It is not uncommon for
defendants settling False Claims Act (31 U.S.C. §§
3729-33 [“FCA”]) actions with qui tam
relators alone, or with relators and the Department
of Justice, where the government has intervened, to
overlook a vital provision of the FCA--31 U.S.C. §
3730(d)(1) & (2). This provision specifies, in
pertinent part, that successful relators “shall also
receive an amount for reasonable expenses which the
court finds to have been necessarily incurred, plus
reasonable attorneys’ fees and costs. All such
expenses, fees, and costs shall be awarded against
the defendant.” A successful relator is entitled to
reimbursement of attorneys’ fees, costs, and
expenses whether the government intervenes in the
case [§(d)(1)] or if the government declines and the
relator litigates the matter to a successful
conclusion herself [§(d)(2)].
The section applies
whether the favorable resolution comes through
settlement or trial. Moreover, § 3730(f) of the FCA
(“The Government is not liable for expenses which a
person incurs in bringing an action under this
section”) forecloses any United States liability for
a relator’s attorneys’ fees, costs, or expenses
under this provision. United States ex rel.
Smith v. Gilbert Realty Co., 34 F. Supp.2d 527,
530 (E.D. Mich. 1998). Surprisingly, given the
relatively straightforward language of the
provision, some rather significant litigation has
ensued in which courts have had an opportunity to
expound upon the reach of § 3730(d)(1) & (2).
The Legislative History
Usually, the awarding
of fees in litigation is governed by the so-called
“American rule” which holds that each party bears
the cost of its own attorneys’ fees. For example,
Federal Rule of Civil Procedure 54(d) specifically
exempts attorneys’ fees from the district court’s
authority to otherwise impose costs on the losing
party “[e]xcept when express provision therefore is
made either in a statute of the United States or in
these rules...”
The main exception to
the American rule in federal district court
litigation is when Congress has by statute
specifically authorized the awarding of attorneys’
fees. Alyeska Pipeline Serv. Co. v. Wilderness
Soc’y, 421 U.S. 240 (1975). The most common
situation in which such statutory authorizations are
encountered relates to civil rights litigation, such
as under 42 U.S.C. § 1983. It is not surprising
then, given the role of FCA relators as “private
attorneys general,” that such a provision governing
their fees and expenses has been included in the FCA.
The legislative
history of § 3730(d)(1) & (2) is quite sparse. It
speaks only of reasonable attorney’s fees, and not
the other two categories of expenses articulated in
the section. The purpose of the provision is to
remove one roadblock that might inhibit the bringing
of qui tam actions--the fees and expenses
that will be incurred by a prospective relator and
her counsel. See 1986 U.S. Code Cong. & Admin.
News 5266, 5294.
Parsing the Language
It is important to
remember that § 3730(d)(1) & (2) provides for the
mandatory award of three categories of expenses. The
very language of the provision makes it clear that
it is addressing three separate categories of
expenditures. See United States ex rel.
Lidenthal v. General Dynamics Corp., 61 F.3d
1402, 1413-14 (9th Cir. 1995), cert. denied,
517 U.S. 1104 (1996).
Most important, it
establishes a relator’s right to “reasonable
attorneys’ fees,” the most commonly encountered
situation. In addition, the relator is entitled to
“costs,” which is apparently a reference to the
customary Rule 54 litigation costs that can be
awarded by a district court. The most indistinct
category, however, is that of “reasonable expenses.”
Presumably, this category relates to investigative
expenses incurred by a relator as she gathers
information to serve as the basis for her complaint.
