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Supply Chain Risk

Attorney Fees for Qui Tam Relators Awarded

Last week, a panel of the Sixth Circuit unanimously greenlighted an award of attorney fees for multiple qui tam relators who had entered into a settlement agreement with the government and defendants under the False Claims Act.  Judge Moore authored the Court’s opinion.  She was joined by Judge Clay and Judge Gibbons.

The seven relators had alleged that Community Health Systems and its affiliated hospitals violated the Act in submitting fraudulent claims for medically unnecessary hospital admissions to Medicaid and Medicare.  The relators’ claims prompted a nationwide investigation by the government, which encouraged the relators “to work together on the cases and share any proceeds that might result.”  Heeding that advice, the relators engaged in a “collaborative effort” over multiple years that involved “bi-monthly calls with the Government.”  The government would later intervene in each of the cases, and, in exchange for a payment exceeding $97 million, the government and the seven relators agreed to dismiss with prejudice all their claims against Community Health.  After the settlement agreement was approved, the government awarded just one of the relators all of the relators’ share of the most valuable claims in the underlying litigation.  That relator had been the first to file a lawsuit involving such claims.  The remaining relators received their share of the award pursuant to the government-encouraged share agreement into which they had previously entered.

As relevant here, the settlement explicitly reserved the issue of allocating attorney fees.  It was an important issue.  By the time of the settlement, the relators claimed to have spent nearly 7,000 billable hours investigating the underlying claims.  Litigation ensued over the attorney fees issue.  Community Health would eventually settle the issue of attorney fees with the first-to-file relator who had received the relators’ share of the relevant proceeds directly from the government.  But Community Health argued that the remaining relators—the ones who had received their share pursuant to the government-encouraged share agreement—were not entitled to attorney fees under the False Claims Act’s attorney fees provision, 31 U.S.C. 3730(d)(1).  The district court agreed with Community Health, and the relators appealed.

On appeal, Community Health argued that the relators had failed to satisfy Section 3730(D)(1)’s facial prerequisite that relators receive a portion of the “proceeds of the action or settlement” before they seek attorney fees.  The relators, for their part, argued that they needed only to show that the government had intervened in their cases.  Applying a close reading of related statutory provisions, the Court rejected both arguments.  “Congress clearly envisioned” that relators would need to receive a portion of the “proceeds of the action or settlement” in order to be eligible for attorney fees, Judge Moore explained.  But that holding turned out to not hurt the relators because the Court further held that the relators had all received a portion of the “action or settlement” proceeds.  Community Health had argued that the relators had not received such proceeds because, apart from the first-to-file relator, none had received the relevant proceeds directly from the government; they had all received the proceeds under the share agreement.  In dismissing that argument, Judge Moore explained that “[n]othing in [Section] 3730(d)(1) define[d] how the relator must obtain the relator’s share or require[d], either implicitly or explicitly, that the government directly transfer the proceeds to all the relators.”

The Court likewise shot down CHS’s arguments based on the FCA’s first-to-file rule and public disclosure bar.  (The first-to-file rule bars “successive plaintiffs from bringing related [FCA] actions based on the same underlying facts.”  Meanwhile, the public disclosure bar requires that, absent objection from the government, a court “shall dismiss an action or claim” under the FCA “if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed.”).  The Court reasoned that the plain text of the FCA’s attorney fees provision did not mention either of these statutory bars.  But the Court also found support in the competing interests of the False Claims Act:  at one end, incentivizing civilian involvement in qui tam actions to police false claims; at the other, limiting parasitic tag-along actions that overwhelm the policing of false claims.  According to the Court, the relators’ “coordinated effort” served both interests.  Working together, the multiple relators uncovered “multiple independent parts of the same complex scheme.”  And the relators “differ[ed] from the proverbial ‘opportunistic plaintiffs’” given that they each “expended significant time and resources assisting the government in developing the claims against defendants.”  In addition, the Court held that neither statutory bar was jurisdictional, and even if they were, Community Health had raised “these merits-based defenses too late” because the issue of attorney fees was “collateral to the judgment on the merits in the underlying case.”

One practice pointer is that, in cases involving multiple relators, defendants face significant risk in reserving attorney fees issues at the time of settlement.  We expect the Sixth Circuit’s decision will further incentivize relators to work cooperatively in investigating claims and entering into proceeds sharing agreements.  With those incentives will likely come further False Claims Act litigation, and we’ll be watching closely when that litigation finds its way to the Sixth Circuit.


© Copyright 2022 Squire Patton Boggs (US) LLP
National Law Review, Volume XII, Number 35

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