1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
8 Daniel Hamilton, No. CV-12-08193-PCT-GMS 9 LEAD CASE Plaintiff, 10 No. CV-15-08095-PCT-GMS v. (CONSOL. FOR TRIAL) 11 Yavapai Community College District, et al., 12 ORDER Defendants. 13
14 Guidance Academy LLC, et al.,
15 Counterclaimants,
16 v.
17 Daniel Hamilton,
18 Counterdefendant. Daniel Hamilton, 19
Plaintiff, 20
21 v.
22 Yavapai Community College District, et al.,
23 Defendants.
24 and
25 United States of America,
26 Movant.
28 1 Pending before the Court is Daniel Hamilton’s (“Plaintiff”) Motion for Review of 2 Taxation of Costs (Doc. 997). For the reasons below, Plaintiff’s Motion is granted. 3 BACKGROUND 4 The facts of this matter are set forth in this Court’s prior orders and are well-known 5 to the parties. Plaintiff alleges that the Defendants1 engaged in a fraudulent scheme to 6 obtain funding from the United States Department of Veterans Affairs (“VA”). His claims 7 essentially asserted that Defendants defrauded the VA by obtaining funding in violation of 8 38 C.F.R. § 21.4201, otherwise known as Regulation 4201 or the 85/15 Rule. (Doc. 82.) 9 The Court held a jury trial from June 8, 2021 to June 26, 2021. (Docs. 862, 904.) The jury 10 found in favor of all Defendants on all counts. (Doc. 915.) As prevailing parties, the Clerk 11 of Court assessed costs in favor of Defendants and against Plaintiff in the amount of 12 approximately $60,000. (Doc. 996.) Plaintiff objected to the assessment of costs. 13 (Doc. 997.) Pursuant to a stipulation, the Clerk of Court reduced the amount of assessed 14 costs for the NorthAire Defendants to $0. (Doc. 1009.) Plaintiff maintains, however, that 15 no costs should be awarded in favor of any remaining Defendant. 16 DISCUSSION 17 Federal Rule of Civil Procedure 54(d)(1) provides that “costs—other than attorney’s 18 fees—should be allowed to the prevailing party.” Fed. R. Civ. P. 54(d)(1). “By its terms, 19 the rule creates a presumption in favor of awarding costs to a prevailing party, but vests in 20 the district court discretion to refuse to award costs.” Ass’n of Mexican-Am. Educators v. 21 California, 231 F.3d 572, 591 (9th Cir. 2000). The Ninth Circuit has recognized the 22 following as appropriate reasons for denying costs: “(1) the substantial public importance 23 of the case, (2) the closeness and difficulty of the issues in the case, (3) the chilling effect 24 on future similar actions, (4) the plaintiff's limited financial resources, and (5) the economic 25 disparity between the parties.” Escriba v. Foster Poultry Farms, Inc., 743 F.3d 1236, 26 1 The Defendants in this case are Yavapai Community College District (“Yavapai”); 27 Guidance Academy LLC and John and Amanda Stonecipher (“Guidance Defendants”); John and April Morgan (“Morgan Defendants”); and North-Aire Aviation LLC and Justin 28 and Angela Scott (“NorthAire Defendants”). 1 1247–48 (9th Cir. 2014). The Escriba factors are “‘not an exhaustive list of “good reasons” 2 for declining to award costs,’ but rather a starting point for analysis.” Id. (quoting Mexican- 3 Am. Educators, 231 F.3d at 593). “[A] losing party need not demonstrate that all five 4 factors weigh against imposing costs” for the district court to properly deny costs to the 5 prevailing party. Draper v. Rosario, 836 F.3d 1072, 1087 (9th Cir. 2016). 6 A. Substantial Public Importance 7 The first factor weighs slightly in Plaintiff’s favor. The False Claims Act (“FCA”) 8 imposes civil liability upon “any person who . . . knowingly presents, or causes to be 9 presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a). The 10 defendant is liable to the United States “for up to treble damages and a civil penalty of up 11 to $10,000 per claim.” Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 12 765, 769 (2000); § 3729(a). “An FCA action may be commenced in one of two ways.” 13 Stevens, 529 U.S. at 769. “First, the Government itself may bring a civil action against the 14 alleged false claimant.” Id.; § 3730(a). Second, “a private person (the relator) may bring 15 a qui tam civil action ‘for the person and for the United States Government’ against the 16 alleged false claimant.” Stevens, 529 U.S. at 769 (quoting § 3730(b)(1)). If the claim is 17 successful, the relator receives a bounty representing a share of the proceeds. § 3730(d). 