United States District Court, E.D. Pennsylvania
the discretion afforded district courts in reviewing an award
of fees to prevailing parties in civil rights cases, Congress
requires we award reasonable attorney's fees and expenses
to parties who recover money for the United States under the
False Claims Act. While courts may discount the amount of
reimbursed hours invested in a False Claims Act case after
specific findings of unreasonable time invested on clearly
frivolous or arguably unsuccessful results compared to the
initial scope of the case based on the judge's experience
with counsel, we are not aware of courts denying
reimbursement for reasonable and adequately described hours
and expenses invested in developing a claim before discovery
even when the initial fact basis is abandoned but the initial
theory proves to have arguable merit in discovery resulting
in a sizable settlement approved by the Department of Justice
before trial. As today, a business may decide to pay $600,
000 to settle a False Claims Act lawsuit when it views its
potential liability exceeding a billion dollars. But its
perspective of getting a deal does not allow us to deny a fee
award of reasonable rates based on comparables in this
District for adequately described hours. We also today award
established undisputed reasonable rates for work performed by
a Supreme Court advocate entirely before the Supreme Court in
successfully defeating a certiorari petition. As agreed by
the relator, we deny fees and expenses for travel and a press
Fraud Investigations, LLC suspected Victaulic Company failed
to pay marking duties to the United States by knowingly
importing unmarked foreign-made pipe fittings without telling
United States Customs. In August 2012, Customs Fraud began a
"product study" on Victaulic by examining photos of
221 eBay listings of Victaulic products and purchasing nine
products from eBay with only one of those products made and
marked in China. It looked at each product individually to
determine a marking with a country of origin. The product
study led Customs Fraud to believe Victaulic failed to mark
its products with country of origin in a visible location
when the product is in use and failed to use proper methods
of marking under 19 U.S.C. § 1304®.
efforts to proceed into discovery.
Customs Fraud did not produce a retainer agreement, the
parties do not dispute Customs Fraud retained attorneys with
the law firm Tycko & Zavareei LLP ("Tycko")
located in Washington, D. C., on or around October 19,
parties also do not dispute Customs Fraud agreed to pay Tycko
a fee awarded by the Court if successful if obtaining
recovery. Tycko investigated Customs Fraud's theories,
including holding meetings with Customs Fraud's
principals, reviewing documents, analysis, and conducting
research on relevant legal issues. Tycko also invested time
preparing a disclosure statement for the Department of
Justice and researched the "best circuit to bring"
2, 2013, Customs Fraud began looking for potential local
counsel in this District. Tycko asked Manko Gold Katcher Fox
LLP ("Manko Gold") to assist as local counsel at
some unknown point. On May 24, 2013, attorneys at Manko Gold
began recording time in reviewing a draft complaint. It then
assisted in representing Customs Fraud. In total, it billed
$372, 519 in fees and incurred costs of $15, 2014.90. We do
not have a retainer agreement under Pennsylvania law with
either of the law firms. We do not know what Customs Fraud
agreed to pay. We do not know whether Customs Fraud paid
Manko Gold, if anything.
Fraud then filed this case under seal on May 30, 2013,
alleging Victaulic knowingly imported foreign-made pipe
fittings lacking a mark indicating their country of origin,
violating the Tariff Act and False Claims Act. Customs Fraud
sought to recover marking duties which could, with treble
damages, exceed $920 million along with penalties of $14.3
million on pipe-fitting products imported from China and
Poland from 2003 until 2012. It also alleged ongoing conduct
which Victaulic evaluated as a potential risk of another
approximate $847 million in liability. Victaulic viewed the
United States' possible recovery exceeded $1.760 billion.
Tycko and Manko Gold invested 201.3 hours into investigating
the case based, in some part, on the eBay product study of
photographs and nine purchases.
August 7, 2013, the United States declined to intervene.
Customs Fraud then unsealed and served the Complaint.
Victaulic moved to dismiss the Complaint. Customs Fraud
conducted research, drafted and filed briefs opposing the
motion to dismiss, and prepared for a hearing. After
extensive oral argument, Judge McLaughlin found the
thirty-five-paragraph complaint to be "bare bones"
and dismissed the complaint with prejudice. Customs Fraud moved for
leave to amend with an attached first amended Complaint
detailing facts which it argued overcame Judge
McLaughlin's concerns. Judge McLaughlin denied Customs
Fraud's Motion for leave finding it untimely and Customs
Fraud could not state a reverse False Claims Act claim based
on the failure to pay marking duties because they are too
attenuated and contingent to qualify as obligations to pay
money covered by the False Claims Act.
