In a qui tam action, whether brought under federal or state law, it is axiomatic that the government, as the real party in interest, can intervene in the proceeding at any time before or after it commences, even if the government initially declined to intervene.
If it decides to intervene, it must follow the procedural rules prescribed by the court of the jurisdiction to file a valid motion. The qui tam plaintiff, i.e., the relator, has the right to object to the motion; in practice, those motions are rarely denied.
If a relator files in federal court on behalf of the United States or in state court on behalf of the state, the intervention process in instances when the federal or state government initially declined to intervene is straightforward.
What if a relator files suit under state law in state court, which is later removed by a nonlocal defendant to federal court by invoking the court’s diversity jurisdiction, and the state elects to intervene after initially declining to do so?
This is the predicament in which the relator in New York State ex rel. American Advisory Services found itself — battling the state over whether the New York False Claims Act (NYFCA) or Rule 24 of the Federal Rules of Civil Procedure controls the state’s motion to intervene.
A Brief Look at the Federal Rules of Civil Procedure
At this point, it might be helpful to give a brief history of the Federal Rules of Civil Procedure to better understand the potential interplay between the NYFCA and Rule 24 in this case.
Before 1934 the “conformity principle” guided federal court procedure concerning actions at law, requiring courts to follow the procedures of the local jurisdiction where they sat. In 1934 Congress passed the Rules Enabling Act, directing the Supreme Court to develop procedural rules applicable to all federal courts, with the proviso that the rules adopted “shall not abridge, enlarge, or modify any substantial right.”
Sunset glow illuminated statue and colonnade of US Supreme court in Washington DC< USA
If a rule does any of these, it is ultra vires and therefore invalid. The rules, like regulations promulgated by executive agencies under federal statutes, have the force of law but are still subject to congressional oversight. For example, in 1973 the Court approved the then-new Rules of Evidence, but Congress prevented their adoption. Eventually, Congress passed them as legislation, albeit with substantial alterations.
The Court has had several opportunities to describe, in general, how the rules operate in federal courts. Any rule adopted by the Court must regulate procedure, that is, the “judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them.”
Whether the rule affects a litigant’s substantive rights is not the issue because most procedural rules do so. Instead, “what matters is what the rule itself regulates: If it governs only the ‘manner and the means’ by which litigants’ rights are ‘enforced,’ it is valid; if it alters ‘the rules of decision’ by which the court will adjudicate those rights, it is not.”
The government’s motion to intervene needs only minimal justification, and on the issue of timeliness, the “most important circumstance is that the [government seeks] to intervene ‘as soon as it becomes clear’ that the [government’s] interests ‘[will] no longer be protected’ by the parties in the case.” In considering statutory challenges to a rule, note that the Court has rejected every one that has come before it.
The Law vs. the Rule
In 2017 American Advisory Services (AAS) filed a NYFCA qui tam action under seal in federal district court against Egon Zehnder International Inc., an international headhunting firm, alleging that for a decade, Egon’s New York and overseas branches colluded to fraudulently misrepresent its U.S. taxable income, resulting in a tax loss to New York and local government of over $13 million.
Empire State Building as seen from Rooftop of Rockefeller Building
AAS notified the state attorney general’s office of the suit at the time of filing. In January 2019 the federal court partially lifted the seal so that the attorney general could notify Egon of AAS’s allegations.
In October 2019, concerned over the passage of time, AAS urged the attorney general to decide on whether to intervene. In November 2020 the attorney general notified the court that it declined to intervene; thereupon, AAS proceeded with its suit.
However, in May 2022 the state opened settlement negotiations with Egon, and AAS notified the attorney general that it would oppose any settlement. In June 2022 the attorney general filed a motion to intervene under Rule 24 of the Federal Rules of Civil Procedure, indicated the state reached an agreement in principle with Egon, and further moved to dispose of the case.
The district court released its opinion on July 14. Determining whether the NYFCA or Rule 24 prevails required it to decide if the statute and the rule answer the same question, which is whether New York may intervene in AAS’s qui tam action.
AAS asserted the NYFCA precluded the state’s intervention because under section 190(5)(a), after a declination to intervene, the attorney general retains the right to do so in the future; however, it may file a motion only “upon a showing of good cause,” meaning the attorney general must show the changed circumstance that prompted its filing, which, AAS claims, it had not done.
AAS continued that rather than a purely procedural matter, allowing the intervention impinges on the purpose of the NYFCA by discouraging relators from pursuing claims on behalf of the government after it has invested its time and resources to benefit the government, only to have its award substantially reduced if the relator and the government prevail.
The attorney general countered that it has the right to intervene in this case under Rule 24 and the NYFCA because section 190(5)(a) and the rule provide the same answer as to whether it may intervene, and that answer is yes.
The attorney general pointed out that AAS opposes its proposed settlement with Egon, which it had determined is in the state’s best interest. Rule 24(a)(2) provides that it is mandatory upon a court to grant a state’s motion to intervene upon showing that the relator no longer adequately represents its interests. AAS’s opposition necessarily means that its representation of the state’s interest is no longer adequate.
Rules Are Rules
Unfortunately for AAS, Rule 24 prevailed in this case. The district court noted that Rule 24 requires that the relator adequately represent the state’s interests in litigation.
In this case, the court said, the attorney general began negotiating a settlement agreement with Egon after determining it was in the state’s best interests to avoid continued and potentially protracted litigation.
The court pointed out that because AAS opposes the proposed settlement, its representation of the state’s interests in this suit had become inadequate. The district court also found the attorney general’s motion to be timely. That she moved to intervene at this point in the litigation, 18 months after its declination, the court said, has no bearing on the timeliness of the motion under Rule 24.
The attorney general filed for intervention as soon as a settlement in principle was reached with Egon and upon learning that AAS intended to oppose. The district court further found that the NYFCA and Rule 24 answer the same question, i.e., the state’s right to intervene in this case.
It rejected AAS’s contention that Rule 24 affects the purpose of NYFCA because the relevant inquiry is not the Rule’s effect on the purpose of a state law, but the procedural nature of the rule. The court pointed out that Rule 24 establishes the steps a government must take to intervene as a right in a case and no more.
Thus, the district court concluded, Rule 24 does not overstep the bounds of the Rules Enabling Act and applies to this case, state law notwithstanding.
Although not addressed by the district court, the merit of AAS’s NYFCA argument that the attorney general must show “good cause” to intervene is misplaced. In support of its position, AAS cited Odom, a Tennessee district court decision in which the court denied the United States’s motion to intervene in a False Claims Act action, finding the government’s delay of over two years between the qui tam suit’s initial filing and the government’s decision to intervene unreasonable, and that it failed to provide sufficient documentary evidence in support of intervention.
However, in AAS’s case, the state’s attorney general moved to intervene under Rule 24, not the False Claims Act. Odom is clearly inapposite. Even if Odom had been relevant, without delving into the specifics, the United States’s conduct in that case bordered on obstructionist, which was clearly not the case on the attorney general’s part here.
The attorney general and Egon entered into a settlement agreement on July 22.
Conclusion
Under the Rules Enabling Act, the Supreme Court develops all procedural rules subject to congressional oversight, which are binding on federal courts. But the rules must not impair any substantial right.
In a qui tam suit, Rule 24, which governs the procedure that interested parties must follow in filing motions to intervene in ongoing litigation, may have a negative impact on a state rule of procedure or a state law involved in a case before a federal court.
However, that by itself is not enough to defeat the rule’s applicability. Considering that since the Court began adopting the rules, it has never invalidated one as ultra vires under the Rules Enabling Act, it appears unlikely that it ever will.