Tag: Whistleblower

$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.

ARTICLE BY Tycko & Zavareei Whistleblower Practice Group

© 2016 by Tycko & Zavareei LLP

Bristol-Myers Squibb Agrees To Pay $30 million To Settle Whistleblower Case Brought Under The California Insurance Fraud Prevention Act

Bristol-Myers Squibb whistleblower
Intimidation of whistleblower concept and whistle blower stress symbol representing the pressure experienced for exposing corruption with shadows of people who do not follw the rules as a red whistle shaped as a human head.

In 1993, the California Legislature enacted the Insurance Frauds Prevention Act (“IFPA”) in a unique effort to combat rampant insurance fraud that was driving up the cost of insurance premiums for citizens throughout the state. In particular, California lawmakers sought to deter fraudulent activity related to automotive insurance, workers’ compensation, and healthcare claims.

With regard to the latter, the IFPA expressly recognizes that “[h]ealth insurance fraud is a particular problem for health insurance policyholders. Although there are no precise figures, it is believed that fraudulent activities account for billions of dollars annually in added health care costs nationally. Health care fraud causes losses in premium dollars and increases health care costs unnecessarily.”

One of the specific fraudulent practices the IFPA is designed to prevent is the payment of unlawful kickbacks to doctors for prescribing certain medicines.

This month, after nearly a decade of litigation, Bristol-Myers Squibb agreed to pay $30 million to settle an IFPA lawsuit that was filed in 2007 by three former Bristol-Myers employees. The whistleblowers alleged that Bristol-Myers Squibb violated the IFPA by employing and using sales representatives for the purpose of defrauding private commercial health insurers by using kickbacks to procure patients or clients. The kickbacks were designed to increase physician prescriptions of several drugs produced by Bristol-Myers Squibb including Pravachol, used to lower cholesterol. Enticements included:

  • Box suites at sporting events where physicians were provided tickets, food, drinks, and parking.
  • Enrollment in a Lakers basketball camp for doctors and their children.
  • Pre-paid golf outings at luxurious golf courses.
  • Tickets for physicians and their families to see Broadway plays in California cities.
  • Monetary incentives given to doctors responsible for prescription-drug decisions for formularies.
  • Lavish dinners, resort hotel trips, and concert tickets, given to doctors who were large-volume prescribers, to induce more prescriptions in the future.

In addition to the $30 million payment, the settlement agreement with the California Insurance Commissioner Dave Jones requires Bristol-Myers Squibb to affirm its commitment to abiding by California laws regulating its sales representatives’ interactions with doctors, including compliance with pertinent provisions of the IFPA.

The Bristol-Meyers settlement is a prime example of how regular citizens can use the IFPA to hold wrongdoers accountable for fraudulent acts that harm the public. The IFPA provides for civil penalties of $5,000 and $10,000 per insurance claim that is made as a result of fraud (so, here, every prescription doctors wrote as a result of the kickback scheme that was then submitted for payment by an insurer), plus an additional assessment of up to three times the amount of each claim for compensation.  In addition, the IFPA vests the court with authority to grant additional relief as needed to protect the public interest. This additional relief can take the form of an injunction, which prohibits future fraudulent conduct—and can change industry practices.

How the IFPA works

Codified at section 1871 of the California Insurance Code, the California Insurance Fraud Prevention Act (“IFPA”) allows members of the public to bring whistleblower lawsuits in the name of the State against anyone who submits a fraudulent insurance claim to a California insurance provider. Some of the most common types of fraud prohibited by the IFPA include:

  • Providing kickbacks to doctors to prescribe certain medications.
  • Billing for healthcare services that were not provided.
  • Submitting multiple claims for a single health service.
  • Knowingly causing an auto accident for the purpose of submitting false insurance claims.
  • Underreporting the number of employees to avoid paying proper workers’ compensation insurance.
  • Providing kickbacks to insurance agents for sending business to a particular automotive repair business.

Once an IFPA violation has been identified, the complaint is filed under seal in state court and served on the local district attorney and the California insurance commissioner. The district attorney and insurance commissioner then have 60 days (or longer) to decide whether or not to intervene in the case. If either the district attorney or the commissioner decides to intervene, government attorneys may take a leading role in the prosecution, or they may allow the relator (the technical term for the whistleblower or other private citizen who initiates the lawsuit) to take the lead with the government in a supporting role.

