Recovering Attorney Fees and Expenses from Unsuccessful Relators in Qui Tam Cases Pursuant to Section 3730(D)(4) of the False Claims Act

Introduction

While most counsel and defendants in qui tam cases are aware that the False Claims Act (“FCA”) in Section 3730(d)(2) provides for the mandatory award of attorney’s fees and expenses to successful relators, it is generally not recognized that a corresponding provision can serve as the basis for such an award to prevailing defendants.  The FCA specifies in 31 U.S.C.

§ 3730(d)(4) that reasonable attorney’s fees and expenses can be awarded where the defendant prevails and can demonstrate that the relator acted inappropriately.  Awards made under this section are separate and apart from routine costs sought though bill of costs filed with the Clerk of the Court.  See United States ex rel. Lidenthal v. General Dynamics Corp., 61 F.3d 1402, 1413 (9^th Cir. 1995).

Text of Provision

Section 3730(d)(4) reads:

In the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for the purposes of harassment.  (Emphasis added).

It is essential to recognize that a successful defendant is only entitled to an award of fees and expenses if it can be demonstrated that the relator’s action was “clearly frivolous, clearly vexations, or brought for the purposes of harassment.”  The infrequent awards under Section 3730(d)(4) demonstrate that in most cases it will be extremely difficult to establish to the district court’s satisfaction that these stringent criteria have been satisfied.

Legislative History

Pertinent legislative history is limited.  For example, the Senate Report on the 1986 Amendments to the FCA notes:

The Committee added this language in order to create a strong disincentive and send a clear message to those who might consider using the private enforcement provision of this Act for illegitimate purposes.  The Committee encourages courts to strictly apply this provision in frivolous or harassment suits as well as any applicable sanctions available under the Federal Rules of Civil Procedure.

Few Courts have Addressed Section 3730(d)(4)

There are few cases authorities addressing exactly what the reach of Section 3730(d)(4) may be.  These cases, however, can be most helpful to a prevailing defendant in appropriate situations. 

            A.        Did the Relator Pursue a Case After it was Obvious that it Lacked Merit?

Some courts applying Section 3730(d)(4) have recognized that whatever the relator’s motives were when the qui tam complaint was filed, if there was a point in the litigation at which it may reasonably be concluded that the complaint was without merit, and continued litigation became inappropriate, fees and expenses should be awarded.

One helpful decision in this regard is United States ex rel. Haycock v. Hughes Aircraft Co., No. 94-55620, 94-55826, 1996 App. LEXIS 27664 (9^th Cir. Sept. 15, 1995).  There, in defining “clearly frivolous” as employed in Section 3730(d)(4), the Ninth Circuit looked to Hughes v. Rowe, 449 U.S. 5, 15 (1980), holding that this condition was satisfied if the “plaintiff continued to litigate after” his claim “clearly became” groundless or without foundation,  Id. at *2-*3.  In Hughes, the district court found that the relator had acted in a “clearly frivolous” manner because even after he discovered that “relevant government officials” knew of, and approved, a cost allocation system, he nonetheless continued to pursue his complaint alleging a violation of the FCA.

The same issue was addressed in United States ex rel. Herbert v. National Academy of Sciences, Civil Action No. 90-2568, 1992 U.S. Dist. LEXIS 14063 (D.D.C. Sept. 15, 1992).  There, pointing to Boisjoly v. Morton Thiokol, 706 F.Supp. 795, 809 (D. Utah 1988), the district court held that pursuing a qui tam  action in the face of relator’s realization that the government was fully aware of and had adopted the purported fraudulent contractor performance, was one basis for awarding attorneys’ fees and expenses under Section 3730(d)(4).  Cf. United States ex rel. v. Schwedt v. Planning Research Corp., Inc., Civ. A. No. 92-1951(LFO), 1994 WL 118222 at *5 (D.D.C. March 31, 1994).

            B.        Was the Qui Tam Complaint Defectively Pled?

Another test employed in evaluating motions for fees and expenses under Section 3730(d)(4) is whether the relator’s legal theories have a “reasonable basis.”  See, e.g., United States ex rel. Pentagen Technologies International Limited v. CACI International, Inc., No. 94-Civ. 2925 (KLC), 1995 U.S. Dist. LEXIS 17512 at *47 (S.D.N.Y. Nov. 21, 1995).

This can be a difficult standard to satisfy if the case involves novel theories under the FCA on is factually complex.  For example, in United States ex rel. Minn. Ass’n of Nurse Anesthetists v. Allina Health System Corp. et al., Civil No. 4-96-724 (D. Minn., August 26, 1999), the issues presented in that litigation were complicated and somewhat legally unclear.  There, relators’ claims were “not completely void of foundation” and involved “evolving” FCA case law.  Id. at 7.  The Minnesota district court chose to apply an unreasonably stringent “legally frivolous exercise” standard (id.) to determine when fees should be awarded, which it declined to do.  Given that Congress has encouraged relators to institute FCA actions, many district judges will be strongly disinclined to penalize them should their theories prove to be defective when tested in the litigation arena.

