This transcript has been auto generated
00;00;00;00 - 00;00;24;14
Jonathan Porter
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host, Jonathan Porter. Attorneys fees are a huge deal in qui tam litigation. When a whistleblower files a qui tam alleging False Claims Act violations, what a lot of people don't know is when you get to the end and you're settling things, you owe the relator their attorney's fees.
00;00;24;14 - 00;00;57;28
Jonathan Porter
And those attorney's fees can be exorbitantly expensive, way more expensive than people anticipate. It's not unusual to see millions of dollars in attorney's fees claimed by relator's counsel. This is not a situation where you pay whatever they tell you to. This is a situation where you negotiate and sometimes litigate attorney's fees. And so that's what this podcast is all about, because the standard that we know in American litigation, which is called the American rule of each side pays their own attorneys, is not what we do in the False Claims Act world.
00;00;57;28 - 00;01;20;25
Jonathan Porter
It's really important for people to get this. And that's why we're dedicating a whole episode to relator's attorneys fees today on the podcast. Joining me to talk about relator's fees is my law partner, Kate Ledden. Kate is a partner in our St. Louis office. She's a really experienced litigator. Not all False Claims Act practitioners have solid litigation chops, but Kate does.
00;01;20;25 - 00;01;41;07
Jonathan Porter
Kate knows what she's doing when it comes to litigation. Kate and I are litigating a declined qui tam right now, and it's great to have Kate to tell me all the things about civil litigation that I don't know. So Kate, it's great being your law partner. Really glad that we're on this team together. And for our listeners, Kate and I are exploring a spin off podcast where we talk about travel.
00;01;41;07 - 00;02;00;27
Jonathan Porter
Kate and I travel to a bunch of the same places, although Kate's a much better traveler than I am. And so, Kate, maybe on our first spin off podcast, you can talk about Kilimanjaro. I visited Kilimanjaro, I didn't climb it, I just looked at it and was blown away by how impressive it is. But you climbed it, Kate. So that's a little tease of a potential spin off podcast we could do.
00;02;00;27 - 00;02;06;20
Jonathan Porter
But no, seriously, Kate, thanks for coming on the podcast and telling our listeners a little bit about relator's attorney's fees.
00;02;06;22 - 00;02;09;13
Kate Ledden
Yeah, Jonathan, it's great to be here. Thanks for having me on.
00;02;09;16 - 00;02;24;17
Jonathan Porter
Thanks, Kate. Let's start with the basics. So, Kate, why don't you tell our listeners what is the False Claims Act fee shifting rule for relators? When does it apply? And why does this exist? Why not just stick with the American rule of each party paying their own lawyer?
00;02;24;19 - 00;02;54;23
Kate Ledden
Well, Jonathan, the best place to start is really the statute itself. Under 31 U.S.C. § 3730(d)(2) a relator who successfully litigate the False Claims Act cases entitled to reasonable attorney's fees paid by the defendant. Now, two phrases to hold on to there. Successfully litigate and reasonable. What successfully litigate means in practice is that the relator obtains either a judgment or a settlement.
00;02;54;27 - 00;03;18;03
Kate Ledden
And importantly, the settlement doesn't need to include an admission of liability. Now, the reasonable piece is where things get interesting and frankly, contested. And we'll come back to that. But one thing to know logistically is that the parties can resolve the underlying FCA case through settlement and then separately litigate the attorney's fees question, or they can wrap everything all up at once.
00;03;18;05 - 00;03;44;06
Kate Ledden
As for why the rule exists at all, Congress recognized that the cost of hiring an attorney was a real barrier to people bringing qui tams in the first place. So the fee shifting provision was designed to incentivize individuals to step up and become relators. And here's something worth underscoring, which you already touched on Jonthan. These attorney's fees are on top of the relator's share of whatever the government recovers.
00;03;44;08 - 00;03;47;16
Kate Ledden
So the total exposure to a defendant can be quite substantial.
00;03;47;17 - 00;04;04;24
Jonathan Porter
Thanks, Kate. Yeah, quite substantial indeed. And what I think a lot of people don't know is when the relator's attorney is bringing these cases in, I think they're also usually taking a percentage of the relator's share as well. So the relator’s share gets a percentage of what the government gets, and then the attorney gets a percentage of that.
00;04;04;26 - 00;04;21;08
Jonathan Porter
When I was a DOJ, that always struck me a bit as double dipping. But I think that's the way it works. But yeah, at the end of the day, Congress said they want relator's to have their attorney's fees paid for. I actually think from a policy perspective that’s a pretty good idea. If you want whistleblowers to come forward.