In cases where government attorneys intervene to assist with the prosecution of the case, the relator is entitled to collect 30-40% of any recovery from the defendant, whether that recovery is achieved through settlement or a favorable judgment. For purposes of determining the relator’s share, the “total recovery” is the amount remaining after the government and the relator have been reimbursed for reasonable attorneys’ fees, costs and expenses incurred during the case.

If the government does not intervene, the relator may proceed with the case with her own counsel. If she chooses to proceed without the government’s help, she stands to recover 40-50% of any eventual recovery. Whether the government intervenes or not, the exact percentage of the relator’s recovery will depend upon “the extent to which the person substantially contributed to the prosecution of the action.” Moreover, if the court determines that the relator’s case is based primarily on information that was already publicly available, such as news articles or public hearings, the relator’s share of the recovery is reduced to a maximum of 10% of the recovery.

In addition to steep penalties for fraudulent acts and generous payments to the relator in successful cases, the IFPA has specific provisions aimed at protecting whistleblowers from retaliation for reporting fraudulent practices. The Act states that employees who suffer retaliation as a result of their involvement in reporting insurance fraud are entitled to complete relief, which includes reinstatement in a position with seniority equal to what the employee would have had absent the retaliation, plus twice the amount of back pay the employee is due, with interest. In addition, employees who are discriminated against in violation of the statute are entitled to attorneys’ fees and reasonable litigation costs.

ARTICLE BY Kristen L. Sagafi of Tycko & Zavareei LLP

© 2016 by Tycko & Zavareei LLP

Whistleblower Wins Big in Case that Tests Limits of Confidentiality Agreements

Intimidation Of Whistleblower

Confidentiality agreements are common in corporate America. Many companies require new employees to sign them as part of the hiring process. In some industries like healthcare, privacy policies are elevated to a legal requirement. Can these agreements be used to stop an employee from reporting his or her employer for fraud or turning documents over to an attorney? The answer is “no” but there are some limits on what an employee can take and do with the information. The most recent case to examine the issue comes from the Northern District of Illinois.

On May 9th, U.S. Magistrate Judge Sidney Schenkier dismissed a counterclaim brought by LifeWatch Services against a whistleblower in a federal False Claims Act case.

Matthew Cieszynski was a certified technician working for LifeWatch. His job was to conduct heart monitoring tests. LifeWatch conducts remote heart monitoring testing throughout the United States. Patients can wear heart monitor devices anywhere in the world and have those devices monitored through telemetry. Cieszynski’s job was to look for unusual or dangerous heart arrhythmias. The testing results would be passed to the patients’ cardiologists who use the data to diagnose and treat various heart ailments.

When first hired by the company in 2003, Cieszynski signed a confidentiality agreement that said in part, “you agree that both during your employment and thereafter you will not use for yourself or disclose to any person not employed by [LifeWatch] any Confidential Information of the company…” The agreement also restricted Cieszynski’s ability to access computer systems and records or remove information from the company’s premises.

In 2006, Cieszynski signed a HIPAA confidentiality statement.

Years later, Cieszynski became concerned that LifeWatch was sending some of the heart monitoring work offshore to India in violation of Medicare regulations. He became especially concerned that some of the Indian workers were not properly certified to review and interpret the heart monitoring data.

In 2012, Cieszynski believed that a patient died because of an improper diagnosis made by an unlicensed offshore technician. That is when he became a whistleblower and filed a False Claims Act lawsuit in federal court. In order to file his lawsuit, he provided what he believed were important company documents to his lawyer. Those were later turned over to the government.

Under the Act, complaints are filed under seal and served on the government instead of the defendant. This allows regulators and prosecutors to investigate the merits of the case in secret. Usually the case is unsealed when the government decides to intervene or allow the whistleblower’s counsel to pursue the case. Until unsealed, the whistleblowers identity is not disclosed.

When the complaint was unsealed, LifeWatch Services discovered that Matt Cieszynski was the person who brought the suit.  Their response was to file a counterclaim against Cieszynski for violating his employment agreement and the separate HIPAA nondisclosure agreement.

On May 9th, Magistrate Judge Schenkier dismissed LifeWatch’s counterclaim in a case widely watched by both members of the plaintiffs and defense whistleblower bar.

