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United States ex rel. Depace v. Cooper Health Sys.

United States District Court, D. New Jersey

April 22, 2013

UNITED STATES OF AMERICA and THE STATE OF NEW JERSEY, ex rel. NICHOLAS M. DEPACE, Plaintiff,
v.
THE COOPER HEALTH SYSTEM, et al., Defendants

CARL D. POPLAR, Cherry Hill, NJ; JACOBS & BARBONE, ESQS., By: Louis M. Barbone, Atlantic City, NJ, Counsel for Nicholas M. Depace.

Jesse Abrams-Morley, Esq., Pro se, Philadelphia, PA.

Gaetan J. Alfano, Esq., Pro se, Philadelphia, PA.

OPINION

Page 209

HONORABLE Joseph E. Irenas, Senior United States District Judge.

Pending before the Court is Relator Nicholas DePace's " Application for Emergent Relief to Reopen Pursuant to L. Civ. R. 41.1(b) and for the Court's Determination of Reasonableness of Attorney's Fee Pursuant to L. Civ. R. 103.1(a)" (the " Application" ). For the reasons discussed below, Relator's Application to Reopen will be granted; however, the relief requested by the Relator will be denied.

I.

On November 12, 2008, Relator Nicholas DePace, M.D., initiated this qui tam action against the Cooper Health System, Cooper University Hospital (collectively " Cooper" ), and Cardiovascular Associates of the Delaware Valley, P.A. (Pietragallo Br. in Opp. Ex. H., at 1.) [1] Dr. Depace's action was pursuant to the qui tam provisions of the Federal False Claims Act, 31 U.S.C. § 3730(b), and the New Jersey False Claims Act, N.J. Stat. Ann. § 2A:32C-1, et seq . (Pietragallo Br. in Opp. Ex. H., at 1.) These qui tam provisions allow private citizens to file actions on behalf of the Government in cases where people or companies have allegedly made false or fraudulent claims against the Government. See 31 U.S.C. § 3730(b) ( " A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government." ); N.J. Stat. Ann. § 2A:32C-5(b) ( " A person may bring a civil action for a violation of this act for the person and for the State. Civil actions instituted under this act shall be brought in the name of the State of New Jersey." ).

Dr. DePace's Complaint alleged that the Defendants " paid millions of dollars in illegal kickbacks to physicians to induce them to refer patients to Cooper for expensive in-patient and out-patient cardiac services." (DePace Aff. Ex. 1, March 11, 2013.) Allegedly, these kickbacks caused false claims to be made against the Federal and New Jersey Governments because Cooper subsequently billed Medicare and Medicaid programs for services resulting from the tainted referrals. (Pietragallo Br. in Opp. Ex. H, at 2.)

Dr. DePace retained the law firm of Pietragallo, Gordon, Alfano, Bosick, & Raspanti, LLP (the " Pietragallo Firm" ) to represent him in the qui tam litigation.

Page 210

(Pietragallo Br. in Opp., at 4.) This representation was secured through a contingency fee agreement (the " Contingency Fee Agreement" ) entered into by the Pietragallo Firm and Dr. DePace. ( Id.) Under the Contingency Fee Agreement, Dr. DePace was not obligated to pay the Pietragallo Firm unless there was a recovery in his qui tam action. ( Id. Ex. G, at 3.) However, in the case of a recovery prior to the commencement of trial, the Contingency Fee Agreement required Dr. DePace to pay the Pietragallo Firm forty percent of the gross recovery. ( Id.) The Contingency Fee Agreement also contemplated what would happen if Dr. DePace were to receive statutory attorneys' fees from the Defendants in this case, stating:

[i]f there is a judgment, settlement or arbitration award, the Federal and state False Claims Act statutes provide that attorney's fees and costs may be paid by the defendants (" Statutory Attorneys' Fees and Costs" ). This is in addition to any Attorney's Contingency Fees we may receive pursuant to Paragraph 6B of this Agreement.

