Hanlon et al v. Columbine Management Services, Inc., et al

Filing 119

ORDER granting in part and denying in part 107 Defendants Columbine Management Services, Inc. And Poudre Valley Health Care, Inc.'s Motion For Sanctions and Attorneys' Fees. An amended final judgment shall enter. By Judge Robert E. Blackburn on 3/28/17. (kfinn) Modified on 3/29/2017 to change the document type to an opinion (athom, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 13-cv-00826-REB-KLM
UNITED STATES ex rel. ANTHONY HANLON,
UNITED STATES ex rel. LINDA DOLLAR, and
STATE OF COLORADO ex rel. RELATORS,
Plaintiffs,
v.
COLUMBINE MANAGEMENT SERVICES, INC., a Colorado corporation doing business
as COLUMBINE HEALTH SYSTEMS, and
POUDRE VALLEY HEALTH CARE, INC., a Colorado nonprofit corporation doing
business as POUDRE VALLEY HEALTH SYSTEM,
Defendants.
UNITED STATES,
Interested Party.

ORDER RE: DEFENDANTS MOTION FOR SANCTIONS AND ATTORNEY FEES
Blackburn, J.
The matter before me is the Defendants Columbine Management Services,
Inc. and Poudre Valley Health Care, Inc.’s Motion For Sanctions and Attorneys’
Fees [#107]1, filed April 11, 2016. The plaintiffs filed a response [#112], and the
defendants filed a reply [#115]. I grant the motion in part.
The defendants filed the motion for attorney fees after I entered an Order
Overruling Objections And Adopting Recommendation of United States

1

“[#107]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

Magistrate Judge [#104]. In that order, I dismissed the plaintiffs qui tam complaint with
prejudice.
I. STANDARD OF REVIEW
I have the authority to award attorney fees under the statutes and rules
summarized below. First, 31 U.S.C. § 3730(d)(4) concerns qui tam actions, such as this
case. Under § 3730(d)(4), I may award attorney fees if the following statutory
requirements are met: (1) the government does not proceed with the action; (2) the
person bringing the action conducts the action; (3) the defendant prevails in the action;
and (4) I find that the claim of the plaintiff was “clearly frivolous, clearly vexatious, or
brought primarily for purposes of harassment.” 31 U.S.C. § 3730(d)(4). Vexatious
means “without reasonable or probable cause or excuse.” United States v. Gilbert,
198 F.3d 1293, 1298 (11th Cir. 1999) (citing Black’s Law Dictionary). Frivolous means
“[g]roundless . . . with little prospect of success.” Id. at 1299. This is “a difficult
standard to meet, to the point that rarely will a case be sufficiently frivolous to justify
imposing attorney fees on the plaintiff.” U.S. ex rel. Grynberg v. Praxair, Inc., 389
F.3d 1038, 1059 (10th Cir. 2004) (citation omitted). Subjective bad faith by the plaintiffs
is not a prerequisite to the defendant recovering attorney fees. Id. at 1058.
Second, under 28 U.S.C. § 1927, “[a]ny attorney . . . who so multiplies the
proceedings in any case unreasonably and vexatiously may be required by the court to
satisfy personally the . . . attorneys’ fees reasonably incurred because of such conduct.”
This power must be construed strictly and utilized only in instances evidencing a‘serious
and studied disregard for the orderly process of justice.” Braley v. Campbell, 832 F.2d
1504, 1512 (10th Cir. 1987) (citations omitted); Baca v. Berry, 806 F.3d 1262, 1268
(10th Cir. 2015). This standard does not require a motive involving subjective bad-faith.
2

