The US Court of Appeals for the Fourth Circuit in United States ex rel. May v. Purdue Pharma L.P. held that a dismissal based on a settlement agreement barring a former employee's whistleblower claims did not preclude, under principles of res judicata, the former employee's wife and another former employee from proceeding on nearly identical claims.
On December 12, 2013, the US Court of Appeals for the Fourth Circuit in United States ex rel. May v. Purdue Pharma L.P. held that a dismissal based on a settlement agreement barring a former employee's whistleblower claims did not preclude, under principles of res judicata, the former employee's wife and another former employee from proceeding on nearly identical claims (No. 12-2287 (4th Cir. Dec. 12, 2013)).
In 2005, Mark Radcliffe was laid off as part of a reduction in force at Purdue Pharma L.P. (Purdue). Radcliffe signed a general release of all claims against Purdue in exchange for an enhanced severance package. Radcliffe then filed a False Claims Act (FCA) action against Purdue, alleging that Purdue falsely marketed narcotic pain medication as being twice as potent as an off-patent version.
The district court dismissed Mark Radcliffe's qui tam case with prejudice because he did not satisfy the heightened pleading standard for fraud. The Fourth Circuit affirmed this dismissal on different grounds, concluding that the general release barred his FCA claims.
In a separate case, Steven May, another former employee of Purdue, and Angela Radcliffe, Mark Radcliffe's wife, filed a nearly identical FCA action against Purdue. Purdue moved to dismiss on various grounds, including based on res judicata principles. Specifically, Purdue argued that the dismissal of Mark Radcliffe's case precluded the claims of Steven May and Angela Radcliffe because:
The Mark Radcliffe decision was a judgment on the merits.
The claims asserted in both qui tam actions were identical.
The Mark Radcliffe action was brought on behalf of the US as the real party in interest, so that the US and other relators alleging identical FCA claims are bound by its judgment.
The US District Court for the Southern District of West Virginia held that the Mark Radcliffe decision, which affirmed the grant of a summary judgment motion, was a final disposition on the merits. The district court did not address Purdue's other arguments (because Steven May and Angela Radcliffe did not challenge them), and dismissed their case on res judicata grounds. Steven May and Angela Radcliffe appealed.
The Fourth Circuit vacated the district court decision to dismiss on res judicata grounds. In its res judicata analysis, the Fourth Circuit found that:
The res judicata inquiry is modified in cases where the earlier action was dismissed pursuant to a settlement agreement.
Preclusive effect is given only to the matters specified in a settlement agreement, but not the original complaint.
Because Steven May and Angela Radcliffe were not signatories to Mark Radcliffe's release with Purdue, the Fourth Circuit held that the prior judgment barring FCA claims based on that release could not preclude the action by Steven May and Angela Radcliffe. The district court therefore erred in dismissing their action on res judicata grounds. However, the Fourth Circuit remanded to the district court to consider Purdue's other arguments, which included Purdue's assertion that the action should be dismissed because the complaint's allegations were derived from Mark Radcliffe's lawsuit (and therefore precluded by the public-disclosure bar under 31 U.S.C. § 3730(e)(4)(A)).
In drafting settlement agreements, counsel should keep in mind that dismissal of claims barred by a release or settlement agreement may have a limited or even no preclusive effect on identical claims subsequently brought by third parties.