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When an FCA Case Just Won’t Go Away: Attorneys’ Fees Remain Contested Even After Settlement

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In Simring, the Third Circuit issued a non-precedential opinion that nevertheless offered useful guidance on evaluating reasonableness of attorneys’ fees under the lodestar method.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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Defense Attorneys’ Billing Records Irrelevant in Determining Relator’s Attorneys’ Fees

On March 20, 2015, the Eastern District of California ruled in United States ex rel. Doe v. Biotronik, Inc., that defendant Biotronik Inc.’s attorneys did not have to turn over their billing records to the relator and his counsel, who sought those records claiming they were relevant to prove the reasonableness of their own fees.  No. 2:09-cv-3617-KJM-EFB, 2015 WL 1291371 (E.D. Cal. Mar. 20, 2015).  The False Claims Act (FCA) entitles successful relators to “receive an amount for reasonable expenses . . . plus reasonable attorneys’ fees and costs.” 31 U.S.C. § 3730(d).

The complaint in Biotronik alleged violations of the FCA based on kickbacks and off-label uses and billing.  The United States intervened and effected a settlement.  The parties agreed that the relator was entitled to fees and costs — at issue was whether discovery of defense attorneys’ fees and billing records was relevant to determining the reasonableness of relator’s attorneys’ fees.

The Ninth Circuit uses the lodestar method in analyzing attorneys’ fees, and has held that comparing the hours of the prevailing and losing parties is “a useful guide.”  Democratic Party of Washington State v. Reed, 388 F.3d 1281, 1287 (9th Cir. 2004).  The Biotronik court explained that the standard for reasonable attorneys’ fees is based on “how many hours were reasonably expended on the litigation, and then multiply those hours by the prevailing local rate for an attorney of the skill required to perform the litigation.”

The court ruled that while Biotronik’s attorneys had to provide their hourly rates, as those were “part of the universe of data from which one would determine the range for rates charged in this district by experienced and qualified attorneys to litigate cases of this nature,” they did not have to share their billing records for the litigation.  This was because Biotronik did not contest the reasonableness of the number of hours the relator’s lawyers spent on any particular task.  Instead, Biotronik claimed that the relator was unable to collect fees for (1) any time that was vaguely described or block-billed; and (2) any time spent on issues on which the relator did not prevail (as defined by reference to the settlement agreement).  The court found that, absent an argument that the time the relator’s counsel spent was unreasonable, “comparing the amount of time [defense counsel] spent on this case or on any particular tasks has no bearing on the pending fee petitions.”

This case is notable against a landscape where legal fees incurred by FCA defendants are increasingly under scrutiny.  FCA defendants face fee-related litigation, or face media demands in states with open records laws that enable journalists to obtain defense counsel billing data.  While Biotronik has no impact on the latter category, it underscores the fact that, depending on the position of a challenge to a relator’s fees, billing records reflecting attorneys’ fees incurred by FCA defendants may be deemed irrelevant.