U.S. ex rel. Taxpayers Against Fraud v. General Elec. Co.

• Decision Date: 18 January 1995
• Docket Number: Nos. 92-4283,93-3015,s. 92-4283
• Citation: 41 F.3d 1032
• Parties: , 39 Cont.Cas.Fed. (CCH) P 76,730 UNITED STATES of America, Plaintiff, ex rel. TAXPAYERS AGAINST FRAUD and Chester L. Walsh, Plaintiffs-Appellees, v. GENERAL ELECTRIC COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1032

41 F.3d 1032

63 USLW 2400, 39 Cont.Cas.Fed. (CCH) P 76,730

UNITED STATES of America, Plaintiff ex rel. TAXPAYERS AGAINST FRAUD and Chester L. Walsh Plaintiffs-Appellees, v. GENERAL ELECTRIC COMPANY, Defendant-Appellant.

Nos. 92-4283, 93-3015.

United States Court of Appeals Sixth Circuit.

Argued March 11, 1994.

Decided Nov. 30, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied Jan. 18, 1995.

Ann Lugbill, James B. Helmer, Jr., Robert C. Neff, Jr., Helmer, Lugbill, Martins & Neff, Cincinnati, OH, Robert E. Montgomery, Jr. (argued), Paul, Weiss, Rifkind, Wharton & Garrison, Washington, DC, John R. Phillips, Lauren K. Saunders, Mary L. Cohen (briefed), Hall & Phillips, Los Angeles, CA, for Taxpayers Against Fraud in No. 92-4283.

Ann Lugbill, James B. Helmer, Jr., Robert C. Neff, Jr., Helmer, Lugbill, Martins & Neff, Cincinnati, OH, Robert E. Montgomery, Jr. (argued), Paul, Weiss, Rifkind, Wharton & Garrison, Washington, DC, Paul R. Hoeber, Marron, Reid & Sheehy, San Francisco, CA, for Chester L. Walsh in No. 92-4283.

John D. Luken, John W. Beatty (briefed), Dinsmore & Shohl, Cincinnati, OH, Roger M. Witten (briefed), Andrew N. Vollmer, Simone R.D. Francis, Jane G. Sherburne, Louis R. Cohen (argued), Wilmer, Cutler & Pickering, Washington, DC, for General Elec. Co. in No. 92-4283.

Michael Davidson (briefed), Morgan J. Frankel (argued), Washington, DC, for amicus curiae U.S. Senate.

James B. Helmer, Jr., Helmer, Lugbill, Martins & Neff, Cincinnati, OH, Robert E. Montgomery, Jr. (argued), Paul, Weiss, Rifkind, Wharton & Garrison, Washington, DC, John R. Phillips, Lauren K. Saunders, Mary L. Cohen (briefed), Hall & Phillips, Los Angeles, CA, for Taxpayers Against Fraud in No. 93-3015.

James B. Helmer, Jr., Helmer, Lugbill, Martins & Neff, Cincinnati, OH, John R. Phillips, Lauren K. Saunders, Mary L. Cohen (briefed), Hall & Phillips, Los Angeles, CA, for Chester L. Walsh in No. 93-3015.

John W. Beatty (briefed), Dinsmore & Shohl, Cincinnati, OH, Roger M. Witten (briefed), Louis R. Cohen (argued), Wilmer, Cutler & Pickering, Washington, DC, for General Elec. Co. in No. 93-3015.

Before: MERRITT, Chief Judge; and NELSON and BOGGS, Circuit Judges.

BOGGS, J., delivered the opinion of the court, in which MERRITT, C.J., joined. NELSON, J. (p. 1050), delivered a separate opinion concurring in the judgment and in all but Part II of the court's opinion.

BOGGS, Circuit Judge.

The General Electric Company ("GE") appeals from an award of attorneys' fees to a "whistleblower" who brought a qui tam action against the company. For the reasons set forth below, we affirm the constitutionality of the federal qui tam laws; we reverse the district court's decision to deny GE access to portions of a deposition that was taken in camera; and, while generally affirming the award of attorneys' fees, we remand the matter to the district court with instructions to reduce certain components of the award and to conduct further factfinding proceedings.

I

General Electric Aircraft Engines ("GE Aircraft"), a consolidated affiliate of the General Electric Company sold jet engines to the United States Air Force for resale to the Israeli Ministry of Defense. Concurrently, GE Aircraft contracted with Israel's defense ministry to supply support equipment and services for those engines and to sell Israel additional engines. These transactions were financed by the United States out of funds allocated for military aid to Israel. Therefore, the federal False Claims Act applied to these contracts.