18 The structure of the FCA encourages relators to come forward with information 19 regarding fraudulent claims by offering financial incentives. This structure partially 20 alleviates the burden on the federal government to do such investigations on its own. Thus, 21 the FCA serves an important public function: it provides a broader mechanism for the 22 federal government to recoup payments procured through fraud. This is an important 23 public interest; however, it does not raise the same interests as cases involving civil rights, 24 which pose unique public policy concerns. Stanley v. Univ. of S. Cal., 178 F.3d 1069, 25 1079–80 (9th Cir. 1999); Zarco v. VWR Int’l, LLC, No. 20-cv-00089-HSG, 2021 WL 26 5918399, at *2 (N.D. Cal. Dec. 15, 2021); see also Draper v. Rosario, 836 F.3d at 1088– 27 89. Moreover, Plaintiff did not prevail on any claim in this case, even if his actions resulted 28 in the VA stopping payments to Defendants years after the lawsuit had commenced. 1 Therefore, while this factor does weigh in Plaintiff’s favor, it does so only slightly. 2 B. Closeness and Difficulty of the Issues 3 This case was far from an easy one. The litigation lasted for the better part of a 4 decade, and several of Plaintiff’s claims survived motions to dismiss, for judgment on the 5 pleadings, and for summary judgment (Docs. 127, 414; 620). The trial lasted twelve days 6 and involved multiple motions and briefings from both sides. (E.g., Docs. 867, 868, 869, 7 870, 873, 875, 876, 877, 878, 884, 888, 890, 891, 892, 896, 897, 899.) Moreover, there is 8 currently an appeal pending with the Ninth Circuit. (Docs. 989, 990.) Because the issues 9 in this case were close, and because Plaintiff’s claims were not frivolous, this factor weighs 10 in his favor. 11 C. Chilling Effect on Future Actions 12 The third factor, again, weighs slightly in Plaintiff’s favor. Although it is true that 13 there is always a chilling effect in awarding costs against a losing plaintiff in a qui tam 14 action, it is also true that imposing almost $60,000 worth of costs against an individual 15 plaintiff poses a heightened risk of chilling future actions. That is especially so in a case 16 of this magnitude, which has lasted for a decade, involves several large law firms, and 17 numbers over a thousand docket entries. Therefore, while the Court recognizes that there 18 will always be some chilling effect in these types of cases, it also recognizes that the facts 19 of this case caution against awarding costs. Accordingly, while only slightly, this factor 20 weighs in Plaintiff’s favor. 21 D. Plaintiff’s Limited Financial Resources 22 Plaintiff filed an application to proceed in forma pauperis (“IFP”) with this Court 23 for his pending appeal with the Ninth Circuit.
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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
8 Daniel Hamilton, No. CV-12-08193-PCT-GMS 9 LEAD CASE Plaintiff, 10 No. CV-15-08095-PCT-GMS v. (CONSOL. FOR TRIAL) 11 Yavapai Community College District, et al., 12 ORDER Defendants. 13
14 Guidance Academy LLC, et al.,
15 Counterclaimants,
16 v.
17 Daniel Hamilton,
18 Counterdefendant. Daniel Hamilton, 19
Plaintiff, 20
21 v.
22 Yavapai Community College District, et al.,
23 Defendants.
24 and
25 United States of America,
26 Movant.
28 1 Pending before the Court is Daniel Hamilton’s (“Plaintiff”) Motion for Review of 2 Taxation of Costs (Doc. 997). For the reasons below, Plaintiff’s Motion is granted. 3 BACKGROUND 4 The facts of this matter are set forth in this Court’s prior orders and are well-known 5 to the parties. Plaintiff alleges that the Defendants1 engaged in a fraudulent scheme to 6 obtain funding from the United States Department of Veterans Affairs (“VA”). His claims 7 essentially asserted that Defendants defrauded the VA by obtaining funding in violation of 8 38 C.F.R. § 21.4201, otherwise known as Regulation 4201 or the 85/15 Rule. (Doc. 82.) 9 The Court held a jury trial from June 8, 2021 to June 26, 2021. (Docs. 862, 904.) The jury 10 found in favor of all Defendants on all counts. (Doc. 915.) As prevailing parties, the Clerk 11 of Court assessed costs in favor of Defendants and against Plaintiff in the amount of 12 approximately $60,000. (Doc. 996.) Plaintiff objected to the assessment of costs. 13 (Doc. 997.) Pursuant to a stipulation, the Clerk of Court reduced the amount of assessed 14 costs for the NorthAire Defendants to $0. (Doc. 1009.) Plaintiff maintains, however, that 15 no costs should be awarded in favor of any remaining Defendant. 