FALSE CLAIMS ACT – BANKRUPTCY
U.S. ex rel. Fullington v. Parkway Hosp., Inc., No. 98-CV-3618 (JFB)(RLM) (E.D.N.Y. Sept. 19, 2006)
The United States District Court for the Eastern District of New
York held that the automatic stay in Section 362 of the Bankruptcy Code did
not prevent the government from proceeding with its claim under the False Claims
Act ("FCA")
against a hospital that had filed for bankruptcy. The government chose to intervene
on one count in the qui tam relator's claim. The hospital subsequently filed
for bankruptcy. Under Section 362(a)(1) of the Bankruptcy Code, the filing of
a bankruptcy petition automatically stays the commencement or continuation of
judicial proceedings against a debtor. However, Section 362(b)(4) of the Code
provides an exception to this rule for actions brought by a governmental unit
that is seeking to enforce its police or regulatory powers. The district court
found this exception applied because the FCA claim served the important government
interest of deterring fraud against the government. Therefore, the government
could proceed with its FCA claim. However, the qui tam relator's other claims,
for which the government did not intervene, would be stayed, as the relator was
not a governmental unit and would not fall under any exception to the automatic
stay rule.