Title: Commonwealth v. Hunter Laboratories, LLC
Citation: N/A
Docket Number: 170995
State: Virginia
Issuer: Virginia Supreme Court
Date: August 9, 2018

PRESENT:  All the Justices 
 
COMMONWEALTH OF VIRGINIA 
 
 
 
OPINION BY 
v.  Record No. 170995 
JUSTICE STEPHEN R. McCULLOUGH 
 
 
 
August 9, 2018 
COMMONWEALTH OF VIRGINIA, EX REL., 
HUNTER LABORATORIES, LLC, ET AL. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Thomas P. Mann, Judge 
 
 
 
The relators in this qui tam case filed this action alleging that several laboratories 
illegally inflated the bills they submitted to Virginia’s Medicaid program.  The case ultimately 
settled and the Commonwealth approved the settlement.  The relators and the Commonwealth 
agree that the relators are entitled to 28% of the proceeds of the settlement.  They disagree, 
however, with respect to whether that 28% share should come out of the total, or gross, proceeds 
of the settlement, or whether the 28% share should come out of the Commonwealth’s net share 
of the proceeds, specifically, what remains after the Commonwealth has refunded a portion of 
the proceeds to the United States.  The trial court found in favor of the relators, concluding that 
they were entitled to receive 28% of the gross proceeds of the settlement.  For the reasons noted 
below, we agree with the relators, and accordingly we affirm the judgment below. 
BACKGROUND 
 
I. 
FCA, VFATA AND MEDICAID PROGRAMS. 
 
A suit brought by a private party on behalf of the state is known as a qui tam suit.  These 
lawsuits are sometimes referred to colloquially as “whistleblower” suits.  Qui tam is an 
abbreviation for the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte 
sequitur,” which means “who pursues this action on our Lord the King’s behalf as well as his 
 
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own.”  Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 768 n.1 
(2000).  Qui tam plaintiffs are referred to as “relators.”  Although the concept originated in 
medieval England, it became part of the law of the United States in 1863 when President Lincoln 
persuaded Congress to enact the False Claims Act (“FCA”), ch. 67, §§ 1-9, 12 Stat. 696 (codified 
as amended at 31 U.S.C. §§ 3729 through 3733).  The original impetus for the FCA was to 
harness the private sector to hold accountable those who were selling defective supplies to the 
Union.  MONICA P. NAVARRO & J. MARC VEZINA, WHAT IS . . . QUI TAM? (2015). 
 
The Virginia Fraud Against Taxpayers Act (“VFATA”), Code §§ 8.01-216.1 through  
-216.19, which is modeled after the FCA, seeks to encourage whistleblowers to identify fraud 
against the government and permits the whistleblower to retain a portion of any recovery.  See 
Peter M. Mellette, Emily W.G. Towey & J. Vaden Hunt, Health Care Law, 37 U. RICH. L. REV. 
199, 212 n.86 (2002).  As the United States Court of Appeals for the Ninth Circuit explained 
with respect to the similar federal statute, 
the purpose of the statutory scheme is clear.  The FCA is designed 
to help fight fraud against the government by encouraging private 
individuals to come forward with information about fraud that 
might otherwise remain hidden.  The encouragement is provided 
by giving these individuals a relator’s share of any recovery 
obtained using the relator’s information in an FCA action, or an 
equivalent share of a recovery obtained using that same 
information to procure an “alternative remedy.” 
 
United States ex rel. Barajas v. United States, 258 F.3d 1004, 1012 (9th Cir. 2001). 
 
VFATA allows a private party to file a complaint on behalf of the Commonwealth 
alleging fraud against the Commonwealth.  Code § 8.01-216.5(A).  Relators must file their 
complaint in camera and it remains under seal for 120 days, or longer if the Commonwealth 
requests an extension.  Code § 8.01-216.5(B) and (C).  The relator must serve the 
Commonwealth with a copy of the complaint, along with “disclosure of substantially all material 
 
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evidence and information the person possesses.”  Code § 8.01-216.5(B).  The Commonwealth 
can, upon review, elect to intervene and proceed with the action, or it can elect not to proceed 
with the action, in which case “the person who initiated the action shall have the right to conduct 
the action.”  Code §§ 8.01-216.5(B), 8.01-216.6(F). 
 
