When settling a False Claims Act (FCA) case, the issue of a relator’s attorneys’ fees seems small compared to the monetary settlement and the breadth of the release. Two recent cases, however, demonstrate that fees can prove a sticking point in wrapping up an FCA case even after settlement. In U.S. ex. rel. Simring v. Rutgers, the U.S. Court of Appeals for the Third Circuit remanded a fee award entered after a settlement, finding that the lower court provided insufficient detail to review the reasonableness of deductions to a fee application. In U.S. ex. rel. Doghramji v. Community Health Systems Inc., the U.S. District Court for the Middle District of Tennessee evaluated whether a settlement agreement carve-out permitting objections to the relators’ attorneys’ fees permitted defendants to argue that the fees were barred by either the FCA’s “first to file” or “public disclosure” bar. The court decided that the carve-out did not protect such objections. The takeaway from these cases is that, in settling an FCA case, the parties should be prepared for the potentially lingering specter of attorneys’ fee issues.
In Simring, the Third Circuit issued a non-precedential opinion that nevertheless offered useful guidance on evaluating reasonableness of attorneys’ fees under the lodestar method. In 2009, one year after the government intervened, and five years after the relator brought the case, the parties settled the FCA claims for $4.45 million. The relator then petitioned the district court for $1.08 million in fees in December 2010. The district court reduced the fee award to around $750,000 based on reductions to the hourly rates and to certain categories of requested time.
The Third Circuit affirmed in part on August 4, 2015, finding that the reduction in one lawyer’s hourly rate from $850 to $625 was reasonable, but vacated and remanded on other issues. First, the Third Circuit found that the lower court had reduced the application for “administrative” tasks performed by lawyers, but failed to specify which entries were subject to the reduced administrative rate.
Second, the Third Circuit faulted the lower court for reducing the relator’s fee application for communicating with the state Attorney General’s Office, preparing for possible expert testimony, and preparation of a second amended complaint, as the lower court found that these strategies did not ultimately yield success (i.e., the state attorney general did not intervene, the expert did not testify because there was no discovery in the case, and the second amended complaint was ultimately not filed in the case). The Third Circuit stated that such background work could not be categorically rejected simply because the strategy did not yield a recognizable result in the record; the inquiry instead should focus on whether the work is “useful” and “of a type ordinarily necessary” to the litigation.
Finally, the Third Circuit found that the lower court’s 39 percent reduction to one partner’s hourly rate for all days he conducted legal research was arbitrary. The lower court had suggested that legal research is associate-level work and thus reduced the award for all such block entries. The Third Circuit disagreed, stating that research is an essential part of a lawyer’s job and not always associate-level work, and that the lower court needed to provide more reasoning for the fee reduction.
In Doghramji, seven consolidated whistleblower cases were globally settled for $97 million in July of 2014, payable by defendant Community Health Systems, Inc. (CHSI). After the settlement, the United States approved payment of a relator’s share to one relator for the claim that yielded $88 million of the $97 million settlement. CHSI paid this relator his attorneys’ fees, but objected to paying the attorneys’ fees of the other relators, as the settlement agreement reserved the right of CHSI to “challenge or object to Relators’ claims for attorneys’ fees, expenses, and costs pursuant to 31 U.S.C. § 3730(d).” CHSI argued that the fee applications of the other relators were barred by either the FCA’s “first to file” or “public disclosure” bar.
However, the court rejected CHSI’s arguments on August 6, 2015. In interpreting the breadth of the settlement agreement’s reservation of rights to object to attorneys’ fees, the court pointed out that the parties could have explicitly carved out first-to-file and public-disclosure objections to paying the fees for all relators but did not. Rather, the global settlement reserved challenges under 31 USC §3730(d), the provision that simply addresses the relator’s share of an FCA award and payment of “reasonable” attorneys’ fees and costs. The court then referred the plaintiffs’ fee requests to a magistrate for consideration of the reasonableness of the fee requests.
These cases demonstrate that even when an FCA case has settled, the issue of attorneys’ fees can keep the case alive. Where requested fees are significant (particularly in cases like Doghramji involving more than one whistleblower), this can be a big headache for defendants, preventing true resolution of an otherwise resolved case and causing further costs to be incurred in connection with a fee challenge.