See Braley, 832 F.2d at 1512. “Although subjective good faith on the part of a nonattorney party appellant may in some instances excuse otherwise unreasonable
conduct, we are entitled to demand that an attorney exhibit some judgment.” Id. I may
award attorney fees when an attorney displays “conduct that, viewed objectively,
manifests either intentional or reckless disregard of the attorney’s duties to the court.”
Id.
Although the court should resort to such sanctions “only in instances evidencing
a serious . . . disregard for the orderly process of justice,” Dreiling v. Peugeot Motors
of America, Inc., 768 F.2d 1159, 1165 (10th Cir. 1985) (citation and internal quotation
marks omitted), “[t]he power to assess costs, expenses, and attorney's fees against an
attorney personally in the appropriate case is an essential tool to protect both litigants
and the ability of the federal courts to decide cases expeditiously and fairly,” Braley,
832 F.2d at 1512. It is important to note that sanctions under § 1927 may not be based
on the plaintiff’s filing of her complaint. Steinert v. Winn Group, Inc. 440 F.3d
1214,1224-1225 (10th Cir. 2006). Applying the language of § 1927 in Steinert, the
United States Court of Appeals for the Tenth Circuit held that it “is not possible to
multiply proceedings [unreasonably and vexatiously] until after those proceedings have
begun.” Id. at 1225.
Third, I may award attorney fees to sanction a litigant for bad-faith conduct under
the inherent power of the court. Chambers v. NASCO, Inc., 501. U.S. 32, 35 (1991).
In Chambers, the Supreme Court identified three circumstances where the inherent
power of the court to assess attorney fees is relevant: (1) when the litigation of a party
directly benefits others, a circumstance known as the “common fund” exception; (2)
when a party willfully disobeys a court order; and (3) when a party acts “in bad faith,
3

vexatiously, wantonly, or for oppressive reasons.” Id. at 45-46. Actions that fit into the
third category include when a party practices fraud upon the court and when a party
“shows bad faith by delaying or disrupting the litigation or by hampering enforcement of
a court order.” Id. at 46.
II. BACKGROUND
The plaintiffs brought this action as a qui tam action under the False Claims Act
(FCA) 31 U.S.C. §§ 3729 - 3733. The FCA prohibits any person from making false or
fraudulent claims for payment to the United States and provides for substantial
damages and civil penalties for making such claims. 31 U.S.C. § 3729. Under the
FCA, private individuals, such as the plaintiffs in this case, may bring a qui tam action in
the name of the government based on violations of § 3729. 31 U.S.C. § 3730(b)(1).
Such qui tam plaintiffs often are referred to as relators. In addition, the plaintiffs
asserted claims under the Antikickback Statute, 42 U.S.C. § 1320a-7b, and the
Colorado analog to the False Claims Act.
The plaintiffs filed this case under seal on March 29, 2013. On June 20, 2014,
the government declined to intervene [#22]. The defendants were served with a
summons and the complaint in May 2015. The defendants filed motions to dismiss [#60
& #62] in June 2015. In those motions, the defendants asserted that the plaintiffs failed
to state viable claims in their complaint. The plaintiffs then filed a motion [#75] to
amend their complaint and to add a party. In their responses [#77 & #78] to the motion
to amend, the defendants argued that the proposed amended complaint again failed to
state any viable claims.
In a detailed order [#81], the magistrate judge denied the motion to amend [#75]
without prejudice. The magistrate judge detailed the reasons why the proposed
4

amended complaint was insufficient. The magistrate judge wrote "it may be helpful for
Plaintiffs to provide clearer statements regarding each cause of action being asserted
by Plaintiffs," and, "the Court strongly advises [the plaintiffs] to closely examine
Defendants' other arguments in the Responses [#77, #78] to determine whether further
amendment is appropriate in order to address the issues that have been raised." Order
[#81], pp. 5 - 6.
Two weeks later, the plaintiffs filed their second motion [#82] to amend their
complaint. In a detailed recommendation [#96], the magistrate judge analyzed the
latest proposed amended complaint in great detail. Again, the magistrate judge
concluded the plaintiffs had not made allegations sufficient to support any of their
proposed claims. She recommended that the motion to amend [#82] be denied and that
the motions to dismiss of the defendants be granted.
In my order [#104] adopting the recommendation, I summarized and adopted the
analysis of the magistrate judge. I noted that the “plaintiffs have caused nearly three
years of undue delay as they attempted, but failed, to state claims which are viable.”
Order [#104], p. 6.
Despite many opportunities to cure the deficiencies in the various
iterations of their complaints, the plaintiffs have failed to cure those
deficiencies. Three years is more than enough time for the plaintiffs to file
a valid complaint, if they can. After nearly three years, the plaintiffs have
not filed a valid complaint. Thus, this case will be dismissed with prejudice.
Id.
I noted also an apparent effort by the plaintiffs to file another proposed amended
complaint.
In the objections [#98 & #100] [to the recommendation], counsel for
the plaintiffs says his proposed amended complaint [#82-1] is the not
proposed amended complaint he intended to file with the motion to amend
5

