Relators play an invaluable role in the government’s quest to crack down on fraud through qui tam suits – a role that was recently highlighted by a D.C. district court when it increased the relator’s share of the settlement proceeds from 15% – the statutory minimum – to 20%, in light of relator’s, and relator's counsel's significant involvement in the investigation.
In U.S. ex rel Shea v. Verizon Communications, Inc. the relator, Stephen Shea, had filed a False Claims Act complaint in 2007 alleging that MCI/Verizon (“Verizon”) was submitting false claims for illegal surcharges on invoices submitted under two telecommunications contracts between the federal government and Verizon. On February 18, 2011, the federal government intervened and settled the dispute for $93.5 million, plus the additional $3 million that had been recovered in 2008 for the illegal surcharges.
Unfortunately, the federal government and the relator could not come to an agreement regarding the relator’s share of the settlement proceeds, and the government paid the relator approximately 15% of the settlement proceeds, which is the statutory minimum percentage share for relators under the FCA. The relator subsequently filed a Motion for Relator Share Award, requesting that his share of the settlement proceeds be increased to 22%.
As a matter of law, the False Claims Act provides that relators are entitled to 15% to 25% of the final settlement amount, with a 15% share generally serving as the bare minimum. Awards amounts take into account the information, work, and assistance provided by the relator to the government’s successful recovery.
The U.S. Department of Justice (DOJ) issued a set of “Relator’s Share Guidelines” in 1996 in order to assist the government with the determination of the appropriate relator’s share of the proceeds. The Guidelines are not official government regulations so they are not binding on the court, but they are often considered by courts who are evaluating the appropriateness of a particular relator’s share.
The DOJ Guidelines consider factors, such as:
- Whether the relator promptly reported the fraud
- Whether the relator tried to stop the fraud, or reported it to a supervisor or the government, when he or she learned of the fraud
- Whether the qui tam action caused the offender to stop its fraudulent practices
- Whether the complaint warned the government of a significant safety issue or exposed a nationwide practice
- Whether the relator provided extensive hands on details of the fraud
- Whether the government had prior knowledge of the fraud
- Whether the relator provided substantial assistance during the investigation
- Whether the relator was a credible witness at deposition/trial
- Whether the relator’s counsel provided substantial assistance
- Whether the relator and his or her counsel supported the government during the entire proceeding
- The size of the FCA settlement
- Whether the complaint had a substantially adverse effect on the relator
There are also several factors in the DOJ Guidelines that may justify a reduction in the relator’s share of the proceeds, including: relator’s participation in the fraud, relator’s substantial delay in reporting the fraud, relator’s small amount of knowledge of the fraud, whether relator’s knowledge was based largely on public information, and whether the government had prior knowledge of the fraud.
The government in this case argued that the relator should not be entitled to a higher percentage of the proceeds because the case settled while still under seal, before it intervened, and without a trial. The court emphatically noted, however, that relators may be entitled to a significant portion of the settlement proceeds even though no trial was necessary. “Indeed, as a practical matter, the stronger the case and the more compelling the evidence at the time of filing and/or after discovery is completed, the less likely it is that a defendant will take the risk of treble damages and civil penalties being awarded at trial, to say nothing of the time and expense of trial itself.”
The district court in ultimately concluded that the relator was entitled to 20% of the $93.5 million settlement, and 15% of the 2008 settlement. The court found that the relator had participated fully in all aspects of the government’s investigation, and he provided invaluable information to the government regarding the claims. The court found that prior to the relator’s lawsuit, the government had no knowledge of the illegal surcharges, nor did they understand the manner in which Verizon was administering its contracts with the federal government. “Not only did Shea save the Government a great deal of time and resources and contribute to obtaining a substantial settlement, it is certainly more than likely that without this lawsuit, Verizon would have continued to overcharge the United States indefinitely.”
Because of Shea’s significant involvement in the investigation, his considerable knowledge of the telecommunications contracts involved, and his retention of skilled legal counsel, the court determined that he was entitled to a "'robust share of the settlement proceeds.' Without his experience, guidance, and analysis, the fraudulent conduct might well never have been discovered and understood; worst of all, it would very likely have continued far into the future."
The outstanding work of Shea's attorneys, and the courage and expertise of Shea was recognized by the court, resulting in a substantial award for Shea.