Qui Tam Defendants’ Presentations to Government During Investigation Unprotected from Discovery in Other Lawsuits, Federal District Court Ruled

In a recent decision, a federal district court judge ruled that a defendant’s presentations to the Department of Justice, made during the course of the Department’s investigation of a pending False Claims Act qui tam lawsuit, are not protected from discovery by the whistleblower who brought that lawsuit. The case is the United States and State of California ex rel. Higgins v. Boston Scientific Corp., 11-cv-2453 (D. Minn. Aug. 28, 2019), and was decided by Judge Joan Ericksen.

The relator (the term for the whistleblower in a False Claims Act lawsuit), Higgins, alleged that Boston Scientific made certain false certifications relating to the company’s defibrillators, thereby causing physicians to submit false claims for payment relating to the use of those devices. As is usual in qui tam cases, after filing the lawsuit, the Department of Justice opened an investigation and requested documents (known as a “civil investigative demand” under the False Claims Act) to Boston Scientific. The company turned over documents to the Department, but then also created and made “presentations” to the government. While the court’s decision does not describe those “presentations,” presumably they were slideshows or other materials, put together by Boston Scientific’s lawyers, to try to convince the Department of Justice to shut down the investigation or to decline intervention in the lawsuit.

Unscrupulous companies have found many different ways to take advantage of vital government programs. The False Claims Act is an essential weapon in the fight against government programs fraud since it was first enacted during the Civil War to combat war profiteering. The system often depends on whistleblowers telling their story with the help of an experienced False Claims Act attorney.

These private citizens bring qui tam (whistleblower) lawsuits under the False Claims Act (“FCA”), which allows them to act on behalf of the U.S. government in exposing government programs fraud committed by companies serving the federal government. Under the FCA, relators (fraud whistleblowers) receive a portion of the money that has been recovered by the government, known as the relator’s share.

After the government declined intervention in the case, Higgins decided to pursue the case on his own (which a relator is permitted to do), and he served a document request on Boston Scientific demanding production of any such presentations. Boston Scientific did not want to turn over the materials and therefore raised four separate legal objections. It was those objections that Judge Ericksen addressed in her opinion.

First, Boston Scientific objected to turning over the presentations because they were akin to “settlement negotiations” with the government, and thus not “relevant” to relator’s lawsuit. The court, however, ruled that although settlement negotiations might not be admissible at trial, they were still subject to discovery by Higgins because “they were related to his claims about the medical devices at issue.”

Second, Boston Scientific objected because “public policy” required protection of the presentations, arguing that “the government will not be able to settle False Claims Act cases if a defendant’s presentations to the government could later be revealed to relators.” Judge Erickson, however, found nothing in the False Claims Act that supported this position. While the government might not be able to turn over such presentations under certain circumstances, nothing in the statute prevented Boston Scientific from turning them over to relator.

Third, Boston Scientific claimed an “expectation of confidentiality” in the presentations, citing a 1977 decision by the Eight Circuit Court of Appeals. Judge Erickson rejected that contention, finding that the earlier Circuit Court decision related to attorney-client privilege, but not to the work product doctrine. Because the materials that Boston Scientific had provided to the Department of Justice were not covered by attorney-client privilege, the company’s only argument was “work product,” and that argument was not sufficient to support its claimed “expectation of confidentiality.”

Finally, Boston Scientific argued that the work product doctrine itself protected the presentations from disclosure. Judge Erickson easily disposed of that argument, noting that work product protection “is waived by intentional disclosure to an adversary,” and that the government was indeed Boston Scientific’s “adversary,” even though the Department of Justice later declined to intervene in the case.

The court’s decision was correct. Although Boston Scientific’s attorneys came up with several creative arguments in an attempt to protect the “presentations” from discovery, none of them had any merit. Although a defendant in a False Claims Act case is free to communicate with the Department of Justice, the defendant cannot assume that those communications will remain secret, particularly from the relator who has brought the very lawsuit under investigation by the Department. The relator is entitled to know about those communications, especially if they are relevant to the merits of the relator’s case (which they almost always will be). Accordingly, Judge Erickson reached the correct result and established useful precedent on this recurring issue.


© 2019 by Tycko & Zavareei LLP

For more on qui tam cases, see the National Law Review Litigation / Trial Practice page.