[#82]. Objections [#98 & #100], p. 2. Exhibit A to the objections is, counsel
reports, the proposed amended complaint he intended to file. Counsel
cites a variety of explanations for this error. Although the plaintiffs have
not filed a motion to file another proposed amended complaint, counsel
appears to seek such relief in the objections [#98 & #100].
Order [#104], p. 3. I reviewed the latest informally proposed amended complaint and
concluded that it too failed to state any viable claim.
Substantively, the amendment proposed informally in the objections
[#98 & #100] fares no better. The proposed amended complaint [#82-1]
attached to the second motion to amend [#82] does not cure the
deficiencies which have been addressed in this case with some frequency.
I have reviewed the proposed amended complaint [#98- 1 & #100-1] which
counsel for the plaintiffs says he intended to tender with his most recent
motion to amend [#82]. The proposed amended complaint [#98-1 &
#100-1] presents no more hope of stating a claim on which relief may be
granted than did any of the previous complaints filed or tendered by the
plaintiffs. The latest attempt includes many added or altered factual
allegations about the alleged actions of the defendants. Proposed
amended complaint [#98-1 & #100-1], pp. 1-18. The proposed amended
complaint shows that the first claim for relief under 42 U.S.C. § 1320a-7b
has been deleted. All of the language in that claim is stricken through.
Proposed amended complaint [#98-1 & #100-1], pp. 18 - 19. The same is
true for the second claim for relief, the False Claims Act claim. All of the
language in the False Claims act claim is stricken through. Proposed
amended complaint [#98-1 & #100-1], pp. 19 - 20. The only claim
remaining is the third claim for relief, a claim for violations of the Colorado
Medicaid False Claims Act and Antikikcback Statutes - §§25.5-4-301 306, C.R.S. Proposed amended complaint [#98-1 & #100-1], pp. 20 - 21.
Order [#104], p. 5. I noted that the third claim for relief as proposed in [#98-1 & #100-1],
pp. 20 - 21, did not state a claim for reasons noted previously by the magistrate judge.2
Ultimately, I granted the motions to dismiss, dismissed the claims of the plaintiffs
with prejudice, and entered judgment in favor of the defendants. The plaintiffs appealed
to the United States Court of Appeals for the Tenth Circuit. The Tenth Circuit upheld
the dismissal of the plaintiffs claims with prejudice. Hanlon, et al. v. Columbine

2

The two objections [#98 & #100] filed by the plaintiffs are duplicates of each other, except that
the second objection [#100] has a corrected signature block and is dated one day later than the first
objection [#98]. Hereafter, I refer to the proposed complaint included with these objections as [#98-1].

