USA v. Univ. of Southern Ca.

• Decision Date: 22 February 2000
• Docket Number: No. 98-56020,98-56020
• Parties: (9th Cir. 2000) UNITED STATES, ex rel. RAMESH C. SHARMA, Plaintiff-Appellant, v. UNIVERSITY OF SOUTHERN CALIFORNIA, Defendant-Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1141

217 F.3d 1141 (9th Cir. 2000)

UNITED STATES, ex rel. RAMESH C. SHARMA, Plaintiff-Appellant, v. UNIVERSITY OF SOUTHERN CALIFORNIA, Defendant-Appellee.

No. 98-56020

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted February 15, 2000

Submission Deferred February 22, 2000¹

Resubmitted June 29, 2000 San Francisco, California

Filed July 10, 2000

Armando M. Galvan, Los Angeles, California, for the plaintiff-appellant.

Robert C. Bonner, Gibson, Dunn & Crutcher, Los Angeles, California, for the defendant-appellee.

David M. Gossett, U.S. Department of Justice, for the plaintiff-appellant.

Appeal from the United States District Court for the Central District of California; Harry L. Hupp, District Judge, Presiding. D.C. No. CV-96-03970-HLH(JRx)

Before: James R. Browning, Alfred T. Goodwin, and Susan P. Graber, Circuit Judges.

GOODWIN, Circuit Judge:

Plaintiff Ramesh Sharma ("Sharma") appeals the district court's order modifying the terms of his settlement agreement (the "Settlement Agreement" or the "Agreement") in Sharma's qui tam action against the University of Southern California ("USC") under the False Claims Act ("FCA"), 31 U.S.C. SS 3729-3731.

FACTUAL AND PROCEDURAL BACKGROUND

In 1996, Dr. Ramesh Sharma brought a qui tam action against USC under the FCA, alleging that USC had made false representations to the United States ("U.S.") in connection with research funded by the National Institutes of Health. The U.S. elected not to intervene in the case, but later objected to the calculation of Sharma's recovery in the Settlement Agreement that he reached with USC. The government disputed the inclusion of attorneys' fees as part of the "proceeds" of the settlement to which Sharma was entitled. The trial court agreed with the government that, as a matter of law, the statute did not include attorneys' fees in "proceeds." The court held that the proceeds were the amount over and above attorneys' fees and costs. Rather than disapprove the Settlement Agreement, however, the court opted to modify it -to reduce Sharma's recovery in accordance with the statute and approve it.

Sharma claims, however, that the district court erred in modifying, and then approving, the Settlement Agreement. The terms of the Agreement provide that the approval of the district court is a condition to its enforceability and that disapproval or any alteration of the terms of the Agreement renders it null and void. Sharma contends that the trial court thus had only two options at its disposal: either (1) approve the Settlement Agreement as submitted, after which the parties dismiss their claims, or (2) disapprove the Settlement Agreement, after which the parties continue litigating the dispute. Sharma contends that Ninth Circuit precedent does not allow the court the third option of changing an agreement that by its very terms becomes void if modified, and simultaneously ordering the dismissal of the case involved.

STANDARD OF REVIEW

The district court's decision to modify and approve the Settlement Agreement to bring it into compliance with the FCA is a matter of law reviewed de novo. See United States v. Gonzalez-Mendez, 150 F.3d 1058, 1060 (9th Cir. 1998), cert. denied, 525 U.S. 1010 (1998).

DISCUSSION

Sharma contends that the express terms of the Settlement Agreement prevented the district court from altering and then approving it. The Agreement states, "if the Court does not approve, or [if] the Court for any other reason declines to enter a dismissal with prejudice of the Qui Tam Lawsuit, this Agreement shall be null and void, and USC shall pay nothing to the Sharmas and/or the United States." Although we are troubled by the prospect of a court's modifying and approving a settlement agreement without both parties' subsequent consent, a district court does have the power in FCA qui tam cases to bring a settlement into compliance with FCA.

The FCA provides that the district court must approve a proposed settlement in a qui tam case (in which a party sues on behalf of the government), and the parties recognized as much by providing that the court's approval was a condition precedent to the enforceability of the Agreement. Upon being presented with the Settlement Agreement,² the court ruled that the inclusion of attorneys' fees in the proceeds payable to Sharma violated the provisions of the FCA. The statute provides that a relator may receive "not less than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds. Such person shall also receive an amount for reasonable expenses . . . , plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant." 21 U.S.C. S 3730(d)(2) (emphasis added).

Sharma claims that "proceeds " encompasses the entire amount brought in, and not just damages recoverable by the plaintiff. However, the U.S. intervened to argue, and the district court agreed, that attorneys' fees are not allowable to inflate the recovery of the plaintiff's "proceeds " under the FCA. This position is logical, because the statute explicitly separates proceeds from attorneys' fees and costs by providing that a plaintiff "shall also receive an amount for reasonable expenses . . . plus reasonable attorneys' fees and costs." 31 U.S.C. S 3730(d)(2). In this manner, the FCA requires attorneys' fees and costs to be "awarded against the defendant, rather than taken out of the proceeds" of the FCA recovery. United States ex rel. Kelly v. Boeing Co. , 9 F.3d 743, 747 (9th Cir. 1993); 31 U.S.C. S 3730(f) (providing that the government is not liable for a plaintiff's expenses in bringing a qui tam action). Furthermore, Ninth Circuit law makes it clear that, "[i]n the qui tam arena, . . . attorneys' fees must go to the attorneys rather than to the plaintiff. If they did not, a wrong would be perpetrated upon the government . . .. If the amount went to the plaintiff, it would be a compensatory payment which really belongs to the United States subject to allocation of a portion to the plaintiff." United States ex rel. Virani v. Jerry M. Lewis Truck Parts & Equip., Inc. , 89 F.3d 574, 578 (9th Cir. 1996); see also United States ex rel. Gibeault v. Texas Instruments Corp., 104 F.3d 276, 277 (9th Cir. 1997).

The Settlement Agreement here, however, was structured so that in addition to the 30 percent of the FCA recovery to which Sharma was entitled, he received as a bounty his costs and attorneys' fees from the FCA proceeds. District courts have the power to modify FCA settlements that stray from the statutory requirements "to ensure that the government [receives] its proper share." Gibeault, 104 F.3d at 277 (internal quotation marks and citation omitted). The court may even affirmatively "restructure the settlement" to "bar a qui tam plaintiff and defendant from artificially structuring a settlement to deny the government its proper share. " Id. (internal quotation marks and citation omitted). Here, the original Settlement Agreement attempted to do just that, in that it provided for both Sharma's personal non-qui tam claims and the FCA recovery, but not for his attorneys' fees separately. Instead, Sharma attempted to receive both his statutory 30 percent recovery and his attorneys' fees from the total FCA recovery, thereby denying the U.S. its statutorily mandated share by taxing a portion of the attorneys' fees against the government's award. Hence, the trial court was not only authorized, but required to, modify the Agreement to reduce the recovery allocated to Sharma to reflect the separation of attorneys' fees from the proceeds. See id. ("court had the power to restructure the settlement to secure government's share"); Virani, 89 F.3d at 578. This alteration reduced Sharma's portion of the recovery to approximately $50,000 in the qui tam FCA action instead of $75,000; Sharma was still entitled to be paid an additional $400,000 attributable to his nonqui tam wrongful termination claims.

Sharma further contends that the district court erred by reducing his FCA award because the Settlement Agreement provided that "if the Court does not approve, . .. this Agreement shall be null and void." In addition, the Agreement stated that it was subject to the...