Japanese Toyobo Pays $66 Million to Settle False Claims Act Allegations Over Selling Defective Fiber to Government for Use in Bullet Proof Vests

The Department of Justice recently announced the settlement of a qui tam lawsuit against Toyobo, the sole manufacturer of Zylon fiber used in bulletproof vests, in relation to their violation of the False Claims Act (FCA). According to the allegations of the case, between 2001 and 2005, Toyobo actively marketed and sold defective Zylon fiber for bullet proof vests, knowing that Zylon degraded quickly in normal heat and humidity, which makes the material unfit for use in bullet proof vests. It is further alleged in the whistleblower lawsuit, that Toyobo published misleading degradation data, that underestimated the degradation issue and started a public campaign to influence body armor manufacturers to keep selling bullet proof vests made with Zylon fiber.

Within the Complaint that the United States filed following their decision to intervene in the case, the U.S. alleged that Toyobo’s actions delayed the government’s efforts to determine the defect in Zylon fiber by several years. After a study of the National Institute of Justice (NIJ) in August 2005 found out, that more than 50 percent of Zylon-containing vests could not stop bullets that they had been certified to stop, NIJ decertified all Zylon-containing vests.

The qui tam lawsuit is brought to Government’s attention by relator Aaron Westrick, Ph.D., who is a law enforcement officer, formerly employed as the Director of Research and Marketing at Second Chance Body Armor (SCBA), which used to be the largest bullet proof vest company in the United States. In the lawsuit, whistleblower Westrick alleged, that Toyobo knew the strength of Zylon fibers sold to the bullet resistant vest makers would degrade quickly under certain environment, and nevertheless Toyobo did not disclose such fact or made misleading disclosures, resulting in the United States’ payment for the defective bullet resistant vests.

The relator Westrick brought the qui tam lawsuit under the FCA, which allowed him to act on behalf of the U.S. government in exposing the government programs fraud. Under the FCA, relators receive a portion of the money that has been recovered by the government, which is known as the relator’s share. For his participation as a relator, or whistleblower, within the case Dr. Westrick will receive $5,775,000, as a reward for exposing the government fraud scheme. Such high rewards are not uncommon for individuals who file qui tam lawsuits on behalf of the federal government. If and when a case settles, whistleblowers can receive between 15% and 30% of the amount recovered by the government.

 

© 2018 by Tycko & Zavareei LLP.

Supreme Court Determines that Seal Violation Does Not Mandate Dismissal

Supreme Court qui tam seal violationOn December 6, 2016, the Supreme Court of the United States decided State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby. At issue was whether a qui tam relator’s violation of the seal requirement, 31 U.S.C. § 3730(b)(2), requires a court to dismiss the suit. In a unanimous decision, the Court concluded that violation of the seal does not mandate dismissal, affirming a lower court decision to deny the defendant’s motion to dismiss.

Section 3730(b)(2) requires qui tam complaints to be filed under seal for at least 60 days and provides that they shall not be served on the defendants until the court so orders. The purpose of the seal is to give the government time to investigate. In practice, the government often seeks numerous extensions while it investigates the conduct alleged in the relator’s complaint.

Justice Kennedy, writing for the Court, reasoned that the text of the False Claims Act (FCA) makes no mention of a remedy as harsh as dismissal. The Court also noted that the FCA was intended to protect the government’s interests, whereas mandatory dismissal would run contrary to those interests, as it would put an end to potentially meritorious qui tam suits. Although the Court made no definitive ruling as to what sanction would have been appropriate, it did note that dismissal “remains a possible form of relief,” while “[r]emedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.”

We previously wrote about this matter, here.

© 2016 McDermott Will & Emery

$11M Settlement of FCA Lawsuit Against Marinello Schools of Beauty

Marinello Schools of Beauty

For-profit beauty school chain Marinello Schools of Beauty was sued for allegedly defrauding the federal government through embellished and often falsified claims of enrollment, post-graduate employment, and entitlement to federal funding. Marinello officials stated they “strongly and categorically” deny the allegations made in the suit, calling them “utterly false” and adding that the settlement did not constitute an admission of wrongdoing. However, the U.S. Department of Education’s decision to bar the schools from accessing taxpayer money in the form of federal financial aid funds crippled Marinello’s financial position and forced the closure of all 56 U.S. campuses earlier this year. The whistleblowers’ settlement of $11 million represents a success for taxpayers and the students with outstanding federal loans who otherwise would not have been able to seek compensation from the schools post-closure.