00;04;21;09 - 00;04;41;28
Jonathan Porter
I think it makes sense to incentivize people to come forward and be relator's. I'm all in favor of that. But where I think we might not agree with some of our friends on the relator side, Kate, is what it means to have reasonable attorney's fees. So, Kate that reasonable attorney's fees concept is often litigated. So let's talk about that
00;04;41;28 - 00;04;47;28
Jonathan Porter
Kate. Walk us through how most courts approach the question of reasonableness when it comes to attorney's fees.
00;04;48;01 - 00;05;08;15
Kate Ledden
Right. So Jonathan reasonable sounds simple enough, but you really nailed it. It generates a lot of litigation and the framework most courts use to answer that question is called the lodestar method, or just simply lodestar. The word lodestar actually means guiding star like a North star, and it is the method that has been around for about 50 years now.
00;05;08;15 - 00;05;39;20
Kate Ledden
So it's been around for a while. It's not FCA specific at all, so that's something to keep in mind. It's used across all kinds of fee shifting litigation. Importantly, the lodestar has two core inputs. The first is really reasonable hours, meaning the time that was reasonably expended on the matter with reductions for things like over staffing, administrative work or time that just wasn't necessary. Second a reasonable hourly rate, which is defined as the prevailing market rate in the relevant community
00;05;39;20 - 00;06;07;20
Kate Ledden
for similar work by lawyers of comparable skill and experience. If you multiply those two together and you get the lodestar number. Courts like lodestar because hypothetically, it's objective, it's reviewable on appeal and it approximates what a paying client would actually have paid if they were being billed hourly for comparable work. Now here's the twist in FCA cases specifically. These cases can be extraordinarily complex.
00;06;07;23 - 00;06;24;23
Kate Ledden
And they run for years or they can run for years. So the reasonable hours input can balloon to a really large number, which means the lodestar amount can become enormous. That's part of why fees and FCA cases tend to attract so much attention.
00;06;24;25 - 00;06;47;15
Jonathan Porter
Yeah, that's exactly right, Kate. So judges are very familiar with lodestar. They use this not just FCA, they use this and a bunch of different things, but I bet to a federal judge, FCA conduct sounds a lot more complicated than a lot of other things that come before a judge. Because you're dealing with the DOJ, you're doing the relator interview, you're unpacking some complex fact patterns.
00;06;47;15 - 00;07;06;12
Jonathan Porter
So I think the issue that we're getting at here that we're about to unpack is that if you're a federal judge, if this all does seem more complex than your run of the bill litigation, which is why we see judges do something after the math is done, that rewards for that complexity. So, Kate, you alluded this on occasion.
00;07;06;12 - 00;07;19;15
Jonathan Porter
That simple lodestar math problem gets more complex with a multiplier or with enhancements. So Kate, tell us about that and why it's seen as controversial by some appellate courts.
00;07;19;17 - 00;07;39;28
Kate Ledden
That's right Jonathan, there's a question of whether the court can modify it once you have your lodestar amount. And the short answer really is that it rarely occurs, and courts are pretty skeptical about it. Courts may, on rare occasions, adjust the lodestar up or down, but only to account for factors that weren't already captured in the lodestar calculation itself.
00;07;40;00 - 00;08;03;10
Kate Ledden
And that typically only happens when there's specific evidence that the lodestar result is unreasonably low or unreasonably high. A lot of relator's attorneys argue for a multiplier on the basis that the case was complex or required a lot of work, as you mentioned, but courts tend to push back on that, because if the work was complex and time consuming, that should already be reflected in the hours billed.
00;08;03;13 - 00;08;31;02
Kate Ledden
Basically, you can't double count it. What courts are actually looking for when they do grant the multiplier are things like an extraordinary outlay of expenses that created unusual financial risk, or exceptionally protracted litigation, or a significant delay in payment by the opposing side. Now, courts are generally reluctant to go there because multiplying lodestar starts to feel punitive to defendants like you're somehow penalizing the defendant.
00;08;31;04 - 00;08;49;25
Kate Ledden
And that's not what an attorney's the award is supposed to accomplish. Relator's counsel often argue their work is uniquely risky, because so many qui tams never pay out at all. But that rationale doesn't really map on to the reasons courts have actually found sufficient to justify a multiplier.
00;08;49;27 - 00;09;16;24
Jonathan Porter
Thanks, Kate. Yeah, so you're absolutely right. You mentioned one of the basis here is an extraordinary outlay of expenses that creates a lot of risk. I've heard this around the whistleblower community. I've got a lot of friends on the relator side as well. And I do hear every now and then some of the numbers that they're hearing from relators that are wanting to go to trial in these cases, and they've got millions of dollars in costs, not fees, but costs that they're going to eat if they don't win, which is very risky.
