United States Ex Rel. Rahman v. Colkitt

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA ex rel. 
Syed Rahman, M.D.,
Plaintiff-Appellee,
GFL ADVANTAGE FUND, LIMITED,
Party in Interest-
Appellant,
PEPPER HAMILTON LLP; MARCY L.
COLKITT & ASSOCIATES,
Parties in Interest-
Appellees,
and
SYED RAHMAN, M.D.,
Plaintiff,

NATIONAL UNION FIRE INSURANCE
COMPANY; STEADFAST INSURANCE No. 02-2317
COMPANY; RELIANCE INSURANCE
COMPANY; HERBARD, LIMITED;
JOHNSON & JOHNSON FINANCE
CORPORATION; DVI FINANCIAL
SERVICES, INCORPORATED; MOBILE
DIAGNOSTECH, INCORPORATED; A.
JEROME DIGIACOBBE, JR; CALVIN
ZONTINE; TREATMENT CENTERS
LIMITED PARTNERSHIP; PFG CAPITAL
CORPORATION; REGIONAL MEDICAL
SERVICES, INCORPORATED,
Parties in Interest,
ONCOLOGY SERVICES CORPORATION,
Third Party Plaintiff,
v.

2 UNITED STATES v. COLKITT
DOUGLAS COLKITT, M.D., 
Defendant-Appellee,
and
ONCOLOGY ASSOCIATES, P.C.;
ONCOLOGY SERVICES CORPORATION;
JERRY DERDEL, M.D.; JOANNE
RUSSELL; ONCOLOGY FUNDING
CORPORATION; STONEBORO ONCOLOGY
ASSOCIATES, P.C.; WARREN
ONCOLOGY ASSOCIATES, P.C.;
PHOENIXVILLE ONCOLOGY ASSOCIATES,
P.C.; LITTLESTOWN ONCOLOGY
ASSOCIATES, P.C.; LEHIGHTON
ONCOLOGY ASSOCIATES, P.C.; EXTON
ONCOLOGY ASSOCIATES, P.C.; BUCKS
COUNTY ONCOLOGY ASSOCIATES, P.C.;
GREENBELT CANCER TREATMENT
CENTER, L.P.; ATLANTIC RADIATION 
ONCOLOGY, L.L.C.; DERDEL
RANDALLSTOWN ONCOLOGY
ASSOCIATES, P.C.; DERDEL UNION
MEMORIAL ONCOLOGY ASSOCIATES,
P.C.; DERDEL RIVERSIDE ONCOLOGY
ASSOCIATES, P.C.; DERDEL
CHESAPEAKE ONCOLOGY ASSOCIATES,
P.C.; OKEECHOBEE ONCOLOGY
ASSOCIATES, P.A.; KEY WEST
ONCOLOGY ASSOCIATES, P.A.; TAMPA
ONCOLOGY ASSOCIATES, P.A.;
TREASURE COAST ONCOLOGY
ASSOCIATES, P.A.; LAUDERDALE
LAKES ONCOLOGY; ST. LAWRENCE
ONCOLOGY, P.C.; LIBERTY ONCOLOGY
ASSOCIATES, P.C.; COMMUNITY
RADIATION THERAPY ASSOCIATE, P.C.;

UNITED STATES v. COLKITT 3
KINGS PLAZA RADIOLOGY, P.C.; 
SOUTHERN NEW JERSEY CANCER
TREATMENT; WILLIAMS COUNTY
ONCOLOGY ASSOCIATES, P.C.; PARK
ONCOLOGY ASSOCIATES, P.C.; PARKS
ONCOLOGY ASSOCIATES,
INCORPORATED; GREATER HARRISBURG
CANCER CENTER, INCORPORATED;
MGH CANCER TREATMENT CENTER,
L.P.; ONCOLOGY SERVICES
CORPORATION OF LAWNWOOD; KEYS
CANCER CENTER LIMITED
PARTNERSHIP, KEY WEST HMA,
INCORPORATED, for itself and on
behalf of the Lower Florida Keys
Health System, Incorporated
(collectively, "HMA/Lower Keys");
XCC, INCORPORATED; GREATER
HARRISBURG CANCER CENTER, 
INCORPORATED; GPCC,
INCORPORATED; IRCC, INCORPORATED;
KRTC, INCORPORATED; LVCC,
INCORPORATED; MGHCC,
INCORPORATED, MHCC,
INCORPORATED; MARYLAND GENERAL
CANCER CENTER, INCORPORATED; ST.