6

Management Services, Inc., et al, 2017 WL 281734 (10th Cir. 2017).
In their present motion, the defendants contend the pursuit of this litigation by the
plaintiffs was frivolous and vexatious. The plaintiffs claim their pursuit of their claims,
although ultimately unsuccessful, was undertaken in good faith and was not frivolous or
vexatious.
III. ANALYSIS
A. BASIS FOR AN AWARD OF ATTORNEY FEES
Here, the actions of the plaintiffs and counsel for the plaintiffs meet the high
standard required for an award of attorney fees under § 3730(d)(4) and § 1927. Turning
first to § 3730(d)(4), the first three factors are easy to analyze: the Government did not
join the action, the plaintiffs pursued the action, and the defendants won. See Amended
Final Judgment [#106].
The fourth factor relevant to § 3730(d)(4) is whether the action was “clearly
frivolous, clearly vexatious, or brought primarily for purposes of harassment.” 31 U.S.C.
§ 3730(d)(4). Generally, a claim is frivolous if it has no arguable support in existing law
or any reasonably based suggestion for the extension of existing law. In this case, the
plaintiffs failed to state a claim in four proposed amended complaints filed with the court
over a period of three years. These failures are compounded by the fact that the
defendants, in their motions to dismiss, gave the plaintiffs detailed reasons why their
claims were fatally flawed. Further, the magistrate judge gave the plaintiffs detailed
reasons why their claims were fatally flawed. Despite this guidance, the plaintiffs
repeatedly sought to file complaints with the same fundamental flaws.
As the plaintiffs note, some effort should be made not to chill potential False
Claims Act plaintiffs from asserting such claims, even though the claims may be unique
7

and debatable. I find that it is proper to grant to the plaintiffs some time to investigate,
develop, and refine their claims. Thus, I conclude that this case was not frivolous from
the outset. However, By October 23, 2015, the plaintiffs had seen detailed motions to
dismiss [#60 & #62] from the defendants and a detailed order [#81] from the magistrate
judge. These documents provided significant focus on the inherent flaws in the original
complaint [#1] and in the proposed first amended complaint [#75-1] filed by the plaintiffs.
From this point forward, the plaintiffs filed two additional proposed complaints [#75-1 &
#98-1] and otherwise continued to prosecute this case. Never did the plaintiffs come
close to stating any viable claim in their complaint [#1] or any of their three proposed
amended complaints.
Thus, beginning with the filing of their proposed second amended complaint
[#82-1] on November 6, 2015, the pursuit of this case by the plaintiffs became frivolous.
The plaintiffs had been given detailed analyses of why the claims in the complaint [#1]
and their proposed first amended complaint [#75-1] were fatally flawed. Even though
they possessed this information, the plaintiffs continued to prosecute this case and to
assert similar claims with no arguable support in existing law or any reasonably based
suggestion for the extension of existing law. These actions prolonged the litigation
needlessly and wasted the time and other resources of the defendants and this court.
Accordingly, I find that an award of attorney fees to the defendants is appropriate under
§ 3730(d)(4).
An award of attorney fees under 28 U.S.C. § 1927 is also appropriate. The same
frivolousness analysis applies, and I need not rehearse it here. Again granting the
plaintiffs reasonable time to investigate, develop, and refine their claims, I conclude that
this case became frivolous with the filing of the proposed second amended complaint
8

[#82-1] on November 6, 2015. Thus, under § 1927, an award of attorney fees is
warranted.3

B. REASONABLE ATTORNEY FEES
Imposing all of the attorney fees requested by the defendants is not warranted. I
have broad discretion over how much to award. Further, I may award only reasonable
attorney fees incurred as a result of the vexatious litigation of the plaintiffs. 28 U.S.C.
§ 1927; 31 U.S.C. § 3730(d)(4). As I must, I use the following formula: multiplication of
the reasonable number of attorney hours expended by a reasonable hourly rate in the
relevant legal community. Robinson v. City of Edmond, 160 F.3d 1275, 1281 (10th
Cir. 1998). I find the hourly rates of $200 for paralegals and $500 for attorneys to be
reasonable for the same services rendered in the Denver-metro area.
However, I find the total number of hours expended by counsel for the
defendants to be unreasonable as modestly excessive. The defendants contend
inconsistently that they viewed this matter as a serious suit, requiring daily meetings
between attorneys and clients, yet simultaneously assert that the suit was clearly
vexatious from its first filing. This inherent incongruity begs the rhetorical question: if
the suit was so clearly frivolous or vexatious from its inception, then what justifies the
myriad hours expended in attorney-client meetings and on other related tasks.
The defendants clearly believed this matter was frivolous from at least early
November 2015 (if not earlier), when the plaintiffs proposed a second amended

3

Given my conclusion that an award of attorney fees is merited under both
§ 3730(d)(4) and § 1927, I decline to examine these issues under the standard implicating the inherent
power of the court. The result of that independent analysis would essentially track the result of the my
analysis under § 3730(d)(4) and § 1927.