In dismissing the counterclaims, Judge Schenkier discussed the “strong policy of protecting whistleblowers who report fraud against the government.”

The court recognized the legitimate need for companies to protect confidential information. Those needs must be carefully balanced against the need to prevent “chilling” whistleblowers from coming forward, however.

In deciding that the counterclaim against Cieszynski should be dismissed, the court examined a number of factors. Those include:

  • What was the intent of the whistleblower when taking the documents? Here Cieszynski took them for the sole purpose of reporting what he believed to be fraud. There was no evidence that he sought to embarrass the company.

  • How broad was the disclosure? In this case there was no disclosure to the public or competitors. Cieszynski only provided documents to his lawyer and the the government.

  • The scope of the documents taken from the employer. Although LifeWatch claimed Cieszynski took more documents than were necessary to prosecute his case, the court said it wouldn’t apply hindsight and require a whistleblower to know exactly what documents the government might need. Since the documents were reasonably related to what the government could need, Judge Schenkier elected not to second guess Cieszynski.

There are limits to what a person can take and what he or she can do with those documents. For example, disclosing trade secrets to competitors or releasing sensitive healthcare information to the public will not likely elicit sympathy from the court.

In a case like this, however, courts will give the benefit of doubt to the whistleblower. Especially when there has been no public disclosure and no real harm to the defendant. Although LifeWatch claimed harm, the court found the only harm was the “fees and costs associated with pursuing the counterclaim – which is a self-inflicted wound.”

Corporate counsel should think long and hard before bringing counterclaims against whistleblowers. Not only are courts generally unsympathetic to these challenges, the fee shifting provisions of the False Claims Act can make these cases expensive for the defendants. Under the False Claims Act, defendants must pay the relator’s (whistleblower) lodestar legal fees if the relator prevails.

Article By Brian Mahany of Mahany Law

© Copyright 2016 Mahany Law

FAA and OSHA Enter into Agreement to Strengthen Enforcement of AIR21 Whistleblower Protection Law

The FAA and OSHA have entered into a Memorandum of Understanding to facilitate coordination and cooperation concerning enforcement of the AIR21 whistleblower protection law.

The DOL and FAA both play a critical role in enforcing the whistleblower protection provision of AIR21. FAA has responsibility to investigate complaints related to air carrier safety and has authority under the FAA’s statute to enforce air safety regulations and issue sanctions to airmen and air carriers for noncompliance with these regulations. FAA enforcement action may include air carrier and/or airman certificate suspension and/or revocation and/or the imposition of civil penalties. Additionally, FAA may issue civil penalties for violations of 49 U.S.C. § 42121. OSHA has the responsibility to investigate employee complaints of discrimination and may order a violator to take affirmative action to abate the violation, reinstate the complainant to his or her former position with back pay, and award compensatory damages, including attorney fees.

Under the MOU, OSHA will promptly notify FAA of any AIR21 whistleblower retaliation complaints and will provide the FAA with all investigative findings and preliminary orders, investigation reports, and orders associated with any hearing or administrative appeal related to the complaint. And when a whistleblower notifies the FAA of retaliation involving air carrier safety, the FAA will promptly provide OSHA with a copy of the complaint and will advise the whistleblower that an AIR21 complaint must be filed with OSHA within 90 days of the retaliation. And the FAA will provide OSHA with the general results of any investigation conducted, to include whether or not FAA concluded there was a violation of a federal regulation, order, or standard relating to air carrier safety.

ARTICLE BY Jason Zuckerman of Zuckerman Law

© 2015 Zuckerman Law

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.

Article By David S. Ruski of Horwood Marcus & Berk

© 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.

ARTICLE BY Jason Zuckerman of Zuckerman Law

© 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.

ARTICLE BY Jason Zuckerman of Zuckerman Law
© 2014 Zuckerman Law

The Supreme Court Closes the Books on Civil False Claims Act Cases and Takes Issue with the First to File Rule

In a unanimous decision, the Supreme Court in Kellogg Brown & Root v. United States ex rel. Carter reversed the Fourth Circuit in part and affirmed in part, holding that the Wartime Suspension of Limitations Act (WSLA) only applies to criminal offenses, and that the popular colloquialism known as the “first to file rule” only prohibits qui tam actions when a similar suit is currently pending. Based on the text of the legislation alone, these holdings are glaringly obvious, but somehow both of these decisions manage to upset generally accepted Government contracts assumptions.