LUCIE COUNTY RADIATION ONCOLOGY,
LIMITED; ONCOLOGY ASSOCIATES, PC
OF INDIANA; ONCOLOGY ASSOCIATES,
PC OF ALBEMARLE; ONCOLOGY
ASSOCIATES, PC OF LIFE CARE;
ONCOLOGY ASSOCIATES, PC OF
HERITAGE HILLS; DERDEL MARYLAND
GENERAL ONCOLOGY ASSOCIATES, PC;
DERDEL MGH ONCOLOGY
ASSOCIATES, PC;

4 UNITED STATES v. COLKITT
KANKAKEE ONCOLOGY ASSOCIATES, 
PC; ONCOLOGY ASSOCIATES, PC OF
PITTSBURGH; ONCOLOGY ASSOCIATES,
PC OF HARRISBURG; PLEASANT HILLS
ONCOLOGY ASSOCIATES, PC;
ONCOLOGY ASSOCIATES, PC OF
LEBANON; ONCOLOGY ASSOCIATES,
P.C. OF SALISBURY; FLAGSTAFF
ONCOLOGY ASSOCIATES, PC; FORT
PIERCE ONCOLOGY ASSOCIATES, PC;
GREENWAY ONCOLOGY ASSOCIATES,
PC; GREATER PITTSBURGH ONCOLOGY
ASSOCIATES, PC; NORTHWEST
RADIATION TREATMENT SERVICES,
INCORPORATED; MARLTON ONCOLOGY,
PC; RANDALLSTOWN ONCOLOGY 
CENTER, INCORPORATED; WESTCHESTER
ONCOLOGY, PC; CHESAPEAKE
REGIONAL CANCER CENTER,
INCORPORATED; UNION MEMORIAL
ONCOLOGY CENTER, INCORPORATED;
CANCER CENTER OF NORTHERN
ARIZONA PARTNERSHIP; WILLIAMS
COUNTY ONCOLOGY ASSOCIATES,
INCORPORATED; TRI STATE ONCOLOGY
ASSOCIATES, INCORPORATED;
SALISBURY RADIATION ONCOLOGY
CENTER, INCORPORATED; HERITAGE
HILLS MEDICAL, LP; RIVERSIDE
ONCOLOGY; JEFFERSON RADIATION

UNITED STATES v. COLKITT 5
ONCOLOGY CENTER, LP; ALBEMARLE 
REGIONAL CANCER CENTER, LP;
MEDTREND HEALTH SYSTEMS,
INCORPORATED; BROWARD RADIATION
THERAPY CORPORATION; LAKE
OKEECHOBEE CANCER CENTER,
INCORPORATED; LAWNWOOD REGIONAL
CANCER CENTER, LP; ST. LAWRENCE
ONCOLOGY PC OF OGDENSBURG;
PMCB, INCORPORATED; ST.
LAWRENCE ONCOLOGY, PC OF
BROOKLYN; ONCOLOGY SERVICES
CORPORATION OF KEY WEST,
INCORPORATED; ONEONTA RADIATION
ONCOLOGY, PC; ONCOLOGY SERVICES
CORPORATION OF TAMPA, 
INCORPORATED; GREENBELT CANCER
TREATMENT CENTER, L.P.; BILLING
SERVICES, INCORPORATED; NATIONAL
MEDICAL FINANCIAL SERVICES
CORPORATION; COLKITT ONCOLOGY
GROUP, INCORPORATED; EQUIMED,
INCORPORATED, a corporation formed
under the laws of Nevis State
College, PA; SKYLINE ONCOLOGY
ASSOCIATES, P.C., Pittsburgh, PA;
MALONE ONCOLOGY ASSOCIATES,
P.C., State College, PA; NIXON
EQUIPMENT CORPORATION, a
corporation formed under the laws
of Nevis State College, PA;

6 UNITED STATES v. COLKITT
THOMAS JEFFERSON REAL ESTATE 
CORPORATION, a corporation formed
under the laws of Nevis State
College, PA; GEORGE WASHINGTON
REAL ESTATE CORPORATION, a
corporation formed under the laws
of Nevis State College, PA;
OAKTREE CANCER CARE,
INCORPORATED; KEYSTONE ONCOLOGY,
LLC, State College, PA; JMR
MEDICAL ASSOCIATES, P.C.; CAROLINA
CANCER CARE, LLC; SOUTHERN
ONCOLOGY, P.A.; EASTERN
PENNSYLVANIA ONCOLOGY, LLC;
MASSACHUSETTS RADIATION
ONCOLOGY SERVICES, P.C; CHESTER
COUNTY ONCOLOGY, LLC; ROSEWOOD
CANCER CARE, INCORPORATED; 
FLORIDA ONCOLOGY, P.A.; COASTAL
ONCOLOGY, LLC,
Defendants,
MERRILL COHEN, Chapter 7 Interim
Trustee,
Intervenor-Defendant,
v.
