Lose the Race to the Courthouse and a Good Deed Done Shall Be Your Only Reward: Fifth Circuit Bars Recovery for Whistleblowers in Qui Tam Suit

Oct. 23, 2014
By Tammy B. Scelfo & Jessica S. Allain, Attorneys at Allen & Gooch

Know about fraudulent activity? Planning on blowing the whistle? You better lawyer up and file a qui tam action first; otherwise the Fifth Circuit says you are not entitled to any proceeds from the Government’s recovery.

In a case involving an issue of first impression for the United States Fifth Circuit Court of Appeals, the court was asked to determine whether relators in a qui tam action filed after the government had instituted criminal proceedings against the defendants could share in the recovery by the government.  In United States ex rel Babalola v. Sharma,[1] the Fifth Circuit held that because relators did not file their qui tam proceeding before the U.S. Government instituted criminal proceedings, they were not entitled to any of the recovery proceeds.[2]

Samuel Babalola and Kayode Adetunmbi worked as medical assistants for Dr. Arun Sharma and Dr. Kiran Sharma at clinics located in Baytown and Webster, Texas.[3] Babalola and Adetunmbi observed their employers filing false claims with Medicare, Medicaid, and other insurance companies.[4] In 2007, Babalola and Adetunmbi sent an anonymous letter to various government agencies setting forth the fraud allegations.[5] In response to this letter, the government conducted an investigation that culminated in a criminal trial in which Babalola and Adetunmbi testified as witnesses against the defendants, and the district court ordered the Sharmas to pay over $43 million in restitution to Medicare, Medicaid, and other various insurance companies.[6] The Sharmas appealed, and the matter was remanded to the district court to recalculate the amount of restitution so that it did not exceed the actual losses sustained by Medicaid, Medicare, and the insurers.[7]

After the Sharmas were sentenced, but while their criminal appeal was pending, Babalola and Adetunmbi filed a claim against the Sharmas under the False Claims Act (“FCA”)[8] and the Texas False Claims Act.[9] Neither the U.S. Government nor the Texas Government intervened in the suit.[10]

The FCA prohibits anyone from presenting the government with false or fraudulent claims for payment or approval.[11] The qui tam provision of the statute allows whistleblowers to file suit for violations of section 3729 on behalf of themselves and the U.S. Government.[12] The government retains the ability to pursue claims against the alleged wrongdoers, including any criminal or administrative proceeding to determine restitution or any other civil money penalty.[13] If the government chooses to pursue an alternate remedy, the person who filed the qui tam suit is entitled to the same rights in the alternate proceeding as they are in their own.[14] Depending on the extent to which the person substantially contributed to the prosecution of the action, the qui tam plaintiff can receive up to 30 percent of the government’s recovery.[15] The legislature provided for this hefty reward to encourage people with information on fraud and abuse to step forward and blow the whistle.[16]

Despite blowing the whistle and filing a qui tam action, both the district court and the Fifth Circuit Court held that Babalola and Adetunmbi were not entitled to any percentage of the restitution.[17] The courts reasoned that because their qui tam suit was not filed until after the government instituted proceedings against the defendants, there was no “alternate” proceeding under 31 U.S.C. § 3730 that would allow recovery by the whistleblowers.[18]

[T]he FCA’s procedures require the relator to disclose his information to the Government at the time the qui tam complaint is filed in camera. At that point, there would be an existing qui tam action and therefore, if the Government elects to pursue the case in another proceeding, it would be an alternate remedy.[19]

In order for whistleblowers to recover under the FCA, the qui tam action must be instituted before the government chooses to take action.[20] This opinion could herald a larger trend among the circuits. In its opinion, the Fifth Circuit discussed opinions from the Sixth,[21] Fourth,[22] and Ninth[23] Circuits that support the premise that a qui tam action must be filed before the government instates any action in order for the government’s action to be considered to be an “alternate remedy” under 31 U.S.C. § 3730(c)(5).

In his concurrence, Judge James L. Dennis pointed out that while the court’s opinion was technically correct, it “leads to results that arguably are inequitable and at odds with the purpose of the statute.”[24] By requiring whistleblowers to wait to disclose information of fraudulent activity until they have lawyered up and filed a qui tam provision, the court has reduced the magnitude of the incentive offered by the FCA and caused a delay that could allow fraudulent behavior continue longer than it otherwise would if whistleblowers’ right of recovery was protected regardless of the time the qui tam action was filed.[25]

Based on this decision, individuals who believe they have knowledge of fraudulent practices and would like to blow the whistle should first consult counsel. Disclosing information without first filing a qui tam claim under the FCA could result in diminished recovery or none at all.


Tammy B. Scelfo is a partner with the law firm of Allen & Gooch. Her practice is focused on administrative compliance, commercial transactions and corporate governance, including within the healthcare field.

Jessica S. Allain is an associate with the law firm of Allen & Gooch. Her practice is focused on administrative compliance, corporate governance, and commercial transactions, including within the healthcare field.


[1] United States ex rel. Babalola v. Sharma, 746 F.3d 157 (5th Cir.), cert. denied, 134 S.Ct. 2856 (2014).

[2] Id. at 159.

[3] Id.

[4] Id.

[5] Id.

[6] Id. This amount was later reduced by the district court to $37,636,436.39. Id. at 160.

[7] Id.

[8] 31 U.S.C. § 3729 et seq. (2012).

[9] Sharma, 746 F.3d at 159.

[10] Id.

[11] 31 U.S.C. § 3729(2012).

[12] 31 U.S.C. § 3730(b)(2012).

[13] 31 U.S.C. § 3730(c)(5)(2012).

[14] Sharma, 746 F.3d at 160.

[15] 31 U.S.C. § 3730(d)(2012).

[16] Sharma, 746 F.3d at 164.

[17] Id. at 159.

[18] Id. at 163.

[19] Id.

[20] Id.

[21] United States ex rel. Bledsoe v. Comm. Health Sys., 342 F.3d 634, 649 (6th Cir. 2003) (holding that “a settlement pursued by the government in lieu of intervening in a qui tam action asserting the same FCA claims constitutes an ‘alternate remedy’ for purposes of 31 U.S.C. § 3730(c)(5)”). The Fifth Circuit relied on the Sixth Circuit in framing its holding as presuming a qui tam action was pending in order for the government’s action to be “alternate.” Sharma, 746 F.3d at 162.

[22] United States ex rel. LaCorte v. Wagner, 185 F.3d 188, 191 (4th Cir. 1999) (stating that the alternate remedy provision “simply preserves the rights of the original qui tam plaintiffs when the government resorts to an alternate remedy in place of the original action”).

[23] United States ex rel. Barajas v. Northrop Corp., 258 F.3d 1004, 1010 (9th Cir. 2001) (describing an alternate remedy under § 3730(c)(5) as “a remedy achieved through the government’s pursuit of a claim after it has chosen not to intervene in a qui tam relator’s FCA action”).

[24] Sharma, 746 F.3d at 163 (Dennis, J., concurring).

[25] Id. at 166.