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Judge Gorsuch’s Opinion in Whistleblower Case Reveals the Dishonesty of his Alleged Strict Textualism

If Judge Neil Gorsuch is confirmed, he will play a critical role in construing laws that protect worker health and safety, including laws protecting whistleblowers who suffer retaliation for opposing illegal or unsafe conduct that jeopardizes public health and safety. According to the Bureau of Labor Standards, 4836 workers were killed on the job in 2015—on average, that’s more than 93 a week, or more than 13 deaths every day. As the Occupational Safety and Health Administration (“OSHA”) is already severely understaffed and will soon be further weakened by a political appointee charged with gutting it, the last thing workers need is an activist judge who has expressed disdain for worker-protection laws. But that is exactly what we can expect from Judge Gorsuch.

In a recent dissent in TransAm Trucking, Inc. v. Administrative Review Board, 833 F.3d 1206 (10th Cir. 2016), Judge Gorsuch demonstrated that he will construe worker-protection laws as narrowly as possible and that he deems worker “health and safety” as “ephemeral and generic” statutory goals. His opinion also reveals that his alleged values-neutral approach to statutory construction is intellectually dishonest. The majority decision affirming the whistleblower’s win at the Department of Labor was based on the plain meaning of the statute, well-established precedent construing the statutory term at issue, and the purpose of the statute. Judge Gorsuch’s dissent, however, was arguably activist in that it rewrites the statute. In other words, Judge Gorsuch does not check his policy preferences or values at the courthouse door and render value-neutral decisions based on the dictionary definitions of statutory terms. Instead, as this opinion demonstrates, his alleged strict textualism appears to be a cloak for his policy preferences, including his apparent disdain for worker protection laws.

Background of TransAm Trucking Whistleblower-Retaliation Case

Alphonse Maddin worked as a truck driver for TransAm Trucking, Inc. (“TransAm”). He was driving a tractor-trailer down an Illinois freeway on a subzero night in 2009, when he noticed that his truck was nearly out of gas. He pulled over because he could not find a fuel station, and ten minutes later, the trailer’s brakes locked up due to the frigid temperatures. Mr. Maddin was unable to resume driving the tractor-trailer and reported the truck’s unsafe condition to a TransAm dispatcher. The dispatcher told Mr. Maddin that a repairperson would be sent to fix the brakes.

Mr. Maddin dozed off briefly and awoke to find that his torso was numb and he could not feel his feet. He told the dispatcher about his physical condition and asked when the repairperson would arrive. “[H]ang in there,” the dispatcher responded.

Half an hour later, Mr. Maddin called his supervisor, Larry Cluck, and told Mr. Cluck that his feet were going numb and that he was having difficulty breathing. Mr. Cluck told Mr. Maddin not to leave the trailer and gave him two options: drag the trailer with inoperable brakes, or stay put until the repairperson arrives. Mr. Maddin knew that dragging the trailer is illegal and concluded that he might not live much longer if he were to wait for a repairperson. So, Mr. Maddin unhitched the trailer and drove off.

Fifteen minutes after Mr. Maddin left—i.e., more than three hours after he first notified TransAm that he was stranded in subzero temperatures—the repairperson arrived. Mr. Maddin drove the truck back to meet the repairperson, who then fixed the trailer’s brakes. Less than a week later, TransAm terminated Mr. Maddin’s employment for abandoning the trailer.

Mr. Maddin filed a complaint with OSHA, alleging that TransAm violated the whistleblower provisions of the Surface Transportation Assistance Act (“STAA”) by firing him. OSHA dismissed the claim, but a Department of Labor (“DOL”) administrative-law judge (“ALJ”) later ruled, after a hearing, that TransAm violated the STAA. TransAm appealed, and the DOL Administrative Review Board (“ARB”) affirmed.