A

In the False Claims Amendments Act of 1986 ("FCA" or "the Act"), ¹ Congress included a qui tam ² provision to encourage corporate "whistleblowers." 31 U.S.C. Sec. 3730. A qui tam plaintiff (or "relator") may bring a private civil action on behalf of himself and on behalf of the United States government against a defendant who, in violation of 31 U.S.C. Sec. 3729, has submitted false claims to the government for payment. Id. Sec. 3730(b)(1). The qui tam action is filed under court seal, and the relator must supply the government with a copy of the complaint and with written disclosure of substantially all material evidence and information that the plaintiff possesses supporting the charges. Id. Sec. 3730(b)(2). The Justice Department has sixty days to review the claims and may move the court to extend that period; during that time, the proposed defendant is not notified of the claim. Id. Sec. 3730(b)(2), (3). If the government chooses to intervene in the action, it assumes the role of lead prosecutor. Id. Sec. 3730(b)(4)(A), (c)(1). In the alternative, it may decline to join the action, leaving the qui tam plaintiff as the sole prosecutor. Id. Sec. 3730(b)(4)(B).

If the government does intervene, it may reach a settlement with the defendant, even over the relator's objections, if the court finds, after a hearing that may be held in camera, that such a settlement is fair, adequate, and reasonable under all the circumstances. Id. Sec. 3730(c)(2)(B). If the government chooses to intervene, it can move the court to limit the relator's participation if it feels that the relator will interfere with or unduly delay the government's prosecution of the matter. Id. Sec. 3730(c)(2)(C). Even if the government chooses not to intervene in the action, it may still require the relator to serve it with copies of all filed pleadings and all deposition transcripts, and it may intervene later in the case upon showing good cause. Id. Sec. 3730(c)(3). Moreover, even when it chooses not to intervene, the government may move that certain discovery actions by the relator be stayed for sixty days, and the motion may be renewed. Id. Sec. 3730(c)(3).

If the government chooses to intervene, and a sum of money is collected from the defendant as a result of the ensuing action or settlement, the relator is to receive a bounty between 15-25% of the collected sum ("the bounty"). The exact percentage depends upon "the extent to which the person substantially contributed to the prosecution of the action." Id. Sec. 3730(d)(1). ³ If the relator "planned and initiated" the fraud, the court may substantially reduce the award, but should also consider the "role of that person in advancing the case to litigation"; however, a relator convicted of criminal conduct relating to the fraud cannot collect. Id. Sec. 3730(d)(3). Similarly, the relator must be a true "whistleblower"; therefore, he is precluded from collecting a bounty if the case is brought on the basis of information that has already been publicly disclosed, id. Sec. 3730(e)(4), or if someone else has filed the claim first. Id. Sec. 3730(b)(5). The FCA qui tam statutes also contain a fee-shifting provision that aims at inducing "whistleblowers" to step forward and attorneys to pursue such actions:

Any such [relator] shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

Id. Sec. 3730(d)(1) (emphasis added).

B

In November 1990, Relators-Plaintiffs-Appellees Walsh and Taxpayers Against Fraud ("TAF") filed a qui tam action against GE under 31 U.S.C. Sec. 3730, alleging that GE Aircraft had billed the United States Treasury for millions of dollars in false claims. The United States intervened in August 1991 and took the lead role in the prosecution. A settlement was reached before trial, in which GE agreed to pay $59.5 million in civil damages and $9.5 million in criminal fines, as well as $6,158,301 in restitution, for a total payment of more than $75 million to the United States Treasury.

1. The Relators'-Share Litigation

A hearing was held in United States district court, pursuant to 31 U.S.C. Sec. 3730(d)(1), to determine the relators' share of the civil-damages settlement. We note that the "relators' share" is paid from the amount recouped by the government; therefore, the government has an interest in minimizing that share. The court awarded the relators 22.5% of the $59.5 million, nearly the maximum percentage permitted by statute. The United States filed a notice of appeal, seeking to reduce that award, and the relators settled with the government for about 19% of the settlement, or approximately $11,300,000. Hereinafter, we shall refer to this litigation between the United States and the relators as "the Relators'-Share Litigation."

2. The Attorneys' Fees Litigation

After the Relators'-Share Litigation ended, the relators moved in federal district court, pursuant to 31 U.S.C. Sec. 3730(d)(1), to recoup from GE their reasonable attorneys' fees and costs, as well as their reasonable and necessarily incurred legal expenses. GE sharply challenged the relators' claims on a number of grounds. However, the district judge ordered GE to pay $2,329,228.50 in attorneys' fees and $226,875.17 in costs and expenses. The law firm of Hall & Phillips provided approximately 80% of Walsh's, and nearly all of TAF's, legal services. Therefore, that firm's share of the relators' attorneys' fees exceeded $1.8 million. Hereinafter, we shall refer to this litigation, which pitted GE against the relators and their attorneys, as "the Attorneys' Fees Litigation."

3. The Contingency Fee Agreement

In a separately negotiated arrangement, Walsh had promised to pay his legal counsel 25% of whatever bounty he ultimately collected from the qui tam action. Since Walsh received approximately $11,300,000 from the Relators'-Share Litigation, his contingency-payment agreement called for him to pay his attorneys approximately $2,825,000. Therefore, Hall & Phillips's 80% portion of the contingency fee came to approximately $2,260,000. Thus, having won more than $1.8 million as its share of the fees that were awarded during the Attorneys' Fees Litigation, Hall & Phillips's total fees for its part in this qui tam action amounted to more than $4 million,...