HIGHMARK, INCORPORATED, d/b/a Xact
Medicare Services; NORIDIAN
MUTUAL INSURANCE COMPANY, d/b/a
Blue Cross/Blue Shield of North
Dakota; AETNA INCORPORATED; BLUE
CROSS/BLUE SHIELD OF FLORIDA, INC.;
HEALTH CARE SERVICE CORPORATION,
A Mutual Legal Reserve Company;

UNITED STATES v. COLKITT 7
TRAILBLAZER HEALTH ENTERPRISES, 
LLC; BLUE CROSS & BLUE
SHIELD OF MARYLAND, INCORPORATED;
EMPIRE BLUE CROSS AND BLUE
SHIELD; GROUP HEALTH
INCORPORATED; BLUE CROSS/BLUE
SHIELD OF WESTERN NEW YORK,
INCORPORATED; CIGNA
CORPORATION; CONNECTICUT GENERAL
LIFE INSURANCE COMPANY; 
NATIONWIDE MUTUAL INSURANCE
COMPANY,
Third Party Defendants.
SOVEREIGN BANK; GLORIA FELIX,
Doctor,
Movants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Alexander Harvey II, Senior District Judge.
(CA-95-2241-H)
Argued: January 23, 2004
Decided: June 7, 2004
Before NIEMEYER, SHEDD, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Eric S. Rein, SCHWARTZ, COOPER, GREENBERGER
& KRAUSS, CHTD., Chicago, Illinois, for Appellant. Tamara Lynn
8 UNITED STATES v. COLKITT
Fine, Office of the United States Attorney, Baltimore, Maryland, for
the United States. David Richman, PEPPER, HAMILTON, L.L.P.,
Philadelphia, Pennsylvania, for Pepper, Hamilton, L.L.P.; Andrew
James Kennedy, MARCY L. COLKITT & ASSOCIATES, P.C.,
Wayne, Pennsylvania, for Marcy L. Colkitt & Associates, P.C. ON
BRIEF: Patrick T. Stanton, SCHWARTZ, COOPER, GREENBER-
GER & KRAUSS, CHTD., Chicago, Illinois, for Appellant. Peter
Konilege, MARCY L. COLKITT & ASSOCIATES, P.C., Wayne,
Pennsylvania, for Marcy L. Colkitt & Associates, P.C. Daniel A.
Spiro, Civil Division, UNITED STATES DEPARTMENT OF JUS-
TICE, Washington, D.C., for the United States.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Appellant GFL Advantage Fund, Ltd. ("GFL") appeals the October
30, 2002 order of the District Court for the District of Maryland
(Alexander Harvey II, Judge) granting the motion of Appellees Pep-
per Hamilton LLP ("Pepper Hamilton"), Marcy L. Colkitt & Asso-
ciates, P.C. ("MLCA") and the United States for distribution of
proceeds of a directors’ and officers’ liability insurance policy held
by National Union Fire Insurance Company of Pittsburgh, Pennsylva-
nia ("National Union"). Pepper Hamilton, MLCA and the United
States claim entitlement to the insurance proceeds pursuant to a settle-
ment agreement between Dr. Douglas Colkitt,1 the insured, and the
United States. GFL claims that the settlement agreement does not
entitle the United States to certain portions of the insurance proceeds,
and that its claim to those portions is superior to the claims of Pepper
Hamilton and MLCA. Because we find that the district court properly
interpreted the provision of the settlement agreement at issue, we
affirm its order.
1
Marcy L. Colkitt of MLCA and Dr. Colkitt are siblings.
UNITED STATES v. COLKITT 9
I.
