A firm handling a false-claims suit that yielded a $12.6 million settlement may collect fees due via the client’s contingency agreement as well as those payable by statute by the other party, a federal judge says.

"Whether the Federal False Claims Act allows an attorney to receive both statutory fees and a contingency fee is an issue of first impression in this Circuit" but "the Court is convinced that the statute does allow for an attorney to recover both fees," U.S. District Judge Joseph Irenas held on Monday.

The ruling, in U.S. ex. rel. DePace v. Cooper Health System, 08-cv-5626, means Pietragallo Gordon Alfano Bosick & Raspanti of Philadelphia can keep a total of $1.15 million in fees.

The client, Nicholas DePace, a cardiologist with offices in Sewell, Cherry Hill and Philadelphia, filed the qui tam suit in 2008, claiming Cooper Health System prompted doctors to join an advisory board and paid them $18,500 annually to listen to marketing pitches about cardiac care at Camden’s Cooper University Hospital, which it runs.

In exchange, the doctors would refer patients for pricey procedures, thus inflating costs incurred by Medicaid, Medicare and other programs, DePace alleged. He asserted causes of action under the federal False Claims Act — which has a fee-shifting provision — and its New Jersey counterpart.

DePace’s retainer agreement with Pietragallo Gordon provided for a contingency fee of 40 percent in the event of a recovery and a clause stating that any statutory fees obtained would be "in addition to" the contingency fee.

The parties also agreed that DePace’s personal counsel, Joseph Milestone, would receive one-quarter of any contingency fee Pietragallo Gordon recovered.

In January, after five years of litigation before Irenas in Camden, federal and state government officials intervened for settlement purposes.

Cooper agreed to pay $10.27 million to the federal government and $2.33 million to the state, of which DePace received $1.95 million and $442,890, respectively, for a total of $2.39 million.

Cooper also agreed to pay $430,000 in fees to Pietragallo Gordon, which claimed its bills in the matter had run up to $458,421.

Pietragallo Gordon, in a distribution memo, said it would allocate the 40 percent contingency fee as 30 percent to itself and 10 percent to Milestone. Milestone surrendered his share, so his 10 percent went to DePace.

DePace’s recovery thus worked out to about $1.68 million, while Pietragallo Gordon received $1.15 million, including the $430,000 paid directly by Cooper.

DePace’s counsel at the time, Carl Poplar of Cherry Hill, challenged the enforceability of the contingency agreement in light of settlement fees.

DePace declined to participate in alternate dispute resolution, and the firm in February filed a motion to compel arbitration in the Court of Common Pleas of Philadelphia. DePace, in turn, petitioned Irenas for injunctive relief, contending that the settlement superseded the contingency agreement.

On Monday, Irenas, noting that he still had jurisdiction over postsettlement disputes, found the contingency agreement enforceable, unmodified by the settlement and not prohibited by the False Claims Act.

The two documents don’t cover the "same topic," Irenas said, holding that "the phrase ‘full payment’ in the Settlement Agreement can only be interpreted as defining Cooper’s obligations, and not Dr. DePace’s."

Irenas cited Venegas v. Mitchell, 495 U.S. 82 (1990), where the U.S. Supreme Court said statutory fees are a separate issue from contingency fees.

Though that case involved a contingency agreement with different terms and dealt with a fee-shifting provision in the Civil Rights Act, the "policy rationale explained in Venegas is equally relevant in the context of the Federal False Claims Act," Irenas wrote.

The judge noted a similar holding in the District of Colorado and said "many other courts, without making reference to Venegas, have acknowledged the existence of fee arrangements in qui tam litigation which allow lawyers to receive both a statutory fee and a contingency fee without offset."

"In contrast, the Court is aware of no cases which suggest that the Federal False Claims Act precludes an attorney from receiving both statutory and contingency fees," he added.

Irenas waved off DePace’s contention that the government’s intervention greatly reduced the firm’s assumed risk in the case, noting that it occurred five years after filing and the fee-shifting provisions governing intervention and nonintervention cases are identical.

There’s no law or ethical rule in New Jersey "which prohibits the Pietragallo Firm from being paid as they were in this case," the judge wrote, noting the state Supreme Court’s recognition of Venegas.

Irenas also found Pietragallo Gordon’s fee reasonable and "perfectly in line with the fees received by lawyers in qui tam cases across the country."

The judge noted a letter from a government lawyer opining that the False Claims Act doesn’t preclude an additional contingent fee.

Firm partner Gaetan Alfano, who handled the fee dispute but not the underlying case, says of the retainer agreement: "It’s not just common; it’s the standard practice in qui tam cases."

He calls the decision significant "from the standpoint that, before, we didn’t have a clear ruling [in] the Third Circuit."

"Generally there’s not a need for a ruling because typically practitioners and their clients in these cases don’t find themselves in the situation that our firm found itself in," he says.

The firm has handled "dozens" of qui tam cases, some with significantly higher recoveries, and "this is the first time we’ve ever had a client take issue with our retainer agreement," he adds.

Neither Poplar nor Louis Barbone of Jacobs & Barbone in Atlantic City, who jointly represented DePace in the fee dispute, returned a call.