            C.        Use of Comparable Civil Rights Standard Award of Fees

Due to the lack of interpretative authority, some courts have chosen to press into service cases applying the comparable attorneys’ fee provision under civil rights legislation, 42 U.S.C. § 1988.  This is because the legislative history of Section 3730(d)(4) indicates that Congress modeled the FCA provision upon Section 1988.  Notes the Senate Report, “This standard reflects that which is found in section 1988 of the Civil Rights Attorneys Fees Award Act of 1976.”  As the Minnesota district court saw it, Congress “borrowed” the “clearly frivolous, clearly vexatious, or brought primarily for the purposes of harassment” standard from the civil rights law.  Allina at 5-6.  Reliance upon this approach can both help or hinder a prevailing defendant, especially since the same statutory standard and case authorities are being employed in two completely different types of litigation.

The analogous fee-shifting language of 42 U.S.C. § 1988 has been frequently examined by the federal courts.  In one important case, the Supreme Court acknowledged that an award of attorney’s fees is reasonable when a plaintiff continues to litigate a case even after receiving notice that an essential element of his burden of proof is lacking.  See Christianburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978) (a court may award attorneys’ fees to a successful defendant when it finds that the “claim was frivolous, unreasonable, or groundless, or that the plaintiff continued to litigate after it clearly became so.”) (emphasis added).

Significantly, under the Christiansburg standard, a showing of good faith is insufficient to rebut the conclusion that the allegations in the complaint were clearly frivolous.  Moreover, because a finding of bad faith is only an aggravating factor in determining whether or not attorneys’ fees should be awarded, it is not a part of the moving party’s burden of proof.  434 U.S. at 422; see also Blanchette v. New Rochelle Hospital Medical Center, No. 80 Civ. 2024, 1981 U.S. Dist. LEXIS 15345 (S.D.N.Y. 1981).

In addition, a prevailing defendant can obtain an award of attorneys’ fees based not only on the complaint itself and the information available to the relator when the complaint is filed, but also can establish its entitlement to an award of attorneys’ fees after the relator had actual knowledge that he could not establish each of the elements of a claim under the FCA.  See Smith v. Smythe-Cramer Co., 754 F.2d 180, 183-84 (6^th Cir.), cert. denied, 473 U.S. 906 (1985) (award of attorneys’ fees is appropriate “where no evidence supports the plaintiff’s position or the defect in the suit are of such magnitude that the plaintiff’s ultimate failure is clearly apparent from the beginning or at some significant point in the proceeding after which the plaintiff continues to litigate . . . . “).

A relator is likely to cite a variety of Section 1988 cases in opposing a motion for fees under Section 3730(d)(4).  Since these cases tend to be highly fact-specific, it is possible to distinguish away cases which are inapposite.  For example, did the litigation involve an issue of first impression, an ambiguous legal standard, or a theory that had some support in the case law?

In one case brought under 42 U.S.C. § 1988, the court awarded attorneys’ fees to the defendant under the “clearly frivolous” standard because a plaintiff represented by counsel continued with his litigation even after he possessed knowledge that he did not have a protected property interest that could be vindicated under 42 U.S.C. § 1983.  Ludwig v. Board of Trustees of Ferris State University, et al., No. 1:96-CV-158, 1997 U.S. Dist. LEXIS 6701 (W.D. Mich. 1997).  In that case, the district court dismissed a complaint brought by a college basketball coach who had been dismissed from his job.  He continued to litigate his claim based on the theory that he had been deprived of he protected property interest in his continued employment without due process, even though he was aware that the college’s policies and Michigan law unambiguously classified him as an at-will employee who did not have any substantive property interest in his continued employment.  Consistent with the Christiansburg standard, the court ultimately articulated two grounds on which to ward the defendant attorneys’ fees:

plaintiff . . . asserted a groundless constitutional claim based on a nonexistent property interest.  After the defendants challenged his claim, plaintiff relied on case law which clearly negated his right to proceed under § 1983, even assuming that plaintiff could be deemed to have had a property interest in continued pay during a 60-day suspension.  Under the circumstances, the defendants are entitled to attorneys’ fees under § 1988 based on plaintiff’s pursuit of this claim.

Id. at *10-*11.

