Legal Fee Tracker: Whistleblower lawyers could lose big in False Claims Act fight

Reuters

Legal Fee Tracker: Whistleblower lawyers could lose big in False Claims Act fight

Oct 3, 2024 at 4:59 pm GMT

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By David Thomas and Mike Scarcella

Oct 3 (Reuters) -A ruling by a Florida federal judge this week threatened to wipe out part of the federal False Claims Act, the Civil War-era statute designed to combat fraud against the U.S. government and reward whistleblowers who help uncover it.

The law's whistleblower provisions, which Congress strengthened in 1986, have fueled a lucrative practice for a segment of the U.S. plaintiffs bar. Last year False Claims Act whistleblowers and their lawyers collected about $350 million in awards for bringing successful cases on the government's behalf, according to U.S. Justice Department records.

On Monday, U.S. District Judge Kathryn Mizelle ruled that those whistleblower, or qui tam, provisions are unconstitutional. Mizelle concluded in a False Claims Act Medicare fraud case that the qui tam provisions improperly allow whistleblowers to exercise federal executive power without accountability to the president.

The whistleblowers decide "whether to appeal and which arguments to preserve, thereby shaping the broader legal landscape for the federal government," Mizelle said, adding that they had more independence than a federal prosecutor.

The case could soon head to the 11th U.S. Circuit Court of Appeals and eventually to the U.S. Supreme Court. The federal government, which has collected more than $75 billion under the False Claims Act since 1986, has argued that the whistleblower provisions are constitutional. But Mizelle's analysis, which False Claims Act defendants have increasingly advocated, could eventually win out at the high court.

"False Claims is not going to go away, but qui tam could," said Craig Margolis, a partner at Arnold & Porter Kaye Scholer who defends companies in False Claims Act cases.

Millions of dollars are at stake for whistleblower lawyers, who typically have a contingency stake in the qui tam award their client receives for a successful case. That award can range from 15% to 30% of the amount the government recovers, depending on whether the Justice Department intervenes directly in a case to litigate the whistleblower's claims.

The False Claims Act also contains a fee-shifting provision that requires defendants to cover a whistleblower's "reasonable" legal fees for a successful case. That gives the lawyers two potential paydays if they win -- their contingency interest in a whistleblower's award, plus their regular hourly fees.

Whistleblower lawyers told Reuters that there's no standard contingency arrangement in False Claims Act cases. Some firms may rely more on the statutory fee provision of the law and advertise a smaller contingency fee than others.

"The practice varies so widely that I can’t answer the question," said H. Vincent McKnight Jr., a qui tam practice vice-chair at Sanford Heisler Sharp. McKnight declined to say how his own firm charges False Claims Act clients.

McKnight and Gordon Schnell, a partner at Constantine Cannon who represents whistleblowers, downplayed the impact that qui tam's demise could have on their firms, noting they have a diversified set of practices.

Schnell predicted in any case that Mizelle's ruling would not survive on appeal. The Justice Department and Congress both strongly support the False Claims Act, he said, and the law's qui tam provisions could be amended through legislation to address constitutional concerns.

"The essential premise of whistleblowers helping the government uncover and prosecute fraud is not going to go away," Schnell said.

Mizelle's ruling came in a False Claims Act case brought by former Florida physician Clarissa Zafirov, who accused her former employer and several other Florida health care providers of defrauding Medicare by misrepresenting patients' medical conditions.

Zafirov's lawyers at Morgan Verkamp and Rabin Kammerer Johnson did not immediately respond to requests for comment, including on their plans regarding an appeal or their would-be stake in any whistleblower award.

The Florida healthcare defendants in the Zafirov case, whose arguments were backed by the U.S. Chamber of Commerce, were represented by Foley & Lardner and O’Melveny & Myers, among other firms.

Mizelle's ruling recognized that qui tam litigation has gone beyond "what the constitutional drafters intended," Foley partner Jason Mehta told Reuters earlier this week.

-- In other legal fee news, Baltimore County will pay 15% of any gross recovery it receives in litigation connected to the collapse of the Francis Scott Key Bridge to its private-sector attorneys, according to a contract obtained by Reuters.

The county hired Grant & Eisenhofer and Bekman Marder Hopper Malarkey & Perlin to pursue its claims against Grace Ocean Pte Ltd and Synergy Marine Group, the owner and operator of the cargo ship that struck the bridge in March.

The county's lawsuit is one of several that have been filed against Grace Ocean and Synergy Marine. The state of Maryland, the U.S. Justice Department, victims' families and others are all pursuing their own claims in Maryland federal court.

(Legal Fee Tracker is a weekly feature exploring attorney compensation awards and disputes in class actions, bankruptcies and other matters. Please send tips or suggestions to D.Thomas@thomsonreuters.com.)

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Reporting by David Thomas

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