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.