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SCV: Whistleblowers entitled to portion of gross settlement

In a false-claims settlement for Medicaid overbilling, Virginia’s whistleblower recovery provision entitling relators to a portion of the “proceeds” referred to gross proceeds, not proceeds remaining after the Commonwealth paid appropriate Medicaid refunds to the federal government.


The relators in this qui tam case filed this action under the Virginia Fraud Against Taxpayers Act, alleging that several laboratories illegally inflated the bills they submitted to Virginia’s Medicaid program. The case ultimately settled, with approval from the Commonwealth.

Under the Act, a relator who obtains recovery is entitled to between 25 and 30 percent “of the proceeds of the action or settlement.” In the context of Medicaid, which is a joint federal and state program, 50 percent of a Medicaid fraud recovery is generally the property of the federal government.

Here, the parties agreed that the relators are entitled to 28 percent of the proceeds of the settlement but disputed whether that share should come out of the gross or net proceeds of the settlement (the net being the remainder after the Commonwealth refunded a portion to the United States). The relators claim a portion of the gross proceeds, in the amount of $350,000. The Commonwealth says the relators are entitled only to $138,925 as a portion of the net proceeds.

The trial court found in favor of the relators, concluding that they were entitled to receive 28 percent of the gross proceeds of the settlement. The Commonwealth has appealed.

Interpretation of “proceeds”

The term “proceeds” in Code § 8.01-216.7(B) means gross proceeds, not net proceeds.

While the meaning of “proceeds” may depend on context, here the phrase “proceeds of the award or settlement” is most naturally read as encompassing gross proceeds. This conclusion is fortified by the fact that the legislature has employed the limiting word “net” in conjunction with the term “proceeds” 54 times, showing that it knows how to specify a limitation on the intended measure of proceeds in a statute. Yet here, it did not do so.

The Commonwealth argues that the Act’s chief purpose is returning misappropriated public funds to the treasury and, by extrapolation, the share of a qui tam recovery must be deducted from the overall proceeds. But this reading finds no support in the plain language of the statute and is premised on a legal conclusion that draws no support from federal law. It is also not obvious that, in the aggregate, the Commonwealth’s 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. Speculation about the potential for the Commonwealth to recover less is an insufficient basis for departing from the most natural, plain reading of
§ 8.01-216.7(B).

Pre-enactment claims

Although the relators alleged that the excessive billing took place from November 1997 to September 2014, the Commonwealth contends that the relators are not entitled to a share of the settlement proceeds from billings prior to 2003, when the Act – which has no indication of being retroactive – took effect. But the record is insufficient to determine what claims might predate the Act.

The parties settled for an undifferentiated $1.25 million, and the Commonwealth approved it. Aside from blind guesswork, the court has no basis to determine, on a year-to-year basis, how to apportion the relators’ share.


Commonwealth v. Hunter Labs. LLC, Record No. 170995, Aug. 9, 2018. SCV (McCullough), from Fairfax Cir. Ct. (Mann). VLW No. 018-6-058, 9 pp.

VLW 018-6-058