16 DISCUSSION 17 Federal Rule of Civil Procedure 54(d)(1) provides that “costs—other than attorney’s 18 fees—should be allowed to the prevailing party.” Fed. R. Civ. P. 54(d)(1). “By its terms, 19 the rule creates a presumption in favor of awarding costs to a prevailing party, but vests in 20 the district court discretion to refuse to award costs.” Ass’n of Mexican-Am. Educators v. 21 California, 231 F.3d 572, 591 (9th Cir. 2000). The Ninth Circuit has recognized the 22 following as appropriate reasons for denying costs: “(1) the substantial public importance 23 of the case, (2) the closeness and difficulty of the issues in the case, (3) the chilling effect 24 on future similar actions, (4) the plaintiff's limited financial resources, and (5) the economic 25 disparity between the parties.” Escriba v. Foster Poultry Farms, Inc., 743 F.3d 1236, 26 1 The Defendants in this case are Yavapai Community College District (“Yavapai”); 27 Guidance Academy LLC and John and Amanda Stonecipher (“Guidance Defendants”); John and April Morgan (“Morgan Defendants”); and North-Aire Aviation LLC and Justin 28 and Angela Scott (“NorthAire Defendants”). 1 1247–48 (9th Cir. 2014). The Escriba factors are “‘not an exhaustive list of “good reasons” 2 for declining to award costs,’ but rather a starting point for analysis.” Id. (quoting Mexican- 3 Am. Educators, 231 F.3d at 593). “[A] losing party need not demonstrate that all five 4 factors weigh against imposing costs” for the district court to properly deny costs to the 5 prevailing party. Draper v. Rosario, 836 F.3d 1072, 1087 (9th Cir. 2016). 6 A. Substantial Public Importance 7 The first factor weighs slightly in Plaintiff’s favor. The False Claims Act (“FCA”) 8 imposes civil liability upon “any person who . . . knowingly presents, or causes to be 9 presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a). The 10 defendant is liable to the United States “for up to treble damages and a civil penalty of up 11 to $10,000 per claim.” Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 12 765, 769 (2000); § 3729(a). “An FCA action may be commenced in one of two ways.” 13 Stevens, 529 U.S. at 769. “First, the Government itself may bring a civil action against the 14 alleged false claimant.” Id.; § 3730(a). Second, “a private person (the relator) may bring 15 a qui tam civil action ‘for the person and for the United States Government’ against the 16 alleged false claimant.” Stevens, 529 U.S. at 769 (quoting § 3730(b)(1)). If the claim is 17 successful, the relator receives a bounty representing a share of the proceeds. § 3730(d). 18 The structure of the FCA encourages relators to come forward with information 19 regarding fraudulent claims by offering financial incentives. This structure partially 20 alleviates the burden on the federal government to do such investigations on its own. Thus, 21 the FCA serves an important public function: it provides a broader mechanism for the 22 federal government to recoup payments procured through fraud. This is an important 23 public interest; however, it does not raise the same interests as cases involving civil rights, 24 which pose unique public policy concerns. Stanley v. Univ. of S. Cal., 178 F.3d 1069, 25 1079–80 (9th Cir. 1999); Zarco v. VWR Int’l, LLC, No. 20-cv-00089-HSG, 2021 WL 26 5918399, at *2 (N.D. Cal. Dec. 15, 2021); see also Draper v. Rosario, 836 F.3d at 1088– 27 89. Moreover, Plaintiff did not prevail on any claim in this case, even if his actions resulted 28 in the VA stopping payments to Defendants years after the lawsuit had commenced. 1 Therefore, while this factor does weigh in Plaintiff’s favor, it does so only slightly. 2 B. Closeness and Difficulty of the Issues 3 This case was far from an easy one. The litigation lasted for the better part of a 4 decade, and several of Plaintiff’s claims survived motions to dismiss, for judgment on the 5 pleadings, and for summary judgment (Docs. 127, 414; 620). The trial lasted twelve days 6 and involved multiple motions and briefings from both sides. (E.g., Docs. 867, 868, 869, 7 870, 873, 875, 876, 877, 878, 884, 888, 890, 891, 892, 896, 897, 899.) Moreover, there is 8 currently an appeal pending with the Ninth Circuit. (Docs. 989, 990.) Because the issues 9 in this case were close, and because Plaintiff’s claims were not frivolous, this factor weighs 10 in his favor. 11 C. Chilling Effect on Future Actions 12 The third factor, again, weighs slightly in Plaintiff’s favor. Although it is true that 13 there is always a chilling effect in awarding costs against a losing plaintiff in a qui tam 14 action, it is also true that imposing almost $60,000 worth of costs against an individual 15 plaintiff poses a heightened risk of chilling future actions. That is especially so in a case 16 of this magnitude, which has lasted for a decade, involves several large law firms, and 17 numbers over a thousand docket entries. Therefore, while the Court recognizes that there 18 will always be some chilling effect in these types of cases, it also recognizes that the facts 19 of this case caution against awarding costs. Accordingly, while only slightly, this factor 20 weighs in Plaintiff’s favor. 