Mr. Maddin’s STAA Whistleblower-Retaliation Claim

The relevant STAA provision prohibits an employer from firing an employee who “refuses to operate a vehicle because . . . the employee has a reasonable apprehension of serious injury to the employee or the public because of the vehicle’s hazardous safety or security condition.” TransAm Trucking, 833 F.3d at 1211 (alteration in original) (quoting 49 U.S.C. § 31105(a)(1)(B)(ii)). An employee’s apprehension is “reasonable” if a reasonable person in the same circumstances “would conclude that the hazardous safety or security condition establishes a real danger of accident, injury, or serious impairment to health.” Id. (quoting § 31105(a)(2)). To prevail under this provision, an employee must demonstrate that he or she “sought from the employer, and [was] unable to obtain, correction of the hazardous safety or security condition.” Id. (alteration in original) (quoting § 31105(a)(2)).

The ALJ found, and the ARB affirmed, that Mr. Maddin had engaged in protected conduct when he unhitched the trailer and “refused to operate the truck under the conditions set by Mr. [C]luck.” Id. (alteration in original). TransAm argued, on appeal, that this finding was in error because Mr. Maddin had not “refused to operate” the truck but rather in fact “operated” the truck when he drove off without the trailer.

The Tenth Circuit engaged in a Chevron analysis to determine whether to defer to the ARB’s interpretation of the STAA. Because the statute does not define “operate,” the Tenth Circuit found that Congress had not “directly spoken to the precise question at issue.” Id. (quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984)). Therefore, the Tenth Circuit turned to the question whether the ARB’s interpretation was “based on a permissible construction of the statute.” Id. (quoting Chevron, 467 U.S. at 843).

TransAm argued, in effect, that “operate” was synonymous with “drive.” The ARB, on the other hand, interpreted “operate” to encompass driving as well as “other uses of a vehicle when it is within the control of the employee.” Id.

The Tenth Circuit looked to the purpose of the STAA whistleblower provisions—to “encourage employee reporting of noncompliance with safety regulations governing commercial motor vehicles.” Id. at 1212 (quoting Brock v. Roadway Express, Inc., 481 U.S. 252, 258 (1987)). The court found that the ARB’s interpretation of “operate,” and not TransAm’s, furthered that purpose because it “prohibit[ed] an employer from discharging an insubordinate employee whose insubordination was motivated by the employee’s reasonable apprehension of serious injury to himself or members of the public.” Id.

Therefore, the Tenth Circuit deferred to the ARB’s interpretation of “operate” and affirmed the ARB’s finding that Mr. Maddin’s unhitching the trailer and driving away in the truck, against his supervisor’s instructions, constituted a “refusal to operate” and so was protected conduct under the STAA. Id. at 1213. The court explained that “although Maddin actually drove the truck after unhitching it, he refused to operate his tractor-trailer in the manner instructed by his employer.” Id.

The Tenth Circuit found, moreover, that Mr. Maddin’s protected activity was a contributing factor in his firing. Id. Having found that the ARB’s findings—that Mr. Maddin engaged in STAA-protected conduct and was fired for doing so—were supported by substantial evidence, the Tenth Circuit denied TransAm’s petition for review.

Judge Gorsuch’s Dissent

Judge Gorsuch took issue with the ARB’s, and the majority’s, interpretation of “refusal to operate”:

The trucker in this case wasn’t fired for refusing to operate his vehicle. Indeed, his employer gave him the very option the statute says it must: once he voiced safety concerns, TransAm expressly—and by everyone’s admission—permitted him to sit and remain where he was and wait for help. The trucker was fired only after he declined the statutorily protected option (refuse to operate) and chose instead to operate his vehicle in a manner he thought wise but his employer did not. And there’s simply no law anyone has pointed us to giving employees the right to operate their vehicles in ways their employers forbid.

Id. at 1215–16 (Gorsuch, J., dissenting). Judge Gorsuch said the majority should not have even engaged in a Chevron analysis because the STAA is “perfectly plain.”

Relying on the Oxford English Dictionary, Judge Gorsuch found that “refuse” means “[t]o decline positively, to express or show a determination not to do something”; and “operate” means “[t]o cause or actuate the working of; to work (a machine, etc.).” Id. at 1216 (Gorsuch, J., dissenting) (alterations in original) (quoting The Oxford English Dictionary 495, 848 (2d ed. 1989)). Putting those two definitions together, Judge Gorsuch concluded that, under the STAA, “employees who voice safety concerns about their vehicles may decline to cause those vehicles to work without fear of reprisal” but may not “cause those vehicles to work in ways they happen to wish but an employer forbids.” Id. (Gorsuch, J., dissenting).

