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Decided: July 7, 2016

The Fourth Circuit vacated and remanded the district court’s ruling.

Under Virginia law a relator may institute “for the person and for the Commonwealth” a qui tam civil action alleging violations of the Virginia Fraud Against Taxpayers Act (the “VFATA”). Relators Hunter Laboratories and Chris Riedel filed this action against multiple medical laboratory businesses alleging that the medical labs had submitted false claims to the Commonwealth of Virginia for Medicaid reimbursement. Specifically, the complaint alleged that the defendant medical laboratories violated the VFATA by presenting false claims and by making or using false records or statements to obtain payment or approval of false claims.

When the Commonwealth declined to intervene in the matter, the relators proceeded to litigate their claims and the defendants removed the action from the state court to the federal court in the Eastern District of Virginia, asserting that the VFATA claims arose under federal law. The relators did not challenge the removal to federal court or seek to remand the proceeding to state court, and the issue of subject matter jurisdiction was never litigated in the district court. The parties thereafter entered into a settlement agreement and the district court awarded the relators a share of the settlement proceeds. On appeal, the relators contend the award was insufficient.

The Fourth Circuit was unable to reach that issue, however, because the district court lacked subject matter jurisdiction over the qui tam action. A lack of subject matter jurisdiction cannot be waived or forfeited, and the first requirement for a state claim to arise under federal law is for the issue to be “necessarily raised”. This was not met because federal law does not create any cause of action that is asserted in the Complaint and the relators could have prevailed on their VFATA claims by proving that the defendants contravened the Medicaid regulations, without showing any violation of federal law.

Because the VFATA claims do not necessarily raise any federal issue, they thus do not arise under federal law. Therefore, Fourth Circuit held that the district court lacked subject matter jurisdiction over the qui tam action.

Accordingly, the Court vacated and remanded the district court’s ruling.

Full Opinion

Whitney Kamerzel