Hit in the Wallet—Tenth Circuit Affirms Attorneys' Fees Award of More Than $90,000 Against Unsuccessful Relator
Companies forced to defend meritless qui tam cases litigated by relators after government declination often wonder whether they can recoup attorneys' fees after the complaint is dismissed. The False Claims Act provides for defense fees, but not only does the defendant have to prevail, it also must show that the relator's action was "clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment." 31 U.S.C. § 3730(d)(4). In other words, a defendant can't get fees just for winning.
So when can a defendant stick a losing relator with fees? Instances of FCA defendants being awarded fees have been few and far between. However, recently, the Tenth Circuit affirmed a fee award against a losing relator of more than $90,000 in Pack v. Hickey. See No. 18-8035, 2019 WL 2443029 (10th Cir. June 11, 2019). In Pack, relator claimed that defendant falsely billed the government for mental health services. The district court granted defendant summary judgment, holding that relator had submitted no evidence that the claims were false or that defendant had the requisite scienter. The district court also awarded defendant $92,592.75 in fees, finding relator's pursuit of the claim to be vexatious.
The Tenth Circuit affirmed the grant of summary judgment because relator produced no "concrete evidence" of scienter or falsity. Id. at *5. Tackling the fee award, the court invoked an earlier Tenth Circuit decision holding that fees are justified where "plaintiff has misused his statutory privilege and distorted the intent of the legislation." Id. at *7 (quoting United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1058 n.22 (10th Cir. 2004)). The court went on to detail the numerous grounds on which the district court relied in awarding fees, finding that on appeal relator "largely ignore[d]" them and failed to show the lower court had made a clear error. Id.
As summarized by the Tenth Circuit, the district court's findings are revealing and could provide a roadmap for defendants seeking fees in future cases. The district court first grounded its award on relator's failure to produce any evidence of falsity or scienter, including his failure at deposition to identify a single document in support of his claims. The district court also focused on relator's lack of effort and questionable conduct during the litigation. For instance, the court noted that relator failed to depose (or obtain affidavits from) key witnesses, including any employees of the defendant mental health provider or its owner, who was also a named defendant. The court also found that relator's claims were "evolving and changing" throughout the litigation and that the contents of a settlement offer made by relator "tended to show he brought the action for an improper purpose."
Taken together, the district court's findings paint a picture of a relator holding up the company for a settlement with little interest in actually litigating the case or exposing fraud. It is against that type of opportunistic relator that defendants should have success in obtaining fees. Yet, just days later a California district court denied attorneys' fees to a defendant who prevailed on summary judgment and argued for fees on the ground that relator failed to present evidence to support his claims. Perry v. Pac. Mar. Indus. Corp., No. 13CV2599-LAB (JMA), 2019 WL 2472615 (S.D. Cal. June 13, 2019). The Perry court noted that, in the Ninth Circuit, fees to prevailing FCA defendants should only be awarded in "rare and special circumstances," and that "nearly all Section 3730(d)(4) claims are resolved in favor of not imposing fees." Id. at *1–2 (emphasis in original). Despite this, the Tenth Circuit's Pack decision gives some much-needed ammunition to defendants looking to be made whole after dealing with a baseless FCA claim.
© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.