If there is a recovery, the law entitles the relator to a portion of the recovery.  The 
relator’s share is smaller if the Commonwealth elects to proceed with the action, Code § 
8.01-216.7(A), and larger if the Commonwealth elects not to participate in the action that the 
relator brought on behalf of the Commonwealth.  Code § 8.01-216.7(B).  If the Commonwealth 
elects to intervene and proceed with the action, the relator’s share can be as little as 15% of the 
recovery or as high as 25% of the “proceeds of the action or settlement of the claim.”  Code § 
8.01-216.7(A).  If the Commonwealth does not proceed as a party to the action, the relator who 
brought the action can receive between 25% and 30% “of the proceeds of the award or 
settlement.”  Code § 8.01-216.7(B).1 
 
Medicaid is a joint federal and state program.  As a general proposition, the federal 
government contributes approximately 50% of the funding of Virginia’s Medicaid program.  See 
42 U.S.C. § 1396b.  As a result, 50% of a Medicaid fraud recovery is the property of the federal 
government.  42 U.S.C. § 1396b(d)(3).  See also West Virginia Dep’t of Health & Human Res. v. 
Sebelius, 649 F.3d 217, 219, 224 (4th Cir. 2011).  In addition, because Virginia has enacted a 
state version of the FCA, the VFATA, the Commonwealth can retain 10% of the federal 
Medicaid funds from Virginia Medicaid fraud recoveries.  42 U.S.C. § 1396h. 
 
                     
 
1 In either situation, the relator is also entitled to recovery of reasonable expenses 
necessarily incurred, as well as reasonable attorneys’ fees and costs.  Code § 8.01-216.7(A) and 
(B). 
 
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II. 
THE QUI TAM CASE AND ITS SETTLEMENT. 
 
The relators in this case filed a complaint alleging that, starting November 1, 1997, the 
defendant laboratories defrauded the Commonwealth’s Medicaid program by overcharging for 
certain lab tests.  The Commonwealth declined to intervene and the case was unsealed.  
Ultimately, the relators settled with the defendants in the amount of $1,250,000.  The defendants 
did not admit liability.  The Commonwealth approved the settlement. 
 
Following this settlement, the Commonwealth and the relators agreed that the relator’s 
share was 28% of the proceeds.  However, the relators and the Commonwealth could not agree 
on how to calculate the proceeds of the settlement.  The relators argue that the “proceeds of the 
settlement” means 28% of the gross proceeds of $1,250,000.  The Commonwealth maintains that 
because Medicaid is a jointly funded state and federal program, the relator’s 28% must come 
from the Commonwealth’s share after deducting the portion of the settlement that it must return 
to the United States government as an “overpayment.”  Twenty-eight percent of the gross 
proceeds of the settlement is $350,000, whereas 28% of the proceeds that remain after deducting 
the United States’ share is $138,925.  The trial court agreed with the relators, and this appeal 
followed. 
ANALYSIS 
 
I. 
THE TERM PROCEEDS IN CODE § 8.01-216.7(B) MEANS GROSS PROCEEDS RATHER 
THAN NET PROCEEDS. 
 
 
We review questions of statutory construction de novo.  Perreault v. Free Lance-Star, 
276 Va. 375, 384, 666 S.E.2d 352, 357 (2008).  “In construing [a statute], we must apply its plain 
meaning, and we are not free to add [to] language, nor to ignore language, contained in [it].  That 
is to say, [w]hen the legislature has used words of a plain and definite import the courts cannot 
put upon them a construction which amounts to holding the legislature did not mean what it has 
 
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actually expressed.”  Andrews v. Richmond Redevelopment & Hous. Auth., 292 Va. 79, 86-87, 
787 S.E.2d 96, 100 (2016) (citations and internal quotation marks omitted). 
 