9

complaint that ultimately was deemed futile. Yet after November 6, 2015, the
defendants incurred more than 250,000 dollars in additional attorney fees. Notably,
discovery was set to close on April 8, 2016, and trial was set to begin on August 1,
2016.
During this time, discovery was ongoing, and the defendants attorneys spent
significant time to obtain a protective order to protect sensitive information involved in
discovery. From the perspective of the defendants, it was reasonable to continue to
attend to discovery issues, related protective order issues, and trial preparation during
this time period.
This is true even though the defendants thought the claims of the plaintiffs were
baseless. It would not have been reasonable for the defendants to have ignored these
issues during this time. The ongoing issues related to discovery and the protective
order were issues fueled by the plaintiffs, even though the plaintiffs were or should have
been aware by November of 2015, that they had not yet found a way to allege any
legitimate claim against the plaintiffs.
I have examined the invoices submitted in support of the motion for attorney
fees, focusing on fees incurred after November 6, 2015, through the dismissal of this
case. Counsel for Columbine Health Systems billed 96,548 dollars for attorney fees
during this time period. Counsel for Poudre Valley Health Care billed 151,385 dollars
for attorney fees during this time period. In addition, the defendants jointly incurred
30,652 dollars in fees billed by an expert witness, who also is a lawyer.
However, I find and conclude that defense counsel spent an unreasone amount
of time on certain issues. This is particularly important to consider when some counsel
were billing large amounts of time at an hourly rate of between 450 and 500 dollars per
10

hour, and the attorney expert witness billed his time at 695 dollars per hour.
I have examined the billing invoices of counsel with care. Rather than parse
each of the myriad time entries of defense counsel during the relevant time period, I will
reduce the fees claimed by defense counsel by 20 percent. This accounts adequately
for the unreasonable amount of time spent on superfluous and unnecessarily repetitive
matters. This reduction will achieve a reasonable measure of justice and will ensure
that only reasonable attorney fees are awarded.
The total fees incurred by the defendants after November 6, 2015, is 255,878
dollars. This includes the fee of the attorney expert witness for the defendants. After a
20 percent reduction, the reasonable fees incurred total 204,703 dollars. This is the
amount of attorney fees to which I find the defendants are entitled. Because I have
found reason to award attorney fees under both 31 U.S.C. § 3730(d)(4) and 28 U.S.C. §
1927, both the plaintiffs and their counsel are liable.
IV. ORDERS
THEREFORE, IT IS ORDERED as follows:
1. That the Defendants Columbine Management Services, Inc. And Poudre
Valley Health Care, Inc.’s Motion For Sanctions and Attorneys’ Fees [#107] is
granted in part, consistent with the foregoing findings of fact and conclusions of law;
2. That under 31 U.S.C. § 3730(d)(4) and 28 U.S.C. § 1927, the defendants,
Columbine Management Services, Inc. and Poudre Valley Health Care, Inc., are
awarded reasonable attorney fees of 204,703 dollars payable to the defendants by the
plaintiffs, Anthony Hanlon and Linda Dollar, and counsel for the plaintiffs, W. Andrew
Figel, Curtis R. Henry, David Brill Law; and
3. That an amended final judgment shall enter containing all of the provisions of
11

the extant Amended Judgment [#106] entered March 29, 2016, and adding an
additional award of attorney fees of 204,703 dollars.4
Dated March 28, 2017, at Denver, Colorado.
BY THE COURT:

4

Otherwise, the Defendants Columbine Management Services, Inc. And Poudre Valley
Health Care, Inc.’s Motion For Sanctions and Attorneys’ Fees [#107] is denied.

12