21 D. Plaintiff’s Limited Financial Resources 22 Plaintiff filed an application to proceed in forma pauperis (“IFP”) with this Court 23 for his pending appeal with the Ninth Circuit. In his application, Plaintiff represented that 24 he is self-employed, and his wife and three children are financially dependent on him. 25 (Doc. 994 at 3, 5). He also represented that his only income was approximately $3,092 26 from a rental property, and he had only $2,000 in savings. (Doc. 994 at 2, 4.) His average 27 monthly expenses exceeded his income. (Doc. 994 at 6–7.) Given these representations, 28 which Defendants do not seem to dispute, this factor weighs heavily in Plaintiff’s favor. 1 E. Economic Disparity Between the Parties 2 The final factor weighs for Plaintiff. Yavapai is protected from liability by the 3 Arizona School Risk Retention Trust (“the Trust”).2 (Doc. 979 at 5.) Although the Court 4 recognizes that Yavapai is a publicly funded entity, it still holds far more assets than 5 Plaintiff. The Guidance Defendants are also likely3 indemnified by Yavapai, who, as noted 6 above, will have its costs covered by the Trust. (Doc. 947-10 at 10.) Because Yavapai and 7 the Trust can clearly absorb the costs more readily than Plaintiff, this factor weighs in 8 Plaintiff’s favor. 9 The Morgan Defendants contend that they have borne the costs of this lawsuit 10 themselves despite Plaintiff’s assertion that they are covered by the Trust. (Doc. 982 at 2.) 11 However, in October 2017, counsel for the Morgan Defendants represented that they were 12 covered by the Trust. (Doc. 1004-1.) Regardless of the factual dispute, the economic 13 disparity between Plaintiff and the Morgan Defendants at least slightly weighs in Plaintiff’s 14 favor when considered in light of the representations made in Plaintiff’s IFP application. 15 F. Whether the Factors Outweigh the Presumption of Awarding Costs 16 The presumption in this circuit is that prevailing parties, in this case Defendants, 17 should be awarded costs. However, all five factors weigh in Plaintiff’s favor, albeit with 18 some weighing only slightly. Because Plaintiff is financially unable to bear the costs of 19 this lawsuit, and because of the public interest in encouraging whistleblowers under the 20 FCA, the Court will decline to award costs to any Defendant. See Raiser v. San Diego 21 Cnty., No. 19-CV-751-GPC, 2021 WL 5234410, at *2 (S.D. Cal. Nov. 10, 2021) (“‘Costs 22 are properly denied when a plaintiff would be rendered indigent’ if forced to pay them.” 23 (quoting Escriba, 743 F.3d at 1248)). Nevertheless, the Court recognizes that, by not 24 2 Although Plaintiff did not attach a copy of the relevant supportive documents, he did 25 provide an excerpt that Yavapai has not objected to. (Doc. 979 at 5); (Docs. 980, 999.) Accordingly, the Court will treat the excerpt as accurate. 26 3 The indemnification clause at issue contains an exception for “negligence or willful 27 misconduct of Guardian Indemnified Parties [that] contributes to . . . Losses.” (Doc. 947- 10 at 10.) Because the Guidance Defendants do not object to Plaintiff’s assertion that the 28 Guidance Defendants are indemnified by Yavapai, (Doc. 983 at 2), the Court will presume the assertion to be true. || awarding costs to Defendants, Plaintiff would ordinarily receive his full award of $2,364.25 || against the Guidance Defendants. Plaintiff—although perhaps the prevailing party on the 3 || counterclaims—is not the prevailing party in this litigation, and it would be unjust for him 4|| to be excused from paying costs yet benefit from receiving them on only a comparatively 5 || small set of issues in this case. Accordingly, the Court finds that parties shall bear their own costs. 7 CONCLUSION 8 The Escriba factors are sufficient to overcome the presumption of awarding costs 9|| against Plaintiff in this case. However, because Plaintiff is excused from paying nearly |) $60,000 in costs, his cost award against the Guidance Defendants is reduced to $0. Accordingly, Plaintiff's Motion is granted. 12 IT IS HEREBY ORDERED that Plaintiff's Motion for Review of Taxation of 13 || Costs (Doc. 997) is GRANTED. 14 IT IS FURTHER ORDERED that the Order of Taxation of Costs (Doc. 996) be 15 || modified to show an award of $0.00 in costs against Plaintiff and for Defendants Yavapai □□ Community College District, Guidance Academy LLC, John Stonecipher, Amanda 17 || Stonecipher, John Morgan, and April Morgan. 18 IT IS FURTHER ORDERED that costs are hereby taxed for Plaintiff and against 19 || Defendants Guidance Academy LLC and John and Amanda Stonecipher in the amount of $0.00. 21 Dated this 18th day of February, 2022. 22 Wi, 23 A Whacrsay Sooo) 4 Chief United States District Judge 25 26 27 28
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