This appeal arises from a collateral order entered in a qui tam
action originally filed in 1995 by Syed Rahman (the "Rahman
action"). In August of 1998, the United States filed its complaint in
the Rahman action naming as defendants Dr. Douglas Colkitt, his
wife, his business partner, and over eighty health care facilities
owned, controlled or operated by Dr. Colkitt. The defendants alleg-
edly engaged in a fraudulent billing scheme, defrauding the Medicare
and Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS") programs of more than $12 million. See United States
ex. rel. Rahman v. Oncology Assocs., P.C., 269 B.R. 139, 143-44 (D.
Md. 2001). After extensive pretrial proceedings, the parties entered
into a Settlement Agreement (the "Rahman Agreement").2 The district
court approved the Rahman Agreement on September 8, 2000. See id.
at 144.
As part of this settlement, the defendants agreed to pay the United
States $9,885,000. To secure payment in full, the defendants assigned
their rights to, inter alia, "any proceeds" of liability insurance policies
under which one or more defendants, or their officers or directors,
were insured. Rahman Agreement ¶ 13.b. However, a proviso to
¶ 13.b stated, "Notwithstanding any other provision of this Paragraph,
the United States shall not be entitled to recover from Defendants or
Defendants’ counsel any amounts paid or owed by insurers for legal
fees and expenses actually incurred." Id.Dr. Colkitt was an officer and director of National Medical Finan-
cial Services, Inc. ("National Medical"), another defendant in the
Rahman action. As such, Dr. Colkitt sought coverage for his defense
costs under National Medical’s directors’ and officers’ liability insur-
ance policy (the "D&O policy") with National Union. In 1999, he
requested that National Union accept Pepper Hamilton as his legal
counsel. National Union agreed to provide his defense under a reser-
2
The Rahman Agreement was one of four settlement agreements
entered into by the United States, Dr. Colkitt and other parties to resolve
the claims resulting from the practices of Dr. Colkitt’s various business
enterprises. The other settlement agreements are not relevant to the
issues on appeal.
10 UNITED STATES v. COLKITT
vation of rights, and accepted Pepper Hamilton as counsel for Dr.
Colkitt.
Pepper Hamilton represented Dr. Colkitt in the Rahman action
from 1999 through approval of the Rahman agreement. National
Union paid Pepper Hamilton directly for its services for most of this
time. But in November of 2000, it notified Pepper Hamilton that
defense costs incurred after April 30, 2000 were not covered by the
D&O policy and would not be paid. Consequently, Dr. Colkitt opened
arbitration proceedings against National Union.
After one law firm refused to represent Dr. Colkitt in this insurance
coverage dispute on a contingency fee basis, he engaged MLCA.
MLCA agreed to accept as payment for its services forty percent of
any "payments made by National Union as a result of" a favorable
judgment in the arbitration proceeding. (J.A. 227). A tribunal of the
American Arbitration Association held a ten-day hearing between
October 24, 2001 and March 26, 2002. On April 24, 2002, the arbitra-
tors found in favor of Dr. Colkitt and directed National Union to pay
him $1,791,450. On September 6, 2002, Pepper Hamilton and MLCA
moved the district court to order distribution of the arbitration award
to them and the United States pursuant to ¶ 13.b of the Rahman
Agreement. Pepper Hamilton, MLCA and the United States had
agreed to a division of the arbitration award as follows: $700,000 to
the United States, $500,000 to Pepper Hamilton, and $591,450 to
MLCA.
On October 7, 2002, the district court permitted GFL to intervene.
In July of 2000, GFL had obtained a judgment against Dr. Colkitt for
more than $21 million in federal court in Pennsylvania. See GFL
Advantage Fund, Ltd. v. Colkitt, No. 4:CV-97-0526, 2000 U.S. Dist.
LEXIS 21747 (M.D. Pa. July 17, 2000). In an effort to enforce this
judgment, GFL had garnished purported assets of Dr. Colkitt and of
entities in which Dr. Colkitt had an interest.
