Rule Doesn’t Bar Attorney’s Fees for Subsequent Whistleblower

Although they come from a statute, namely, the False Claims Act (FCA), the rights of whistleblowers (relators) that file qui tam lawsuits are defined in court cases. One of the most commonly litigated issues is the scope of defenses designed to prevent relators from filing me-too, copycat lawsuits to reap a reward they don’t really deserve. Last month, there was a significant case testing the limits of one of those defenses, namely the first-to-file rule. Here’s a quick briefing on the case and its significance.

The Case

The case, which comes from the Sixth Circuit Court of Appeals, began when relators filed separate qui tam lawsuits against a health system for allegedly billing Medicare for medically unnecessary hospital admissions. It was a complex case with lots of moving parts. So, when the government intervened, it advised the relators to work in concert to bring a “coordinated case.” And that’s what they did. As a result, the health system ended up entering into a global settlement with all of the relators, each of whom shared in the proceeds. The FCA (Section 3730(d)(1)) provides that in addition to a percentage of the government’s recovery, relators in a successful whistleblower lawsuit are entitled to “reasonable attorneys’ fees and costs,” as long as: i., the government intervened in the case; and ii., the fees are paid from the proceeds of the reward. The relators involved in the global settlement were thus in a position to demand attorneys’ fees. However, the settlement didn’t say anything about the subject. Later, one of the relators involved in the settlement decided to sue the health system for the attorneys’ fees it incurred in pursuing the case. The health system contended that having settled the case, the relator couldn’t now go back to the table and demand more. The Tennessee federal court agreed that the relator was overextending its FCA rights and tossed the claim. The relator appealed.

The Sixth Circuit Ruling

The U.S. Court of Appeals for the Sixth Circuit reversed the lower court’s ruling and held that the relator was entitled to reasonable attorney’s fees. Among the health system’s defense was the FCA “first to file” rule, designed to prevent parasites and opportunists from bringing copycat lawsuits to try and horn in on the action. Specifically, Section 3730(b)(5) of the FCA states that once a relator files a qui tam suit, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action.” Technically, the relator in this case wasn’t the first to file. But the court took a big picture view of the rule and its purposes. “This case illustrates the absurdity of rote application of the first-to-file rule in complex global settlements.” This clearly wasn’t a situation where a relator filed a parasite lawsuit to get in on a bounty. It was a highly complex case where each of the parties racked up thousands of hours in legal bills. Moreover, at the government’s request, the relators agreed to work together to bring the case and share the proceeds among themselves. [United States ex rel. Kathleen v. Cmty. Health Sys., 2022 U.S. App. LEXIS 2162, 2022 FED App. 0014P (6th Cir.), __ F.4th __, 2022 WL 214176].

Takeaway

First-to-file isn’t a by-the-numbers proposition. In interpreting within the context of reasonable attorneys’ fees, courts may go beyond the rule’s literal meaning and consider the specific case and the subsequent relator’s contribution in achieving a successful outcome. The subsequent relator in this case wasn’t an opportunist but a collaborator who worked with the government and other relators to root out fraud. The health system’s “last ditch effort” to use the rule to deny the relator attorneys’ fees would be unfair and unfaithful to the FCA policy of rewarding private individuals who help the government fight fraud.