00;09;16;24 - 00;09;36;23
Jonathan Porter
It's very risky to take one of these to trial unless you get some third party financing, which is a whole other podcast episode that we could do in addition to our travel spinoff. But oh, so, Kate, this all came to a head in a really big case recently, and the Ninth Circuit struck down a super large award of attorney's fees in a case called Thrower.
00;09;36;26 - 00;09;43;18
Jonathan Porter
So Kate, tell our listeners about the Thrower case and what made the relator argue for a crazy amount of fees in that case?
00;09;43;23 - 00;10;10;15
Kate Ledden
Yeah. Thrower is a fascinating case to walk through, because it really illustrates how all of these moving pieces come together. And then as you noted, fall apart on appeal. So the relator and Thrower sued her employer under the False Claims Act for fraudulently certifying residential mortgage loans insured by the Federal Housing Administration. The government declined to intervene and actually tried to dismiss the case, but the court rejected DOJ's effort to have the case thrown out.
00;10;10;18 - 00;10;41;11
Kate Ledden
From there, the case dragged on through extensive litigation for years, and the case ultimately settled for $38.5 million. That means the relator walked away with about $11 million in a relator's share. But the settlement did not address attorney's fees, so that became its own separate battle. The district court ultimately awarded $8.5 million in attorney's fees, and embedded in that award was a multiplier of 1.75 applied to the lodestar calculation.
00;10;41;13 - 00;10;54;08
Kate Ledden
The relator's attorney didn't just get their lodestar amount, they got their lodestar amount multiplied by nearly two. That's a significant enhancement. And that's exactly what drew the appeal in the Ninth Circuit scrutiny.
00;10;54;10 - 00;11;22;22
Jonathan Porter
Yeah, Kate, I agree with you. This is a really interesting fact pattern. In this case, the fact that DOJ tried to dismiss the qui tam and were not successful, you really don't see that very often. So I think the court looked at this and for some reason really liked the relator, really liked the theory that relator was bringing, because, again, you really don't see courts rejecting dismissal motions from DOJ ever.
00;11;22;22 - 00;11;47;15
Jonathan Porter
And so there's something going on here that is sitting below the surface. But I think it's clear the judge liked the relator, liked the theory, disliked the defendant for whatever reason. But Kate, let's drill down into this 1.75 times multiplier of the lodestar break $8.5 million attorney's fees. That's a big, big number. And that large attorney's fee award gets appealed by the defendant, and rightfully so.
00;11;47;17 - 00;11;58;07
Jonathan Porter
And the Ninth Circuit reverses the district court's attorney's fee award. So, Kate, why did the Ninth Circuit do that? You don't see the Ninth Circuit taking the business side very often. What happened in this case?
00;11;58;09 - 00;12;24;26
Kate Ledden
No, that's certainly true. But the Ninth Circuit's reasoning here is really important for practitioners to understand because it draws a clear line. The court held that the district court had abused its discretion by enhancing the lodestar. Because the reasons the district court gave for applying the multiplier were factors that were already accounted for in the lodestar itself. In other words, you can't use the same rationale to justify the base calculation and then use it again to inflate the result.
00;12;24;28 - 00;12;50;24
Kate Ledden
That's again double dipping. So specifically there, the enhancement had been premised on the exceptional result, in part, as you noted, because they survived the dismissal attempt by DOJ. But the Ninth Circuit said, wait a moment. The relator achieved that exceptional result by putting in a reasonable number of hours at a reasonable hourly rate. That's exactly what lodestar represents, and you've already been compensated for that.
00;12;50;27 - 00;13;12;07
Kate Ledden
And importantly, the court noted that the defendant was already on the hook for paying fees on roughly 7,000 hours billed at a high end market rate, and the Ninth Circuit said that was appropriate and that was the appropriate amount, full stop. So the lesson is the multiplier is not a reward for winning big or simply because it's the False Claims Act case and could be complex.
00;13;12;10 - 00;13;21;11
Kate Ledden
The lodestar amount already accounts for the quality and quantity of the work, and to get a multiplier, you really need to show something truly outside of that framework.
00;13;21;13 - 00;13;41;15
Jonathan Porter
Thanks, Kate. Yeah, that I think is the takeaway from Thrower is if the court's reason for enhancing the lodestar is because there were a lot of hours or because it was complex, that's already going into the math. So like you said, Kate, that's double dipping. That's what the Ninth Circuit had a problem with. And so I think this was a pretty clear cut case for attorney's fees.
