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Kite v. Director, Division of Taxation

Superior Court of New Jersey, Appellate Division

February 8, 2018

ANTHONY Y. KITE, Plaintiff-Appellant,

          Submitted December 19, 2017

         On appeal from the Tax Court of New Jersey, Docket No. 0190-2013, whose opinion is reported at 29 N.J.Tax 75 (Tax 2016).

          Steven D. Janel, attorney for appellant.

          Christopher S. Porrino, Attorney General, attorney for respondent (Jason W. Rockwell, Assistant Attorney General, of counsel; Ramanjit K. Chawla, Deputy Attorney General, on the brief).

          Before Judges Yannotti, Carroll and Leone.


          YANNOTTI, P.J.A.D.

         Plaintiff Anthony Y. Kite appeals from a judgment entered by the Tax Court, granting summary judgment in favor of defendant Director, Division of Taxation (Division), and denying plaintiff's motion for summary judgment. The court upheld the Division's assessment of additional taxes, penalties, and interest pursuant to the New Jersey Gross Income Tax Act (the Act), N.J.S.A. 54A:1-1 to 10-12. The court's opinion is published at Kite v. Dir., Div. of Taxation, 29 N.J.Tax 75 (Tax 2016). We affirm.


         The relevant facts are undisputed. In 2 004, while performing certain financial consulting services, plaintiff discovered what he believed to be a pattern of fraudulent practices by certain hospitals. According to plaintiff, these hospitals were submitting false claims to the United States government under the Medicare program by inflating charges for routine procedures by as much as four hundred percent. After conducting further research, plaintiff concluded that he had sufficient evidence to substantiate his belief that the hospitals were engaging in fraudulent billing practices, which had resulted in millions of dollars of Medicare overpayments.

         Plaintiff retained a law firm to file a qui tarn action on behalf of the United States, pursuant to a provision of the False Claims Act (FCA), 31 U.S.C. § 3730(b). The FCA requires a qui tarn plaintiff to file his or her complaint in camera and serve the federal government with a copy along with substantially all of the material evidence and information that supports the claim. 31 U.S.C. § 3730(b)(2). A qui tarn plaintiff is generally referred to as the "relator." See U.S. ex rel. Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103, 109 (3d Cir. 2007).

         The FCA provides that the federal government has sixty days in which to decide whether to proceed with the action. 31 U.S.C. § 3730(b)(4)(A). If the federal government chooses to do so, it takes control of the lawsuit, but the person who brought the action remains a party and is entitled to receive a portion of the amount recovered. 31 U.S.C. § 3730(d)(1). Under the FCA, the person who brought the action is entitled to receive at least fifteen percent, but not more than twenty-five percent, of the proceeds of the action or settlement of the claim, "depending upon the extent to which the person substantially contributed to the prosecution of the action." Ibid.

         Plaintiff commenced his qui tarn action in June 2005, by filing a complaint in the United States District Court for the District of New Jersey. As required by the FCA, the complaint was filed under seal and served upon the federal government. Thereafter, the government elected to proceed with the action. When the complaint was unsealed, plaintiff learned that private parties had filed two other qui tarn actions under the FCA, and the complaints in those cases included claims against many of the same hospitals that were defendants in plaintiff's action.

         In 2006, plaintiff and the relators in the other actions entered into a "Relators' Joint Prosecution and Sharing Agreement." In that agreement, plaintiff and the other relators agreed to work together to successfully prosecute their respective actions against the hospitals. They also agreed to share "all monies that [were] awarded as relator's share awards as a result of [the] claims" asserted in the complaints. The relators' agreement provides in pertinent part that

[u]pon receipt by any one law firm of any or all settlement proceeds from the United States, the proceeds shall be placed in a trust escrow account maintained by the recipient law firm for the benefit of its [r]elator or [r]elators pursuant to the Rules of Professional Conduct in the state in which the escrow account is located.

         The relators' agreement further provides for the allocation of the settlement ...

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