The Marinello School of Beauty was founded in 1905 and later accredited by the National Accrediting Commission of Career Arts. Over time Marinello grew to an operation of 56 schools throughout several states including California, Connecticut, Kansas, Massachusetts, Nevada, and Utah. Following the U.S. Department of Education’s recent decision to rescind Marinello’s access to federal funding all campuses were forced to close on February 4, 2016. The government’s funding proved critical to Marinello campuses; without federal aid, Marinello was short on cash, enough to halt operations altogether and create difficulty for taxpayers to recover any part of the $51 million in federal financial funds Marinello collected in the 2014-2015 school year alone. Not only did federal aid enable the schools to enroll and train thousands of students, it also incentivized Marinello to lure more students into the school to claim government funds by any means necessary. According to the whistleblowers, the scope of the school’s alleged transgressions ranged from the falsification of high school diplomas of new entrants to encouraging false reports of income on students’ federal financial aid applications. The U.S. Department of Education also alleged that despite charging several thousand dollars for books and supplies, Marinello failed to provide students with requisite training equipment.

In a press statement regarding the settlement Marinello Beauty Schools claimed that “[d]espite all the false accusations and baseless litigation, which were also maliciously made against Marinello’s shareholders and former management, what little resources that were left had to fight these claims were exhausted and there was no choice other than to settle.” As part of the recovery for this False Claims Act lawsuit, the six former employees who brought the case to the government’s attention will receive a larger share of the $11 million settlement (25%-30%) while the rest returns to the U.S. government. Although only a small proportion of the total amount of money Marinello received under fraudulent pretenses, the $11 million settlement represents whistleblowers’ success in recovering money from the schools themselves rather than from taxpayers.

© 2016 by Tycko & Zavareei LLP

Olympus to Pay $632.2 Million to Resolve Allegations of Kickbacks

Olympus Corporation of the Americas, the United States’ largest distributor of endoscopes and related medical equipment, recently agreed to pay $623.2 million to resolve criminal charges and civil claims, according to a United States Department of Justice (DOJ) press release on March 1, 2016. The settlement is a result of a qui tam action alleging violations of the Federal False Claims Act (FCA), Federal Anti-Kickback Statute (AKS), and analogous state statutes for paying kickbacks to physicians and hospitals to induce the purchase of Olympus medical and surgical equipment. Olympus was required to enter into a Corporate Integrity Agreement and a Deferred Prosecution Agreement that, among other things, includes an executive financial recoupment program that will cause company executives to forfeit certain compensation if they are associated with future misconduct.

The relator and government alleged that, because the Olympus equipment used for treatment was purchased as a result of a kickback, Olympus caused the physicians and hospitals to file false claims for treatment under Medicare, TRICARE, and Medicaid in violation of the FCA and state law. The kickbacks themselves were prohibited under the AKS. Both federal laws have separate penalties that were combined in this settlement, which is a reminder to the health care industry that liability under the FCA and AKS can reach staggering amounts.

What Providers Should Know

  • If an employee raises a compliance concern, investigate and appropriately address the concern. Do not retaliate. While the Olympus relator was a former Chief Compliance Officer with a long employment history at Olympus, individuals at all levels and experiences may have insight into company practices sufficient to identify areas of compliance vulnerability (thereby later arming themselves with information sufficient to file a qui tam action should the company choose to ignore individuals’ concerns or otherwise fail to correct non-compliance).

  • Prohibited remuneration under the AKS may take many forms. For instance, the remuneration that Olympus allegedly provided to physicians and hospitals included free use of medical equipment, unprotected discounts, payments disguised as grants for educational or research programs, payments to physicians in excess of fair market value for speaking engagements, vacations, meals, and entertainment.

  • If referring health care providers receive remuneration, the compensation arrangements should be carefully structured to meet applicable AKS safe harbors. Providing remuneration in the form of medical equipment discounts, leases or payments for speaking engagements may increase a company’s exposure under the AKS. Where such remuneration is provided, it is best to structure the arrangement with relevant AKS safe harbor protection.

  • An effective and robust compliance program is essential. In addition to allegations of kickbacks, the federal government also focused on Olympus’ alleged lack of appropriate training, knowledgeable compliance staff, and compliance programs to prevent and identify violations of the AKS and other federal health care laws.

