an audit. The defendant made the whistleblower available to the government and she assisted the government with its audit. In the meantime, the whistleblower, believing she was the subject of retaliation due to her whistleblowing activities, initiated proceedings that eventually led to mediation and a settlement with the defendant. As part of the settlement, the whistleblower signed a general release. Ten days after signing the release, the whistleblower filed her FCA case. The government ultimately declined intervention. Weighing the public policy interests in the case, the Tenth Circuit held that because the government already knew about the allegations and was in the midst of an investigation when the whistleblower filed suit, the most important public policy considerations had been vindicated and therefore the release was enforceable. 

In U.S. ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir. 2010), the whistleblower signed a release upon termination in order to get an enhanced benefits package to which he would not otherwise have been entitled. Approximately two months after signing the release, he filed his qui tam suit. Unbeknown to him, however, the government had been investigating the allegations made in his qui tam suit, and had met with attorneys representing defendants some six weeks prior to his execution of the release. The court held that because the government had knowledge of the allegations, the public policy concerns were vindicated. Since the whistleblower signed the release after this disclosure occurred, the Fourth Circuit concluded that there were no public policy interests favoring non-enforcement of the release.

 

The opinions in Ritchie and Radcliffe mean that if you file a qui tam suit after signing a pre-filing release and you later find out that the government had begun to investigate your claims prior to filing, you can no longer argue that the release is unenforceable.

           

So Where Does that Leave You?

If you sign a release before the government knows of the fraud you will allege in your qui tam case, the release will not bar the case. Conversely, if the government knows of the fraud because of your qui tam case, and the release is signed during the period of the government’s investigation without the government’s knowledge or consent, the release also arguably will not bar the case. It is the period between the time the government learns of the fraud and the qui tam case is filed that is treacherous, since signing a release after the government learns of the fraud will likely bar your case.

[1] See also Radcliffe, 600 F.3d at 27-28; U.S. ex rel. Ritchie, 558 F.3d at 1168.

[2] Longhi, 575 F.3d at 474. 

[3]U.S. ex rel. El-Amin v. The George Washington Univ., No. 95-2000(JGP), 2007 WL 1302597 (D.D.C. May 2, 2007) (holding that a release that went into effect during the 60-day period provided to the government by the FCA to investigate and decide whether to intervene in a case was not valid).

[4]Radcliffe, 600 F.3d at 27-28; U.S. ex rel. Ritchie, 558 F.3d at 1168.

[5]Id. at 965. 

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Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.