:: Common Fund Doctrine Unavailable To Successful Qui Tam Relator
On October 31, 2005, the United States, the States, and King announced an aggregate settlement of $124,057,318. Of this amount, $73,420,225 was payable to the United States; $20,239,317 was payable to the qui tam States; and $30,397,776 was payable to the non-qui tam States. . . .King executed separate settlement agreements with the United States and each individual state. . . . On October 30, 2005, one day before the announcement of the settlements, Bogart moved for emergency injunctive relief to restrain King from making any payments pursuant to the settlement agreements. Among other things, Bogart alleged that he would be irreparably harmed if King paid the non-qui tam settlements–the so-called “common fund”–because the District Court would no longer have jurisdiction to provide from the settlement amounts what Bogart contends are his legal entitlements. U.S. ex rel. Bogart v. King Pharmaceuticals, — F.3d —-, 2007 WL 2028124 (3rd Cir.(Pa.)) (Jul 16, 2007)
Edward Bogart (”Bogart”) commenced a qui tam litigation against King Pharmaceuticals and Monarch Pharmaceuticals (collectively, “King”) on behalf of the United States, the District of Columbia, and ten states with qui tam legislation.
Bogart, a former employee of King, alleged that King misrepresented pricing information it supplied to the federal and state governments as a condition of its participation in various Medicaid programs. On March 12, 2003, Bogart commenced a qui tam action against King under the False Claims Act (”FCA”), 31 U.S.C. §§ 3729-3732.
He also asserted claims on behalf of ten states and the District of Columbia that had statutes similar to the FCA, seeking a relator’s share and attorneys’ fees under these statutes as well. (The ten states were California, Delaware, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, Tennessee, and Texas.)
The King defendants ultimately settled and Bogart was paid counsel fees and expenses of approximately $800,000, plus relator fees in excess of $9 million.
The “Non-Qui Tam States”
Not all States have qui tam statutes, of course. In addition to settling the case initiated by Bogart, King also entered into settlement agreements with the nearly 40 States without qui tam legislation. These States were not parties to the qui tam case.
Bogart contended that his efforts produced the settlements totaling more than $30 million for the non-qui tam States. The district court disagreed. He appealed to the Third Circuit Court of Appeals.
Third Circuit Rejects Common Fund Doctrine Argument
Bogart relied upon the equitable common fund doctrine as a theory of recovery. Under the “American Rule,” litigants generally must bear their own attorneys’ fees. As the Court explained, the common fund doctrine is an exception to this rule. Under the common fund doctrine:
. . . a private plaintiff, or plaintiff’s attorney, whose efforts create, discover, increase, or preserve a fund to which others also have a claim, is entitled to recover from the fund the costs of his litigation, including attorneys’ fees.’ ” In re Cendant Corp. Sec. Litig., 404 F.3d 173, 187 (3d Cir.2005) (quoting In re Gen. Motors. Corp. Pick-up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 820 n. 39 (3d Cir.1995)). . . The common fund doctrine is equitable in nature, intended to avoid unjust enrichment at the expense of the successful litigant. Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). The doctrine operates to charge an award against the fund itself, rather than to impose personal liability against a party or beneficiary. See In re Smithkline Beckham Corp. Sec. Litig., 751 F.Supp. 525, 531 (E.D.Pa.1990); In re DN Assocs., 165 B.R. 344, 348 n. 14 (Bankr.D.Me.1994).
The Third Circuit held that the common fund doctrine did not apply for several reasons, including findings that the non-qui tam States’ settlements were not under the District Court’s control or subject to its approval, that the District Court had no jurisdiction over the non-qui tam States, and that there was no pool of money generated to which the non-qui tam States had a claim.
Instead, each non-qui tam State separately negotiated a settlement agreement with King. While Bogart argues that the $30,397,776 paid to the non-qui tam States constitutes the common fund, this figure only represents the sum of the separately negotiated and independent settlements between King and the non-qui tam States. As the District Court observed, “[t]he mere fact that a large number of parties has reached such settlements does not mean that the sum of the settlement amounts somehow constitutes a common fund in the manner of a class action award.”