Background and Alleged Misconduct – Kickbacks and More Kickbacks

The relator in the qui tam action was an 18-year employee of Olympus and was appointed to be Chief Compliance Officer of Olympus in 2009. Prior to 2009, Olympus had no compliance department. As the Chief Compliance Officer, the relator alleged that the he began to try to “eliminate the illegal and systemic practices” described below, but was met with inaction, retaliation, harassment, and severe resistance. In March 2010, Olympus relieved the relator of all his compliance duties and months later terminated his employment. The relator thereafter filed a qui tam action against Olympus.

The relator and government alleged that, from 2006 to 2011, Olympus induced physicians and hospitals to purchase Olympus endoscopes and other medical and surgical equipment by way of the following:

  • Providing free medical equipment and discounts to hospitals and physicians to induce them to purchase surgical consumables produced by Olympus.

  • Paying sales reps stipends of $2,300 that were meant to be used to entertain physicians.

  • Paying physicians tens of thousands and as much as $100,000 per year for consulting services, often without written agreements.

  • Providing physicians and hospitals with millions of dollars worth of free medical equipment, categorized as “permanent loans,” “leases,” “promotions,” “demo units,” “samples,” and “trade-ins.”  In one case, the relator and the government alleged that Olympus provided a physician with approximately $400,000 in endoscopes and other equipment to use without charge in the physician’s private practice, allegedly resulting in one hospital’s decision to purchase millions of dollars of Olympus products.

  • Leasing products to physicians on a debt forgiveness program under which Olympus wrote off debt if the physician entered into a new lease for new products.

  • Paying physicians honorariums for speaking engagements, often without speaker agreements.

  • Paying out grants of hundreds of thousands of dollars from a grant committee made up entirely of sales reps, marketing people, and customer relation personnel.

  • Paying for physicians’ golf trips and vacations, including week-long trips to Japan with sightseeing excursions and lavish entertainment included.

Relator alleged that, because of the aforementioned conduct, Olympus facilitated more than $600 million in sales, earning more than $230 million in gross profits.

Agreements to the Olympus Settlement

The Olympus settlement contains three written agreements: a Civil Settlement Agreement, a Deferred Prosecution Agreement (DPA), and a Corporate Integrity Agreement (CIA). Collectively, these agreements reiterate the monetary and non-monetary consequences to settling allegations of kickbacks and also provide invaluable insight into the government’s view of an effective compliance program.

  • Civil Settlement Agreement. To settle civil claims, Olympus agreed to pay the federal government and affected state governments $306 million total plus interest, with $263.16 million going to the federal government and the remaining $42.84 million to be divided among the states. The realtor was awarded $43.4 million from the federal government’s share. Olympus also agreed to enter into a CIA with the government for five years as part of the civil settlement agreement.

  • Deferred Prosecution Agreement. The DPA indicates that the federal government will file on, or shortly after, the effective date of the DPA a criminal complaint charging Olympus with conspiracy to commit violations of the AKS. Under the DPA, Olympus agreed to pay the federal government $306 million plus interest in exchange for a three-year deferral of criminal prosecution, provided Olympus takes specific remedial actions. Such remedial actions include: (i) the development and implementation of an effective corporate compliance program; (ii) retention of an independent monitor to evaluate and monitor compliance with the DPA and review Olympus’ procedures and practices related to tracking loaned equipment, selecting and paying consultants, considering and awarding grants, and training and education programs; (iii) performance of specific duties by Olympus’ Chief Compliance Officer; and, (iv) enhancement and maintenance of existing training and education programs for all sales, marketing, legal, and compliance employees and senior executives. The DPA also includes an executive financial recoupment program that will cause company executives to forfeit certain compensation if they are associated with future misconduct. If Olympus fulfills its obligations, the government will not thereafter pursue a criminal conviction and will seek dismissal of the criminal complaint the federal government filed in connection with the alleged conduct.