GFL’s attempts to secure its judgment against Dr. Colkitt threat-
ened to draw it into litigation with the United States because of the
government’s interests secured in the Rahman Agreement. Conse-
quently, GFL and the United States entered into an agreement on Jan-
uary 18, 2002 ("January 2002 Agreement") whereby GFL agreed that
UNITED STATES v. COLKITT 11
it would not "suffer or permit existing or future charging orders or
garnishments to be placed against . . . any entity which is among the
Protected Assets."3 January 2002 Agreement ¶ I.B.4. "Protected
Assets" included the insurance proceeds assigned to the United States
in ¶ 13.b of the Rahman Agreement. See January 2002 Agreement
¶ I.A & Ex. F, ¶ 16.
Despite the January 2002 Agreement, on March 26, 2002, GFL
sought and obtained a writ of execution attaching the property of Dr.
Colkitt in the possession of National Union. GFL Advantage Fund,
Ltd. v. Colkitt, No. 4:97-CV-526 (M.D. Pa. Mar. 26, 2002). It was
based on this writ that GFL sought to intervene as a party-in-interest
in the proceedings below.
The court below determined that the issues involved in the motion
for distribution of the arbitration award did not require a hearing.
Based on the papers submitted to it, the district court held that GFL
had no right to any portion of the insurance proceeds obtained as a
result of the arbitration:
The right to receive funds payable by National Union to
Colkitt have [sic] been assigned to the United States pursu-
ant to the Rahman Agreement approved by this Court. The
insurance proceeds are under the January 2002 Agreement
"Protected Assets" to be disbursed to the United States by
an entity. GFL has specifically agreed that such assets distri-
butable to the United States "will remain free of any claim
of GFL . . . ." Moreover, Colkitt has no remaining owner-
ship interest in the insurance proceeds which might be sub-
ject to garnishment by GFL. Under the Rahman Agreement,
the proceeds of a Policy like the one issued by National
Union were to be paid to the United States to satisfy the
amount which Colkitt had agreed to pay.
3
The January 2002 Agreement vested the District Court for the District
of Maryland and the Bankruptcy Court for the District of Maryland with
exclusive jurisdiction over any dispute arising from it. January 2002
Agreement ¶ II.A.
12 UNITED STATES v. COLKITT
United States ex rel. Rahman v. Oncology Assocs., P.C., 229 F. Supp.
2d 458, 463-64 (D. Md. 2002) (footnote omitted). Thus, even if Pep-
per Hamilton and MLCA were not entitled to a portion of the arbitra-
tion award, "the United States would be entitled to receive the entire
sum." Id. And because the United States agreed to a particular divi-
sion of the arbitration award, Pepper Hamilton and MLCA were enti-
tled to their portions of the award in any event. Id. at 464.
Both the district court and this Court denied GFL’s subsequent
applications for a stay of distribution pending appeal. The district
court then distributed the arbitration award to the United States, Pep-
per Hamilton and MLCA according to their agreed-upon apportion-
ment, and this appeal followed.
II.
On appeal, GFL concedes that its claim to the arbitration award is
subrogated to that of the United States under the January 2002 Agree-
ment. It also concedes that the arbitration award constitutes "pro-
ceeds" within the meaning of ¶ 13.b, nor could it argue otherwise. The
award represents insurance proceeds that National Union should have
paid under the D&O policy — an insurance policy that falls within
the assignment of rights in ¶ 13.b. Rather, GFL argues that the monies
owed under the D&O policy to Pepper Hamilton and MLCA’s contin-
gency fee are "Non-US proceeds" — proceeds in which the United
States has no interest. Under GFL’s interpretation, these monies are
thus not "Protected Assets" and the January 2002 Agreement does not
bar it from attaching these amounts. GFL then argues that its judg-
ment lien takes priority over any interest Pepper Hamilton or MLCA
might have in these amounts.
The first question we must answer, then, is whether the United
States has any interest, under ¶ 13.b, in "amounts paid or owed by
insurers for legal fees and expenses actually incurred." The proper
interpretation of a settlement agreement, as with any contract, is a
question of law that we review de novo. Nehi Bottling Co. v. All-Am.
Bottling Corp., 8 F.3d 157, 161-62 (4th Cir. 1993). When construing
a provision of a contract, we must "give meaning and effect to every
part of the contract, rather than leave a portion of the contract mean-
ingless or reduced to mere surplusage." Goodman v. Resolution Trust
UNITED STATES v. COLKITT 13
Corp., 7 F.3d 1123, 1127 (4th Cir. 1993). With this rule in mind, we
address GFL’s claims to the portions of the arbitration award claimed
by Pepper Hamilton and MLCA in turn.
