Opinion ID: 67082
Heading Depth: 2
Heading Rank: 4

Heading: Claims for Release and Indemnification

Text: The district court ruled that Longhi's agreement to release and indemnify the Defendants from suit related to any matter prior to execution of the agreement to sell the stock was unenforceable because (1) federal public policy bars the enforcement of releases in qui tam cases, and (2) the FCA prohibits a qui tam plaintiff from dismissing a FCA claim. The Defendants argue that the district court erred and rely on Ninth Circuit case law to support their assertion that if a relator has already filed his claim at the time of signing the release, the courts have enforced the releases. See United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230, 233 (9th Cir.1997). In addition, the Defendants argue that the FCA does not bar the release and indemnification agreement because Longhi's release did not prohibit the Government from pursuing any of the claims in this lawsuit. With respect to the indemnification clause contained on the stock sale agreement, the Defendants argue that the cases cited by the district court address common law claims for indemnification not contractual indemnification, which is governed by the Supreme Court's decision in Town of Newton v. Rumery, 480 U.S. 386, 107 S.Ct. 1187, 94 L.Ed.2d 405 (1987). Longhi argues that the district court correctly concluded that the release and indemnification were unenforceable as they apply to Longhi's FCA allegations because, inter alia, the text of the FCA invalidates the release. The Defendants' arguments are unavailing because the release and indemnification clauses are invalid under the plain language of the FCA. When an individual brings a qui tam suit under the FCA, the action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting. See 31 U.S.C. § 3730(b)(1). Once filed by the relator, the complaint must remain under seal for at least sixty days, and is not served on the defendant until the court so orders. § 3730(b)(2). The Government may choose to intervene and proceed with the action within the sixty days after it receives the complaint, material evidence, and information, but the Government may extend the sixty-day evaluation period with a showing of good cause to the court. § 3730(b)(3). The district court correctly found that Longhi signed the release eleven days after he filed the qui tam complaint and was therefore unable to personally dismiss the case. In addition, the district court correctly held that even if the release and indemnification were valid, Longhi could not have entered into it at the time he did without the express knowledge and consent of the United States, because the statutory sixty-day review window still governed. This outcome comports with our decision in Searcy v. Phillips Electronics North America Corp., where we held that the United States has absolute power to veto any settlement between a relator and defendant corporation. 117 F.3d 154, 160 (5th Cir.1997). Furthermore, the interest in enforcing the release and indemnification clauses are outweighed by public policy concerns. The Supreme Court's decision in Rumery establishes the framework for determining whether public policy prevents enforcement of the release and indemnification in the limited context of this qui tam case. Specifically, the Supreme Court held that a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by the enforcement of the agreement. Rumery, 480 U.S. at 392, 107 S.Ct. 1187 (citation omitted). The public policy interest implicated in this case is the ability of the Government to obtain information from relators it could not otherwise obtain. It is in the Government's best interest to gain full information from the relator. To enforce the release and indemnification clauses contained in the stock sale agreement against Longhi would ignore the public policy objectives expressly spelled out by Congress in the FCA and would provide disincentives to future relators. In addition, enforcing the release and indemnification clauses would encourage individuals guilty of defrauding the United States to insulate themselves from the reach of the FCA by simply forcing potential relators to sign general agreements invoking release and indemnification from future suit. The district court correctly determined that enforcing the release against Longhi is against public policy. We affirm.