Deference on All Fronts to Government Settling Qui Tam Action

Deference runs throughout a decision published last week, United States v. Everglades College, Inc., 2017 WL 1658478 (11th Cir. May 3, 2017), where the court issued four holdings in connection with the government’s settlement of a False Claims Act qui tam action relating to federal financial aid funds under Title IV of the Higher Education Act of 1965. The court actually consolidated two appeals—the first relating to the intervention and settlement of the qui tam action and the second to the reduction of the relators’ attorneys’ fees award based on the amount awarded and the court’s refusal to increase the award based on the larger settlement figure.

The relators, Manuel Christiansen and Brian Ashton, brought the qui tam action against Everglades College, Inc., d/b/a Keiser University. They alleged that Keiser had falsely certified compliance with federal law banning incentive payments to university admissions counselors, which were prohibited under federal student financial-aid programs. The U.S. government declined to intervene and take over the case.  The relators pursued the action and, following a bench trial, won a limited trial victory. But, despite alleging over a billion dollars in statutory penalties and damages (because the relators advanced a theory that Keiser was liable for false certification by its students as well), they received no damages award and only $11,000 in penalties, the statutory minimum for two violations. Then, during the pendency of the appeal, the government stepped in and settled the case with Keiser for $335,000. The settlement also included Keiser’s release from any further administrative or civil claims. Between the bench trial and the settlement, the relators had sought $1 million in attorneys’ fees and almost $76,000 in litigation costs, but the court reduced the attorneys’ fees award to $60,000 and the award of costs to $27,000 based on the limited success at trial. Following the settlement, the relators also sought enhanced fees and costs based on the settlement figure and their fees and costs pursuing an appeal. The district court denied the request for increased attorneys’ fees and costs.

On appeal, the relators raised four issues: (1) whether the government had to meet the FCA’s good-cause intervention requirement when it sought only to settle the case—the court determined this only applied to a case the government would pursue, and not one it was only settling; (2) whether the proposed settlement was “fair, adequate, and reasonable” under the FCA—the court determined that it was; (3) whether the relators were entitled to discovery preceding their statutory hearing to contest the settlement—the court determined that, to receive any discovery into the settlement, the relators bore the burden to establish a colorable, non-speculative claim that the settlement was improper and that they failed to carry their burden; and (4) whether the district court abused its discretion in awarding substantially reduced attorneys’ fees based on relators’ limited success at trial and subsequent opposition to the government’s settlement proposal—the court determined that the district court had not abused its discretion.

In assessing whether the proposed settlement was “fair, adequate, and reasonable,” the court first considered what standard of review it would apply. The description of what level of deference a court should apply in the circumstance, to the government’s rationale for settling and the various concerns served by the settlement, was somewhat unclear. First, the court described the standard as “considerable deference to the settlement rationale,” but then shortly thereafter in comparing the greater deference afforded to a government decision to dismiss a qui tam action, the court described the standard for analyzing a settlement saying “some limited deference is still warranted.” Nevertheless, it appears that the government has wide latitude to weigh priorities in determining whether and when to settle a qui tam action. The court distinguished settlement of a qui tam action from that in a class action case because the qui tam relators were not actually interested parties, which it held should increase the deference afforded to the settlement decision in the qui tam context. Settlement of a qui tam action was also distinct because achieving the largest settlement possible was not the only reasonable concern the government may have. The government may also consider what amount it perceives is proportional to the harm, other public policy or political concerns, and the best interest of the United States. Here, of particular concern to the government was the state of the law in the Circuit. The government was concerned because the relators were relying on a tenuous theory of recovery that was unsettled within the Circuit, whether a school falsely certifying compliance with federal payment conditions could make it liable under the FCA for financial-aid requests by its students. The government believed an adverse decision on appeal would harm FCA enforcement throughout the Circuit. The court held this was a reasonable consideration in the government’s settlement decision.

On additional discovery, the court held that the relators bore the burden to demonstrate that such additional discovery was necessary because of a colorable and non-speculative claim that the settlement was improper in some way. Upon such a showing, the court could exercise its discretion to allow limited discovery. The court stressed that the evidentiary hearing should not become a mini-trial on the merits, as would be the case if the relators were routinely allowed expansive discovery into the government’s settlement processes. Doing so would defeat one of the purposes of settling, to conserve and direct government resources. The relators’ allegations here were too speculative, and the court declined to infer impropriety based on allegations that the government’s rationale was patently unreasonable and must therefore be a pretext.

In determining that the district court had not abused its discretion in reducing the relators’ attorneys’ fees and costs awards, the court noted that the district court had considered the amount of recovery in reducing the fee award by over 95% when calculating the lodestar amount. In approving the district court’s action here, the court distinguished Yellow Pages Photos, Inc. v. Ziplocal, LP, 846 F.3d 1159 (11th Cir. 2017). In Yellow Pages, the Eleventh Circuit reversed a district court’s application of a strict mathematical reduction in the lodestar attorneys’ fees calculation. Here, however, the court expressly considered policy considerations on all sides, including encouragement of whistle-blowers, Keiser’s costs in defending the action, judicial economy, and the fact that the suit may have influenced Keiser’s behavior. The court approved this process as consistent with Yellow Pages. The court also affirmed, in a footnote, the decision to refuse to adjust the relators’ fees and costs awards following the settlement, because they had vigorously opposed the settlement and should therefore not be able to reap such a benefit.

Posted by Danny Wells.

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