Fraud appealed the denial of its Motion to amend and
dismissal with prejudice. It met with attorneys from the
Department of Justice and Customs. On appeal, our Court of
Appeals reversed Judge McLaughlin's denial of leave to
amend. Our Court of Appeals found Customs Fraud's
proposed first amended Complaint included "details that
address at least some of the concerns that the District Court
had expressed in its opinion. Of particular import, the
[first amended Complaint] details the rationale behind
[Customs Fraud's] investigation of Victaulic and
discusses the methodology [Customs Fraud] used to develop its
The Court of Appeals described Customs Fraud's
investigation as involving "a multifaceted analysis
...consisting of.. .analysis of shipping manifest data
[and].. .a study of listings from the online auction site
eBay for Victaulic products." The Court of Appeals further found
Customs Fraud bolstered its first amended Complaint by
attaching an expert declaration opining Customs Fraud now
provided "overwhelming evidence" of Victaulic
improperly marking its pipe fittings with attached examples.
It instructed motions to amend "should be granted"
and the court has "rarely upheld dismissal with
prejudice of a Complaint when the Plaintiff has been given no
opportunity to amend." Victaulic moved for rehearing. Our Court
of Appeals denied rehearing. Victaulic answered the first
amended Complaint and the parties began discovery.
then petitioned for certiorari. Someone (presumably on
Customs Fraud's behalf) asked Public Citizen Litigation
Group of Washington, D.C., a non-profit public interest law
firm, to assist in opposing Victaulic's petition for
certiorari. We do not have a retainer agreement under
Pennsylvania law and no basis to confirm Customs Fraud agreed
to pay Public Citizen and when. Scott Nelson, an experienced
advocate and former law clerk of Justice White, along with a
Supreme Court fellow Nick Sansone, completed most of the work
on the response to Victaulic's certiorari petition.
Public Citizen worked 44.5 hours from July 11 until July 31,
2017. Public Citizen now seeks $27, 973.90 for these 44.5
hours. The Supreme Court denied Victaulic's petition on
October 2, 2017.
awaiting the Supreme Court's decision on Victaulic's
certiorari petition, the parties began discovery planning in
this Court with Judge Stengel. During discovery, Customs
Fraud deposed Victaulic's Global Trade and Compliance
Manager Allen Roberts, responsible for overseeing
Victaulic's compliance with country-of-origin marking
Customs Fraud concluded Mr. Roberts' sworn testimony
confirmed Victaulic knew of its unmarked products. Customs
Fraud argued Victaulic became aware of parts made in Poland
not marked with country of origin but continued to import
unmarked products from Poland and China. Customs Fraud argued
Victaulic marked their products using methods, such as an
"ink stamp," not permitted in the United States.
Customs Fraud understood Mr. Roberts to admit the use of ink
stamps.Customs Fraud pursued discovery hoping to
show Victaulic avoided its marking duties and thus, evaded
their legal obligation to pay marking duties. Customs Fraud
argued Customs and Border Protections notified Victaulic of
its failure to mark products via a "Notice to Mark"
regarding failure to mark steel flanges from China with a
country of origin.
Fraud propounded interrogatories and document requests on
Victaulic. Its counsel engaged in face-to-face meetings and
negotiations between counsel, prepared Customs Fraud's
initial disclosures, drafted a Joint Status Report, and
prepared documents for production. Victaulic began a rolling
production of about 475, 000 pages of documents.
Fraud retained two additional attorneys to conduct an initial
review of Victaulic's records. Customs Fraud conducted
depositions of Victaulic employees, defended depositions
taken by Victaulic's counsel, served discovery requests
on Customs and Border Protection, analyzed import data
provided by Victaulic, drafted and served a Rule 30(b)(6)
notice on Victaulic, and retained experts.
responded by, among other steps, asking Kelli R. Thompson, a
former employee at Customs and Border Protection, to explain
the Customs and Border Protection's enforcement process.
Ms. Thompson's expert report contradicted several of
Customs Fraud's claims. While Customs Fraud alleges
country of origin markings must be visible when the product
is in use, Ms. Thompson claimed there is no such rule. Ms.
Thompson opined the marking must only be in a conspicuous
Thompson opined the so-called "unlawful" methods of
marking presented by Customs Fraud are acceptable because
"they are the equivalent of paint
stenciling."Ms. Thompson also opined there is no
Customs and Border Protection "form or other document...
in which an importer is required to, should, or can, declare
special marking duties" disputing Customs Fraud's
theory Victaulic intentionally avoided payment. Victaulic stridently
maintained its innocence, claiming Customs Fraud's
theories lacked evidentiary support.
Chief Judge Stengel's retirement from our Court, the
Clerk of Court reassigned this case to Judge
Clerk of Court then reassigned the case to us a couple weeks
scheduled the close of discovery for December 21, 2018 with
trial set for April 22, 2019.
September 21, 2018, Customs Fraud began settlement
negotiations. The settlement process involved meetings with
Victaulic's counsel and negotiating an agreement to be
signed by both parties. The parties reached agreement on
December 11, 2018 but waited for the Department of Justice to
approve the settlement. The parties jointly moved to extend
the trial deadline while they pursued settlement and we
extended the trial date until June 3, 2019.