In 2005, a whistleblower filed a qui tam action against Kellogg Brown & Root Services Inc. (KBR) and Halliburton Co. (subsidiaries and the relator’s former employers) alleging that they had submitted a false claim to the Government. The relator alleged that KBR billed the Department of Defense under a water purification services contract for services that were either not performed or not properly performed. Water purification service contracts in Iraq have been a popular area for litigation with the U.S. Army, partly because of the enormity of the operation and expense required to supply deployed soldiers with a steady supply of clean water in an arid environment.  Unique to this case, the allegation of fraud was brought as a qui tam action that allows the relator to recover up to 30% of the Government’s total recovery.

The statute of limitations for qui tam actions is within six years of a violation or within three years of the date by which the United States should have known about a violation, but under no circumstances can it be brought more than 10 years after the date of the violation. The Solicitor General argued that the Wartime Suspension of Limitations Act (WSLA) indefinitely suspends any statute of limitations for “any offense” involving fraud against the Government during “hostilities” and therefore also suspended the statute of limitations for qui tam actions. On its face, the WSLA appears broad enough to encompass both civil and criminal accusations of fraud, especially if the reader has an expansive view of the word “offense.” From a practical perspective, this has been very difficult for defense contractors to stomach. As a nation that has been in uninterrupted war for 14 years, Government contractors could be called to disprove an allegation in a qui tam suit stemming from events that transpired more than a decade ago. These liabilities remain on their books and can factor into insurance coverage for dealing with these types of claims. These risks and liabilities inherent in doing business with the Government are often passed on to the Government in the form of less competitive bid proposals and higher costs. Many Government contracts attorneys understood that the Government’s use of WSLA in civil cases was questionable as the WSLA statute is codified in Title 18 “Crimes and Criminal Procedure.” The Supreme Court focused on this location of the WSLA text and the definition in place at that time defining “offenses” as crimes. In the end, the Supreme Court reversed the Fourth Circuit on this point and held that the WSLA does not apply to civil actions involving fraud. While this would seem to be a straightforward result, as noted in the Solicitor General’s brief, “every court of appeals to consider the questions has held that the WSLA applies in civil fraud cases.” The list includes cases in the Ninth and Sixth Circuits as well as the former Court of Claims, so this decision while reasonably anticipated still constitutes considerable reversal.

The Supreme Court’s second holding in this case was similarly obvious from a textualist perspective, but it manages to awaken long dormant liabilities for those contractors that applauded the first part of the Supreme Court’s opinion. This case took an unusual route to get to the Supreme Court. It was filed four separate times after the each of the previous filings was dismissed because similar qui tam cases were pending in other jurisdictions. The False Claims Act, which provides the rules for filing a qui tam states that “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” This is popularly referred to as the “first to file rule.” Unfortunately, that shorthand is so prevalent within the industry that the term “first to file,” which does not appear in the text, took on a meaning of its own when combined with decisions on notice and original source requirements. It was generally accepted that Congress’s intent was to prohibit copycat filings where a business would have to deal with the same qui tam allegations of fraud over and over from different relators. It was thought that the public disclosure required in unsealing a qui tam action should prohibit a future relator from using some of that same information in his own qui tam suit filed immediately upon the dismissal of the first suit. The National Whistleblower Center argued in its brief that if the “first to file rule” precluded future filings on the same issue a “wholly uninformed whistleblower could file a vexatious, frivolous, overbroad, and all-encompassing lawsuit. The Government would be left uninformed of the fraud as it was prior to the filing of the suit, and other well-informed whistleblowers would have no incentive or ability to come forward.” The Supreme Court agreed that there was no support in the text of the statute to interpret “pending” as anything more than “not yet decided” and affirmed this portion of the Fourth Circuit’s judgment. This means that qui tam filers must merely wait until similar cases are dismissed before filing their claims.

This doesn’t mean that qui tam filers will simply be able to adopt the accusations and evidence from the previous case, but it remains to be seen what advantages this approach might have for secondary filers who have had the benefit of observing the first qui tam. There is another pending petition at the Supreme Court, Purdue Pharma v. United States ex rel. May, that provide additional clarity on “whether the False Claims Act’s pre-2010 ‘public-disclosure bar,’ 31 U.S.C. § 3730(e)(4) (2009), prohibits claims that are ‘substantially similar’ to prior public disclosures, or instead bars a claim only if the plaintiff’s knowledge ‘actually derives’ from prior disclosures.”

