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US not required to satisfy good-cause intervention standard when settling FCA qui tam action

By Kathleen Kapusta, J.D.

A federal district court did not err in allowing the United States, which had initially declined to intervene in a False Claims Act case, to step in and settle the case during the pendency of the relators’ appeal of their limited trial victory, the Eleventh Circuit ruled, finding that the government is not required to satisfy the good-cause intervention standard when settling an FCA qui tam action. Nor did the United States act unreasonably in preferring the certainty of a settlement to the uncertainty of an appeal, said the court, also finding that the relators were not entitled to compel discovery into the government’s reasons for settling the case. Finally, the court below did not abuse its discretion in awarding substantially reduced attorneys’ fees based on the relators’ limited success at trial and subsequent opposition to the settlement (USA v. Everglades College, Inc. dba Keiser University, May 3, 2017, Ebel, D.).

The relators, two former Keiser University admissions department employees, alleged that Keiser submitted more than 230,000 claims for a total of $1.2 billion in federal financial aid, all while falsely certifying to the government that it was complying with a requirement prohibiting a school from paying incentives to recruiters and admissions personnel based on the number of students they enroll. They claimed that despite knowing its admissions personnel received incentive payments, Keiser expressly certified compliance with the Incentive Compensation Ban (ICB) on multiple occasions and also caused its students to submit claims for financial aid to the government, all the while knowing that it was violating the ICB.

Settled. When the government declined to take over their FCA case, they pursued the action and won a limited trial victory—no damages and only $11,000 in penalties. They appealed to the Eleventh Circuit but during the pendency of the appeal, the United States stepped in and settled the case, with Keiser agreeing to pay $335,000 and the government agreeing to release it from any further claims and to refrain from suspending or terminating its eligibility for future Title IV funds. After a fairness hearing, the district court approved the settlement and dismissed the case. The court also reduced the relators’ $1 million attorneys’ fee request to $60,000 based on their limited success at trial.

Intervention. Inarguing on appeal that the district court erred in allowing the government to intervene for the purpose of settling the case, the relators relied on 31 U.S.C. § 3730(c)(3), which provides: “When a [relator] proceeds with the action, the court, without limiting the status and rights of the [relator], may nevertheless permit the Government to intervene at a later date upon a showing of good cause.” But, said the appeals court, this subsection applies only when the government intervenes for the purpose of actually proceeding with the litigation—not when it is stepping in to settle the case. In declining to import the good-cause intervention requirement from subsection (c)(3) into provisions governing dismissals and settlements, the court noted that its sister siblings have reached the same conclusion.

Fair and adequate settlement? The relators next argued the settlement was unreasonable because they could have won appellate reversal and secured a potentially enormous monetary recovery. Rejecting their request to review the settlement under the Rule 23 standard for class settlement between private parties, the court noted that a qui tam FCA suit materially differs from class-action litigation between private parties because a qui tam relator has suffered no invasion of his own rights and the government’s interests are not confined to maximizing recovery against the defendant. Finding that in the FCA context deference must be given to the settlement rationale offered by the government, the court concluded that the question is “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.”

Here, the proposed settlement was fair, adequate, and reasonable as it secured for the government a recovery that was 30 times larger than the district court’s award at trial, resulting in a higher recovery for both the United States and the relators. Further, said the court, had it affirmed the lower court’s restrictive reading of the FCA, the government would have been limited in its enforcement efforts all around the circuit. In addition, winning the bulk of the relators’ claimed penalties and alleged damages relied on being able to attribute the 230,000 student-submitted claims to Keiser, even though Keiser did not control the content or submission of those claims. Noting that this was an open question in this circuit, the court found the United States did not act unreasonably in preferring the certainty of a settlement to the uncertainty of an appeal.

Evidentiary hearing. Also rejected was the relators’ contention that they were entitled to an evidentiary hearing and discovery to probe the government’s reasons for settling the case. While the FCA entitles a qui tam relator to a fairness hearing as of right when the United States proposes a settlement with an FCA defendant, that does not include the right to unearth new evidence at the hearing to attack the proposed settlement. Rather, a relator is afforded an opportunity to highlight existing evidence of impropriety or unreasonableness, and here, said the court, the relators failed to come forward with any colorable and non-speculative claim of improper motive or inadequate investigation by the United States.

Attorneys’ fees. Finally, in affirming the district court’s determination that the relators’ limited trial victory warranted an across-the-board reduction in their total fee award to $60,000 from their $1 million dollar request, the appeals court disagreed with their assertion that the amount of recovery is not an appropriate consideration—or at least not a significant consideration—in awarding attorneys’ fees for qui tam FCA cases. Citing the Supreme Court’s decision in Farrar v. Hobby, which relied on Hensley v. Eckerhart in holding that a court may reduce the lodestar amount when the plaintiff won only nominal damages, i.e., when the plaintiff secured only a “technical” victory by proving a legal violation but suffered no actual damages, the court rejected the relators’ request to limit Hensley and Farrar to claims for private damages, not FCA claims. The relators offered no authority declining to apply those cases to FCA claims and the court declined to carve out an exception to the Hensley-Farrar principle for FCA claims.