Challenge to Attorneys’ Fees in False Claims Act Cases

Thanks to inexact language in a settlement agreement, a for-profit hospital chain can challenge whistleblowers’ eligibility for attorneys’ fees under the False Claims Act (“FCA”).  The single sentence that spawned nearly 5 years of litigation was: “All Parties agree that nothing in this Paragraph or this Agreement shall be construed in any way to release, waive or otherwise affect the ability of CHS to challenge or object to [whistleblower’s] claims for attorneys’ fees, expenses, and costs pursuant to 31 U.S.C. § 3730(d).”

The dispute arose out of a years-long FCA investigation into claims of improper billing and admissions practices at Community Health Systems, Inc. (“CHS”) hospitals across the country.  CHS, the government, and the nine individual whistleblowers eventually entered into a settlement agreement, and CHS agreed to pay the government $97.3 million plus interest to resolve all claims.  However, the parties disagreed on the meaning of the sentence in which CHS agreed to release all potential claims against the whistleblowers, save certain challenges regarding attorneys’ fees.  The dispute came down to the interpretation of that single sentence—the whistleblowers argued it meant CHS could only dispute the reasonableness of attorneys’ fees, while CHS argued it could contest whether the whistleblowers’ attorneys’ fees should even be available under the FCA.

This past Wednesday, a Tennessee federal judge agreed with CHS.  The judge’s decision came on remand from the Sixth Circuit, which overturned a lower court’s original 2015 ruling in favor of the whistleblowers.  According to the Sixth Circuit, the sentence at issue was ambiguous and therefore required further proceedings to ascertain the parties’ “original understanding.”

On remand, U.S. Magistrate Judge Barbara D. Holmes considered a large body of extrinsic evidence.  She concluded that the parties knew that they had differing interpretations of the sentence when they were drafting the settlement agreement, but simply chose not to address it for strategic reasons.  Nevertheless, she found that the weight of the extrinsic evidence tipped in favor of the whistleblowers’ interpretation.

U.S. District Judge Marvin E. Aspen disagreed.  On October 2, 2019, the judge found in favor of CHS, stating that the whistleblowers were aware “or had reason to know” that CHS intended to retain its ability to fight whether the whistleblowers could collect attorneys’ fees.

The decision reminds us all to take care when drafting settlement agreements, particularly all-important release of claims clauses.  It also signals potential new challenges to the collection of attorneys’ fees in FCA cases.  Whether that manifests itself in clearer fees clauses will depend on the parties.  Certainly, if a company intends to challenge the availability of attorneys’ fees, it should, at a minimum, signal that intention during negotiations.

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