Key Points Established in the Case Law
The best way to
appreciate the intricacies of § 3730(d)(1) & (2) is
to dip into the pertinent case authority. Cases
interpreting the section, while not extensive at
this point, address those issues that would
typically arise in litigation. Among the central
principles established in the current case holdings
are the following:
- The award of
fees, costs and expenses is mandatory, and not a
matter of discretion vested in the district
court. Shaw v. AAA Engineering & Drafting,
Inc., 213 F.3d 538, 544 (10th Cir. 2000);
United States v. General Electric, 808
F. Supp. 584, 585 (S.D. Ohio 1992). Aff’d in
part; rev’d in part on other grounds, 42
F.3d 1032 (6th Cir. 1994). Therefore, an
unsuccessful FCA defendant should be prepared
from the outset to deal with this issue because
it will eventually surface; similarly, FCA
complaints resolved through negotiation
inevitably will confront this issue. It simply
cannot be avoided. Offers of judgment that do
not address this element of a potential recovery
will not be construed to include relators
attorneys’ fees, expenses, and costs. United
States ex rel. Millett v. Reynolds, 1995 WL
788207 (D. Maine, Dec. 14, 1995). Therefore, the
issue is best addressed openly at the outset of
negotiations so that a qui tam
defendant is not under the impression that a
case has been settled with the payment of
damages to the United States, only to receive a
nasty surprise when the relator later demands an
additional payment to cover attorneys’ fees,
costs, and expenses.
- Computations of
the attorneys’ fee component of § 3730(d)(1) &
(2) are usually performed in accordance with the
“lodestar” principle. That formula mandates that
the award is “the product of hours expended
multiplied by an hourly rate for attorneys in
the relevant market.” United States ex rel.
Averback v. Pastor Medical Associates, 224
F. Supp.2d 342, 348 (D. Mass. 2002). The
difficulty inherent in this technique is
determining what are the “reasonable” hours
expended by the relator’s counsel, and what is a
“reasonable” market value rate to be applied to
each hour. Id. at 348-49. Such computations can
become exceedingly complicated. See, e.g.,
United States ex rel. Burr v. Blue Cross and
Blue Shield of Florida, 882 F. Supp. 166,
170 (M.D. Fla. 1995) (applying a “12 factors”
test); United States ex rel. Coughlin v. IBM,
992 F. Supp. 137, 142-145 (N.D.N.Y. 1998). Some
courts have factored in counsel’s experience
with the FCA and her contributions to the
overall success of the government’s recovery.
United States ex rel. Poulton v. Anesthesia
Associates of Burlington, Inc., 87 F.
Supp.2d 351,355-56 (D. Vt. 2000). Alternatively,
fees and expenses can be apportioned among
multiple defendants. Id. at 355. A second
approach recognized by the Supreme Court, the
so-called “Model Code” formula, “which combines
the lodestar calculation with various other
factors such as ‘degree of success obtained,’
‘novelty,’ and ‘complexity’” has not found much
application under this provision. Averback
at 348.
- As the provision
states, reasonable attorneys’ fees and costs are
assessed “against the defendant.” That is,
whatever a court awards under this category, it
is not subtracted from the government’s award of
multiple damages and penalties, but is assessed
separately against the defendant. United
States v. Stern, 932 F. Supp. 277, 278
(M.D. Fla. 1993). Hence the “double whammy”
element of the provision becomes evident.
- Only the relator
and not counsel can seek attorneys’ fees under
this section. However, any fees recovered from
the defendant vest in and must be paid over to
the relator’s counsel. United States ex rel.
Virani v. Jerry M. Lewis Truck Parts &
Equipment, Inc., 89 F.3d 574, 578-9 (9th
Cir. 1996); United States ex rel. Thornton
v. Science Applications International Corp.,
79 Supp.2d 655, 659 (N.D. Tex. 1998).
- The relator’s
entitlement to continuing fees and costs does
not terminate once the government intervenes in
the qui tam case. The FCA contemplates
that relator’s own counsel may continue to make
valuable contributions in assisting the
government even though the Department of Justice
is taking the lead in the litigation. As long as
the relator’s counsel’s continuing work can be
seen as contributing to the eventual and
successful outcome, any disputation will be
rejected. United States ex rel. Marcus v.
NBI, Inc., 142 B.R. 1 (D.D.C. 1992).
- Relator’s
attorneys’ fees expended in post-judgment
collection activities can also be assessed
against the defendant. United States ex rel.
