Sunday, August 13, 2017

Case o' the Week: A Remarkable Feet (Ninth Rejects Podiatrist Qui Tam) - Van Dyck / Smith, Qui Tam, and Criminal Forfeiture

 No foot in the door for Relators.
United States v. Van Dyck, Nancy Smith, Intervenor 2017 WL 3428096 (9th Cir. Aug. 10, 2017), decision available here.

Players: Decision by Ninth Circuit Chief Judge Sidney Thomas, joined by Judge Murguia and D.J. McCalla.  

Facts: Van Dyck, a podiatriast, was convicted of health care fraud. Id. at *2. The district court entered a $1.23 forfeiture judgement against him: the estimated amount of fraudulent claims paid by the victim insurers. Id.
  “Relator Nancy Smith” was a medical assistant in Van Dyck’s office who (she claimed) helped investigators before the prosecution began. Id. at *1.
  During the investigation, Relators filed a qui tam action under the False Claims Act. Id. at *3. When the qui tam action was (partially) unsealed, the government declined to intervene. Id. at *3.
  The Relators then moved to intervene in the government’s criminal forfeiture action: the district court declined the request. Id.

Issue(s): “[W]e consider whether a criminal forfeiture action constitutes an ‘alternate remedy’ to a civil qui tam action under the False Claims Act, entitling a relator to intervene in the criminal action and recover a share of the proceeds . . . .” Id. at *1.
  “[I]t is an open question as to whether a criminal proceeding constitutes an ‘alternate remedy,’ and that [the Relators] are therefore entitled to protect their interests in the proceeds.” Id. at *4.

Held: We hold that it does not, and we affirm the district court’s order denying intervention.” Id. at *1.
  “The district court was entirely correct. Intervention would have violated the general rule against non-parties intervening in criminal proceedings; intervention was not permitted under the governing statute; and Realtors did not establish a sufficient interest in the forfeited funds. Relators lack standing to intervene.” Id. at *4.
  “The ‘alternate remedy’ provisions of the False Claims Act do not permit a relator to intervene in a criminal action for the purpose of asserting a right to the proceeds of that action.” Id. at *4. “[W]e need not reach the question in this case as to whether a criminal case constitutes an ‘alternate remedy,’ because the sole issue before us is whether Relators are entitled to intervene in the criminal proceeding. There is nothing in the False Claims Act that affords Relators the right to intervene in a criminal prosecution. The sole remedy afforded relators under the False Claims Act is to commence a ‘civil action.’” Id. at *4.

Of Note: These Relators are (technically) not out of the fight. The Chief explains, “Just because the criminal forfeiture action is over doesn’t mean that the Relators can’t go forward on their qui tam action.” Id. at *5.
  Of course (as Relators here complained), their late-to-the game qui tam action will be against a defendant who is effectively judgement proof: assets stripped to the bone by the voracious maw of criminal forfeiture.
  “Meh,” shrugs the Ninth: “That may well be a practical concern, but it does not provide Relators with the right to intervene in a criminal action.” Id. at *5.

How to Use: Qui tam seems an exotic civil beast irrelevant to our indigent clients. Van Dyck will hopefully keep it that way. The defense here were fighting a three-front battle: a criminal prosecution, criminal forfeiture proceedings, and a third-party qui tam action also hunting dough. A three-ring circus makes for complicated settlement discussions (note that ultimately the AUSA and the defense in Van Dyck shrugged and kicked the Relators out of negotiations. Id. at *3).
  Van Dyck radically undermines the financial incentive for qui tam actions against our clients. Qui tam actions makes the defense and government strange bedfellows: give Van Dyck to your AUSA, and collaborate to keep Relators from mucking-up already-complicated fraud cases.
For Further Reading: On the subject of strange bedfellows . . . law enforcement’s and prosecutors’ ravenous forfeiture appetite disrespects fundamental property rights. So says the ACLU – and the Koch Brothers. See article here
  Time for the defense bar to question whether aggressive local forfeiture initiatives are consistent with President Trump’s and Attorney General Sessions' national prosecution priorities.

Steven Kalar, Federal Public Defender N.D. Cal. Website at


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