  • Corporate Integrity Agreement. Olympus entered into a five year CIA with the government to review and approve its compliance program, in exchange for the government’s promise not to seek exclusion of Olympus from Medicare, Medicaid, or TRICARE. The CIA sets forth many general obligations for Olympus to meet, including: (i) compliance responsibilities of specific Olympus employees and the board of directors; (ii) development and implementation of a health care compliance code of conduct and policies and procedures regarding the operation of Olympus’ compliance program; (iii) training and education programs; (iv) risk assessment and mitigation; and, (v) establishment of a mechanism, e.g., compliance hotline, to enable individuals to disclose any identified issues or questions with compliance

The CIA further directs Olympus to meet the following specific requirements related to the alleged misconduct:

  1. Consulting arrangements. Olympus must require all consultants who are health care professionals to enter written agreements describing the scope of work to be performed, the fees to be paid, and compliance obligations for the consultant. Olympus will pay consultants according to a centrally managed, pre-set rate structure that is determined based on a fair-market value analysis.

  2. Grants and Charitable Contributions. Olympus must establish a grants management system that will be the exclusive mechanism through which requestors may request or be awarded grants.

  3. Management of Field Assets. Olympus must establish a system to manage medical and surgical equipment and products provided to health care professionals on a temporary basis.

  4. Review of Travel Expenses. Olympus must establish processes for the review and approval of travel and related expenses for health care professionals.

Wine Seller Victory in Illinois Qui Tam Lawsuit

Wine sellers received a second positive update just this week in the qui tam winery lawsuits in the Circuit Court of Cook County, Illinois. On September 3, 2015, Judge Margaret Ann Brennan granted Motions to Dismiss filed by Co-Defendants, 1-800-Flowers.com, Inc. and TSG, LLC in a two-count False Claims Act complaint. In Count I, the Relator alleged that the out-of-state wine-seller defendants failed to pay local sales tax, owed through obligations under the Illinois Liquor Control Act; and Count II was the all too familiar allegation that defendants failed to collect and remit tax on shipping and handling charges for the wine they sold and shipped into Illinois.

Whisle with closed zipper - 3D concept

After months of briefing and a lengthy oral argument, Judge Brennan granted our Motions to Dismiss both Counts I and II of Relator’s Second Amended Complaint. Regarding Count I, Judge Brennan said that the Wine Shippers License, required to be held by wine sellers in Illinois pursuant to the Illinois Liquor Control Act (“LCA”), does not obligate local tax collection or remittance as argued by Relator. Specifically, Relator alleged that because the out-of-state wine sellers failed to comply with the LCA by improperly selling some wine that they did not produce, that they must be considered Illinois retailers and thus must collect and remit local tax. The parties agreed that Defendants did collect and remit the 6.25% use tax required on sales made into Illinois, but Judge Brennan noted that it would take an absurd leap in interpreting the LCA to conclude that it obligated Defendants to collect local sales tax as well. Important points were also made that local tax is based on the location where the seller is in the “business of selling” and that all of the “selling activities” occurred outside Illinois. Also, the LCA contains its own remedies for failing to comply with the Wine Shippers License, none of which relate to tax collection.

Regarding Count II, Judge Brennan was convinced that the Defendants’ disclosure of shipping and handling charges deducted from their gross receipts on their monthly Illinois returns (ST-1s) was sufficient to take this claim out of a knowingly made, False Claims Act issue. The Defendants met their obligation of monthly filing and there was no proof that the Department felt Defendants should have been collecting and remitting tax on the shipping and handling charges. Even if it was ultimately deemed inaccurate in an audit by the Department, it was still a truthful disclosure to the Department, not a knowing, false statement.

What Does “with Prejudice” Mean?

Significantly, Judge Brennan dismissed the claims with prejudice, meaning the Relator cannot re-plead claims, in this case, for a fourth time. The only options for the Relator at this point would be a Motion to Reconsider (unlikely because the Judge was emphatic and thorough in her decision) or to appeal the decision to the Illinois Appellate Court. Because these same issues are in hundreds of other cases before Judge Mulroy, it is unlikely that Relator will appeal this one-off decision by Judge Brennan. If Relator appeals and the dismissal is upheld, that would create legal precedent that would hurt Relator in all of his other cases pending and yet to come before Judge Mulroy.

So while it is great news that Judge Brennan decided correctly on these issues, where Judge Mulroy has consistently held that questions of fact remain and the defendants are thus forced to pay large settlement amounts or litigate through trial, the sobering news is that her ruling is not legal precedent for Judge Mulroy, another Circuit Court Judge; and it is Judge Mulroy who oversees the vast majority of the winery qui tam lawsuits.