Shaw v. AAA Engineering & Drafting Inc.,
213 F.3d 538, 545 (10th Cir. 2000).
- Fees that a
relator incurs in battling the Department of
Justice over its statutory entitlement to share
in the government’s recovery are not
included within the scope of § 3730(d)(1) & (2)
and cannot be assessed against the defendant.
United States ex rel. Taxpayers Against
Fraud and Walsh v. General Electric Co., 41
F.3d 1032, 1045-1046 (6th Cir. 1994).
- The “costs
associated with the litigation are generally
recoverable if they are reasonable out-of-pocket
expenses incurred by the attorney and which are
normally charged to fee-paying clients.”
United States ex rel Coughlin v. International
Business Machines Corp. and SCI Systems, Inc.,
992 F. Supp. 137, 145 (N.D.N.Y. 1998) (quoting
Reichman v. Bonsignore, Brignati & Mazzotta,
P.C., 818 F.2d 278, 283 (2d Cir. 1987)).
The section provides for costs, which are
“incidental and necessary” to the
representation. “Under this rule, costs are not
allowed if they cannot be attached to the
advancement of a specific claim, or if they are
so general that they could be placed under the
cost umbrella of overhead or office expense.”
Id.
- The attorney
fees must relate directly to the litigation. For
example, generating congressional testimony,
media relations, and securing immunity for the
relator do not qualify for
reimbursement under the provision. United
States v. General Electric, 808 F. Supp.
584, 586 (S.D. Ohio 1992).
Finally, a new
wrinkle that has recently emerged in this area
resulted from the Supreme Court’s decision in
Vermont Agency of Natural Res. v. United States ex
rel. Stevens, 529 U.S. 765 (2000). There, of
course, the Court held that a qui tam
relator did not have standing to initiate an action
against a state or state entities. In Donald v.
University of California Board of Regents, 329
F.3d 1040 (9th Cir. 2002), the Ninth Circuit held
that even if a relator originates a case against a
state entity that is later taken over by the United
States, and it results in a settlement negotiated by
the government (in this case in the amount of $22.5
million), the relator still is not entitled to share
in the recovery. The lack of standing acts as an
absolute bar.
Similarly, the
unlucky relator is also unable to recover attorneys’
fees and expenses due to his lack of standing.
See, e.g., United States ex rel. Garibaldi v.
Orleans Parish School Board, 244 F.3d 486 (5th
Cir. 2001), cert. denied, 534 U.S. 1078
(2002) (vacating judgment granting fees, expenses
and costs under § 3730(d)(1) & (2) because school
board not a “person” within the reach of the FCA).
Conclusions
Whenever defense
counsel is facing a qui tam complaint, he
should at the outset fully brief the client on the
potential additional liability that attaches as a
result of § 3730(d)(1) & (2). Depending upon the
nature and complexity of the case, this additional
liability may well substantially impact the client’s
strategy.
Moreover, whenever a
qui tam defendant is contemplating possible
resolution through settlement, the defendant must
once again be apprised of the separate potential
liability he has incurred due to the operation of §
3730(d)(1) & (2). Sometimes it is possible to use
the obligation to pay attorneys’ fees, costs, and
expenses as leverage in the negotiations with a
relator. However, under no circumstances should
defense counsel assume that somehow relator’s
counsel is unaware of this provision and that the
matter will not surface if it is not identified at
the outset of the negotiations.
At the same time,
defense counsel should not suppose that if a
settlement agreement is executed with the relator,
with no mention of § 3730 (d)(1) & (2) liability,
the relator is thereby foreclosed from later seeking
recovery under this provision.
The best course, and
that most favored by DOJ, is to spell out the terms
for settling the § 3730(d)(1) & (2) liability,
including specific amounts, in the main settlement
agreement between the government and the defendant
when DOJ has intervened, or in the settlement
agreement with the relator if the government has
declined.
Quite simply, there
should be no settlement of any part of the qui
tam case in isolation. All elements of the
settlement, including any § 3730(d)(1) & (2)
liability, should be identified and resolved early
on to avoid unexpected problems later.