Paragraph 13.b provides, in pertinent part:
Subject to the condition that all rights to insurance are
retained to defend any claim (including third party claims or
cross claims) relating to the Covered Conduct that has or
may be made by any party other than the United States, all
Parties other than NRTS agree that any proceeds from insur-
ance policies that provide coverage for some or all of the
Covered Conduct in which any of the Defendants, or their
officers or directors, are insured parties will be paid to the
United States to satisfy the Settlement Amount up to Pay-
ment in Full. . . . Notwithstanding any other provision of
this Paragraph, the United States shall not be entitled to
recover from Defendants or Defendants’ counsel any
amounts paid or owed by insurers for legal fees and
expenses actually incurred.
Rahman Agreement ¶ 13.b (emphasis added).
Through ¶ 13.b, Dr. Colkitt has assigned his rights to "any pro-
ceeds" from the D&O policy to the United States. The Rahman
Agreement does not define the term "proceeds." In the absence of a
contractual definition, we give contract terms their ordinary meaning.
See Bynum v. CIGNA Healthcare of N.C., Inc., 287 F.3d 305, 313 (4th
Cir. 2002) (applying dictionary definition to undefined term in insur-
ance contract). In ordinary usage, "proceeds" means "something that
results or accrues," RANDOM HOUSE WEBSTER’S UNABRIDGED DIC-
TIONARY 1542 (1998); "the net sum received (as for a check, a negotia-
ble note, an insurance policy) after deduction of any discount or
charges," WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1807
(1986).4 "Any proceeds" is therefore an all-encompassing phrase. Any
4
In the context of an insurance policy, "after deduction of any . . .
charges" would mean the total amount payable under the policy less the
deductible and any other sums the insurer would require the insured to
pay.
14 UNITED STATES v. COLKITT
monies resulting from Dr. Colkitt’s coverage under the D&O policy
for the Rahman action are "proceeds" of that policy, and the United
States retains a priority interest in them until the Settlement Amount
is paid in full. Because "amounts paid or owed by insurers for legal
fees and expenses" result from Dr. Colkitt’s coverage under the D&O
policy, amounts owed to Pepper Hamilton are "proceeds" of the D&O
policy and the United States has a security interest in them.
The proviso, when read in full, reinforces this conclusion. It states,
"Notwithstanding any other provision of this Paragraph, the United
States shall not be entitled to recover from Defendants or Defendants’
counsel any amounts paid or owed by insurers for legal fees and
expenses actually incurred." Rahman Agreement ¶ 13.b. Contrary to
GFL’s reasoning, the paragraph does not state that the United States
shall not be entitled to any amounts owed for legal fees; it provides
that the United States "shall not be entitled to recover from Defen-
dants or Defendants’ counsel" such amounts. Id. (emphasis added).
GFL’s contention that the United States has no interest in amounts
paid or owed for legal fees reduces the emphasized language to sur-
plusage, a result we cannot accept. See Goodman, 7 F.3d at 1127.
The limitation imposed on the United States by the terms of ¶ 13.b
is both specific and narrow. Although the United States is barred from
recovering from Dr. Colkitt or Pepper Hamilton legal fees and
expenses paid or owed to them, it is not barred from seeking to
recover such amounts from another entity. Contrary to GFL’s argu-
ment, ¶ 13.b creates no "non-US" category of proceeds. The proviso
grants the United States a reversionary interest in any "amounts paid
or owed by insurers for legal fees and expenses actually incurred."
The district court was thus correct to conclude that, if any such
amounts were paid to someone other than "Defendants or Defendants’
counsel," the United States would be entitled to recover those
amounts from that person or entity. Were GFL that other entity, the
United States would be entitled to recover those sums; in fact, GFL
has conceded that the United States’ interest supercedes its own.