Moving Your Case to a New Judge

You are most certainly asking at this point: How do we move our case to Judge Brennan? Because of the protections put in place against forum and judge shopping, it is extremely difficult and depending on how far you are into the case, potentially impossible. The first step would seem to be a simple one, however, by taking advantage of the Illinois law allowing for a substitution of judge as long as no substantive rulings have been made by the judge yet.

© Horwood Marcus & Berk Chartered 2015. All Rights Reserved.

Jury Awards $1.6M to Sarbanes-Oxley Whistleblower

A New York federal jury awarded $1.6M in compensatory damages to a whistleblower in a Sarbanes-Oxley whistleblower retaliation lawsuit. The verdict is consistent with a recent trend of large jury verdicts in whistleblower retaliation claims, including a six million dollar verdict in the Zulfer SOX case. According to the verdict form, the full amount of the verdict awarded to whistleblower Julio Perez was for compensatory damages. Under the whistleblower provision of SOX, there is no cap on compensatory damages.

While employed at Progenics Pharmaceuticals as a Senior Manager of Pharmaceutical Chemistry, Perez worked with representatives of Progenics and Wyeth to develop Relistor, a drug that treats post-operative bowel dysfunction and opioid-induced constipation. In May 2008, Progenics and Wyeth issued a press release stating that the second phase of trials “showed positive activity” and that the two companies were “pleased by the preliminary findings of this oral formulation” of Relistor. Within two months of the issuance of the press release, Wyeth executives sent a memo to Progenics senior executives informing them that the second phase of clinical trials failed to show sufficient clinical activity to warrant a third phase of trials. The Wyeth memo specifically stated: “Do not pursue immediate initiation of Phase 3 studies with either available oral tablets or capsule formulations.”

Perez saw the confidential Wyeth memo and on August 4, 2008, he sent a memo to Progenics’ Senior Vice-President and General Counsel in which he alleged that Progenics was “committing fraud against shareholders since representations made to the public were not consistent with the actual results of the relevant clinical trial, and [Plaintiff] think[s] this is illegal.” The next day, Progenics’ General Counsel questioned Perez about the confidential Wyeth memo. Progenics then terminated Perez’s employment, claiming he had refused to reveal how he had obtained the Wyeth memorandum.

Perez brought suit under SOX, alleging that Progenics terminated his employment because of his August 4, 2008 Memorandum, and denying that he refused to answer questions about his access to the Wyeth memo. Progenics again claimed that it terminated Perez’s employment because he failed to explain how he got the memo. The memo’s intended recipients denied giving Perez a copy of the memo. During the litigation, Perez argued that the memo was distributed widely within Wyeth and that he had not “misappropriated” it.

Following an investigation, OSHA did not substantiate Perez’s SOX complaint. Perez removed his SOX complaint to federal court in November 2010. On July 25, 2013, Judge Kenneth Karas issued an order denying Progenics’ motion for summary judgment. The case was hard-fought, with more than 120 docket entries concerning pre-trial matters. Perez was represented by counsel when he filed his SOX claim in federal court, but proceeded pro seshortly before Progenics moved for summary judgment through trial.

Recent Sarbanes-Oxley Whistleblower Jury Verdicts

On March 5, 2014, a California jury awarded $6 million to Catherine Zulfer in her SOX whistleblower retaliation against Playboy, Inc. (“Playboy”).  Zulfer, a former accounting executive, alleged that Playboy had terminated her in retaliation for raising concerns about executive bonuses to Playboy’s Chief Financial Officer and Chief Compliance Officer.  Zulfer v. Playboy Enterprises Inc., JVR No. 1405010041, 2014 WL 1891246 (C.D.Cal. 2014).  She contended that she had been instructed by Playboy’s CFO to set aside $1 million for executive bonuses that had not been approved by the Board of Directors.  Id.  Zulfer refused to carry out this instruction, warning Playboy’s General Counsel that the bonuses were contrary to Playboy’s internal controls over financial reporting.  Id.  After Zulfer’s disclosure, the CFO retaliated by ostracizing Zulfer, excluding her from meetings, forcing her to take on additional duties, and eventually terminating her employment.  Id.  After a short trial, a jury awarded Zulfer $6 million in compensatory damages and also ruled that Zulfer was entitled to punitive damages.  Id.  Zulfer and Playboy reached a settlement before a determination of punitive damages.  The $6 million compensatory damages award is the highest award to date in a SOX anti-retaliation case.  Id.

