United States of America and State of New York v. Carranza

Background

Patrick Donohue, the relator—a private person bringing a claim on the government’s behalf—filed a False Claims Act case concerning special-education services provided during COVID-19-related school closures. He alleged that school districts provided remote services instead of the in-person services required by students’ education plans and then submitted reimbursement claims to the government.

The Los Angeles Unified School District and former Superintendent Austin Buetner, in his official capacity, voluntarily dismissed the claims against them with prejudice after they cited Ninth Circuit precedent holding that California school districts are not entities subject to this type of False Claims Act lawsuit. Judge Woods approved the stipulation of dismissal. The New York City Department of Education and former Chancellors Richard Carranza and Meisha Porter successfully obtained dismissal of the claims against them in an earlier phase of the case. That dismissal was later affirmed by the Second Circuit.

The Los Angeles defendants requested $116,140.63 in attorneys’ fees and costs under 31 U.S.C. § 3730(d)(4). The New York City defendants separately sought fees and expenses under the same provision.

Legal Standard

Under Section 3730(d)(4), when the government declines to take over a False Claims Act case, a prevailing defendant may receive reasonable attorneys’ fees and expenses if the relator’s claim was clearly frivolous, clearly vexatious, or brought primarily to harass. A claim is clearly frivolous when it objectively has no reasonable chance of success and presents no valid argument for changing existing law. Fee awards under this provision are discretionary and are reserved for rare circumstances.

Los Angeles Defendants’ Motion

The court held that the Los Angeles defendants were prevailing parties because Judge Woods’s approval of the dismissal materially changed the parties’ legal relationship and supplied the required judicial approval. The court also held that the claims against them were clearly frivolous. Ninth Circuit precedent treated the Los Angeles school district as an arm of the state and therefore not a proper “person” subject to False Claims Act liability. The court found that the claims had no reasonable chance of success under that precedent.

The court exercised its discretion to award fees but substantially reduced the requested amount. It found that the Katten Firm’s billed hours were excessive because the controlling defense could have been presented earlier through a sanctions motion or a short motion to dismiss. The court approved a rate of $800 per hour for partner Joseph Willey and reduced associate Christopher Vazquez’s reasonable rate from $600 to $400 per hour. It found that 15 partner hours and 30 associate hours were reasonable, resulting in an award of $24,000 in attorneys’ fees. The court did not award the billed disbursements because they were not related to the defense based on the Los Angeles defendants’ unique legal argument.

New York City Defendants’ Motion

The court agreed that the New York City defendants were prevailing parties because they succeeded on their motion to dismiss. But it found that Donohue’s claims against them were not clearly frivolous or clearly vexatious and were not shown to have been brought primarily to harass.

The court distinguished those claims from the claims against the Los Angeles defendants. Donohue alleged that the New York City Department of Education created an education plan calling for in-person services that could not be implemented during pandemic-related closures, failed to amend the plan to include remote services, and billed the government for remote sessions. Although the court previously found the claims legally insufficient and the Second Circuit affirmed, the court concluded that Donohue had presented a theory of liability that did not cross the line into clear frivolousness. The court therefore denied the New York City defendants’ motion.

Disposition

Magistrate Judge Stewart D. Aaron granted in part and denied in part the Los Angeles defendants’ motion and awarded them $24,000 in attorneys’ fees. The court denied the New York City defendants’ motion for attorneys’ fees and expenses. The clerk was directed to enter judgment for the Los Angeles Unified School District against Patrick Donohue in the amount of $24,000.