Code § 8.01-216.7(B) provides that the relator is entitled to a share “of the proceeds of 
the award or settlement.”  We acknowledge that the meaning of the term “proceeds” may depend 
upon its context.  In this context, the phrase “proceeds of the award or settlement” is most 
naturally read as encompassing the gross proceeds of the award or settlement.  Code  
§ 8.01-216.7(B) does not qualify or limit the term “proceeds.”  The Commonwealth’s argument 
is that “proceeds of the award or settlement” should be interpreted as “proceeds of the award or 
settlement after deduction of the United States’ share of the settlement.”  The statute, however, 
contains no such language. 
 
This conclusion, that the proceeds of settlement means the gross proceeds, is fortified by 
the fact that, on fifty-four occasions, the General Assembly has employed the limiting word 
“net” in conjunction with the term “proceeds.”  See, e.g., Code §§ 3.2-3118, 8.01-499, 64.2-535.  
In this instance, the General Assembly did not specify in Code § 8.01-216.7(B) that the 
“proceeds” of the award or settlement are the “net proceeds” that remain after deducting certain 
expenses or costs.  The fact that the General Assembly knows how to specify a limitation on the 
intended measure of proceeds in a statute by employing the phrase “net proceeds,” but did not 
employ that phrase in Code § 8.01-216.7(B), is “an unambiguous manifestation of a contrary 
intention,” indicating that the term “proceeds” was not intended to be limited in any way, i.e., 
that gross proceeds is the intended meaning.  Halifax Corp. v. Wachovia Bank, 268 Va. 641, 654, 
604 S.E.2d 403, 408 (2004); see also Couplin v. Payne, 270 Va. 129, 135-36, 613 S.E.2d 592, 
594-95 (2005). 
 
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The Commonwealth argues that “Medicaid fraud recoveries obtained under the VFATA 
are inherently different from other types of fraud recoveries” because Medicaid is a jointly 
funded state and federal program.  Appellant’s Opening Br. at 12; see 42 U.S.C. § 1396 et seq.  
The General Assembly was surely aware that the VFATA would be used to recover fraudulent 
Medicaid expenditures because, long before Virginia’s enactment of the VFATA, the federal 
statute on which VFATA is based had been employed for that purpose.  See, e.g., United States 
ex rel. Aranda v. Community Psychiatric Ctrs. of Okla., Inc., 945 F. Supp. 1485, 1487 (W.D. 
Okla. 1996); United States ex rel. Fahner v. Alaska, 591 F. Supp. 794, 795 (N.D. Ill. 1984); 
United States ex rel. Davis v. Long’s Drugs, Inc., 411 F. Supp. 1144, 1144 (S.D. Cal. 1976).  Yet 
the General Assembly did not treat Medicaid recoveries differently from any other recovery. 
 
The Commonwealth does not make any arguments based on the statute’s plain language.  
Instead, it asserts that the VFATA was enacted with the chief purpose of returning 
misappropriated public funds to the treasury.  Extrapolating from this intent, the Commonwealth 
posits that the share of a qui tam recovery to which the United States government is entitled must 
be deducted from the overall proceeds.  Once this deduction is made, the relator’s share can be 
taken out of what remains.  This procedure, it argues, will maximize the funds recovered by 
Virginia. 
 
The first difficulty with this argument is that, as noted above, it finds no support in the 
plain language of the statute.  The second difficulty is that the Commonwealth’s argument is 
premised on a legal conclusion that draws no support from federal law.2  Finally, the 
                     
 
2 The Commonwealth takes the view that the United States has no responsibility to pay a 
portion of the relator’s share and, therefore, the Commonwealth alone must bear the cost of the 
relator’s share.  It is clear that under federal law, a recovery by a qui tam plaintiff constitutes an 
“overpayment.”  See 42 U.S.C. § 1396b(d)(3)(A); West Virginia Dep’t of Health & Human 
Resources, 649 F.3d at 219, 224 (Money owed to the United States pursuant to a Medicaid fraud 
 
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Commonwealth’s argument is not especially compelling on its own terms.  The Commonwealth 
maintains that we should construe the VFATA in a way that maximizes the recovery of funds 
and, to accomplish this objective, we should interpret Code § 8.01-216.7(B) to reduce the 
relator’s share.  But it is not obvious that, in the aggregate, the Commonwealth’s proposed 
                     
action are “overpayments” and constitute “[t]he pro rata share to which the United States is 
equitably entitled.”).  Consequently, there is no dispute that the United States is entitled to a 
portion of the qui tam recovery.  However, the overpayment statute, 42 U.S.C. § 1396b(d)(3), 
provides that 
 
The pro rata share to which the United States is equitably entitled, 
as determined by the Secretary, of the net amount recovered during 
any quarter by the State . . . with respect to medical assistance 
furnished under the State plan shall be considered an overpayment 
to be adjusted under this subsection. 
 