The Fleet Financial Group Decision

One of the rare decisions in which prevailing defendants were successful in recovering attorneys’ fees and expenses under Section 3730(d)(4) is United States ex rel. Stewart v. Fleet Financial Group, et al., Case No. 1:98cv 75, 1999 U.S. Dist. LEXIS 13624 (W.D. Mich. August 31, 1999).  The case is informative on several fronts.  First, the factual pattern of abusive litigation tactics is so extreme that few other cases will ever match its severity.  Undoubtedly relators’ counsel will place heavy reliance upon the decision in opposing Section 3730(d)(4) motions, arguing that a relator’s conduct must match the “meltdown” evidenced in Fleet Financial group before a district court should even consider awarding fees and expenses.  Second, the district court felt that Section 3730(d)(4) was applicably where “the Court’s dismissal is for lack of jurisdiction.”  Id. at *20-*21.  Therefore, it is not necessary to reach the summary judgment stage, or engage in trial, to merit the award of sanctions under Section 3730(d)(4).  Finally, and particularly interesting, the district court enjoined the relator from filing any further “civil action against any named defendant or any judicial officer or employee, unless plaintiff first files with the Clerk of the Court a bond in the amount of $25,000 to cover costs, fees, and sanctions that may be levied against plaintiff in the litigation.”

Relators Will Argue Fee Awards Are Contrary to Public Policy

Relators often argue that there is a purported general public policy favoring an award of attorneys’ fees only under the most egregious circumstances.  A particularly effective rebuttal to this contention is contained in United States ex rel. Herbert v. National Academy of Sciences, No. 90-2568, 1992 U.S. Dist. LEXIS 14063 (D.D.C. Sept. 15, 1992), where Judge Sporkin weighted the competing interests at stake in an allegedly frivolous FCA complaint.  He observed that while relators who vindicate the government’s interests should be rewarded, those who use the litigation to vindicate a personal grievance harm all potential relators.  Id. at *23.  Since the relator in that case fell into the latter category, he ordered that the relator pay the defendant’s attorneys’ fees under Section 3730(d)(4) and imposed sanctions under Fed. R. Civ. P. 11.  Id. at *24.

Strategic Considerations

It is sound strategy to avoid “springing” the concept of attorney’s fees and expenses upon relators by waiting until the conclusion of litigation to alert them to the issue.  Therefore, usually after initial motions to dismiss, especially if a portion of the complaint is dismissed on procedural grounds or for defective pleading, it is good practice to send a letter to relator’s counsel informing them that defendant will place reliance upon Section 3730(d)(4) if it is the prevailing party.

Conclusion

Successfully securing the award of attorney’s fees and expenses under Section 3730(d)(4) almost certainly will prove to be an arduous undertaking which is often doomed to failure.  Some district court judges have the apparent attitude that since Congress has encouraged relators to institute qui tam actions, it is unfair to assess attorney’s fees and expenses against them if they are unsuccessful—even if their theories are defective from the onset or fatal deficiencies in proof emerge during the course of discovery.  Other district judges have simply become so accustomed to the prevailing “American” doctrine that they will seldom even consider awarding fees and costs to be successful defendant.

Nonetheless, Section 3730(d)(4) serves an important purpose:  it is one of the few devices available to impose a degree of responsibility upon relators.  In their haste to either have a big payday or to set right what they perceive to be a major social evil, relators may plunge into ill-considered litigation that nonetheless inflicts prolonged untold financial damages and emotional injury upon unfortunate defendants.  Hopefully, as the body of case law interpreting Section 3730(d)(4) grows, it will become a more meaningful check on irresponsible relators and, at least partially, repair some of the needless damage ill-considered qui tam complaints can inflict.

Footnotes

1         Some representative cases interpreting Section 1988 drawn from the Fourth Circuit are typical of the fodder relators will assert against a fees’ motion, even though they may be clearly inapposite.  For example, did the relator’s complaint involve “airtight claims” (Arnold v. Burger King Corp., 719 F.2d 63, 65 (4^th Cir. 1983)); did it raise issues approaching the complexity of local zoning (Bryant Woods Inn, Inc. v. Howard County, 124 F.3d 597 (4^th Cir. 1997)); did it establish any “prima facie” case (Glymph v. Spartanburg Gen. Hosp., 783 F.2d 476 (4^th Cir. 1986)); was it devoid of “arguable legal support” (Geyer v. Milner, 673 F. Supp. 773 (W.D. Va. 1987)); and did it raise any issues of confusion about the underlying facts (Polk v. Montgomery County, 548 F. Supp. 613 (D. Md. 1982))?

2         Another of the rare cases in which prevailing defendants were successful is United States ex rel. Minna Ree Winer Children’s Class Trust v. Regions Bank of Louisiana, Civil Action No. 94-4085 Section “A”, 1996 U.S. Dist. LEXIS 8779 (E.D. La. June 18,m 1996).  There, the district court characterized relator’s complaints as being “fact-starved.”

3         Appellate courts are infrequently inclined to reverse the denial of awards under Section 3730(d)(4) since they apply a stringent “abuse of discretion” standard.  See, e.g.., United States ex rel. Fine v. MK-Ferguson Co., 99 F.3d 1538, 1548-49 (10^th Cir. 1996).

4         See the author’s “Some Strategies for Defending Health Care Fraud Qui Tam Action” for a discussion of the bases for moving to dismiss qui tam complaints.  This article is also available in the Articles section of this webpage.

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