U.S. ex rel. Doghramji v. Cmty. Health Sys., Inc. — Nov. 2016 (Summary)

ATTORNEY’S FEES IN FALSE CLAIMS ACT SETTLEMENT

U.S. ex rel. Doghramji v. Cmty. Health Sys., Inc.
No. 15-6280 (6th Cir. Nov. 22, 2016)

The United States Court of Appeals for the Sixth Circuit reversed and remanded the district court’s order concluding that a settlement agreement in a qui tam lawsuit unambiguously restricted a health system’s challenges to entitlement of attorneys’ fees.

A health system, the government, and several qui tam relators reached a settlement agreement after claims for fraudulent Medicare billing were brought against the health system. The relators agreed to dismiss their claims in exchange for a specified amount to be paid by the health system. Following the settlement agreement, the health system appealed on the issue of whether it failed to preserve its right to challenge the entitlement of the relators to attorneys’ fees.

The health system argued that a term in the agreement preserved its right to make first-to-file and public disclosure challenges or object to the relators’ claims for attorneys’ fees. The relators argued that the provision on which the health system relied limited its scope of protection to that specific section, and first-to-file and public disclosure challenges were located in another section. The district court agreed with the relators, reasoning that it is unlikely that the first-to-file provision favoring the health system would have been left out of the agreement unintentionally and, given that the government intervened in all of the relators’ claims, their conduct would entitle relators to attorneys’ fees.

The health system’s appeal hinged on whether both its interpretation of a specific term in the settlement agreement and the relators’ interpretation were reasonable. If both interpretations of the contract term were reasonable, then the provision would be considered ambiguous, requiring the introduction of extrinsic evidence to ascertain the parties’ understanding of the contract at the time of its inception. The health system interpreted the contract term as limiting its ability to challenge first-to-file and public disclosures on the basis of attorneys’ fees. The relators interpreted the contract term as limiting the health system’s ability to challenge within the scope of the cited section. The relators further argued that the term did not explicitly state that the health system could challenge claims for attorneys’ fees; therefore, the health system had to and failed to explicitly reserve those rights. Lastly, the relators argued that they have a reasonable expectation of attorneys’ fees granted by statute which requires the payment of reasonable attorneys’ fees whenever the government proceeds with a qui tam action.

The court determined that both the health system and the relators advanced reasonable interpretations of the settlement agreement, rendering it ambiguous. Because the settlement agreement is ambiguous, extrinsic evidence may be used to ascertain the parties’ original understanding of its terms. The court, therefore, reversed and remanded the district court’s order for further inquiry.