In U.S. v. Cooper Health System, 940 F.Supp.2d 208 (D.N.J. 2013), the United States District Court for the District of New Jersey addressed the reasonableness of an attorney’s contingent fee agreement in a qui tam whistleblower case. In 2008, the relator, Dr. Nicholas DePace, initiated a qui tam action against Cooper Health System and related entities. Dr. DePace brought his claims under the federal False Claims Act and the New Jersey False Claims Act. DePace alleged the defendants paid millions of dollars in kickbacks to physicians in order to induce the physicians to refer patients to Cooper’s medical network.

Dr. Cooper retained the law firm of Pietragallo, Gordon, Alfano, Bossick & Raspanti, LLP to represent him in his qui tam action against the defendants. Pietragallo agreed to represent DePace pursuant to a contingency fee agreement. Under the agreement, DePace was not obligated to pay his attorneys unless a recovery was made in the qui tam proceeding.

Pace’s contingency fee agreement provided that if a recovery was made prior to the commencement of trial, DePace was required to pay his law firm forty percent of the gross recovery. The contingency fee agreement also contemplated what would happen if DePace were to receive statutory attorneys’ fees from the defendants:

[i]f there is a judgment, settlement or arbitration award, the Federal and State False Claims Act statutes provide that attorneys’ fees and costs may be paid by the defendants. This is in addition to any attorneys’ contingent fees we may

receive pursuant to paragraph 6B of the agreement.

On January 22, 2013, the United States and the State of New Jersey chose to intervene in DePace’s qui tam action for the purpose of settlement. Under the settlement agreement, Cooper agreed to pay the United States over $10.2 million and the State of New Jersey $2.3 million. Out of the money recovered from Cooper, the United States paid DePace $1.9 million, with New Jersey paying DePace $442,000. Cooper agreed to pay DePace’s counsel $430,000 for expenses, attorneys’ fees and costs.

The Pietragallo law firm received DePace’s settlement funds and deposited the money into its trust account. Under the firm’s settlement statement, which itemized the client’s fees and costs, forty percent of DePace’s recovery from the state and federal government was deducted. DePace’s personnel counsel, Joseph Milestone, was entitled to 25% of the contingency fee, however, he advised the parties that he was not seeking a fee for his work in the case. In doing so, the contingency fee was effectively reduced from 40% to 30%.

After receiving the firm’s settlement statement, Dr. DePace stated he did not believe the contingent fee agreement was enforceable. DePace soon filed an application with the federal court asking the court to find that the fees contained in the qui tam agreement either superseded the firm’s contingency fee agreement, or alternatively, the contingency fee agreement was unreasonable.

DePace argued that his law firm, by entering into the settlement agreement, superseded the contingency fee agreement. The district court disagreed, noting that the settlement agreement and the contingency fee agreement do not cover the same topic. The contingency fee agreement governs what DePace, as the prevailing party, must pay his lawyers. In contrast, the settlement agreement governs what Cooper, as the losing defendant, must pay under the False Claim Act’s fee sharing provisions.

The district court’s reasoning in Cooper Health, in upholding the contingency fee agreement, found support in the Supreme Court’s decision Venegas v. Mitchell, 495 U.S. 82 (1990). In Venegas, The Supreme Court upheld a contingent fee agreement which required a client to pay his attorneys more than the amount awarded pursuant to statutory fees. Similarly, in Gisbrecht v. Barnhart, the Supreme Court found that “nothing prevents the attorney for the prevailing party from gaining additional fees, pursuant to contract, from his own client.” 535 U.S. 789, 807 (2002).

Citing other district court opinions which reached a similar conclusion, the district court in Cooper Health found that the statutory fee shifting provisions in the False Claims Act do not prohibit an attorney from receiving both a statutory attorneys’ fee and a contingency fee. Based on its holding, the Court declined to invalidate the contingency fee agreement.

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Jason Cornell is an attorney who represents whistleblowers with the law firm Clark Fountain LaVista Prather Keen & Littky-Rubin. Clark Fountain represents plaintiffs in various matters throughout the United States. If you have questions regarding the issues addressed in this or other posts, you can reach Jason at 561 899-2111, or jcornell@clarkfountain.com.