Third Circuit Considers Constitutionality of False Claims Act Qui Tam Provisions

A US Court of Appeals for the Third Circuit panel heard oral argument on March 18, 2026 in an appeal of a 2025 District of New Jersey decision upholding a jury verdict in favor of qui tam relators, presenting an opportunity for the Circuit to weigh in on the closely watched question of whether the qui tam provisions of the False Claims Act are unconstitutional under Article II’s Appointments, Vesting, and Take Care Clauses. The Third Circuit’s potential resolution of the question is much anticipated, as is the Eleventh Circuit’s forthcoming decision on the same question.

In the underlying decision in United States ex rel. Penelow, the US District Court for the District of New Jersey gave short shrift to the Article II question, declining to follow what it referred to as the “singular non-precedential and out-of-circuit court decision” underlying the current US Court of Appeals for the Eleventh Circuit appeal, United States ex rel. Zafirov. [1] Instead, the District Court purported to follow “every federal circuit court of appeals that has addressed this issue,” referring to five decisions now over two decades old. [2] The District Court did not acknowledge the recent comments by three US Supreme Court justices that the qui tam provisions raise “substantial” Article II questions, which reignited this constitutional question. [3]

In the appellate briefing, the defendant thoroughly analyzed these substantial questions, while the relators devoted only approximately one page to the issue. Meanwhile, the US Department of Justice intervened on appeal specifically to address this constitutional issue and another related to the Eighth Amendment’s Excessive Fines Clause, in addition to appearing in an amicus curiae capacity to address the relationship between US Food and Drug Administration approval of a drug and reimbursability.

With respect to Article II, the Justice Department brief repeated its now-familiar arguments in support of the constitutionality of the qui tam provisions, including an acknowledgement that, “if Congress’s use of the qui tam mechanism were a new development, these features of qui tam suits would give rise to substantial questions about whether such actions are consistent with the Vesting and Take Care Clauses,” but arguing these should be resolved by reference to their historical pedigree.

As with the Zafirov appeal in the Eleventh Circuit, a number of organizations also filed amicus briefs directed at the Article II question.

TAKEAWAYS FROM THE PENELOW ORAL ARGUMENT

In oral argument, the parties themselves devoted all of their time to issues unrelated to the constitutional challenge, leaving that question to be argued by counsel for the Chamber of Commerce (appearing as amicus curiae) and the United States.

The panel—Judges Paul B. Matey, Arianna J. Freeman, and Cindy K. Chung—focused much of their questioning on the constitutionality issue on the scope of the ruling they were being asked to make: i.e., whether the challenge applied to all qui tam suits or whether the question should be framed more narrowly due the circumstances of this case, where the government did not intervene and the relator thereafter pursued the action “on behalf of” the government. While the Chamber attorney maintained that the constitutional infirmity applies to all qui tam actions whether or not the government intervenes—because the relator’s initiation of the suit on behalf of the United States commits the government to take action and expend resources before any intervention decision—he also acknowledged that the court could limit its ruling to the circumstances here, where the government declined to intervene.

Picking up on this point, the attorney for the United States argued that the court should not say anything about situations where the government does intervene. The panel, however, continued to raise questions that would implicate a broader analysis.

Other panel questions focused on the import of the qui tam provisions’ historical roots. The United States acknowledged in its opening remarks—just as it had in briefing—that the False Claims Act’s qui tam provisions would create significant Article II issues if they were a novel (or modern) development, but that their historical pedigree by way of analogous statutes dating back to the nation’s founding should save them. At least one panel member appeared skeptical of whether that early history was appropriately analogous to the role of the modern qui tam relator and whether Congress could authorize something akin to these provisions today.

The panel also posed questions concerning whether a relator is an “Officer” subject to the Appointments Clause. For example, panel questioning seemed to take issue with the government’s arguments that a relator cannot be an “Officer” because a relator does not occupy an “office”—a term not used in the Appointments Clause. This line of questioning appeared aimed at the government’s assertions that the role of qui tam relator is not an “office” because the role cannot be transitioned to another individual relator in the same case. The panel also questioned the Chamber attorney on whether being able to “substitute” or “swap” a relator was important to the analysis. It should be noted that this issue applies only to the Appointments Clause challenge but not to the Vesting and Take Care Clause challenges, as those clauses do not depend on the term “Officer.”

FUTURE IMPLICATIONS

The oral argument did not clarify whether the panel will view the constitutionality challenge as a threshold question or whether it might resolve the appeal on one of the many other issues without addressing Article II. But either the Penelow decision—if it addresses constitutionality—or the previously noted Eleventh Circuit Zafirov appellate decision could result in a circuit split with the 20-year-old decisions that last considered this issue. And as we noted in a prior LawFlash, regardless of the outcome, the Article II question appears destined for Supreme Court review.

Any circuit court finding of unconstitutionality likely will have significant near-term effects, particularly on non-intervened qui tam cases within that circuit. However, those impacts will depend on the specific contours of any decision, including, for example, whether the Justice Department can immediately implement additional oversight (or intervention) to prevent dismissal of pending cases.

At the same time, it is unlikely that continued review of the constitutionality of the qui tam provisions will have a lasting impact on False Claims Act filings, as both the Justice Department and US Congress are incentivized to quickly consider adjustments to the statutory procedure in order to ensure that the government can continue to benefit from the contribution of qui tam relators, who have played a major role in making the False Claims Act the United States’ primary civil fraud enforcement tool.