Eighth Circuit affirms award of whistleblower share in government's settlement of related claims

by Ben Vernia | March 13th, 2013

On March 1, the Court of Appeals for the Eighth Circuit, writing in U.S. ex rel. Roberts, et al., v. Accenture, LLP, et al., affirmed an Eastern District of Arkansas Judge’s decision to award relators in the qui tam case a share relating to a contract that was the subject of an internal audit by the defendant, HP, during the course of the government’s investigation.

The relators alleged that HP, among other companies, paid kickbacks to government IT consultant contractors, and provided inaccurate – or “defective” – pricing information on HP products. The Eighth Circuit described the extensive cooperation of the whistleblowers and their counsel, and noted that the government’s complaint in intervention acknowledged the relator’s detailed allegations of their direct and independent knowledge, and in some sections merely paraphrased from the qui tam suit.

During the course of the investigation, HP investigated internally, and disclosed to the government, problems with another contract.

Out of the $54 million settlement with HP, the United States designated $9 million as related to the qui tam suit, and the remaining $46 million as related to the contract that was the subject of HP’s disclosure. When the relators moved for a determination of their share of the settlement, the government argued that they were entitled to nothing from the $46 million portion, because their complaint failed to plead that contract’s violations with particularity under Fed. R. Civ. P. 9(b), and that this portion of the settlement arose from the government’s investigation and HP’s self-disclosure, and not from the qui tam suit.

The Eighth Circuit noted that the government has three options in qui tam suits: decline to intervene (in which case the relator may proceed on his or her own and receive 25-30% of any recovery); intervene in the case (in which case the relator’s share is between 15-25%, with 15% being the minimum, akin to a “finder’s fee”); or pursue administrative remedies. In the case at hand, the government’s intervention triggered the 15-25% provision, and there were few circumstances under which the United States could avoid paying the minimum 15%:

There are three statutory exceptions to the 15% minimum finder’s fee in situations where the government elects to proceed with a relator’s action and obtains a judgment or settlement. The statutory exceptions to the minimum finder’s fee are as follows: (1) an additional reduction if the relator himself “planned and initiated” the FCA violation, see 31 U.S.C. § 3730(d)(3); (2) no share in a recovery if the relator “is convicted of criminal conduct arising from his or her role in the violation,” id.; or (3) a limitation of the relator’s share to “no . . . more than 10 percent of the proceeds” when the relator’s claim is “based primarily on disclosures of specific information” traceable to a source other than the relator, id. § 3730(d)(1). Thus, in cases where the government elects to intervene in an action, a relator is entitled to a share of the recovery between 15% and 25% unless one of the three statutory exceptions permitting an additional reduction applies.

In the absence of such circumstances, the Court concluded, the District Court properly awarded the relators a share of the allegations.

The Court then turned to the Department of Justice’s argument that the misconduct leading to the $46 million recovery was not related to the claims the relators had brought:

The government has failed to identify on appeal any clear error in that factual finding, and we find none. As the district court noted, HP began the internal audit of its pricing practices only after becoming aware of the allegations in the relators’ complaint, and only after responding to the extensive subpoenas drafted by the relators at the government’s request. Thus, the government’s claim that HP’s disclosure of its defective pricing on Contract 35F was purely “voluntary,” and that the relators’ pending action and assistance in prosecuting the action played no role in uncovering the defective pricing scheme, is disingenuous.

Finally, the Court disagreed with the government that, in order to share in a settlement of allegations, the relators had to satisfy Rule 9(b) as to those allegations:

Rule 9(b)’s standards are meant to test the sufficiency of a complaint at its outset. If a defendant challenges the sufficiency of a complaint’s allegations at the outset of a case, a plaintiff still has the opportunity to cure the deficiency. In contrast, section 3730(d) only comes into play at the conclusion of a case, after the action has already proceeded to a judgment or a settlement. If the government is allowed to contend at the conclusion of a case that a relator’s initial allegations were insufficient, even though the government implicitly acknowledged the legal sufficiency of the pleadings by choosing to intervene, the relator no longer has the opportunity to cure the deficiency. We find nothing in the FCA’s statutory text to support this type of post hoc use of Rule 9(b) to deny a relator the right to a share of the settlement proceeds in an action in which the government intervenes.

Judge Colloton dissented from the opinion, reasoning that the relators were not entitled to share in the settlement of allegations other than those they themselves brought.

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