Health Law Daily Wrap Up, QUI TAM (WHISTLEBLOWER SUITS)—D. Mass.: Relator essentially forfeited any qui tam settlement proceeds by committing crimes complementary to fraud, (Feb 24, 2026)

By Justin Marcus Smith, J.D.

The court concluded the False Claims Act was certainly not meant to reward opportunistic criminals who participate in fraud for a decade.

A qui tam relator was not entitled to any share of settlement proceeds after the federal government and the Commonwealth of Massachusetts intervened and settled False Claims Act (FCA) free housing kickback claims against a substance use disorder therapy provider, held the federal district court in Boston, Massachusetts. The court reasoned first that the relator planned and initiated the violation of FCA § 3729 upon which the relator brought the action. The court also held, in the alternative, that it could use its discretion under 31 U.S.C. § 3730(d)(3) to reduce the relator’s share of settlement proceeds to zero percent. Although there was limited case law about § 3730(d)(3) exactly on-point, the court said the federal and Massachusetts governments argued persuasively that “arising from” did not require the relator to be charged with the same fraud as in the FCA matter (U.S. ex rel. Perry v. First Psychiatric Planners, Inc., No. 1:21-cv-11483-WGY (D. Mass. Feb. 13, 2026)).

Background. A relator moved against the United States and the Commonwealth of Massachusetts (the governments) for a statutory share of settlement proceeds in a qui tam matter.

The relator’s complaint alleged that a drug abuse rehabilitation services provider (provider) violated the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., and the Massachusetts False Claims Act (MFCA), Mass. Gen. L. Ch. 12, § 5A-O, by paying kickbacks in the form of “free sober housing” (sober homes) to substance use disorder patients to induce their enrollment in an intensive outpatient therapy program (IOP) or partial hospital program (PHP). The relator’s organization, which provided a sober home community in a neighborhood of Boston, received substantial Medicare and Massachusetts Medicaid (MassHealth) funds through reimbursement from the provider.

The governments intervened and succeeded in obtaining a settlement resolving all allegations against the provider. The relator provided valuable disclosures and material evidence to government prosecutors, and the governments did not charge or sue the relator for any violation of the FCA or MFCA in connection with the alleged free sober housing kickback scheme. However, the Commonwealth of Massachusetts separately convicted the relator on 34 criminal counts in connection with personal conduct leveraging his organization’s role as a housing provider in the kickback scheme. According to the instant court, the evidence showed the relator “was preying upon” the very vulnerable recovering addicts he was purporting to assist. The court found he engaged the recovering addicts ‘to distribute drugs, to engage in sex for a fee, and to falsify records.”

The notice of settlement in the qui tam matter indicated the relator was reserving his right to litigate the relator’s award of the settlement recovery. About a month later, the relator filed a motion to determine the relator’s share of settlement proceeds. The governments opposed, and the relator replied.

Analysis. The court held the relator was not entitled to any amount of the settlement proceeds. The court reasoned the relator would take nothing from the settlement because he was a person who planned and initiated the violation of FCA § 3729 upon which he brought the action, or, alternatively, that he was convicted of criminal conduct “arising from” his role in the violation of § 3729.

Ordinarily, FCA relators are entitled to between 15 and 25 percent of the proceeds of settlement, depending on assistance provided to the prosecution. The relator asserted he was entitled to $1.4 million, or 22% of the settlement. However, the government said the instant relator was entirely disqualified because he planned and initiated the scheme with the provider. The relator countered he did not plan or initiate the conduct and that the statute could not cover his criminal convictions.

The court noted that courts may reduce the share of proceeds if a relator planned and initiated the violation of FCA § 3729 upon which the relator brought the action. The government bore the burden of proving the relator was the planner and initiator of the fraud. If the government meets that burden, the court may use its discretion to reduce the relator’s share to zero percent. Further, relators convicted for criminal conduct arising from a personal role in the violation of FCA § 3729 shall be dismissed without any share of the settlement proceeds under 31 U.S.C. § 3730(d)(3).

As an initial matter, the court wholly rejected the relator’s contention that he had no knowledge or suspicion of wrongdoing before August 2021. As the stipulated facts circumstantially confirmed, and as the governments argued, the relator’s arrangement with the provider continued for nearly a decade. The arrangement resulted in the provider submitting thousands of false claims tainted by kickbacks in the form of free sober housing, the very allegation that formed the basis of the relator’s instant qui tam action. The court said the relator received over $700,000 in remuneration during the relevant period.

The court continued that the relator was at the center of the kickback scheme. The kickbacks could not have happened without him, and he “feigned ignorance” of the details on the provider’s end. Protests of innocence were, in the court’s words, “patently absurd” in light of the relator’s decade-long involvement and handsome profit. The relator did not have a reasonable belief that his actions were legal. The government met its burden, hence the court in its discretion reduced the relator’s award to zero percent under 31 U.S.C. § 3730(d)(3).

The court also held alternatively that the relator must take nothing from the settlement because of his convictions arising from his role in the underlying FCA violation by operation of the “arising from” provision of § 3730(d)(3). In the absence of persuasive authority about burden of proof, the court ruled the governments had the burden to prove, and did prove, the issue of whether the relator’s convictions arose from his role in the fraud.

Although the court acknowledged there is little case law in this area, it rejected the relator’s assertion that § 3730(d)(3) was ambiguous. The court cited how the Ninth Circuit had affirmed dismissal of a relator after he pleaded guilty to conspiracy to commit fraud for submitting false time cards to an employer who in turn received payment from the government. In the court’s reading of that case, the Ninth Circuit reasoned that § 3730(d)(3) does not contain an exception for minor participants.

In the instant matter, the relator was convicted of several crimes “arising from” his role in the underlying conduct. The court said the governments argued persuasively that “arising from” did not require the relator be charged with the same fraud. Rather, the convictions here arose from the relator’s ongoing participation in the provider’s fraud.

The court rejected the relator’s attempt to minimize his criminal conduct. The sober homes kickback fraud certainly enabled the relator’s crimes in connection with the recovering addicts even if those crimes were not part of the fraud itself. The relator emphasized the contention that his crimes were not related to the fraud, but the court found the case the relator cited did not analyze the term “arising from” at all. The case had limited persuasive value.

The court concluded the relator’s serious crimes undoubtedly “arose from” the relator’s role in the scheme. The court analyzed further that the relator would not have been able to undertake that criminal activity with respect to the particular patients without his participation in the fraud.

The FCA was certainly not meant to reward opportunistic criminals who participate in fraud for a decade nor to exploit fraud to commit complementary crimes. The court said it was aware of no persuasive authority counseling a different result.

The case is No. 1:21-cv-11483-WGY.

Judge: Young, W.

Attorneys: Gregory J. Dorchak, U.S. Attorney's Office, for the U.S. Andrew J. Tine (Law Offices of Andrew J. Tine) for David Perry. Katie Cooper Davis, Massachusetts Attorney General's Office, for Commonwealth of Massachusetts. Robert L. Peabody (Husch Blackwell LLP) for First Psychiatric Planners, Inc. d/b/a Bournewood Health Systems and Bournewood Hospital.

Companies: First Psychiatric Planners, Inc. d/b/a Bournewood Health Systems; Bournewood Hospital

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