In recent years, there has been a steadily increasing number of cases that have been brought under the False Claims Act by qui tam relators (whistleblowers).  Between 2008 and 2014, the number of False Claims cases filed by such whistleblowers has grown from 379 cases filed in 2008 to 713 such cases being filed in 2014.  In connection with this growth in the volume of cases, there has been an expansion in the theories and types of claims that are being pursued.  While meritorious allegations of wrongdoing under the False Claims Act certainly exist, this outpouring of litigation in the False Claims context has given rise to claims that could best be described as frivolous.  This problem is particularly significant in light of the possibility for a financial recovery to whistleblowers and the significant expense for defendants in False Claims litigation.

Fortunately, the False Claims Act provides a right for a defendant to recover its attorneys’ fees in False Claims litigation in certain, specified circumstances.  Specifically, 31 U.S.C.  3730(d)(4) provides that a defendant may recover its attorneys’ fees where the Government has declined to intervene in the litigation (and the Government has not brought the litigation itself), and the whistleblower’s claims are “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”  This provision has taken on increased importance because of the growing number of claims and the rise in overly aggressive whistleblowers who pursue baseless claims.  We expect to see a steady rise in the number of fee petitions that are filed by successful defendants in False Claims litigation.  However, to date, there is somewhat limited case law providing guidance on the circumstances in which such fee petitions will be granted.

A recent opinion from the United States District Court for the Southern District of New York, U.S. ex rel. Fox Rx, Inc. v. Omnicare, Inc., et al. (Case No. 12 cv 275) provides detailed guidance on factors to be considered in evaluating a meritorious fee petition under Section 3730(d)(4).  In a December 1, 2014 opinion, the Court granted Defendant MHA Long Term Care Network’s (MHA) motion for an award of attorneys’ fees and costs.  In granting the motion, the Court discussed Fox Rx’s extensive litigation history, which included the filing of multiple False Claims lawsuits in jurisdictions around the country.  The Court also found that the fundamental allegations that were made by Fox Rx were incorrect, as those allegations were directed at the conduct of pharmacies, but MHA was not a pharmacy.  Most significantly, the Court discussed the fact that MHA had scheduled a meeting with Fox Rx’s principal and its attorneys, at which meeting MHA gave a presentation regarding its business.  That presentation illustrated the flaws in Fox Rx’s theory, but Fox Rx persisted with its claims against MHA.  Against this backdrop, the Court found that Fox Rx’s claims were frivolous and granted MHA’s motion for attorneys’ fees and costs.  In a separate opinion dated April 15, 2015, the Court awarded MHA all of its requested attorneys’ fees and costs in the amount of $168,967.61.

The key takeaway from the Fox Rx opinion is to be diligent and candid in defending a False Claims case.  Evaluating the potential merits of a claim at the outset can help a defendant determine whether there is any validity to the whistleblower’s allegations.  Where those allegations are fundamentally flawed in a legal sense or are based on facts that are plainly incorrect, the defendant is well served to put the whistleblower on notice of these defects, including providing a description of the flaws in the claims and notifying the whistleblower of the intent to seek fees.

Taking these steps serves two critical purposes.

  • First, reasonable plaintiff’s counsel should take action to remedy defects in their pleadings or to dismiss defendants where the claims against such defendants are meritless.  In a recent case, we had success with precisely this type of approach where the whistleblower’s theory was predicated on a fundamental understanding of the manner in which our client billed its claims.  We clarified that misunderstanding and the whistleblower voluntarily dismissed his claims.
  • Second, a groundwork will be laid to support an eventual motion for attorneys’ fees.  Courts may be reluctant to award attorneys’ fees against a whistleblower because of concerns about having a chilling effect on meritorious claims.  Setting forth a clear record that the whistleblower had every opportunity to avoid proceeding with a baseless claim will help to alleviate this concern.

Other factors that will be considered in connection with a defendant’s motion for attorneys’ fees are also set forth in the Fox Rx case.  For example, the Court discussed the whistleblower’s history as a serial litigator with multiple similar cases having been filed and prior rejections of similar claims that were brought by the whistleblower. Such circumstances are arising more frequently as we are seeing whistleblowers pursue one theory of wrongdoing in claims that are brought against multiple defendants and in different jurisdictions.

The increasing volume of False Claims litigation places a heightened emphasis on compliance.  For companies that are compliant, but who are nonetheless dragged into meritless False Claims litigation, the Fox Rx case provides guidance on methods to structure a defense in a manner that will bolster the ability to recover attorneys’ fees after a favorable judgment.