To illustrate the alleged absurdity of the majority’s contrary interpretation, Judge Gorsuch used an analogy: “Imagine a boss telling an employee he may either ‘operate’ an office computer as directed or ‘refuse to operate’ that computer. What serious employee would take that as license to use an office computer not for work but to compose the great American novel? Good luck.” Id. at 1217 (Gorsuch, J., dissenting).

Judge Gorsuch then criticized the majority for its reliance on the STAA’s purpose of protecting public health and safety. In a statement revealing his policy preferences, Judge Gorsuch said that, particularly where a statute’s purpose is as “ephemeral and generic” as “health and safety,” the majority should stick strictly to the text of the statute. Id. (Gorsuch, J., dissenting).

Judge Gorsuch’s Dissent Reveals the Intellectual Dishonesty of his Alleged Strict Textualism

Read in isolation, Judge Gorsuch’s dissent sounds plausible. He takes a strict textualist approach to statutory interpretation and so rejects any consideration of legislative intent. But a closer examination reveals that his alleged use of textualism is really a cloak for his policy preferences.

Here, Judge Gorsuch purportedly relies on the Oxford English Dictionary to support his conclusion that “operate” means, by definition, “[t]o cause or actuate the working of; to work (a machine, etc.).” And the rest of his analysis follows naturally. But the same textualist approach was also relied upon by the majority to reach a contrary conclusion, one that is consistent with the purpose of the statute:

The dissent believes Congress’s intent can be easily determined by simply choosing a favorite dictionary definition of the word and applying that to quickly conclude the statute is not ambiguous at all. . . .

. . . We, too, have found a dictionary definition of the word “operate” and discovered it means to “control the functioning of.” This definition clearly encompasses activities other than driving. . . . The only logical explanation [for the dissent’s interpretation] is that the dissent has concluded Congress used the word “operate” in the statute when it really meant “drive.” We are more comfortable limiting our review to the language Congress actually used.

Id. at 1212 n.4 (emphasis added) (quoting Operate, Oxford Dictionaries Pro, http://www.oxforddictionaries.com/us/definition/american_english/operate).

Judge Gorsuch artfully concealed the discretion inherent in his analysis, and in doing so maintained the facade of being bound by the text of the STAA. Here, he used his discretion to conclude that an employee’s firing did not violate the STAA—even though that employee spent more than three hours in subzero temperatures, without heat, after notifying his employer that his trailer’s brakes had frozen—because the employee’s actions did not meet Judge Gorsuch’s cherry-picked definition of refusal to “operate.”

Instead of taking statutory text out of context, Judge Gorsuch could have relied upon well-established STAA precedent holding that an employee who moves a disabled trailer from the middle of a busy roadway to the shoulder of the road, after being told by his employer to remain in the roadway, has refused to operate his vehicle for purposes of the STAA whistleblower law. He could also consider the purpose of the statute the majority relies upon: “to promote the safe operation of commercial motor vehicles,” “to minimize dangers to the health of operators of commercial motor vehicles,” and “to ensure increased compliance with traffic laws and with . . . commercial motor vehicle safety and health regulations and standards.” 49 U.S.C. § 31131(a).

Judge Gorsuch’s dissent fails to address the fact that Mr. Maddin’s supervisor gave him another option other than waiting in the truck without heat—dragging a 41,000-pound trailer with inoperable brakes, which is prohibited by Department of Transportation regulations. Mr. Maddin refused to carry out that instruction, and therefore he is protected under the STAA. And Judge Gorsuch’s dissent does not address the ARB’s finding that Mr. Maddin engaged in STAA-protected conduct by reporting the faulty condition of the trailer (i.e., the frozen brakes).

