Gale v. Omnicare: A Cautionary Lesson in Failure to Comply With the False Claims Act Seal Requirements

United States ex rel. Gale v. Omnicare, Inc., [1. Case No. 1:10-cv-00127-JG (N.D. Ohio).] demonstrates the expensive consequences of violating the seal provisions and of being less than forthcoming with the court. In Gale, a relator was unable to pay a $40,000 legal bill he received from his counsel for the preliminary investigation of his qui tam case. To pay his debt, he agreed to a loan from the father of one of his lawyers. In return, he pledged in a notarized writing 10 percent of any proceeds from his FCA case to the lender. [2. Order, United States ex rel. Gale v. Omnicare, Inc., Case No. 1:10-CV-00127-JG, Doc. 207, at 2 (N.D. Ohio Dec. 9, 2013).] The relator forwarded to the lender a copy of his attorneys’ detailed bill, which captioned the sealed lawsuit and set out his attorneys’ efforts on the pending charges. [3. Id.] This was all done over a year prior to the unsealing of the case. [4. Id. at 1.] Neither the relator nor any of his many attorneys ever disclosed the loan/pledge/seal violations to the defendants, the United States, or the court. [5. Id.]

The United States decided not to intervene. After extensive discovery and on the eve of a jury trial, Omnicare agreed to pay a $120 million settlement, plus relator’s legal fees, which were expected to be at least another $10 million. [6. Although no fee application was ever filed, the relator’s counsel did represent to the court they had “more than 14,000 hours of professional time” and “hundreds of thousands of dollars in litigation expenses.” Relator’s Response to the Position Paper of Omnicare, Inc. and the United States of America, United States ex rel. Gale v. Omnicare, Inc., Case No. 1:10-CV-00127-JG, Doc. 211, p. 13 (N.D. Ohio Dec. 17, 2013).] At this point, the relator’s undisclosed lender surfaced and demanded payment. When the relator’s counsel rebuffed the request as “fraudulent and champertous,” the lender then filed notice with the court of his interest in the pending settlement. [7. Motion to Intervene of William Zell, United States ex rel. Gale v. Omnicare, Inc., Case No. 1:10-CV-00127-JG, Doc. 206 (N.D. Ohio Dec. 9, 2013). A copy of the attorney’s letter was attached as Exhibit 2 to Mr. Zell’s motion to intervene. Doc. 206-2.] Such notice came within a half hour of the court approving the settlement.

Omnicare had previously filed—and the court had rejected—a motion to dismiss the case on the ground that the relator had violated the seal. Omnicare renewed its motion and sought and was allowed extensive discovery, including depositions of the relator’s counsel. [8. Doc. 207 at 2.] The court noted that the relator had previously testified that he had told no one about the lawsuit. The court noted that the relator’s lawyers had apparently misrepresented to the court that the FCA “was, in short, precisely complied with.” [9. Doc. 207, at 2–3.] The court further noted relator’s lawyers would have know the relator’s deposition statements were false. [10. Id.] This deposition testimony was never corrected.

After extensive briefing and oral argument, the court did not have to reach Omnicare’s renewed motion to dismiss the case and to issue sanctions. Instead, the relator waived the $10 million in attorneys’ fees Omnicare would have faced. And instead of receiving a 29 percent share of the nonintervened $120 million settlement ($34.8 million), the relator agreed with the DOJ to receive only 14 percent ($16.8 million)—some $18 million less.

The relator’s attorneys therefore lost at least $17 million in both attorneys’ fees and their portion of what would have been the relator’s share. As demonstrated in this case, violation of the seal provision of the False Claims Act can indeed have dire consequences.