But, GFL argues, this interpretation of ¶ 13.b translates a promise
by Dr. Colkitt to pay insurance proceeds to the United States into a
promise by the United States to pay Dr. Colkitt’s attorneys. GFL is
mistaken. First, ¶ 13.b is not a mere promise by Dr. Colkitt to pay the
UNITED STATES v. COLKITT 15
United States; it is an assignment of Dr. Colkitt’s right to any pro-
ceeds to the United States. Dr. Colkitt no longer has an interest in
insurance proceeds to which the United States is entitled; it follows
that Dr. Colkitt retains no interest to which GFL’s claim can attach.5
Second, the proviso is not a promise by the United States to pay legal
fees to defendant’s counsel; it is a promise not to challenge an insur-
er’s determination as to what constitutes legal fees and expenses pay-
able under the policy. The only reason the proviso might appear to be
a promise by the United States to pay Pepper Hamilton is that the
arbitration award was a lump sum, combining amounts due for legal
fees and expenses with the indemnification amount. If National Union
had not failed to abide by the terms of the D&O policy, it would have
paid Pepper Hamilton as its fees became due. It was these payments
that the United States agreed not to seek to recover from Dr. Colkitt
or his counsel.
We hold that ¶ 13.b of the Rahman Agreement includes in the term
"proceeds" amounts payable to Pepper Hamilton for its legal fees and
expenses actually incurred during the course of its representation of
Dr. Colkitt under the D&O policy. Because ¶ 13.b grants the United
States a security interest in "any proceeds" of the D&O policy,
amounts owed to Pepper Hamilton are "Protected Assets" to which
GFL is not entitled.
Our interpretation of ¶ 13.b does not resolve GFL’s claim to
MLCA’s contingency fee. The proviso applies only to "amounts paid
or owed by insurers for legal fees and expenses actually incurred."
Rahman Agreement ¶ 13.b. In context, this language can only refer to
legal fees and expenses paid or owed by insurers under an insurance
policy "that provide[s] coverage for some or all of the Covered Con-
duct in which any of the Defendants, or their officers or directors, are
insured parties," such as Dr. Colkitt’s D&O policy. Id. National
Union does not owe any legal fees or expenses to MLCA under such
a policy. Rather, Dr. Colkitt owes MLCA a portion of the arbitration
award pursuant to their contingency fee agreement. Its fee would be
5
We note that Dr. Colkitt theoretically retains a reversionary interest
in the proceeds of the D&O policy to the extent any proceeds remain
after the United States has been paid in full under the Rahman Agree-
ment.
16 UNITED STATES v. COLKITT
paid out of monies otherwise payable to the United States or Pepper
Hamilton. Hence, any interpretation of the proviso would not affect
GFL’s claim against MLCA.
The analysis, however, does not end there. Dr. Colkitt agreed to
pay MLCA’s contingency fee out of the arbitration award, i.e., the
proceeds of the D&O policy. As we have noted, as a result of his
assignment, Dr. Colkitt retained no interest in those proceeds out of
which he could agree to pay MLCA. The United States would be enti-
tled to this portion of the arbitration award. As such, MLCA’s fee is
a "Protected Asset" under the January 2002 Agreement. That agree-
ment therefore precludes GFL from seeking to attach MLCA’s con-
tingency fee.6
The January 2002 Agreement precludes GFL from seeking to
attach the portions of the arbitration award representing Pepper Ham-
ilton’s legal fees and expenses and MLCA’s contingency fee. We
need not determine therefore the priority of GFL’s claims relative to
those of Pepper Hamilton or MLCA. The remaining issues raised by
the parties are thus moot.
III.
Because we believe, based on the foregoing analysis, that the dis-
trict court reached the conclusion to which ¶ 13.b is most reasonably
amenable, its order is
AFFIRMED.
6
The only party that could arguably challenge the United States’ right
to these proceeds is MLCA. MLCA might be able to establish a charging
lien against the arbitration award that would supercede the United States’
secured interest. But as the district court noted, "the United States, which
has been substantially benefited by the award, [quite reasonably] has rec-
ognized the right of these attorneys to be compensated for the substantial
legal services rendered by them." Rahman, 229 F. Supp. 2d at 464.
Because the United States and MLCA have agreed to a particular divi-
sion of the award between them, we need not address this issue.
UNITED STATES v. COLKITT 17
SHEDD, Circuit Judge, concurring in the result:
Pepper Hamilton LLP and Marcy L. Colkitt & Associates, P.C.
