Posted by Ellyce Cooper and Brent Wilner
A recent opinion by the United States District Court for the District of New Jersey underscores the significant incentives for attorneys to represent whistleblowers in False Claims Act litigation. In resolving a fee dispute between a relator and his counsel following a settlement of FCA claims, the court found that the fee shifting provisions of the FCA, 31 U.S.C. § 3730(d)(1)-(2), do not preclude the relator’s attorney from receiving contingency fees in addition to the statutorily mandated attorney’s fees. United States ex rel. DePace v. Cooper Health System, __ F. Supp. 2d __, 2013 WL 1707952 (D.N.J. Apr. 22, 2013).
Relator Dr. Nicholas DePace alleged that Cooper Health System paid illegal kickbacks to physicians to induce referrals for expensive cardiac services causing false claims for reimbursement to be submitted to government payors in violation of the FCA and its New Jersey parallel. Dr. DePace retained Pietragallo, Gordon, Alfano, Bosick, & Raspanti, LLP to represent him in this qui tam matter. He also was represented by his personal counsel, Joseph Milestone. Dr. Depace’s contingency fee agreement provided that the Pietragallo Firm would receive 40 percent of any recovery on his FCA claims prior to trial, and expressly contemplated that these contingency fees would be “in addition to” any attorney’s fees paid under the state or federal FCAs. The contingency fee agreement allocated a portion of that amount to Milestone.
The federal and New Jersey governments ultimately intervened in Dr. DePace’s action for purposes of settling the claims prior to trial. Under the settlement agreement, Cooper agreed to pay the United States and New Jersey a combined $12,600,000, out of which the United States and New Jersey agreed to pay Dr. DePace a total of $2,394,000. Cooper also agreed to pay “as full payment” attorney’s fees of $430,000 “in accordance with subsection 3730(d)(1).”
Thereafter, when allocating the funds, the Pietragallo Firm withheld 40 percent of Dr. DePace’s award to fulfill the contingency fee agreement. (Milestone declined any fees and the Pietragallo Firm withheld 30 percent and provided Dr. DePace with 70 percent). Dr. DePace challenged the allocation of contingency fees beyond the statutory fees, with the dispute ultimately returning to Judge Irenas, the judge who presided over the underlying FCA action.
After finding that the court had jurisdiction to reopen the case, Judge Irenas rejected Dr. DePace’s pleas. In particular, the court rejected Dr. DePace’s argument “that because the Federal False Claims Act states that ‘all’ attorneys’ fees are to be awarded against the defendant, the statute does not allow for attorneys to receive additional fees from clients through contingency agreements.” Judge Irenas relied heavily on the Supreme Court’s policy rationale in Venegas v. Mitchell, 495 U.S. 82, 89-90 (1990) (a case involving 42 U.S.C. § 1988, rather than the FCA) that “‘depriving plaintiffs of the option of promising to pay more than the statutory fee if that is necessary to secure counsel of their choice would not further . . . general purpose of enabling such plaintiffs in civil rights cases to secure competent counsel.'” The court pointed to analogous concerns articulated in the FCA’s legislative history that “‘[u]navailability of attorneys fees inhibits and precludes many individuals, as well as their attorneys, from bringing civil fraud suits.'” See S. Rep. No. 99–345, at 29 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5294.
The court also rejected the relator’s distinction between non-intervention cases and cases like Cooper where the government had intervened, noting that there was “no case law or statistics to support his broad generalizations about the amount of risk and work involved in intervention and non-intervention cases,” particularly given that in the five-year litigation of this qui tam matter, the government in Cooper only intervened “shortly before” settlement. Moreover, the court noted that because the language in § 3730(d)(1) and § 3730(d)(2) (intervention and non-intervention cases) is identical, there is no reason to interpret these subsections differently.
While the issue was one of first impression in the Third Circuit, Judge Irenas noted that several other courts had made similar rulings in FCA cases. See United States ex rel. Lefan v. General Electric Co., 394 Fed. App’x 265, 272 (6th Cir.2010); United States ex rel. Alderson v. Quorum Health Group, Inc., 171 F. Supp. 2d 1323, 1335 n.35 (M.D. Fla. 2001); United States ex rel. Poulton v. Anesthesia Assocs. of Burlington, Inc., 87 F. Supp. 2d 351, 359 (D. Vt. 2000); United States ex rel. John Doe I v. Pennsylvania Blue Shield, 54 F.Supp.2d 410, 413 (E.D. Pa. 1999).