The Ninth Circuit recently affirmed a SOX jury verdict awarding $2.2 million in damages, plus $2.4 million in attorneys’ fees, to two former in-house counsel.  Van Asdale v. Int’l Game Tech., 549 F. App’x 611, 614 (9th Cir. 2013).  The plaintiffs, both former in-house counsel at International Game Technology, alleged that they had been terminated in retaliation for disclosing shareholder fraud related to International’s merger with rival game company Anchor Gaming.  Id.  Specifically, plaintiffs alleged that Anchor had withheld important information about its value, causing International to commit shareholder fraud by paying above market value to acquire Anchor.  Van Asdale v. Int’l Game Tech., 577 F.3d 989, 992 (9th Cir. 2009).  When the plaintiffs discovered the issue, they brought their concerns about the potential fraud to their boss, who had served as Anchor’s general counsel prior to the merger. Id. at 993.  International terminated both plaintiffs shortly thereafter. Id. 

In addition, a former financial planner at Bancorp Investments, Inc. who alleged that he was terminated for disclosing trade unsuitability obtained a $250,000 jury verdict in the Eastern District of Kentucky in late 2013.   Rhinehimer v. Bancorp Investment, Inc., 2013 WL 9235343 (E.D.Ky. Dec. 27, 2013), aff’d 2015 WL 3404658 (6th Cir. 2014).

Zulfer, Van Asdale, and Rhinehimer highlight the importance of the removal or “kick out” provision in SOX that authorizes SOX whistleblowers to remove their claims from the Department of Labor to federal court for de novo review 180 days after filing the complaint with OSHA.

© 2014 Zuckerman Law

Whistleblower Law Firm Files Amici Curiae Brief in DC Whistleblower Protection Act Case

An amici curiae brief  was filed recently in Tucker v. DC on behalf of the Metropolitan Washington Employment Lawyers Association and the Government Accountability Project. The brief urges the DC Court of Appeals to apply the correct burden-shifting framework in DC Whistleblower Protection Act cases.  In Tucker, the trial court gave pretext and business judgment instructions, both of which are contrary to the plain meaning and intent of the DC WPA.

The amici curiae brief argues that the DC Court of Appeals should correct the following three errors in the jury instructions:

  • First, the trial court erred when it instructed the jury to resolve the employee’s claim by performing a McDonnell-Douglas burden-shifting analysis.  Applying the McDonnell-Douglas analysis alongside the DC WPA’s standards creates a confusing and contradictory task for the jury. In the second phase of the McDonnell-Douglasanalysis the employer need only argue a legitimate, non-discriminatory reason for its action. In contrast, the DC WPA’s statutory text explicitly mandates that the employer must prove its explanation by clear and convincing evidence, a much higher standard than the preponderance of the evidence. DC Code § 1-615.54(b). Because of this difference, the standards are fundamentally incompatible.

  • Second, the trial court erred by requiring the jury to reach a decision on the plaintiff’s showing that the employer’s alleged business reasons were pretext, when the DC WPA does not require such a showing.

  • Third, the trial court erred by instructing the jury to weigh the employer’s evidence of its “business judgment” against the employee’s showing by preponderance of the evidence standard rather than applying the higher, clear and convincing evidence standard to the employer’s evidence. The DC WPA applies different burdens of persuasion to the employee’s and employer’s showings. See DC Code § 1-615.54(b). A whistleblower’s initial showing is weighed under the “preponderance of the evidence.”  This means necessarily that the employer’s evidence of a legitimate non-retaliatory reason for the employer’s action – which must be proven by the far more burdensome “clear and convincing” standard – should not be weighed against a whistleblower’s initial showing.

The brief also argues that the standard for causation should track the statutory language – an employee must show that her protected disclosure was a “contributing factor” in a personnel decision, and then DC can prevail if it establishes by “clear and convincing” evidence that it would have made the same decision for independent, legitimate reasons absent the protected disclosure.

© 2014 Zuckerman Law

DaVita Agree to $495 Million Settlement in Alleged Medicare Fraud Lawsuit Filed by Qui Tam Whistleblowers

On Monday, May 4, 2015, DaVita Kidney Care, a division of DaVita Healthcare Partners, Inc. (DaVita), and one of the leading dialysis services providers in the United States, agreed to pay the U.S. Government $450 million for allegedly violating the False Claims Act (FCA) when it continuously discarded good medicine and then billed Medicare and Medicaid for it. DaVita also agreed to pay $45 million for legal fees.