("MLCA") moved the district court (primarily pursuant to Paragraph
13(b) of the Rahman Agreement) for distribution of the $1,791,450
National Union Insurance Company arbitration award, and these law
firms — along with the United States — agreed that the award should
be divided as follows: $700,000 to the United States; $500,000 to
Pepper Hamilton; and $591,450 to MLCA. United States ex rel. Rah-
man v. Oncology Assocs., 229 F. Supp. 2d 458 (D. Md. 2002). The
district court — which had expressly approved the Rahman Agree-
ment — granted the motion and ordered the money to be distributed
in the manner proposed by the law firms and the United States:
[T]he United States is . . . entitled to all of the proceeds of
the insurance coverage arbitration. That the United States
has agreed to pay from these proceeds the legal fees and
expenses of the movants does not alter its right to receive
the entire amount. Both Pepper Hamilton and MLCA have
claimed that a part of the award should be paid to them, and
the United States has not opposed these claims. The legal
services rendered by Pepper Hamilton were covered by the
Policy under which National Union agreed to pay compen-
sation for such services rendered to its insured. Moreover,
the legal services rendered by MLCA resulted in the award
made by the arbitrators. Quite reasonably, the United States,
which has been substantially benefitted by the award, has
recognized the right of these attorneys to be compensated
for the substantial legal services rendered by them.
If this Court were to accept the position of GFL that its lien
on the proceeds is superior to the equitable lien of Pepper
Hamilton and to the charging lien of MLCA, the entire sum
would then be paid to the United States which in turn has
agreed to compensate these attorneys for the legal services
rendered by them. Rather than permitting the claims of Pep-
per Hamilton and MLCA to be paid in such a roundabout
manner, the Order entered herein by the Court will approve
the movants’ request to receive amounts sought by them
directly from National Union.
18 UNITED STATES v. COLKITT
Id. at 464 (footnote omitted).
The district court’s resolution of the matter before us is based pri-
marily on its interpretation of the Rahman Agreement. Because the
district court presided over the settlement of the Rahman litigation
and approved the Rahman Agreement, its interpretation of that settle-
ment agreement is entitled to our deference. See Simmons v. South
Carolina State Ports Auth., 694 F.2d 63, 66 (4th Cir. 1982).1 If I were
left to my own devices, I may have reached a different result than the
district court. However, based on the arguments presented and the
deference due to the district court, I am not convinced that the district
court erred. Therefore, I concur in the result reached by the majority.
Despite my concurrence, one matter concerning this litigation that
appears in the record is left unclear. The Rahman Agreement, which
is the heart of the controversy before us, provided the United States
with a monetary judgment in the amount of $9,885,000 plus interest
against Douglas Colkitt and his co-defendants in that case. At the time
of the district court’s order distributing the arbitration award, the
United States had not been paid in full under the Rahman Agreement.
Subsequent to that order, on July 31, 2003, the United States informed
the district court that it had received the full amount owed under the
Rahman Agreement, and it set forth the sources from which the pay-
ments came. See Joint Status Report And Request For Declaration Of
Payment In Full And Other Relief ("Joint Status Report"), at 3, 12-13.
In doing so, the United States represented that it had received from
National Medical Financial Services a payment of $700,000, and it
specified that this payment relates to "National Union Insurance."
Joint Status Report, at 13. Nowhere in that document does it appear
that the United States accounted for the additional $1,091,450 of the
arbitration award that was paid to Pepper Hamilton and MLCA.
It seems to me that in light of the fact that (1) the United States is
"entitled to all of the proceeds of the insurance coverage arbitration,"
and (2) the United States’ agreement to pay from these proceeds the
law firms’ legal fees and expenses "does not alter its right to receive
the entire amount," 229 F. Supp. 2d at 464, the United States should
be required to credit Colkitt with the entire $1,791,450 of the arbitra-
1
I note that neither GFL nor the law firms were parties to the Rahman
Agreement.
UNITED STATES v. COLKITT 19
tion proceeds — rather than only $700,000 — in satisfaction of the
judgment created by the Rahman Agreement. The United States’ gra-
tuitous (though perhaps understandable) decision to pay some of this
money to the law firms does not negate the fact that all of the money
was assigned to the United States by Colkitt under the Rahman
Agreement for the purpose of satisfying the judgment. A proper
accounting of that money would (everything else being equal) free up
$1,091,450 for Colkitt’s creditors (such as GFL) to pursue. Although
the district court is entitled to deference in construing the Rahman
Agreement, the United States’ final accounting appears to be incon-
sistent with the district court’s construction of that agreement.2
2
While this issue appears in the record and is worthy of note, the
accounting was not appealed, and GFL did not argue that this inconsis-
tency undermines the district court’s order distributing the arbitration
proceeds.