(Id. (emphasis in original)) The Contingency Fee Agreement also includes an Alternate Dispute Resolution clause which states that " any disputes between us will be resolved by alternate dispute resolution," and that " Pennsylvania law shall apply to any dispute arising under the terms of this agreement." ( Id. Ex. G., at 6.) Dr. DePace's personal counsel, Joseph Milestone, assisted Dr. DePace during the negotiation of the Contingency Fee Agreement. (DePace Aff. ¶ 13, March 11, 2013; Pietragallo Br. in Opp., at 4-6.) Under the Contingency Fee Agreement, Milestone would receive twenty-five percent of the Pietragallo Firm's contingent fee for providing services as local counsel. (Pietragallo Br. in Opp. Ex. G, at 2.)

On January 22, 2013, the United States and the State of New Jersey elected to intervene in Dr. DePace's qui tam litigation for the purposes of settlement. (Notice of Election to Intervene in Part and to Decline to Intervene in Part.) On that same date, a Joint Stipulation of Dismissal of Relator's Complaint was filed with the Court stating that the United States, the State of New Jersey, Dr. DePace, and Cooper had entered into a settlement agreement (the " Settlement Agreement" ). (Joint Stipulation of Dismissal of Relator's Compl.) Under the Settlement Agreement, Cooper agreed to pay the United States $10,269,000.00 plus interest, and the State of New Jersey $2,331,000.00 plus interest. (Pietragallo Br. in Opp. Ex. H, at 3.) Out of the money received from Cooper, the United States agreed to pay Dr. DePace $1,951,110.00 and New Jersey agreed to pay Dr. DePace $442,890.00. ( Id.) Lastly, Cooper agreed to pay Dr. DePace's counsel $430,000 for expenses, attorneys' fees, and costs. ( Id.) Specifically, the Settlement Agreement stated that " Cooper agrees to pay Relator's Counsel, and Relator's Counsel agree to accept as full payment $430,000 for expenses, and attorney's fees and costs in accordance with subsection 3730(d)(1)." ( Id.) In an invoice detailing all the hours spent by the Pietragallo Firm on this case sent by the Pietragallo Firm to counsel for Cooper shortly prior to settlement, the Pietragallo Firm represented its total fees and costs to be $458,420.55. (Pl.'s Supplemental Br. Ex. 2.)

The Pietragallo Firm instructed the United States and the State of New Jersey to deposit Dr. DePace's share of the settlement into the Pietragallo Firm's IOLTA account. (Pietragallo Br. in Opp., at 11.) On January 31, 2013, the Pietragallo Firm sent to Dr. DePace and his current counsel Carl Poplar a distribution memo (the " Distribution Memo" ) detailing how funds

Page 211

would be distributed from the IOLTA account. ( Id. Ex K.) The Distribution Memo allocated thirty percent of Dr. DePace's share to the Pietragallo firm and ten percent to Milestone, accounting for the entire forty percent contingency fee. ( Id.) However, Milestone notified the Pietragallo Firm that he would not be seeking any fees for his work in this case. (Pietragallo Letter, April 4, 2013.) Consequently, the Pietragallo Firm wired Milestone's share to Dr. Depace on April 3, 2013, effectively reducing the contingency fee to thirty percent, and allowing Dr. DePace to receive $1,682,142.45, or seventy percent of his share, under the terms of the Distribution Memo. [2] ( Id.)

The day after the Pietragallo Firm sent Dr. DePace and Poplar the Distribution Memo, Poplar sent an e-mail to the Pietragallo Firm stating that he had " reservations" about the Contingency Fee Agreement. (Pietragallo Br. in Opp. Ex. T.) At a meeting held on February 6, 2013, Poplar stated his position that the Contingency Fee Agreement may be unenforceable. (Pietragallo Br. in Opp., at 13). Consequently, the Pietragallo Firm sought to initiate the alternate dispute resolution procedures outlined in the Contingency Fee Agreement. ( Id., at 14.) However, Dr. DePace, through Counsel, declined the invitation to alternate dispute resolution on the belief that the alternate dispute resolution procedures in the Contingency Fee Agreement were unenforceable. ( Id. Ex. M.)

In response to Dr. DePace's refusal to pursue alternate dispute resolution, on February 19, 2013, the Pietragallo Firm filed a Petition to Compel Arbitration before the Court of Common Pleas of Philadelphia, ( Id. Ex. N,) and on February 22, 2013, the Pietragallo Firm filed a Motion to Preserve the Status Quo of Disputed Funds before the same court ( Id. Ex P.)

