The district court granted the relators’ request for attorneys’ fees in their successful qui tam case, despite allegations both were involved in perpetrating the fraud scheme while in the defendant’s employ. The court explained that the FCA provides that individuals coming forward with revelations of fraud may be involved in the wrongdoing, and makes no provision for withholding recovery or attorneys’ fees solely on that basis. As neither relator had been found guilty of criminal fraud, the court found no authority to deny their request for expenses. The court also explained that neither the government action nor public disclosure bar applied to requests for fees, and that both were resolved by the defendant’s settlement with the government. Finally, the court declined to reduce the request to account for unsuccessful claims, finding the claims were not severable and that the request was based on reasonable rates and hours.
Relators Rich Chiba and Drake Maples filed a motion for reasonable expenses and attorneys’ fees related to their qui tam complaint against Guntersville Breathables.
The relators alleged that GBI failed to report, for customs duty purposes, the full value of goods imported from China. Prior to the complaint, Chiba was employed as GBI’s manufacturing vice president. Maples worked for GBI as vice president of sales and then chief executive officer. According to the relators, GBI declared the value of just one of the component products for the boot-foot wader, allegedly resulting in underpayment of customs duties approximating $700,000. For example, via this misrepresentation, the company was able to obtain a tariff rate of 9 percent for the component products instead of 37.5 percent for the finished goods.
The United States intervened and settled the claim, with GBI agreeing to pay $273,495.67, of which $151,942.04 represented restitution. The relators received a share of the recovery. The United States asked the court to dismiss with prejudice the claims included in the settlement, but did not seek dismissal of any remaining claims outside the scope of the agreement. After dismissal, the relators filed their requests for costs.
The defendant objected, arguing the relators perpetrated the wrongdoing underlying their complaint, which should disqualify them from receiving attorneys’ fees. The defendant also argued the FCA’s government action and public disclosure bar precluded an award.
First, the court held that the relators had established themselves as the prevailing parties in the litigation, by dint of the settlement agreement between GBI and the government, and the share of the recovery awarded to both.
The court found unavailing the defendant’s argument that the relators had perpetrated the fraud during their employment and revealed it only after leaving GBI. The court found no authority in the FCA to preclude the recovery of the relators’ attorneys’ fees on this basis. Rather, the court found a clear statutory requirement that attorneys’ fees are mandatory for relators if they obtain a share of the proceeds. In fact, the FCA itself envisions that fraud could be reported by individuals engaged in perpetrating it.
The court noted that if the defendants had separately been found criminally liable for the fraud, they would be ineligible for recovery. However, no court had issued such a finding, and a petition for fees was not the right venue to examine the charge. The court also noted the government had reduced the amount of the relators’ share of the recovery, which it explained is the proper means to sanction relators involved in wrongdoing.
Next, the defendants argued the public disclosure and government action bars precluded reimbursement of the relators’ attorneys’ fees. First, the court noted that these bars effect dismissal of the underlying complaint, not requests for fees and expenses. Further, the court already dismissed the complaints at the government’s request after GBI agreed to settle, and therefore the bars serve no purpose here. Any application of the bars was resolved with that agreement.
The court also found the arguments failed on the merits. First, the court explained that the government action bar did not apply due to the lack of a prior civil suit or administrative civil money proceeding against GBI. GBI argued that it had previously disclosed the misreporting, but the court held this disclosure did not satisfy the government action bar because prior disclosures under the applicable statutory regime do not constitute administrative civil money penalty proceedings, nor was such a proceeding initiated.
Similarly, the court held the public disclosure bar would not apply, as GBI’s disclosure was to U.S. Customs, which did not release the information publicly. According to the court, a transaction does not comprise a public disclosure when information is reported to a government agency and filed away in a bureaucrat’s office. The court also found the disclosure involved different wrongdoing than alleged in the relators’ complaint. Though similar, the information disclosed by GBI was not substantially the same as that asserted by the relators. While both issues involved tariffs on imported goods, the court found the schemes were distinct—one a tariff misclassification and the other a duty undervaluation—and that the penalties were different. Finally, the court held the relators qualified as the original sources of the information in their complaint.
Having failed to persuade the court to deny the motion for fees, the defendants argued the relators should recover only a portion of fees relative to their partial success on their claims. First, the court found the relators’ full request based on a reasonable rate and number of hours, without any request for an upward adjustment. GBI challenged one duplicative entry, but the court found it reasonable for both attorneys to attend an initial meeting with the relators. The court found no other evidence of redundant billing. GBI also challenged hours claimed during the period the settlement agreement was being negotiated, but the court found the relators’ attorneys were involved in that process. However, the court did disallow time spent for the attorneys to negotiate the amount of recovery with the United States.
Next, the court considered whether the relators’ successful and unsuccessful claims could be severed. GBI argued they were not successful on four of their five claims, four of which were related to one alleged scheme. The relators argued the schemes shared a common legal theory and thus were interrelated and inseparable. The court agreed, finding the claims intertwined, as both involved violations of statutes governing the importation of goods into the United States. The court saw no path to divide the hours expended by the relators’ attorneys on a claim by claim basis and declined to reduce the fees in relation to the relative success of the claims.
The defendants also argued the relators should recover fees in relation to their share of the recovery. While the relators sought $1 million in damages, the government’s recovery amounted to about 25 percent of that amount, and therefore GBI argued the relators’ request for fees should be reduced accordingly. The court disagreed, explaining that the Supreme Court has frowned on a strictly mathematical approach for calculating attorneys’ fees in this way. The court found the government and relators had scored more than a mere technical win, and that $85,000 in attorneys’ fees seemed reasonable in comparison to the $273,000 settlement amount.
