On February 3, 2015, in United States v. Huron Consulting Group HURN +0.94%, Inc., U.S. District Judge Jed S. Rakoff, took the unusual – but not unprecedented – step of ordering a False Claims Act (“FCA”) relator to pay thousands of dollars of costs to the prevailing defendants Huron Consulting Group, Inc. and Empire Health Choice Assurance, Inc. This opinion highlights the financial dangers faced by individuals who try to blow the whistle on potentially illegal behavior.
The False Claims Act allows a private citizen whistleblower, known as a “relator,” to file a lawsuit against an individual or entity for defrauding the federal government. In these suits, the whistleblower sits in the seat of the government at first and then the government elects whether to participate in the action. If the government intervenes, the relator is entitled to receive between 15% and 25% of the recovery. If the government does not intervene, the case can proceed with only the relator pursuing the action and the relator is entitled to receive between 25% and 30% of any recovery.
As with whistleblower tips provided to the Securities and Exchange Commission under the Dodd-Frank Act, recent years have seen a significant increase in the number of whistleblowers filing qui tamactions under the FCA. Indeed, whistleblowers filed 700 new FCA cases in fiscal year 2014, and according to a November 2014 Department of Justice press release, “[t]he number of qui tam suits rose from 30 in 1987, to 300 to 400 a year from 2000 to 2009, to more than 700 for each of the last two fiscal years.” But for whistleblowers, qui tam actions are not risk free. Under certain circumstances, a whistleblower may actually be required to pay costs to the alleged fraudster. Although the category of costs awarded in litigations under Federal Rule of Civil Procedure (“FRCP”) 54(d)(1) are limited, these costs can be significant for many whistleblowers
In Huron Consulting Group, Inc., the relator sought $50 million in damages based on the allegations that the defendants purposefully overbilled Medicare and Medicaid, while managing a now-defunct and bankrupt hospital. In January 2010, the government declined to intervene in the action, and in May 2014, the Second Circuit Court of Appeals affirmed the district court’s dismissal on summary judgment. After the judgment was affirmed, the defendants submitted bills of cost in the amounts of $7,886.95 and $5,839.80, and the Clerk of Court awarded those costs to Huron and Empire, respectively.
The relator appealed the award arguing that the court was prohibited from awarding “costs” pursuant to FRCP 54(d)(1), which provides that costs should be awarded to a prevailing party “unless a federal statute, [the Federal Rules of Civil Procedure], or a court order provides otherwise.” The relator contended that the FCA “provides otherwise” because it does not permit the award of “reasonable attorneys’ fees and expenses” unless a court finds that a lawsuit was frivolous, vexatious, or brought for the purposes of harassment. The relator argued that the costs sought by the defendants pursuant to FRCP 54(d)(1) were “expenses” prohibited by the FCA and thus were improperly awarded by the court because the case was not frivolous. Indeed, the defendant in Huron Consulting did not even claim that the case was frivolous. Judge Rakoff disagreed with the relator’s argument that expenses and costs are synonymous, citing to the statutory language of the FCA, which distinguishes between “costs” and “expenses” and affirmed the award.
FCA litigation is extremely lucrative for both the government and FCA relators. From January 2009 through the end of fiscal year 2014, the Department of Justice recovered $22.75 billion in settlements and judgments in FCA cases. In fiscal year 2014 alone, the government recovered $5.69 billion, nearly $3 billion of which related to cases initiated by whistleblowers, and the government paid out $435 million to whistleblowers. Since January 2009, the government has paid awards to whistleblowers under the FCA in excess of $2.47 billion.
Whistleblowers file FCA cases at great risk to their reputations and their careers, but the Huron Consulting case serves as a reminder that FCA relators have financial risk as well — even when they bring non-frivolous cases. The possibility of recovering nothing in a qui tam action, and instead owing thousands of dollars, may outweigh the far-in-the-future possibility of a large windfall for some whistleblowers and deter them from bringing claims.