(emphases added).  This statute employs the term “net amount recovered” and speaks of a share 
to which the United States is “equitably entitled.” 
 
 
In 2008, the United States Department of Health and Human Services (“HHS”) sent a 
letter to state officials which stated that 
 
For State [False Claims Act] legal actions neither the relator’s 
share, nor legal expenses (whether borne by the State or the 
relator) or other administrative costs arising from such litigation, 
may be deducted from the Federal portion of the entire proceeds of 
the litigation. 
 
 
Following a lawsuit brought by the State of Alabama, however, a United States District 
Court vacated this letter and entered an order of remand to afford the Centers for Medicare & 
Medicaid Services the opportunity to promulgate a new rule that complies with the notice and 
comment requirements of the Administrative Procedure Act.  See Alabama v. Centers for 
Medicare & Medicaid Services, 780 F. Supp. 2d 1219, 1232 (M.D. Ala. 2011).  No regulations 
or guidance have since been issued. 
 
 
The United States points out in its amicus brief that “HHS has not yet made an 
adjustment to Virginia’s federal Medicaid funding in light of the settlement in this case.”  United 
States Amicus Br. at 6.  Furthermore, once HHS has determined the federal share of this 
settlement, Virginia has the option of contesting HHS’s determination concerning the amount of 
the “overpayment.”  Id. at 7.  The argument the Commonwealth advances, that the United States 
is entitled to a full repayment undiluted by the cost of the relator’s share, does not find any 
support in the text of federal statutes, case law, or United States regulations or guidance. 
 
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reduction in the relator’s share will produce more revenue from qui tam actions than construing 
“proceeds” to mean gross proceeds.  A significant reduction in the relator’s share will discourage 
relators from bringing these lawsuits.  The Commonwealth receives nothing when a relator 
decides to stay home and foregoes the risk and expense associated with a qui tam suit.  
Speculation about the potential for the Commonwealth to recover less from qui tam actions 
constitutes an insufficient basis upon which to depart from what constitutes the most natural, 
plain language reading of Code § 8.01-216.7(B).3 
 
II. 
THE RECORD IS INSUFFICIENT FOR US TO DETERMINE WHAT CLAIMS MIGHT PREDATE 
THE ENACTMENT OF THE VFATA. 
 
 
The relators alleged that the excessive billing took place from November 1, 1997 to 
September 25, 2014.  VFATA’s effective date was January 1, 2003.  Noting that the retroactive 
application of statutes is disfavored, see, e.g., Bailey v. Spangler, 289 Va. 353, 358-59, 771 
S.E.2d 684, 686 (2015), the Commonwealth argues that there is no indication that the General 
Assembly intended for the VFATA to have retroactive effect and, consequently, the relators are 
not entitled to a share of the settlement proceeds from any false or fraudulent billings that were 
made prior to the VFATA’s effective date of January 1, 2003.  The parties, however, settled for 
an undifferentiated amount of $1,250,000.  The Commonwealth approved this settlement.  Aside 
from blind guesswork, we have no basis in the record from which we could determine, on a 
year-to-year basis, how to apportion the relators’ share.  Without a basis in the record upon 
which to grant the proposed relief, we must affirm the trial court’s judgment on this question.  
LeMond v. McElroy, 239 Va. 515, 520-21, 391 S.E.2d 309, 312 (1990). 
 
                     
 
3 We recognize that the parties to a qui tam action remain free to reach a settlement 
concerning a precise figure for the relator’s share. 
 
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CONCLUSION 
 
We will affirm the judgment of the trial court. 
Affirmed.