Maximizing a qui tam relators’ recovery

Today we will take a look at one of the hot-button topics in world of qui tam litigation — namely, the factors that determine whether a qui tam relator receives a higher or lower percentage of the government’s recovery.

By way of background the federal False Claims Act (as well as comparable statutes in 30 states) contains a qui tam provision which allows “any person” with first-hand, non-public knowledge of fraud on the government to come forward, hire their own counsel, and prosecute the case in conjunction with the United States Department of Justice.  That person is called a “relator” in the parlance of the FCA, and in the event of a successful recovery by the government the person is entitled to receive a percentage of the government’s recovery.

The percentage share to which the relator is entitled is between 15% and 30%.  In some unusual circumstances, the government can reduce a relator’s share award below the 15% threshold — for example, if the relator was involved in planning the fraud, or engaged in similar behavior described by the statute.

There is precious little case law discussing where along the 15% to 30% continuum any given relator’s recovery share should fall, so today we will take a look at one of the most recent cases, which was published in February 2012 from the U.S. District Court for the District of Columbia.  The caption of the case is U.S. ex rel. Shea v. Verizon Communications, Inc., 844 F.Supp.2d 78 (D.D.C.,2012).

The case was handled by Phillips & Cohen, LLP and, to be frank, all qui tam lawyers owe them a debt of gratitude for bringing this important issue to the fore…of course, as regular readers know, qui tam lawyers owe Phillips & Cohen a debt of gratitude for far more than just this one case, but that is a different issue for a different day…

The allegations of the case involved Verizon’s charging the federal government for certain taxes and fees which it was not entitled to charge; specifically, Verizon billed the federal government for Ad Valorem Property Taxes and for Federal Regulatory Fees/Common Carrier Recovery Charges when Verizon was not entitled to charge the government for those things under the Federal Acquisition Regulations.

Most important of all to federal FCA litigation, relator had evidence that Verizon knew that the federal government was exempt from those charges, but it charged the federal government for them anyway.

The government intervened and the case and settled for $91.5 million.  Importantly, over 80% of the $91.5 million recovery was from the two specific categories of surcharges which Shea had focused on in his Complaint.  After the settlement agreement was reached, a dispute arose between Shea and the government about the amount of his relator’s share, with the government arguing that Shea should receive the 15% minimum and Shea arguing for more. 

The Court’s opinion arose from a contested hearing on this issue — that is, a contested hearing about the percentage to which Shea was entitled.  There, Judge Kessler confirmed that the minimum 15% share is generally viewed as a “finder’s fee” and a relator is entitled to that fee even if he or she does nothing more than file the case in federal court.  So, in analyzing a relator’s share, we start with the presumption that a relator is entitled to 15% even if he or she does nothing more than file the case under seal in federal court.

But Shea did far more than that, however, and a look at the factors the Court considered gives important guidelines for qui tam relator’s counsel who owe their client a duty to maximize his or her recovery.  For example, in July of 2007 after Shea filed his case, the Government requested his help –and of course the help of his lawyers — on a number of topics.  For example, government lawyers that the Relator “set forth in a separate memorandum our position on why each surcharge was prohibited under the Federal Acquisition Regulations (“FARs”) and the contract and that he rank in priority the charges for investigation.”

In response, Shea and the experienced FCA attorneys of Phillips & Cohen worked over a two week period to present the Government with the chart it had requested and a legal memorandum setting forth the factual and legal basis for the allegations about each surcharge.

The memorandum prepared by Shea and his counsel also emphasized that the Government should investigate, as its first priority, the ad valorem and Federal Regulatory Fees surcharges.  In addition to saving the Government enormous resources, the legal memorandum and chart also helped the Government’s auditors to identify relatively quickly the ad valorem charges in Verizon’s back-up billing data. That recognition provided a further incentive for the Government to continue its investigation.

In other words, throughout the investigation, Shea and his lawyers were full participants in the government’s case.  They reviewed documents and other items such as power point slides submitted by defendants and their lawyers, they analyzed records and prepared lengthy legal memorandum and they otherwise did whatever the government asked to assist with the case.  Importantly, the opinion also recognizes the contributions of relator’s lawyers, correctly stating that relator brought to the table not only his specialized knowledge and experience, but also the knowledge, experience, and abilities of his counsel.

And all was well until the money was on the table.  Then, as in other multi-party litigation, things got a bit tricky.  The government took the position that relator was entitled to no more than 16% of the recovery.  The government had essentially no justification for its position.  To their credit, the government did the right thing and immediately paid up the 15% to which Shea and his lawyers were undoubtedly entitled.

The FCA itself says very little about how a relator’s contribution to a case should be evaluated.  At 31 U.S.C. 3730(d)(1) the statute merely says that in cases where the government intervenes, a relator “shall receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action .. ”  Further detail can be found in the the legislative history of the 1986 amendments to the  FCA, which identify the following factors a court should consider in determining the relator’s share: the significance of the information provided by the relator, the relator’s contribution to the final outcome, and whether the Government previously knew of information provided by the relator.

The FCA ultimately gives discretion to the trial court to determine what percentage of the recovery is appropriate to pay relator.    These sorts of hearings are pretty unusual, because normally these things settle without a hearing.  Ultimately after briefing and argument, the Court agreed with Shea, granted his motion, and ordered that he be paid 20% of the government’s recovery.

With the federal government pressed as it for cash, I suspect we are going to see more and more of these types of challenges.  The fact of the matter is that the larger the government’s recovery, the smaller the relator’s share is likely to be, and that has been the case for quite some time now.  Time will tell if we will see more case law on this point.