According to the lawsuit filed in 2011 by two former employees of DaVita, between 2003 and 2010, when DaVita administered iron and vitamin supplements such as Zemplar, Vitamin D, and Venofer, vials containing more than what the patients needed were used and the rest was thrown away. For example, if a patient only needed 25 milligrams of medicine, DaVita allegedly used a 100 milligram vial, administered only 25 mg, and tossed the rest in the trash. Although before 2001, this practice was condoned by the National Centers for Disease Control and Prevention (CDC) in order to prevent infectious outbreaks caused by the re-entry of the same vial of medicine, the CDC subsequently changed it policies to outlaw this practice.

This FCA lawsuit alleging that DaVita misused and mishandled of medicine, and overbilled Medicare and Medicaid is not the first such allegation against DaVita, which is not a stranger to FCA lawsuits. In fact, DaVita previously settled two other lawsuits in which it allegedly violated the FCA. In October 2014, DaVita agreed to pay the U.S. Government $350 million for allegedly persuading physicians or physician groups to refer their dialysis patients to DaVita by offering kickbacks for each patient referred. And in 2012, DaVita agreed to pay $55 million to the federal government for overbilling the government for Epogen, an anemia drug. These lawsuits were filed by former employees who decided to come forward as whistleblowers and to help to uncover what they considered to be illegal practices by DaVita. Under the FCA, such whistleblowers can bring what is known as a “qui tam” lawsuit, which is brought by a private citizen to recover money obtained by fraud on the government. As an incentive to bring qui tam lawsuits, the FCA provides that qui whistleblowers receive between 15 and 30 percent of the amount of funds recovered for the government.

Provisions of the FCA make it unlawful for a person or company to defraud governmental programs, such as Medicare or Medicaid.

Posted by the Whistleblower Practice Group at Tycko & Zavareei LLP

© 2015 by Tycko & Zavareei LLP

New Jersey Pharmaceutical Company Agrees to Pay $39 Million to Settle Alleged Anti-Kickback Violations

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On January 9, 2015, the Department of Justice (DOJ) announced that pharmaceutical company Daiichi Sankyo, headquartered in New Jersey, agreed to pay the Government $39 million to settle claims that it violated the Anti-Kickback Statue and the False Claims Act (FCA) by allegedly incentivizing physicians to prescribe Daiichi drugs by providing kickbacks to those doctors.  The drugs prescribed as a result of those alleged kickbacks were billed under the Medicare or Medicaid Program, and thus paid for, at least in part, by the government.  This lawsuit was filed by former Daiichi sales representative Kathy Fragoules under the qui tam whistleblower provision of the FCA.  Fragoules will receive an award of $6.1 million, which represents approximately 15 percent of the settlement amount, for exposing Daiicho Sankyo’s alleged illegal practices.

The qui tam lawsuit, originally filed on behalf of the government by Fragoules, claims that for a period of six years, from January 1, 2005 to March 31, 2011, Daiichi Sankyo allegedly devised a scheme to promote several of its drug products by offering monetary kickbacks to physicians that prescribed Daiichi drugs to their patients.  The Physician Self-Referral Statue and the Anti-Kickback Statue prohibit anyone from knowingly and willfully offering, paying, soliciting, or receiving remuneration in order to induce business reimbursed under the Medicare or Medicaid programs.  However, according to the government, Daiichi allegedly orchestrated kickback compensation to physicians in the form of speaker fees by allegedly funneling payment to health care providers through the Daiichi’s Physician Organization and Discussion programs known as PODs.  In doing so, the government claims that Daiichi knowingly and willfully violated the FCA.

Physician drug ordering and prescribing decisions continue to be influenced by the drug industry.  Last year, the DOJ reported billions in settlements in connection with the pharmaceutical industry arising out of violations of the Physician Self-Referral Statue and the Anti-Kickback Statue.  The government also paid out millions in awards to individuals and whistleblowers that exposed these alleged illegal practices through the filing of qui tam lawsuits under the FCA.  A whistleblower who files a case against a company that has committed fraud against the government, may receive compensation of up to 30 percent of the amount ultimately recovered by the government.

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