Department of Justice approved the $600, 000
parties signed a formal settlement agreement on April 10,
2019. Victaulic agreed to pay $600, 000 to the United States.
Victaulic also agreed the United States could pay $174, 000
of the $600, 000 settlement amount to Customs
Congress, through the False Claims Act, allows only thirty
percent of the total settlement amount be awarded to the
relator. The United States awarded twenty-nine percent of the
$600, 000 to Customs Fraud.
April 26, 2019, the parties jointly reported a completed
settlement on the merits but no agreement on Customs
Fraud's requested attorney's fees. The parties agreed to
mediate the attorney's fees issues with Judge
Heffley's assistance and, if unable to resolve, file
memoranda seeking an award of attorney's fees. The
parties could not resolve the attorney's fees.
to resolve the attorney's fee demand, Customs Fraud now
moves for reasonable attorney's fees and expenses under
31 U.S.C. § 3730(d)(2). It requests reimbursement of
attorney's fees of $1, 522, 331.20 plus expenses of $46,
832.78 for Tycko; $370, 262.00 plus expenses of $15, 204.90
for local counsel Manko, Gold; and $24, 863.50 for Public
Citizen related to opposing the petition for certiorari.
Customs Fraud argues the False Claims Act requires it be
awarded reasonable attorneys' fees and expenses.
raises several objections but focuses most of its challenge
on relitigating the merits of Customs Fraud's claims,
particularly challenging the work effort before the discovery
period. It essentially argues Customs Fraud's claims
lacked merit and should be considered frivolous. It
repeatedly argues Custom Fraud abandoned the eBay product
study and should not be compensated for work which it later
conceded did not relate to their proof. But it concedes
paying $600, 000 to the United States to resolve these
claims. The day to challenge the merits has largely passed
except to the extent we find the number of billed hours to be
allows us to award a person initiating a False Claims Act
claim recover reasonable expenses necessarily incurred plus
reasonable attorney's fees and costs to be awarded
against the government contractor. Under the False Claims Act, we must
award reasonable attorney's fees "when a [False
Claims Act] suit results in a settlement in which the
Defendant agrees to pay money."
analysis begins with our Court of Appeals' recent
direction in United States ex rel. Palmer v. C&D
Technologies, Inc. A contractor objected to
attorneys' fees arguing the relator received "very
modest results" of a $1.7 million settlement
representing "about six percent of the relator's
demand in the second amended Complaint." Judge Pratter
reduced the fee by ten percent after otherwise addressing the
contractor's challenges. Judge Pratter also approved the
Community Legal Services' ("CLS") rates at the
mid-point of the rates for a reasonable hourly rate,
disallowed travel time, reduced recovery for depositions, and
applied a lower multiplier for the hours billed in preparing
a reply brief. Judge Pratter limited fees recoverable
for time at depositions of two attorneys given her noticed
concern as to the number of counsel attending depositions and
limiting recoverable preparation time to one attorney and up
to maximum of 1.75 hours per hour of documented deposition
time. The relator appealed arguing Judge Pratter erred by
reducing the billable rates and portions of the fee award
relating to motions, depositions and travel expenses beyond
the contractor's specific challenges. The relator argued
our discretion is limited to the amount the contractor
contends is reasonable. Our Court of Appeals disagreed,
affirming Judge Pratter's reduction of the relator's
fee by more than the contractor sought. The Court of Appeals
held we cannot sua sponte reduce fees without an
objection and cannot decrease a fee award based on factors
"not raised at all" by the adverse
objections allow us to review the merits of the objection
even if the amount required to be deducted exceeds the
specific objection. The Court of Appeals affirmed Judge
Pratter again reminding contractors of the substantial
discretion afforded to district courts to determine
reasonable attorneys' fees given our better position to
evaluate the underlying litigation in awarding attorneys'
obligation is to provide a concise but clear explanation of
our reasons for the fee award.
Customs Fraud is entitled to fees for efforts
resulting in a $600, 000 settlement.
asks we substantially reduce the requested attorney's
fees essentially equal to the percentage of the reduction
from the demand in the first amended Complaint to the $600,
000 settlement. Among other arguments, it argues we should
consider cases in which a court awarded fees to the
contractor based upon the frivolous nature of the
relator's complaint, including citing a case where a
court considered seventy-three cases filed into a
multidistrict litigation all of which included "clearly
frivolous claims." Victaulic argues we should revisit the
merits of Customs Fraud's claims, decide they are
baseless and then either substantially reduce or eliminate
most or all of the billed hours as unreasonable. Victaulic
argues the fee, regardless of the hours expended, should be
equal to the percentage of the settlement to the demand: the
ratio between $920.66 million and $1, 769 billion in damages
which Victaulic believes Customs Fraud sought and the $600,
000 settlement. In other words, award .034 percent to ...