Judge Gorsuch will likely testify at his confirmation hearing that he is a values-neutral umpire who interprets statutes according to their plain meaning. Here, the umpire had two choices in a case decided under substantial-evidence review—a standard of review that is highly deferential to the agency. Option One was to rely on the majority’s equally compelling dictionary definition that favored the worker, the purpose of the STAA whistleblower law, well-established case precedent construing the STAA, and common sense. Option Two was to rely upon an out-of-context dictionary definition to reverse the agency, while omitting key facts from the record and ignoring case precedent and the purpose of the statute. Is it a mere coincidence that Option Two favored the employer and left the worker out in the cold? It strains credulity to claim that the author of this dissent is merely calling balls and strikes.

Judge Gorsuch’s Derision of Worker-Protection Laws

Perhaps more revealing than Judge Gorsuch’s selective use of the dictionary, however, are his characterization of “health and safety” as “ephemeral and generic” statutory goals, as well as the wording and tone of his dissent. Judge Gorsuch refuses to consider the purpose of the STAA whistleblower-protection law because “[a]fter all, what under the sun, at least at some level of generality, doesn’t relate to ‘health and safety’?” TransAm Trucking, 833 F.3d at 1217 (Gorsuch, J., dissenting). If Judge Gorsuch were construing the Religious Freedom Restoration Act, however, he would very likely consider and apply the purpose of the statute. But according to Judge Gorsuch, the remedial goals of worker-protection laws should be ignored when construing those laws.

Note that in his dissent, Judge Gorsuch does not once refer to Mr. Maddin by name. Instead, he refers to Mr. Maddin repeatedly as a “trucker” and once as an “employee.” TransAm, on the other hand, is identified by name several times throughout the dissent. Moreover, Judge Gorsuch states that Mr. Maddin was stranded in “cold weather” and omits the fact that Mr. Madden was stuck in a truck, without heat, in subzero weather, and feared losing his feet, dying, and never seeing his family again. Minimizing Mr. Maddin’s precarious predicament enabled Judge Gorsuch to analogize Mr. Maddin’s conduct to that of an office worker who misused a work computer to “compose the great American novel.” Id. (Gorsuch, J., dissenting). But presumably, the officer worker’s appendages are not going numb in this irrelevant analogy. Given Judge Gorsuch’s dehumanization of Mr. Maddin, it is no surprise that he admits in his dissent that he deems “health and safety” to be “ephemeral and generic” statutory goals.

According to the National Highway Traffic Safety Administration, there were approximately 3500 fatal crashes involving large trucks from 2011–2014. There is nothing “ephemeral” about laws regulating the safe operation of tractor-trailers or a whistleblower-protection law that enables truck drivers to refuse to drive unsafe vehicles. As Judge Gorsuch sat comfortably in his chambers, penning his dissent, did it occur to him that human lives are at stake when TransAm orders a driver to drag a 41,000-pound trailer with frozen brakes? Did this “pro-life” jurist consider that Mr. Maddin was having difficulty breathing and his appendages were going numb when he pleaded with his supervisor for permission to drive the truck, without the trailer, to a nearby gas station? Apparently, all those considerations, along with the purpose of the statute, are irrelevant where a cherry-picked dictionary definition enables Judge Gorsuch to construe a remedial law narrowly enough for the employer to prevail. If Judge Gorsuch is really acting as a values-neutral umpire, why does he deride the purpose of the STAA whistleblower-protection law as “ephemeral” and “generic”?

Many American workers often face the daunting choice of engaging in unsafe practices on the job or instead losing their jobs for opposing such practices. Federal enforcement of worker-safety and worker-protection laws is already feeble due to Congress’s deliberately starving OSHA of resources. And with a new Administration committed to gutting worker-safety laws and enforcement thereof, we can expect that the current unacceptable number of workers killed on the job—4836 in 2015—will increase. Judge Gorsuch’s dissent in TransAm Trucking portends that such laws will be further crippled using sham textualism.

Undoubtedly Judge Gorsuch is a talented jurist and dedicated public servant. But the “forgotten man” that President Trump claims to represent would be far better served by a mainstream jurist, such as Judge Merrick Garland, who would be faithful to the statutory language and purpose of worker-protection laws.

ARTICLE BY Jason Zuckerman of Zuckerman Law

Supreme Court Determines that Seal Violation Does Not Mandate Dismissal

On 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.

