Relator Counsel’s Fees Must Be Paid Before Tax Lien
Takeaway: The Eastern District of New York rules that the tax code gives relator’s counsel superpriority to False Claims settlement proceeds.
On Wednesday, November 9th, the Eastern District of New York ruled that fees owed to relator’s counsel must be paid before the relator’s tax lien, resolving a dispute over settlement funds from a fifteen-year-old False Claims Act (FCA) case against Amgen, Inc.
In a matter of first impression, District Judge Brian M. Cogan held that 26 U.S.C. § 6323(b)(8)—which gives superpriority to attorney compensation—applies to FCA recoveries.
In 2008, Don Hanks filed a qui tam action under the FCA against Amgen and several oncology practices. The former Amgen representative accused the manufacturer of boosting sales by underreporting discounts to providers, leading to inflated Medicare reimbursements.
The United States partially intervened in the action and settled with Amgen in 2012.
Hanks’ share of the settlement as the relator was $220,411.04. But the government refused to pay Hanks.
In 2013, the government obtained a tax judgment against Hanks for $980,320.26. After the government executed against real estate that Hanks owned, the lien amount was brought down to $249,534.72.
The government wanted Hanks’ relator share to offset his leftover tax liability.
Hanks’ FCA attorney, Rob Hennig, Esq., had a competing claim—he was owed a 45% contingent fee from the Amgen settlement.
The district court ruled that the attorney’s charging lien was superior to the government’s tax lien. In other words, Hennig was entitled to payment before the IRS.
The court held that 26 U.S.C. § 6323(b)(8) “clearly elevates the priority of attorneys’ liens over tax liens”:
Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid … [w]ith respect to a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who, under local law, holds a lien upon or a contract enforceable against such judgment or amount, to the extent of his reasonable compensation for obtaining such judgment or procuring such settlement, except that this paragraph shall not apply to any judgment or amount in settlement of a claim or of a cause of action against the United States to the extent that the United States offsets such judgment or amount against any liability of the taxpayer to the United States.
The government tried relying on 6323(b)(8)’s limiting phrase—“this paragraph shall not apply to any judgment or amount in settlement of a claim or of a cause of action against the United States to the extent that the United States offsets such judgment or amount against any liability of the taxpayer to the United States.”
But the court held that Hanks had recovered a settlement for the United States, not against the United States. “The very purpose of a qui tam action is to obtain money for, not from, the government,” the court reasoned.
“Although nothing in the Internal Revenue Code saves Hanks’ interest in the recovered fund from the Government’s right of setoff, § 6328(b)(8) gives Hennig a superpriority lien against that recovery.”
The case is United States ex rel. Hanks v. Amgen, Inc., — F. Supp. 3d —- , 2022 WL 16837101 (E.D.N.Y. Nov. 9, 2022).