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Will Statistical Sampling be Allowed in Qui Tam Cases? The Fourth Circuit is Slated to Weigh in.

Erin Delaney, Esq. | Senior Counsel

On March 22, 2016, the U.S. Supreme Court ruled that both liability and damages could be established using statistical estimates in the class action litigation Tyson Foods, Inc. v. Bouaphakeo. However, the question of whether and when statistical sampling may be used to determine liability and damages in qui tam actions remains unsettled. Nevertheless, one appellate court, the Court of Appeals for the Fourth Circuit, is positioned to rule on the issue soon.

In the case, United States ex rel. Michaels v. Agape Senior Cmty., Inc., Brianna Michaels and Amy Whitesides, on behalf of themselves and the United States of America, filed an action against Agape Senior Community, Inc., alleging that the hospice provider fraudulently submitted thousands of false claims to Medicare, Medicaid and Tricare for nursing home-related services. The government declined to intervene in the matter.

The parties subsequently reached an agreement to resolve the case for $2.5 million, which also included a broad release of claims against the defendant. However, the low settlement value and the scope of the release caused the Department of Justice (DOJ) to question whether the settlement proceeds would be fairly allocated and the government would be appropriately compensated. The DOJ—believing the potential damages would be around $25 million—vetoed the tentative settlement under 31 U.S.C. § 3730(b)(1), which provides that a False Claims Act case can only be dismissed if the Attorney General gives written consent. 


The District Court of South Carolina thereafter issued an order imploring the parties to seek permission from the Fourth Circuit to review “(1) the government’s right to reject a settlement in a qui tam action in which it has not intervened, and (2) the Plaintiff-Relators’ use of statistical sampling to prove liability and damages.” On September 29, 2015, the Fourth Circuit agreed to hear the interlocutory appeal. 


As to the use of statistical sampling to prove liability and damages, on appeal, the government argues that it should be permitted to use statistical estimates to evaluate the settlement value of the case, even if it is held that statistical sampling cannot be used at trial. Because the United States is not a party for purposes of discovery, the DOJ argues that they are not required to provide a “precise calculation of damages” to the district court, which, they claim, never examined the DOJ’s damages estimates. As such, the district court had no basis for questioning their analysis. Citing to previous case law, the DOJ contends that statistical sampling is a “well-accepted” method of establishing liability and damages in False Claims Act

cases, especially where the scope of the defendant’s fraud makes review of individual claims impracticable and effectively impossible. The DOJ argues that to rule otherwise would allow large-scale perpetrators of fraud to benefit.

Agape, on the other hand, contends that the use of statistical sampling would allow Plaintiff-Relators to get around their burden of proof. The company attempts to distinguish this case from other actions where statistical sampling was permitted by claiming those actions did not involve the fundamental elements of proof necessary in a False Claims Act cases, including proving falsity and scienter. In support of this contention, Agape asserts that aggregate data cannot be used to identify what led to a patient’s diagnosis, nor can it show whether the treating physician believed that a patient was eligible for the associated claims.

How the Fourth Circuit’s rules on the issue of statistical sampling will likely be impacted by the recent U.S. Supreme Court decision in Tyson Foods, Inc. v. Bouaphakeo. In Tyson, the Supreme Court held that a class action could be certified using the presumption that all class members are identical to the statistical average of a representative sample in order to determine liability and damages. The Court also ruled that a class action may be maintained even if some class members have no legal right to damages.

While the Supreme Court’s ruling appears to favor the use of statistical sampling, the Court would not go as far as to establish general rules governing the use of statistical evidence in all cases. In its decision, however, the Court provided that the use of statistical sampling in future cases will depend on: (1) the underlying cause of action; (2) the purpose for which the sample is being introduced; (3) the availability of alternative evidence; (4) each class member’s ability to rely on the sample to establish liability should he/she bring an individual action; (5) the

defendant’s unharmed ability to assert defenses; and (6) the adequacy and plausibility of the
representative evidence and underlying assumptions.

Thus, the opinion in Tyson gives the Fourth Circuit room to make an individualized decision in Agape, where the burden of proof differs, there is direct evidentiary support and there may be significant variability between the claims. The Fourth Circuit’s ruling, which will help clarify the law surrounding the use of statistics in False Claims Act litigation, is expected by June 2016.

The case is: United States ex rel. Michaels v. Agape Senior Cmty., Inc., Case No. 15-2145 (4th Cir.).


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