ARTICLE BY Evan Panich of McDermott Will & Emery

Congress Strengthens Whistleblower Protections for Employees of Government Contractors and Grantees

On December 5, 2016, Congress enacted S. 795, which permanently extends legal protections to employees of federal contractors, subcontractors, grantees, and others employed by entities that receive federal funds who report waste, fraud, or abuse involving federal funds. It would also extend these protections to personal services contractors working on both defense and civilian grant programs.

NDAA Whistleblower Protection

The National Defense Authorization Act for Fiscal Year 2013 (NDAA) established a four-year pilot program that prohibits employees of a “contractor, subcontractor, or grantee” from being retaliated against for blowing the whistle on:

gross mismanagement of a Federal contract or grant;
a gross waste of Federal funds;
an abuse of authority relating to a Federal contract or grant; or
a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract.

To be protected, the disclosure must be made to a Member of Congress or Congressional committee, an Inspector General, the GAO, a federal employee responsible for contract or grant oversight or management at the relevant agency, an authorized official of DOJ or other law enforcement agency, a court or grand jury or a management official or other employee of the contractor or subcontractor who has the responsibility to investigate, discover, or address misconduct.

The burden of proof and causation standard in NDAA whistleblower cases are very favorable to whistleblowers. The complainant prevails merely by demonstrating that the protected disclosure was a contributing factor in the personnel action, which can be met by showing knowledge and temporal proximity. Remedies include reinstatement, back pay, uncapped compensatory damages (emotional distress damages) and attorney fees and costs.

Unlike the four-year program for civilian contracts, the rights of whistleblowers working on Federal defense contracts are not time-limited. S. 795 makes this critical whistleblower protection for employees working on civilian contracts permanent.

Purpose of NDAA Whistleblower Protection Law

The December 5, 2016 floor statements of Rep. Chaffetz and Rep. Cummings underscore how courageous whistleblowers play a critical role in combatting waste, fraud and abuse and why they must be protected against retaliation:

Mr. CHAFFETZ: Mr. Speaker, I rise today in support of this bill, S. 795, a bill to enhance whistleblower protection for contractor and grantee employees. It is a bill with good bipartisan support in both Chambers of Congress. I really do applaud and thank, in particular, the gentleman from Maryland (Mr. CUMMINGS), the ranking member on our committee, who has helped champion this and point this out and lead our efforts in the House on this. In the House, the Committee on Oversight and Government Reform considered an identical bill, the Whistleblower Protections for Contractors Act, introduced by Ranking Member CUMMINGS and myself, and the committee reported this legislation by unanimous consent. In the Senate, it has been Senators MCCASKILL and RON JOHNSON who have worked arm in arm on this and are also very supportive of it. Today we bring up the Senate version of this bill to expedite its approval to get this bill to the President’s desk.

As you know, Mr. Speaker, whistleblowers are invaluable to the oversight work of Congress. We rely on people who are on the front lines seeing things as they truly are to provide information and blow the whistle when they see something going awry. They are one of our best sources of information about waste, fraud, and abuse within the Federal Government.

As an institution, we should try to do everything we can to encourage them to come and speak with us, and when they do, to make sure that they have the proper and adequate protections. That is exactly what this bill does, by recognizing that not all whistleblowers are Federal employees. We have robust Federal recognition and whistleblower protection for Federal employees, and we believe that contractors and others should have that as well.

It makes permanent a successful pilot program that extended whistleblower protections to civilian contractor and grantee employees. It also ensures whistleblower protections are extended to subgrantees and personal services contractors for both defense and civilian contractors. It is important because the Federal Government spends half a trillion dollars a year on grants and contracts. Think about that; half a trillion dollars is going out the door. There is always somebody doing something stupid somewhere; so to have this protection for a whistleblower as a contractor, for instance, just seems wise and prudent.

In overseeing how these funds are spent, the best source for rooting out waste is from grantees, subgrantees, contractors, and subcontractors. One loophole this bill closes is that personal services contractors were not protected in the past. These contractors can be just as valuable in identifying the waste and fraud we are committed to preventing in the first place. It only makes sense to offer those personal services contractors the same protections we give other contractors.

