August 23rd, 2018
The finances of a whistleblower case. There are two important parts to this. One, when a case is settling, how is the settlement amount calculated? Two, once the settlement has happened, how much of that money does the whistleblower get?
When you are evaluating whether to file a whistleblower case, obviously one piece of it is to assess the finances and there are two parts of that. There’s the cost which includes retaliation you’re gonna face, the cost of your time, lost salary, and then there’s also the potential upside. If you have a successful case, if there’s a recovery, how much do you stand to gain.
In evaluating the potential upside, there are two key parts of that. One is when the case settles how is the settlement amount calculated? And then the other is, of that settlement amount how much of that money do you as a whistleblower stand to get? I’m going to talk about both of those in rough terms. There is a lot that goes into it, but in a back of the envelope kind of way, there’s a pretty standard way that both of these things happen.
How Are Whistleblower Settlements Calculated?
In terms of how settlements happen, how they are calculated, obviously there’s a certain amount of horse trading that goes on at the end of the day, but as a starting point, the government really likes to take a reasoned approach to its negotiation of the settlement amount. The starting point for that is the statue. The statute says that, under the False Claims Act, defendants can be required to pay up to three times the damages caused by the fraud and penalties of, and depending on the statute, $5,000, $10,000, $20,000 or more.
When you look at the amount of the actual settlement in a case, and you want your case to settle because that is quicker, it is more reliable, you are more likely to be successful if it settles rather than going to trial. As a starting point, just throw out the penalties. Penalties are almost never part of a settlement. Usually, you are only going to see penalties at the end of a trial. One of the reasons you often get a settlement is so that the defendants can avoid paying penalties. So when you’re looking to assess how big your case might be, you need to start, just take those off the table.
So then what you’re looking at is starting with the actual damage caused by the fraud, what is called a single damages. Look at the claims, what were the false claims that were made, and one harm did the government suffer because of it. How much money did the government pay that they wouldn’t have otherwise paid? You start there, then you look at the multiplier. The statute allows a multiplier of up to three, as a practical matter settlements are usually closer in the 2 to 2 1/2 multiplier range, and sometimes they’re even lower than that if the defendants were cooperative with the investigation, if they came forward on their own, or even if they didn’t come forward first if they help the government once they knew that there was an investigation.
But then, after that, the real, the part that really makes a difference, is the government applies a factor called litigation risk. What that means is, how hard would this case be to win if we go to trial? How expensive would the case be to take the trial? How good is the evidence now? What kind of evidence can we get? All of those factors go into assessing the amount that the government is willing to take off the damages amount to reflect that this might be a difficult case to win.
So, as a practical matter, if you have a case that the damages are really big, but it is kind of an innovative case or man, it is going to be tough to prove, then the government is going the apply a factor to reduce that amount, the settlement amount, to reflect that difficulty in order to get the settlement. So once the litigation risk factor is applied, then basically the government and the defendants negotiate and ultimately reach a settlement.
Once you’ve reached that settlement amount, the question then becomes you as the whistleblower are entitled to a share of that, how is that share calculated? To talk through that, I’m going to move over to the whiteboard.
How Is The Whistleblower’s Share Calculated?
To understand how much money you could make with a whistleblower case, let’s walk through a rough and dirty calculation. So your case has gone well, the government has settled for $10,000,000, and so the question is: How much of that do you stand to possibly gain?
There are a lot of factors that go into it, but they follow a relatively standard set of steps. The first is, what is what’s called your “Relator’s Share” your piece of it. It could be between 15 and 30% of the case, sometimes more sometimes less than that range depending. As a practical matter, because it makes the math easier, we’re going to use 15% for this example, also because when you are evaluating your case you really want to think pessimistically. You want to think: “Does this case make sense if it goes badly, or not as well as it could possibly go?” So 15%, your relator’s share would be $1.5 million from the government to you.
From that amount of money next you need to pay your lawyers their contingency fee. Different lawyers charge different fees. I’m going to use 40% here. That’s a relatively standard amount, that’s the amount that I typically charge. 40% means after paying that you have $900,000.
Then you need to pay the tax man. That is where things can very much vary. You should talk to your account. It varies based on the state you are in, how you structure your finances, but again if we are going to be rough and dirty, and maybe a little optimistic, let’s say 40% to Uncle Sam and maybe to your state. So 40%, and hear the math gets a little more difficult 60% less to you is $540,000 after taxes. So, $10,000,000 settlement to the government, after you get your relator’s share, you pay your lawyer, you pay your taxes, that leaves you with $540,000.
So as I said before, these are just rough estimates. There are a lot of factors that go in at each step of the way. If you would like to get more information, to talk through your specific case or situation, please feel free to contact me for a free, confidential consultation.
Also, the disclaimer:
While I hope this video was informative, it is not legal advice and you should not rely on it as such. Watching this video does not make me your lawyer or you my client.