Furthermore, since Bogart’s fees and expenses attributable to prosecution of the FCA claims were paid in full by King, the court observed that “there was no inequity to redress.” On the contrary, when someone other than the plaintiff ultimately bears the costs of litigation, there is no inequity to redress because, irrespective of whether the non-party beneficiaries are unjustly enriched, it is not at the expense of the plaintiff.
Note: An useful overview of qui tam statutes appears in a footnote:
The FCA allows a relator to recover up to twenty five percent (25%) of the final judgment or settlement against a defendant. 31 U .S.C. § 3730(d)(1). Ten of the 13 states with existing qui tam statutes have adopted this federal maximum. See § 740 ILCS 175/4(d)(1); Fla. Stat. § 68.085(1); Tex. Hum. Res.Code § 36.110(a); ALM GL ch. 12, § 5F(1); Tenn.Code Ann. § 71-5-183(d)(1)(A); 6 Del. C. § 1205(a); HRS § 661-27(a); Va.Code Ann. § 8.01-216.7(A); N.M. Stat. Ann. § 27-14- 9(A). California and Nevada allow up to thirty-three percent (33%). See Cal. Gov.Code § 12652(g)(2); NRS § 357.210(1). Louisiana and the District of Columbia allow “not more than twenty percent” (20%). La. R.S. 46:439.4(A)(1); D.C.Code § 2-308.15(f)(1)..
Newcomers - Two States adopted qui tam statutes after the initial action was filed, New Mexico and Virginia. These States argued that their false claims statutes did not apply because King’s alleged fraudulent activity had ended before enactments of their statutes.
Policy Considerations - The Court offered the following policy justifications for its holding:
While a party need not be the only catalyst in order to be considered a “material factor” and may be credited for extra-judicial benefits created, there must still be a sound basis that the party was more than an initial impetus behind the creation of the benefit. Allowing private counsel to receive fees based on the benefits created by public agencies would undermine the equitable principles which underlie the concept of the common fund….
Relator’s extension of the common fund doctrine to the current context would essentially impose whistleblower reward statutes on 38 sovereign state governments that have decided not to enact them. As noted above, Relator would have this court impose the inequitable result of imposing a more severe liability on the non-qui tam states than the qui tam states, even though the non-qui tam states do not receive the statutory benefits of a qui tam statute, including service of the complaint and the opportunity to review and investigate. See 31 U.S.C. § 3730(b)(2). Whether or not it is prudent for state governments to reward whistleblowers, it is not the role of this court to say.
The Qui Tam Compensation Formulae - The FCA allows a relator to recover up to twenty five percent (25%) of the final judgment or settlement against a defendant. 31 U .S.C. § 3730(d)(1). Ten of the 13 states with existing qui tam statutes have adopted this federal maximum. See § 740 ILCS 175/4(d)(1); Fla. Stat. § 68.085(1); Tex. Hum. Res.Code § 36.110(a); ALM GL ch. 12, § 5F(1); Tenn.Code Ann. § 71-5-183(d)(1)(A); 6 Del. C. § 1205(a); HRS § 661-27(a); Va.Code Ann. § 8.01-216.7(A); N.M. Stat. Ann. § 27-14- 9(A). California and Nevada allow up to thirty-three percent (33%). See Cal. Gov.Code § 12652(g)(2); NRS § 357.210(1). Louisiana and the District of Columbia allow “not more than twenty percent” (20%). La. R.S. 46:439.4(A)(1); D.C.Code § 2-308.15(f)(1).
Latin Gloss - “Qui tam is short for ‘qui tam pro domino rege quam pro se ipso in hac parte sequitur,’ which means ‘who pursues this action on our Lord the King’s behalf as well as his own.’ ” Rockwell Int’l Corp. v. United States, 127 S.Ct. 1397, 1402 n. 2 (2007).