Five days later, Dr. DePace filed the Application in this Court. In the Application, Dr. DePace asks this Court to enjoin the state court proceedings initiated by the Pietragallo Firm, to hold that the Settlement Agreement superseded the Contingency Fee Agreement, or in the alternative to hold that the Contingency Fee Agreement is either unreasonable, or disallowed by the Federal False Claims Act. Dr. DePace has filed four briefs in support of his application, and the Pietragallo Firm has filed three briefs in opposition. Oral argument was held on April 19, 2013. At this time, the Court does not need to determine whether to enjoin the state court proceedings because the Pietragallo Firm has agreed not to proceed with the state court proceedings until resolution of Dr. DePace's Application before this Court. Still at issue, however, is the validity and reasonableness of the Contingency Fee Agreement.

II.

To the extent that Dr. DePace's Application specifically asserts that the Settlement Agreement supersedes the Contingency Fee Agreement, this Court has jurisdiction to reopen the case. The Court's Order of January 24, 2013, which dismissed the case, stated explicitly that this Court " shall retain jurisdiction

Page 212

over any disputes that may arise regarding compliance with the Settlement Agreement." (Order, January 24, 2013.) Whether the terms of the Settlement Agreement obviate Dr. DePace's obligation to comply with the Contingency Fee Agreement is clearly a dispute " regarding compliance with the Settlement Agreement."

Further, this Court has jurisdiction to reopen the case because the Court has ancillary jurisdiction over disputes regarding fees and costs. See Novinger v. E.I. DuPont Nemours & Co., Inc., 809 F.2d 212 (3d Cir. 1987); see also Kant v. Seton Hall University, 422 Fed.Appx. 186, 188 n.3 (3d Cir. 2011) (citing Kalyawongsa v. Moffett, 105 F.3d 283 (6th Cir. 1997), for the proposition that " 'although attorneys' fee arrangements are contracts under state law, the federal court's interest in fully and fairly resolving the controversies before it requires courts to exercise supplemental jurisdiction over fee disputes that are related to the main action.'" ) In Novinger, the Third Circuit recognized that " the federal forum has a vital interest in [attorneys' fee arrangements] because they bear directly upon the ability of the court to dispose of cases before it in a fair and reasonable manner." 809 F.2d at 217. Therefore, the Third Circuit held that the district court properly concluded that " although there was no diversity of citizenship between the Novingers and their former counsel there was ancillary jurisdiction over the dispute over fees and expenses." Id.

Similar to Novinger, the instant case involves a fee dispute between a client and his former counsel concerning the fees owed to counsel for representation in a federal action. Therefore, as in Novinger, although there is no diversity of citizenship between the Pietragallo Firm and Dr. DePace, there is ancillary jurisdiction over the dispute over fees and expenses. See id .

In arguing that the Court does not have jurisdiction over this fee dispute, the Pietragallo Firm relies on this district's unreported decision in Knoepfler v. Guardian Life Ins. Co. of America, 2010 WL 3001380 (D.N.J. 2010), which has never been cited by any court, for the proposition that ancillary jurisdiction only attaches to fee disputes that arise while the main action is still pending. (Pietragallo Br. in Opp., at 24.) The Pietragallo Firm's reliance on Knoepfler is misplaced. Unlike in the instant case, in Knoepfler, the attorney who initiated litigation over the fee dispute " did not appear on its own behalf in any context before the [main action] was conclusively resolved." 2010 WL 3001380, at *3. This represents a factual scenario that the Third Circuit explicitly declined to address in Novinger . See 809 F.2d at 218 n.4 (" We leave for another day the question whether ancillary jurisdiction extends to the resolution of a post settlement fee dispute between two attorneys, only one of whom was attorney of record." ). In the instant case, the Pietragallo Firm was counsel of record throughout the five year duration of the qui tam action.

Further, to the extent that Knoepfler suggests that a federal court does not have ancillary jurisdiction over a fee dispute that arises after the main action has terminated, this Court disagrees. In Novinger, in dealing with a fee dispute that arose ...


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