00;13;41;15 - 00;14;05;01
Jonathan Porter
But it's really good because relators are making these arguments. And we on the defense side need to be prepared to answer them. So Kate, let's end this episode by zooming out a little bit and Kate why don’t you tell us going forward. For those litigating this attorney's fee issue, what should we know? How can attorneys make the right arguments when real leaders are going to claim this astronomical sum of money for attorney's fees?
00;14;05;03 - 00;14;27;18
Kate Ledden
I mean, that's a great question to close on. And the Ninth Circuit decision, and it gives practitioners a really clear roadmap. The first priority should always be to focus on the lodestar inputs themselves. Before you even get to the question of enhancements. But that's where the real battles are, and that's where you can have the most impact. On the hours side,
00;14;27;20 - 00;14;59;17
Kate Ledden
and you should invest in a thorough review of relator's time records. Look for things like over staffing, where there are too many lawyers in a room for a deposition, or too many attorneys drafting a brief, bland clerical or administrative tasks that don't warrant attorney billing rates, identify time spent on legal theories that failed or, more importantly, were never raised before opposing counsel or the court, and scrutinize vague time entries that don't give you enough information to evaluate whether the time was reasonably spent. On the rate side,
00;14;59;17 - 00;15;21;26
Kate Ledden
you should push back on the claimed hourly rate, figure out first what the right geographic market is, and then look for local rate surveys or recent attorney fees. Awards in your jurisdiction that can anchor your argument about what's actually reasonable in the community. And then on multipliers You should use Thrower directly. The Ninth Circuit gave you the language.
00;15;21;29 - 00;15;46;23
Kate Ledden
It's the reasons the other side is offering to justify an enhancement are factors that are already baked into the lodestar calculation. That's exactly the argument the Ninth Circuit found persuasive. At the end of the day, Thrower fundamentally underscores that the fee inquiry comes back to the lodestar, and the best thing practitioners can do is to prepare with meticulous records and sharp arguments on hours and rates.
00;15;46;26 - 00;16;11;16
Jonathan Porter
Thanks, Kate. Yeah, totally agree with everything you just said. Like I said, the fee requests from writers can be astronomical. Most really good relator's attorneys are meticulous in following how many hours they spend on everything. They're very good at doing their time entries, but that doesn't mean that they don't over staff or bill for clerical tasks or work on failed theories or have vague entries.
00;16;11;19 - 00;16;31;07
Jonathan Porter
So it's up to us to go through and do that big, thorough pass in order to knock out some of the fees. Because it's not unusual for a relator to allege nine theories, settle on one, and then it's unclear how much time they spent on the one theory that was actually valid versus the eight that were, you know, ridiculous.
00;16;31;11 - 00;16;48;27
Jonathan Porter
And so that's the sort of thing that we've got to do on our side, Kate, is to really push back on the hours on the right. And by all means, push back on any sort of multiplier or enhancement. And understand judges look at this and say, this is complex and it is risky. And so their gut a lot of times is to go with the relator.
00;16;48;27 - 00;17;06;26
Jonathan Porter
That's why we've got to find cases like Thrower bring the right authority to the judges, know what they're allowed to do and what they're not allowed to do. And based on the right appellate decision. Kate, I'm super grateful that we did this episode. Thanks for coming on the podcast and telling our listeners all about this really, really big issue in False Claims Act litigation.
00;17;06;29 - 00;17;11;16
Kate Ledden
Yeah. My pleasure, Jonathan, and I think this is really an important topic and I'm glad we got to dig into it.
00;17;11;18 - 00;17;32;01
Jonathan Porter
Yeah, absolutely. So Kate, thanks for coming on. To our listeners, we're so grateful for you. I can't tell you how many people reach out after episodes with ideas and thoughts. And so to our listeners, we're grateful that you're with us. We're going to continue to bring you this type of thought leadership here at the firm. False Claims Act litigation continues to be a really big deal.
00;17;32;08 - 00;17;55;23
Jonathan Porter
As we said a few episodes ago, the number of qui tams filed set a record last year. And so these cases are coming, and a lot of these are going to be declined qui tams. So something that a lot of people don't know about DOJ is right now a lot of AUSAs who normally would handle False Claims Act cases are being reassigned to defensive cases as the administration is doing more and more things that require defensive work.
00;17;55;25 - 00;18;15;15
Jonathan Porter
And so I think we're going to see a lot more declined qui tams, a lot more relators taking cases themselves. And so we're gonna continue talking about things like that on this podcast. And so to our listeners, we appreciate you listening. We hope you continue to listen to us. And so we'll see you next time.