On September 11, 2017, in United States and State of Nevada ex rel. Welch v. My Left Foot Children’s Therapy, LLC, the Ninth Circuit held that an arbitration agreement between an employee-relator and her former employer was not broad enough to cover the Relator’s whistleblower claims under the FCA.  This opinion raises questions as to whether FCA claims can be subject to arbitration agreements to which the government is not a party.

In Welch, the Relator alleged that the Defendant violated the FCA by presenting fraudulent claims to federal health care programs.  The Relator filed suit in the U.S District Court for the District of Nevada, but the Defendant moved to compel arbitration under the Federal Arbitration Act, arguing that the parties had entered into a valid and binding employment contract that included an arbitration provision that would apply to the FCA claims.  Pursuant to the contract, the Relator had agreed to binding arbitration to resolve all claims that the Relator may have against the Defendant or that the Defendant may have against the Relator, including those “arising from, related to, or having any relationship or connection whatsoever  . . . with the [Defendant].”  The Agreement also provided that all disputes based on “any other state or federal law or regulation” were included within the scope of the contract.

Upon hearing the parties’ arguments as to whether arbitration should be compelled, the District Court found that it is the government (regardless of whether it intervenes), and not the whistleblower, who owns the underlying fraud claim in FCA cases. Accordingly, the District Court denied the Defendant’s motion to compel arbitration, reasoning that the Agreement did not extend to the government.  The Defendant appealed that ruling.

On appeal, the Ninth Circuit engaged in a textual analysis of the contract and ultimately upheld the District Court’s decision. In analyzing the contract, the Ninth Circuit explained that the FCA claims did not fall within the scope of the arbitration provision because the FCA claims were neither claims that the Defendant had against the Relator nor claims that the Relator had against the Defendant; rather, the FCA claims belonged to the government.  The Ninth Circuit reasoned that although the FCA grants a whistleblower the right to bring a claim on the government’s behalf, ultimately, the underlying fraud claims that are being asserted belong to the government.

Notably, the Ninth Circuit noted in dicta that the parties could have drafted a broader agreement that would have covered ‘“any lawsuits brought or filed by the employee whatsoever . . . including those brought on behalf of another party.”’  It remains to be seen if such an arbitration provision would be upheld in the context of an FCA action, but, at a minimum, the Ninth Circuit’s opinion did not foreclose that possibility with an appropriately drafted arbitration selection provision.