Judge Sanctions Lawyer, Law Firms for “Manufacturing” False Claims Act Suit

Cross-posted by Forbes.com in WLF contributor site

In a March 26 opinion, U.S. District Court Judge Tanya Walton Pratt (S.D. Indiana) made plaintiffs’ lawyers pay for bringing a frivolous whistleblower suit under the federal False Claims Act (FCA). U.S. ex rel. Leveski v. ITT Educational Services.  Judge Pratt held three law firms and one lawyer jointly and severally responsible for paying nearly $395,000 of ITT’s attorney’s fees.

The decision is especially notable for three reasons: 1) The judge’s application of Federal Rule of Civil Procedure 11; 2) the context in which sanctions were imposed – a qui tam suit, one of the plaintiffs’ bar’s favorite tools; and 3) Judge Pratt’s strongly worded description of the sanctioned attorney’s lawsuit manufacturing tactics.

Ms. Leveski, who left ITT in 2006, had filed an employment suit against the company in 2005. A qui tam plaintiffs’ lawyer discovered the suit and contacted Ms. Leveski to discuss his belief that ITT was in violation of federal law for falsely certifying to the Department of Education that ITT’s compensation practices were proper. Ms. Leveski testified that prior to this conversation, she had no knowledge of or belief that ITT was defrauding the government.

After talking to the lawyer, and “armed with a newfound perspective on FCA claims,” as the court put it, Ms. Leveski filed suit in 2007. The Justice Department declined to intervene. Judge Pratt dismissed the qui tam suit in August 2011, finding Ms. Leveski was not the “original source” of the information on which her FCA suit was based. ITT subsequently filed for sanctions against Leveski and her lawyers, arguing that the suit was frivolous and brought for an improper purpose.

Judge Pratt found Leveski’s suit to be frivolous. She cast aside as “absurd on its face” Leveski’s argument that the suit couldn’t be frivolous because ITT had spent several millions of dollars in attorneys’ fees. The court next concluded that Leveski sued ITT for an improper purpose – “presumably, to extract a large settlement from ITT.” Judge Pratt described how Leveski’s lawyer “plucked a prospective plaintiff out of thin air and tried to manufacture a lucrative case” by “trolling public dockets and using a private investigator.” She termed such tactics “as unethical as [they are] unseemly” adding that they were “far worse than the garden variety ‘ambulance chasing’ – seen in movies and read about in John Grisham novels.”

When determining the amount of her sanctions, Judge Pratt explained how ITT at one point agreed not to seek attorneys’ fees if Leveski dropped the suit. Leveski’s counsel “went to great lengths not to understand ITT’s request” in an exchange of letters that resembled “an Abbott and Costello” routine. For good measure, the judge also quoted Leo Tolstoy.

In the end, Judge Pratt ordered the lawyer and law firms to pay far less than what ITT had asked for in attorneys’ fee – 15% of $2.6 million (which in turn is only a small portion of the $12.6 million ITT spent on fees). She also declined to sanction Ms. Leveski. One can fairly argue that the amount of the fees are minimal in comparison to the harm done to ITT. But Judge Pratt’s willingness to impose sanctions at all, and her virtual condemnation of the lawyers’ FCA lawsuit manufacturing tactics, should serve as a welcome warning to future qui tam plaintiffs and their “creative” attorneys.