Whistleblower lawyers score important win in 6th Circuit’s fee ruling

6 minute read

REUTERS/Toby Melville

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(Reuters) - In 2014, hospital operator Community Health Systems Inc agreed to pay nearly $100 million to settle False Claims Act allegations that it overbilled the government for healthcare services. But that wasn't the end of the case. There was still the matter of attorneys' fees -- a fight that has lasted seven years.

CHS’s settlement with the Justice Department resolved seven early stage qui tam lawsuits by private whistleblowers who assisted the government’s investigation into claims that the company charged in-patient rates for services that should have been billed at lower rates for outpatients.

Did lawyers for all of those whistleblowers deserved to be paid for their efforts?

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On Tuesday, the 6th U.S Circuit Court of Appeals ruled that they did, in a consolidated appeal of a 2020 trial court decision denying attorneys’ fees to lawyers for whistleblowers whose lawsuits were not the first to be filed against CHS. 6th Circuit judges Karen Moore, Eric Clay and Julia Gibbons concluded that nothing in the language of the False Claims Act or in the specific facts of this case excuses CHS from its obligation to pay attorneys’ fees to whistleblowers (also known, in the FCA context, as relators) who collected a share of the bounty from the government’s settlement.

“The FCA encourages and incentivizes citizens to prevent the defrauding of public funds,” Moore wrote in the unanimous appellate opinion. “If multiple relators uncover multiple independent parts of the same complex scheme and the government uses the relators’ collective resources to investigate the fraud, it would be unfair to allow solely the first relator’s attorney to recover all the attorney fees because that relator discovered one part of the fraud first.”

Dave Garrison of Barrett Johnston Martin & Garrison, who argued at the 6th Circuit for one of the relators, said by email that the decision is “great precedent” for lawyers who represent whistleblowers. “The 6th Circuit made clear that counsel for relators in False Claims Act cases, even when there are multiple cases, add value to the FCA’s goal of protecting taxpayers and deserve to be compensated,” Garrison said.

Mike Waldman of Robbins, Russell, Englert, Orseck & Untereiner, who argued for CHS, didn’t respond to an email query about the ruling.

The facts, as you might guess from a fee dispute that has already worn on for seven years, are complicated. Before CHS’s 2014 settlement – and at the behest of government investigators -- plaintiffs in all of the seven False Claims Act cases against the company entered a “sharing agreement” in which they pledged to cooperate with each other and with the Justice Department in investigating the hospital chain.

After the settlement, the government awarded a bounty to two of the whistleblowers – the first to file lawsuits asserting claims under each of the two fraud theories in the case. But the sharing agreement between the private whistleblowers called for the bounty to be divided among them. So whistleblowers in all seven of the qui tam cases against CHS ended up with a share of the payout awarded by the government.

The False Claims Act includes a provision that permits successful relators to seek attorneys' fees from defendants. CHS agreed to an attorneys' fee settlement with one of the first-to-file whistleblowers who was awarded a bounty from the government. (Other whistleblower lawyers received contingency fees from relators.)

But the hospital operator balked at paying fees to whistleblower lawyers whose clients were not directly awarded a bounty from CHS's settlement with the government.

It offered two primary arguments. First, CHS argued, the statute does not permit attorneys’ fees for relators whose bounty awards did not come directly from the government but from a private agreement among whistleblowers. And second, the hospital chain asserted, the False Claims Act’s bar on opportunistic follow-on litigation precludes attorneys’ fees for relators who were not the first to file qui tam lawsuits or who relied on already-public information in their complaints.

The trial court judge, U.S. District Judge Marvin Aspen, sitting in Nashville, Tennessee, sided with CHS in his 2020 decision. (That ruling followed a 2016 remand from the 6th Circuit involving the specific language of the settlement terms that permitted CHS to challenge relators’ fee requests.) None of the whistleblowers litigating to obtain fees from CHS, Aspen said, was the first to file a lawsuit asserting relevant claims, so none was entitled to fees under the language of the False Claims Act.

The 6th Circuit, however, concluded that the attorneys’ fee provision of the statute does not actually require a whistleblower to be the first to file. The plain language of the law, the appeals court said, imposes just two requirements for relators to seek attorneys’ fees: The government must have intervened in their case, and they must have received a payment from a settlement of their claim.

The CHS whistleblowers met both prerequisites, the 6th Circuit held. The government intervened in all seven qui tam lawsuits against CHS in conjunction with the global settlement. And all of the relators received payments from the settlement, even though some of the payments came from the sharing agreement among the whistleblowers.

That conclusion, wrote 6th Circuit Judge Moore, is consistent with both the purpose of the False Claims Act and the real-world realities of litigating qui tam whistleblower cases. “FCA lawsuits often involve the complex allocation of work between whistleblowers and their attorneys, who may have varying degrees of information about the case,” she wrote. Private bounty-sharing agreements among relators, Moore said, allow the government to focus its attention on the merits of claims against defendants, rather than internal squabbling among plaintiffs and their lawyers.

CHS had pointed to rulings in which the 3rd and 5th Circuits denied fee awards to whistleblowers who were not the first to assert relevant claims or whose cases were based on public information. The 6th Circuit distinguished that precedent -- which involved litigation in which relators did not work closely with the government to obtain a settlement – from the CHS case, in which all of the whistleblower lawyers assisted the government.

It will be interesting to see if CHS’s lawyers from Robbins Russell nevertheless seek additional review of the 6th Circuit decision by arguing that the ruling has created a circuit split.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.