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Relator-Friendly Ruling Highlights Dangers of Imprecise Settlement Agreements

September 4, 2015

Author: Stephanie D. Willis.

The Middle District of Tennessee ruled recently that Community Health Systems, Inc. (CHS) cannot rely upon the “first to file” and “public disclosure” bars to avoid paying attorneys’ fees and costs where a settlement agreement did not specify these grounds for precluding such awards to the relators. This outcome should warn defense counsel to clearly and precisely reserve the right to challenge a whistleblower’s claims to such fees in settlement agreements resolving multiple False Claims Act (FCA) suits brought by distinct relators.

The fee dispute arose after CHS entered into a $98.15 million global settlement of seven qui tams brought in jurisdictions across the country. The FCA settlement resolved two sets of covered conduct:

  1. That CHS improperly admitted Medicare, Medicaid, and TRICARE program beneficiaries from multiple hospitals’ emergency departments (EDs) as inpatients and billed these government health care programs for services that should have been provided for and billed as outpatient or observation services (ED Claims).
  2. That a CHS-affiliated hospital, Laredo Medical Center (LMC), improperly billed Medicare for services referred to LMC by a physician who was offered a medical directorship at LMC, in violation of the Physician Self-Referral Law (commonly referred to as the “Stark Law”).

After all of the relators from the seven cases filed fee petitions seeking attorneys’ fees and costs, CHS agreed to pay the attorneys’ fees for two of the relators whose suits were the basis of the ED Claims portion of the FCA settlement (approximately $88.3 million). CHS objected to paying for any of the other relators’ fees and costs with respect to the ED Claims on the basis that those relators’ claims were precluded by the FCA’s first-to-file or public disclosure bars.

After determining that it had jurisdiction over the dispute, the court ruled in favor of the relators and remanded the matter to the Magistrate Judge. The court concluded that the settlement agreement “specifically preserved Defendants’ ability to challenge or object to Plaintiffs request for attorney’s fees only ‘pursuant to 31 U.S.C. § 3730(d),’” which addresses how much a relator can receive (between 15-25% of the proceeds of the FCA action or settlement), but not whether the relator is entitled to it. Id. at 11. The court unequivocally stated that “Section 3730(d) has nothing to do with the grounds on which Defendants now seek to challenge fees; Section 3730(b)(5) and Section 3730(e)(4) do.” Id. at 12. In addition, the court noted that the Government “reserved specific statutory rights and negotiated a carve-out for those provisions.” Id. n. 5.

CHS’s failure to specify the grounds upon which it intended to challenge relators’ entitlement to attorneys’ fees and costs was fatal to its cause. As CHS noted, showing one’s hand in the negotiation of a settlement agreement may “make it virtually impossible . . . to settle a multi-relator FCA case.” Id. at 14. But, the consequences of the Defendant’s assumption that the court would allow previously unasserted grounds to preclude relators’ rights to fees were grave. As the court reiterated, the relators “specifically claimed entitlement to attorney fees and costs, and Defendants did not challenge that entitlement (as opposed to reasonableness) in the Settlement Agreement.” Id.

To protect its exposure for attorneys’ fees and costs, Defense counsel should ensure that a proposed FCA settlement agreement addresses them on an independent basis from the relator’s share of damages with express language, for each and every relator whose claims are to be included in an FCA resolution.

Stephanie D. Willis
Counsel – Washington, D.C.
Phone: +1 202.624.2721