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Eleventh Circuit Court of Appeals affirms trial court's approval of government's settlement agreement with False Claims Act qui tam defendant over relators' objection

On May 3, 2017, in Christiansen v. Everglades College, Inc., No. 16-11839, the Eleventh Circuit Court of Appeals affirmed the trial court’s decision to award substantially lower damages, attorney’s fees and costs than had been sought by the relators in a False Claims Act (FCA) qui tam case against Everglades Colle, Inc. d/b/a Keiser University. The gravamen of the complaint was that Keiser paid admissions officers incentive payments based on their success in securing enrollments, which is a violation of the Incentive Compensation Ban incorporated into program participation agreements that schools must enter into with the Department of Education in order to receive Title IV funds. The relators in the qui tam case were two former admissions office employees. When the relators originally brought the FCA action, the United States declined to intervene. The relators subsequently proceeded to a bench trial and the trial court, while entering a judgment against the defendant, severely limited the relators’ monetary victory. First, the court rejected all of the student submitted financial aid applications as actionable under the FCA, reasoning that Keiser could not control the content, number, and submission of student financial-aid requests. Second, the Court held that the only requests submitted by the admissions department that were actionable under the FCA were requests submitted after the school’s top policymakers became aware of the improper compensation scheme. As a result, the school was liable for only two false claims, amounting to $11,000 in statutory penalties. The relators sought over $1 million in attorney’s fees and nearly $76,000 in litigation costs, but the trial court awarded only $60,000 in fees and $27,000 in costs.

The Department of Justice, reportedly fearing that the trial court’s narrow construction of the ambit of the FCA might be affirmed by the Eleventh Circuit Court of Appeals and set an adverse precedent, then intervened and struck a deal with the defendant while the appeal was pending under which the defendant agreed to pay $335,000. After the settlement, the relators asked to the trial court to reconsider its previous award of fees and costs, but the court denied the request on the basis that the relators had objected to the government’s settlement with the defendant.

The Eleventh Circuit appeal was a consolidation on the relator’s appeal of the determinations made by the trial court regarding the amount of the penalties imposed against the defendant, the amount of the awardable fees and costs and that trial court’s decision to allow the government to intervene after the trial had been concluded. On the latter issue, the Court of Appeals noted that 31 U.S.C. Section 3703(c)(3) permits the government to intervene after the normal 60 day review period (with any extensions) has expired “upon a showing of good cause,” but the Court held that even a showing of good cause was unnecessary in this case because the government had not intervened for the purpose of continuing the litigation. The Court cited decisions in two other Circuits holding that intervention for purposes of settling a case is not actually “intervention” within the meaning of 31 U.S.C. Section 3703. SeeUnited States ex rel. Schweizer v. Oce N.V. (Schweizer), 677 F.3d 1228, 1233 (D.C. Cir. 2012); Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 754 (5th Cir. 2001) (en banc).

The Court also ruled that the government settlement was fair, adequate and reasonable as required under 31 U.S.C. Section 3730(c)(2)(A). The Court framed its inquiring in the following manner: “we ask whether the government has advanced a reasonable basis for concluding the settlement is in the best interests of the United States, and whether the settlement unfairly reduces the relator’s potential qui tam recovery.” The Court considered three legitimate government interests in reaching a settlement in addition to simply maximizing the amount of the recovery. First, the government may determine that the settlement reflects the gravity of the misconduct. Second, the government may wish to conserve prosecutorial resources. Third, the government may be wary of the precedential impact of an adverse appellate decision. Taking those factors into account, the Court concluded that the government was not unreasonable in “hedging its bets” in the case.

The Court also concluded that the trial court properly denied the relators’ request for an evidentiary hearing on the issue of the reasonableness and propriety of the proposed government settlement, holding that “the relators have not demonstrated a substantial or particularized need to develop new evidence because there is no colorable and non-speculative claim that the United States failed to investigate the allegations or acted with improper motives.”

Finally, the Court affirmed the award of attorney’s fees and costs, rejecting the relators’ argument that the amount of the recovery is not an appropriate or significant consideration in setting fees. The Court cited Hensley v. Eckerhart, a civil-rights case involving attorneys’ fees awarded under 42 U.S.C. § 1988, in which the Supreme Court held that the lodestar amount—which is “[t]he product of reasonable hours times a reasonable rate”— may be adjusted downward depending on the “results obtained.” 461 U.S. 424, 434, (1983) (internal quotation marks omitted). The Court distinguished Yellow Pages Photos, Inc. v. Ziplocal, LP (Yellow Pages), 846 F.3d 1159 (11th Cir. 2017) (per curiam), in which the Court had reversed a fee award that amounted to reduction of over 90% from the lodestar amount, noting that in Yellow Pages the award had been improperly derived by applying a mathematical formula to arrive at the award (multiplying the lodestar by a fraction consisting of the damages awarded divided by (damages sought).