For now, Government contractors need to be aware that qui tam filings are not necessarily prohibited just because someone previously filed a qui tam on the same issue. Defense contractors who supported military efforts in Iraq or Afghanistan can rely on the normal statute of limitations for civil claims involving fraud, but need to be aware that criminal acts of fraud are still prosecutable years after the cessation of hostilities.

ARTICLE BY Dana M. Collins of Odin, Feldman & Pittleman, P.C.
© 2015 Odin, Feldman & Pittleman, P.C.

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

Self-Reporting: A Wise Strategy or Chasing Unicorns?

As we noted in an earlier post, Department of Justice (DOJ) representatives have been emphasizing this spring the financial benefits of cooperation. They did so again last week at the Practicing Law Institute’s Enforcement 2015: Perspectives from Government Agencies, during which enforcement officials from the DOJ, SEC, CFTC, FINRA and Consumer Financial Protection Bureau (CFPB) all pushed back last week against complaints that the benefits of self-reporting are illusory and the costs far too high.

Director of the SEC’s Division of Enforcement Andrew Ceresney claimed that significant benefits of self-reporting are evidenced by three FCPA settlements earlier this year: a disgorgement-only settlement with Goodyear, a deferred prosecution agreement with PBSJ Corporation and a settlement with FLIR Systems, Inc. which entailed only a “minimal penalty” of $1 million. William Stellmach, Principal Deputy Chief of the Fraud Section at the U.S. Department of Justice, noted that the Alstom S.A. settlement in which Alstom paid a $772,290,000 criminal penalty to settle an FCPA prosecution “gives you 772 million reasons to self-disclose.” Among the factors cited for such a high fine was the company’s failure to self-report.

Stellmach claimed that – despite the perception of many practitioners that regulators almost always require some form of “public shaming” for even those companies that self-report – decisions not to prosecute are “not unicorns.” The difficulty, he explained, is that such decisions not to prosecute cannot be publicized without risking the adverse publicity companies want to avoid. As a result, he noted, there has been some discussion internally at DOJ about how it might anonymize such resolutions so that they could be publicized in order to provide the defense bar and their clients with evidence as to the benefits of self-reporting. The CFPB did exactly that, according to Deputy Enforcement Director Jeffrey Ehrlich, in a recent action filed against two financial institutions for alleged RESPA violations. A third institution (referred to in the complaint only as “Unnamed Financial Institution”) that engaged in the same conduct escaped being either named or fined by discovering the violation, reporting it and terminating the individual at issue.

The calculus regarding whether to self-report is also changing, according to the SEC’s Ceresney, as a result of the increase in whistleblowers. If a company’s management decides not to reach out to regulators, someone else may very well do it for them in today’s environment of substantial whistleblower awards.

For companies which have made the decision to self-report, the next decision is to which regulator should they report. The Director of the CFTC’s Division of Enforcement Aitan Goelman suggested that, if the company and/or the conduct is within the jurisdiction of multiple regulators, the company should advise all the relevant regulators, as opposed to relying on one regulator to pass the information along to the others.

The regulators also made clear that self-reporting is not, by itself, enough to get significant credit; sincere efforts and cooperation in uncovering the full scope of the problem is required. Ceresney and Stellmach, however, rejected criticism that regulator demands as to the scope of such investigations result in undue costs, sometimes in the hundreds of millions of dollars. Rather than micromanaging the companies’ investigation, the SEC and DOJ only expect a risk based investigation. For example, if an employee was paying bribes in one country, the investigation might cover only the countries in which the employee worked. Absent evidence of a more widespread problem, there would be no need to “boil the ocean” with an investigation that covered all operations around the globe.

Stellmach and others cautioned, however, that in order to receive the most significant credit for cooperation, a company must be willing to identify culpable employees and assist in the gathering of evidence in order to prosecute those individuals. As FINRA’s Executive Vice President of Enforcement J. Bradley Bennett noted, this is the area in which it is most difficult for FINRA to get cooperation. Too often, he indicated, the individuals identified by the company are dead, retired, now employed by a competitor or outside FINRA’s jurisdiction.

© 2015 BARNES & THORNBURG LLP  Authored by:  Anne N. DePrez