FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
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When an FCA Case Just Won’t Go Away: Attorneys’ Fees Remain Contested Even After Settlement

By on Aug 10, 2015
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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In Simring, the Third Circuit issued a non-precedential opinion that nevertheless offered useful guidance on evaluating reasonableness of attorneys’ fees under the lodestar method.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 [...]

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Supreme Court Rules on Wartime Tolling of FCA Statute of Limitations and FCA’s First-to-File Bar in Kellogg Brown & Root v. United States ex rel. Carter

By on May 27, 2015
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On May 26, 2015, the Supreme Court issued a unanimous opinion in Kellogg Brown & Root v. United States ex rel. Carter (S. Ct. No. 12-1497), a case addressing several important issues under the False Claims Act (FCA).  In a previous post, we laid out the two issues in this case.  First, when the United States is at war, does the Wartime Suspension of Limitations Act (WSLA) toll the statute of limitations in civil FCA lawsuits?  Second, does the FCA’s so-called “first-to-file” bar prevent all future cases based on the same alleged fraud, or is it a one-case-at-a-time rule, allowing duplicative claims in the future as long as the first action is settled or dismissed?

The Court ruled in favor of Kellogg Brown & Root (KBR) on the first issue, holding that the WSLA only tolls the statute of limitations for criminal offenses, not in civil false claims like the relator filed against KBR.  The WSLA tolls the statute of limitations for “any offense” involving fraud against the government during war.  First, the Court reasoned that the term “offense” usually refers to a crime.  And, in Title 18, where Congress chose to place the WSLA, the term always refers to a crime.  Next, the Court looked to the history of the WLSA.  In doing so, it was most persuaded by Congress’ decision to remove the language “now indictable” from the statute.  According to the Court, this revealed Congress’ intent to apply the WSLA to future fraud as well as past fraud, not—as the government and relator argued—to expand it to civil lawsuits.  Finally, the Court reasoned that it has repeatedly called for a “narrow” construction of the WSLA.  Therefore, even in times of war, relators bringing civil actions against companies like KBR will have to follow the FCA’s statute of limitations provision.  See 31 U.S.C. § 3731(b).

On the second issue, the Court agreed with the government and relator, holding that a previously-filed qui tam lawsuit under the FCA is no longer “pending” under the statute’s first-to-file bar once it is dismissed.  When a relator brings an action under the FCA, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action.”  See 31 U.S.C. § 3730(b)(5) (emphasis added).  In finding that a previously-filed lawsuit only qualifies as “pending”—thereby prohibiting subsequent qui tam suits—if the first action is still being litigated when the subsequent action is filed, the Court said it was construing the term “pending” per its usual meaning.  The Court further reasoned that any other interpretation would mean that Congress intended to abandon potentially successful false claims actions even in situations where the first-filed suit is dismissed for reasons that do not involve the merits.

In practice, the decision may permit second, and even third, lawsuits under the FCA on the same set of facts.  Indeed, rather than reduce litigation, it may have the opposite effect: encouraging more qui tam litigation.  The Court acknowledged that there is “some [...]

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Supreme Court Vets Wartime Tolling of FCA Statute of Limitations in Kellogg Brown & Root v. United States ex rel. Carter

By on Feb 12, 2015
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On January 13, 2015, the Supreme Court held oral argument in the closely followed case of Kellogg Brown & Root v. United States ex rel. Carter.  Two questions with sweeping False Claims Act (FCA) enforcement implications were at issue:  first, whether the Wartime Suspension of Limitations Act (WSLA) tolls the statute of limitations in civil actions under the FCA while the nation is at war; and second, whether the FCA’s so-called “first-to-file” bar prohibits future filings based on the same alleged fraud or functions as a more permissive one-case-at-a-time rule, allowing duplicative claims in future actions.  The lower court, the Fourth Circuit, held that the qui tam relator’s claims were timely.  Kellogg Brown & Root (KBR) appealed.

Made relevant by over a decade of global military action, the WSLA was a little known criminal code provision tolling the statute of limitations for “any offense” involving fraud against the  United States during war. Both the United States and the relator argue that the “any offense” language added in 1944 broadens the statute’s applicability from actions that are criminal in nature to civil actions including under the FCA.

At oral argument, KBR attacked the attempt to broaden “any offense” to include FCA allegations by focusing on the WLSA’s appearance in the criminal code.  The Justices, possibly sympathetic, gave KBR counsel the benefit of long stretches of uninterrupted argument.  At one point, Justice Sotomayor asked KBR counsel if the court would need to address the first-to-file issue if the Court reversed the lower court on the WLSA ruling.  In contrast, the Justices peppered Respondents’ counsel on the strength of their position.

Based on the argument, it is not clear how the Court will come out on the second question.  When a relator brings an action under the FCA, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. 3730(b)(5).  The interpretation of “pending” sits at the center of the dispute.  The Fourth Circuit agreed that the first-to-file bar serves only to prohibit simultaneous litigation and therefore, the relator’s suit was permissible.

KBR argued that the Fourth Circuit’s interpretation creates the risk of duplicative litigation into perpetuity; however, the Justices appeared to be wrestling with the ambiguity of the statutory language.  Both Justices Kennedy and Scalia seemed persuaded that future duplicative suits were not prohibited by the statute.  The Justices seemed to agree with Respondents that the risk of duplicative suits would be mitigated under claim preclusion principles.

The Court’s hotly anticipated ruling will impact myriad cases filed asserting alleged fraud claims arising over a decade of wartime activity.  The second issue involving relator rights has broad implications for how defendants can achieve finality in the resolution of pending FCA matters.  Stay tuned.



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