U.S. District Court Awards Costs to Prevailing Defendants in False Claims Act Case; Whistleblower Appeals to Second Circuit

Wednesday, November 25, 2015
By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law

U.S. District Judge Jed S. Rakoff, ordered relator, Associates Against Outlier Fraud (Associates), to pay $15,000 in costs to the prevailing defendants, Huron Consulting Group Inc. (Huron) and Empire HealthChoice Assurance Inc. (Empire), in a failed False Claims Act (FCA) suit.  Associates appealed from the Southern District of New York to the Second Circuit Court of Appeals arguing that the district court’s order only served to weaken the FCA.  The Second Circuit affirmed the district court’s decision awarding costs to defendants.


Background on FCA Case.

Associates filed its FCA case against Huron in 2009.  Associates’ allegations stemmed from events surrounding the restructuring of St. Vincent Catholic Medical Center (St. Vincent’s) and its 2005 bankruptcy filing.  The owner of Associates, Steven Landgraber, worked as a consultant at St. Vincent's from 2005 to 2006.  

St. Vincent’s hired Speltz & Weis (a consulting firm) in 2003 to help repair its business.  Speltz & Weis was later acquired by Huron in 2005.  In its FCA suit, Associates alleged that Huron caused false claims to be made to Medicaid and Medicare for supplement reimbursement of unusually high in-patient care costs.

The government declined to intervene in the case and Associates continued to pursue the $50 million suit on its own.  The district court ultimately found that Associates was unsuccessful in supporting its claims in its complaint with substantial facts and applicable law.  U.S. District Judge Rakoff wrote that Huron's conduct was at worst "bad practice" but not forbidden by regulation or standard practice.

After the judgment was affirmed on appeal and the defendants submitted bills of costs, Associates was ordered to reimburse the defendants for costs incurred in depositions.  Huron was awarded costs in the amount of $7,886.95, and costs awarded to Empire totaled $5,839.80.

To read the district court’s full Memorandum Order, click here


Expenses Versus Costs.


Associates argument on appeal focuses on Federal Rule of Civil Procedure 54(d)(1), which provides in pertinent part, “Unless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney's fees—should be allowed to the prevailing party.”  Associates’ argued that the federal FCA clearly “provides otherwise.”

Associates specifically cited the law at Section 3730(d)(4), which states, “…the court may award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”  Section 3730(d)(4), 31 United States Code [emphasis added].

Associates asserted that the term “expenses” is synonymous with “costs,” thereby barring an award of costs to defendants without first finding that the FCA action was frivolous, vexatious or for the primary purpose of harassment.  Although Huron was successful in its dismissal of Associates’ lawsuit, the district court made no such finding that Associates’ FCA claim was brought in bad faith.


Whistleblower’s Argument Falls Flat.

Associates sought to rely on U.S. Supreme Court precedent, Taniguchi v. Kan Pacific Saipan (which equates costs with expenses) in support of its argument.  However, Circuit Judge Debra Ann Livingston, pointed out the distinctions between Taniguchi, which applies to a general federal statute and seeks to resolve litigation expenses under Section 1920, 28 United States Code, and the present case, which deals primarily with the FCA.

The FCA specifically distinguishes between costs and expenses in two different scenarios.  Section 3730(d)(2), 31 United States Code, provides for an award of “reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs” in circumstances where the government has declined to intervene and the relator is the prevailing party in a qui tam suit.  

Furthermore, when the government does intervene, Section 3730(g), 31 United States Code, allows the prevailing defendant to recover “fees and other expenses, in addition to any costs awarded pursuant to [Rule 54(d)].”  The Second Circuit previously held in Tablie v. Gonzales, 471 F.3d 60 at 64, that courts are to “give effect, if possible, to every clause and word of a statute, and to render none superfluous.”  

Additionally, Federal Rule of Civil Procedure 54(d)(1) allows for the Clerk of Court to tax costs, but Rule 54(d)(2) requires a motion be brought before the court for attorney’s fees and related nontaxable expenses.  

Therefore, the Second Circuit held that Associates failed to overcome the FCA’s clear distinction between costs and expenses and its alignment with Rule 54(d).  Accordingly, costs imposed to unsuccessful relators are not barred by the FCA.


Comments?


Do you think whistleblowers bringing False Claims Act cases in good faith should be required to pay costs to prevailing defendants?


Contact Health Law Attorneys Experienced with Qui Tam or Whistleblower Cases.


Attorneys with The Health Law Firm also represent health care professionals and health facilities in qui tam or whistleblowercases both in defending such claims and in bringing such claims. We have developed relationships with recognized experts inhealth care accounting, health care financing, utilization review, medical review, filling, coding, and other services that assist us in such matters. We have represented doctors, nurses and others as relators in bringing qui tam or whistleblower cases, as well.

To contact The Health Law Firm, please call (407) 331-6620 and visit our website at www.TheHealthLawFirm.com.


Sources:


Memorandum Order 1-5, Feb. 2, 2015.

Brush, Pete.  “Whistleblower Can’t Get Stuck With ‘Costs,’ 2nd Circ. Told.”  Law360.  Portfolio Media Inc.: 12 Nov. 2015.  Web.  13 Nov. 2015.

Raymond, Nate.  “Huron Wins Dismissal of Whistleblower Lawsuit.”  Business News.  Reuters.com: 5 Mar. 2013.  Web.  23 Nov. 2015.


About the Author:
George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law.  He is the President and Managing Partner of The Health Law Firm, which has a national practice.  Its main office is in the Orlando, Florida area.  www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.



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11/25/2015

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