Qui Tam Counsel may Receive Contingent Interest Plus Statutory Fees, District Court Rules


In US ex rel. DePace v. Cooper Health Systems, 2013 WL 1707952 (D.N.J. April 22, 2013), the United States District Court for the District of New Jersey soundly rejected a relator’s challenges to the provisions in his retainer agreement that provided for counsel to be compensated for services both through a contingency interest in any relator share award and any statutory fees recovered from defendant.

Factual and Procedural Background.

The retainer agreement between DePace and his lead counsel provided that in the case of a recovery prior to litigation lead counsel would receive 40% of the relator share award paid to DePace and would also have a right to seek and retain statutory attorneys’ fees from the Defendant. After a settlement exceeding $11 million, the relator’s personal counsel challenged lead counsel’s retainer agreement, claiming that these compensation provisions were unenforceable.

Court Holding.

DePace argued that the compensation provisions in his retainer agreement were unenforceable because: i) they were superseded by his statutory fees settlement with the defendant; ii) they violated the False Claims Act’s provision authorizing recovery of reasonable attorneys’ fees and costs from the defendant; and, iii) they contravened ethical rules.

Relying on the Supreme Court’s ruling in the civil rights action, Venegas v. Mitchell,  495 U.S. 82 (1990), the district court rejected the first and second arguments on the ground that “[a fee shifting statute] controls what the losing defendant must pay, not what the prevailing plaintiff must pay his lawyer” and “‘depriving plaintiffs of the option to pay more than the statutory fee if that is necessary to secure counsel of their choice would not further’ the Federal False Claims Act’s purpose of enabling such plaintiffs to secure competent counsel.”   Id. at *6-*7.  The court proceeded to catalogue the many district courts that had approved contingent fee arrangements in FCA cases in situations in which counsel also recovered statutory fees from the defendant.  Id.  Finally, relying in part on affidavits submitted by qui tam counsel throughout the country, as well as its observation that qui tam counsel who are not paid anything by the client during the course of the case always face the risk of “non-payment” if there is no recovery, the Court found that lead counsel’s recovery of a total amount (contingent interest plus statutory fees) equal to 41% of the relator’s recovery constituted a “reasonable” recovery of fees, and that there were no ethical problems whatsoever with the fee provisions in the retainer agreement.