Civil False Claims Act: Eighth Circuit Rejects Justice Department Efforts To Avoid Paying Relators’ Share On Settlement 'Unrelated' To Relators’ Qui Tam Claims

The Justice Department ("DOJ") received an unpleasant surprise last week. After releasing Hewlett-Packard Company ("HP") from a range of False Claims Act liability in return for a $55 million settlement payment, a divided panel of the Eighth Circuit Court of Appeals ruled that DOJ would have to pay a substantial portion of that settlement amount to Relators—far beyond the limited "share" payment DOJ expected to make. United States ex rel. Roberts v. Accenture, LLP, No. 11-2054, 2013 WL 764734 (8th Cir. Mar. 1, 2013). The appellate decision rejected the government's myriad arguments—including an unusual claim (for DOJ anyway) that Relators were not entitled to any recovery on certain qui tam complaint allegations because they lacked the particulars necessary to comply with Rule 9(b). The end result is that DOJ now has to pay Relators $8.8 million, as opposed to the $1.9 million it anticipated paying, leaving a $7 million deficit in the government's net recovery in the case.

While the Eighth Circuit ruling primarily addressed the fight between DOJ and Relators, with HP as bystander, the decision exposes the risk defendants face if they do not wrap up their attorneys' fees liability at the time of settlement in cases where the relator's share is still in dispute. A subsequent ruling that a relator is entitled to a share of the government's recovery on "other" claims could lead to additional attorneys' fees liability for the defendant under the FCA's fee-shifting provision. 31 U.S.C. § 3730(d)(1) (a qui tam plaintiff "shall also receive an amount for reasonable expenses which the court finds to be have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees and costs shall be awarded against the defendant").

Background

In their qui tam complaint, filed in 2004, Relators alleged HP defrauded the government through certain kickback and defective pricing schemes. DOJ intervened in the action in 2006, after receiving what the Eighth Circuit described as extraordinary assistance from Relators, who not only funded substantial portions of the investigation but actually drafted the Inspector General subpoenas for the government attorneys. Two years after the intervention decision, HP disclosed the results of an internal audit, revealing compliance problems with respect to a price reduction clause under a specific GSA contract ("Contract 35F"). The qui tam complaint made no specific mention of Contract 35F. Ultimately, HP settled the claims with the United States for $55 million, of which $9 million expressly was allocated to the "kickback" allegations in the qui tam complaint and $46 million was allocated to the Contract 35F defective pricing claim. With respect to the Relators' share payment, DOJ took the position that Relators were only entitled to a percentage of the $9 million payment for the kickback allegations, and that Relators would not be awarded any share of the $46 million recovery for the Contract 35F claim. Relators were not happy with this distribution and demanded their statutory share of the $46 million payment...