Finally, the opinion also discussed the implications of New Jersey’s ethical rules on the fees, but still did not find the fee arrangement unenforceable. Consistent with the reasoning above, the court concluded “the policy behind the fee shifting provisions of the Federal False Claims Act was to ensure that litigants had access to competent counsel. This policy would not be undermined by allowing a party to choose to pay a contingency fee in addition to a statutory fee in order to secure his preferred counsel.”
Posted by Brent Wilner and Ellyce Cooper
On May 15, 2012, the United States Court of Appeals for the District of Columbia Circuit issued an opinion, which dramatically altered the Court’s precedent regarding the original source rule. United States ex rel. Davis v. District of Columbia, No. 11-7039, Slip Op., (D.C. Cir. May 15, 2012), available at http://www.cadc.uscourts.gov/internet/opinions.nsf/C7A5B64099D02F98852579FF004E73DC/$file/11-7039-1373743.pdf (“Davis”).
In Davis, the whistleblower raised allegations that the District of Columbia Public Schools (“DCPS”) improperly obtained Medicaid reimbursement for special education services through claim submissions lacking adequate documentation. At issue before the D.C. Circuit was when the whistleblower made the allegations to the government.
Until 1998, the whistleblower provided accounting services to DCPS including submitting DCPS’s claims for special education services. Davis Slip Op. at 3. While preparing the 1998 claim, DCPS replaced the whistleblower’s firm with another accounting firm. Id. DCPS proceeded to file a claim prepared by the new firm, even though the new firm never obtained proper documentation for the claim. Id.
In 2002, the District of Columbia Auditor released a report to the public finding that “for fiscal years 1996-1998, ‘$15 million of costs incurred for services referred to special education students [by DCPS] were disallowed for Medicaid reimbursement due to the absence or unavailability of supporting documentation.'” Davis Slip Op. at 4. Two years later, the whistleblower informed the Inspector General of the U.S. Department of Health and Human Services that DCPS “d[id] not have in their possession documentation to support a drawdown of federal [M]edicaid funds for [1996-1998].'” Id. at 8. Thereafter, in 2006, the whistleblower filed his qui tam action alleging, inter alia, that the District of Columbia violated the FCA by submitting the 1998 claim in the absence of documentation. Id. at 4.
The District Court granted the District of Columbia’s motion to dismiss the qui tam action for lack of subject matter jurisdiction. Id. at 6. Relying on an earlier D.C. Circuit opinion, United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997), the district court reasoned that the whistleblower could not have been the “original source” of the information “[b]ecause there was no evidence that Davis notified the federal government before the 2002 Auditor’s report.” Id. That is, the whistleblower’s action was premised on information that had already been publicly disclosed.
The D.C. Circuit rejected the lower court’s interpretation of the public disclosure bar. Instead, the Davis court relied on the Supreme Court’s opinion in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). The D.C. Circuit found that Rockwell stands for the proposition that “[t]he relator can be an ‘original source’ to the government of his information even if the publicly disclosed information came from someone else.” Davis Slip Op. at 10.
Of particular import, Davis rejected the defendant’s (and Findley’s) concern that “‘once the information has been publicly disclosed . . . there is little need for the incentive provided by a qui tam action.'” Ibid. (citing Findley, 105 F.3d at 691). Rather, the court indicated that there is a policy interest to qui tam actions that survives the public disclosure: “[T]he relator’s information can be different and more valuable to the government than the information underlying the public disclosure, which might be nothing more than speculation or rumors.” Id. at 10-11 (citing Rockwell, 549 U.S. at 472). The Davis court stated examples of this would arise where the whistleblower has “an eyewitness account” or “important documents” that might not have been contained in the public disclosure. Id. at 11. Ultimately, the court concluded that “we will no longer require that a relator provide information to the government prior to any public disclosure of allegations substantially similar to the relator’s and will instead enforce only the text’s deadline of ‘before filing an action.'” Id.
It is worth noting that much of the impact of Davis has already been foretold by recent Congressional amendments to the FCA. Davis was decided applying the 1986 version of the FCA, which barred suits “based upon the public disclosure of allegations or transaction . . . unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A) (2006) (amended 2010). As amended in 2010, the FCA now defines an “original source” as:
[A]n individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.
31 U.S.C. § 3730(e)(4)(B) (Supp. 2010). As the Davis court noted, Congress mitigated one concern the defense bar might have had after Rockwell, namely, Congress precluded a whistleblower from bringing a qui tam action if he or she added nothing to publicly disclosed information “by amending the statute to provide incentives to only those relators whose information adds value.” Davis Slip Op. at 11 n.4.
The Davis opinion nevertheless provides a reminder to entities operating in the federal reimbursement space that whistleblower suits may remain a viable threat even after alleged misconduct is revealed through public disclosures.