With this bill, we are sending a strong message to both whistleblowers and their employers. We are serious about stopping waste, fraud, and abuse, and we are serious about protecting those who bring that information forward. Every dollar of wasted funds comes from the pocket of the same hardworking men and women who elected us to Congress. It is their money. It is not our money. It is not the Federal Government’s money. It is the taxpayers’ money.

As we work to protect these taxpayer dollars, we also have a duty and responsibility to protect these whistleblowers. They are the best allies we have. S. 795 accomplishes that goal. An identical bill was passed out of our committee. I would appreciate the support of our colleagues to further this. Again, I thank Mr. CUMMINGS for his good work and passion on this. Mr. Speaker, I reserve the balance of my time.

Mr. CUMMINGS. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, I rise in strong support of S. 795. I introduced the House companion of this legislation, the Whistleblower Protections for Contractors Act. We are taking up the Senate measure today to make sure this bill can be signed by the President before the end of this Congress.

I want to thank Senator MCCASKILL for all of her hard work and Senator JOHNSON for all that he did to make this bill come to this point.

I would also like to give special thanks to Chairman CHAFFETZ for being an original cosponsor and helping bring this bill to the floor. Our committee has always stood hand in hand with regard to protecting whistleblowers, and we have made it abundantly clear that we will do everything in our power to protect them from any type of retaliation or any type of harm.

Whistleblowers are the front line of defense against waste, fraud, and abuse. Employees who work on Federal contracts and grants see firsthand when taxpayer money is being wasted. They risk their careers to challenge abuses of power and mismanagement of government resources. They must be protected against retaliation when they blow the whistle on wrongdoing.

Just the other day, we had a witness come before our committee, and it was clear that she was very, very concerned about retaliation to the point of almost being shaken. You could actually see it. When we see these folks, we realize and we are reminded of the fact that they bring a very important resource to us as the Committee on Oversight and Government Reform, and that is they bring us information, information that allows us to be able to address problems that we wouldn’t even know about if it were not for them.

I thank Chairman CHAFFETZ and our entire committee for taking the attitude of protecting whistleblowers to the greatest extent we possibly can.

This bill would ensure that more employees are protected by giving subgrantees and personal services contractors the same whistleblower protections currently given to contractors, grant recipients, and subcontractors. This bill also would make protections for civilian contractors and grantees permanent. These are protections that contractors and grantees of the Department of Defense already enjoy.

I urge every Member of Congress to stand up for whistleblowers, to stand up for good government, and to pass this legislation. Mr. Speaker, I urge all Members to vote in favor of this very important and meaningful legislation.

ARTICLE BY Jason Zuckerman of Zuckerman Law
© 2016 Zuckerman Law

SEC Whistleblower Awards: Can You Hear Whistles Blow? Valued At More Than $100 Million, You Bet You Can!

Some very loud whistles have been blowing across corporate America since 2011 – whistles valued at $107 million, in fact. The United States Securities and Exchange Commission announced on August 30, 2016, that since its whistleblower program began in 2011, they have awarded more than $107 million total to 33 individuals who voluntarily provided the SEC with original and useful information that led to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the SEC’s monetary sanctions in a matter exceed $1 million.

The SEC encourages employees to report suspected wrongdoing, because they, according to Acting Chief Jane Norberg, “are in unique positions behind-the-scenes to unravel complex or deeply buried wrongdoing.” And, last year alone, employees responded by providing nearly 4,000 tips to the agency. With this kind of incentive from the SEC and other government agencies, as well as a growing number of successes in whistleblower lawsuits, it is more important than ever for companies to get advice on a regular basis. Moreover, companies must be strategic and proactive in their approach to implementing an effective whistleblower protection and anti-retaliation system.

Key elements of an effective whistleblower protection and anti-retaliation system include:

Clear and visible leadership commitment and accountability. This is truly the most important piece of the puzzle. Without sincere support from the top, no internal whistleblower program can succeed.
The creation of a true “speak-up” organizational culture focused on prevention, including encouraging employees to raise all suspicions and issues quickly and insuring the fair resolution of such issues.
Independent, protected resolution systems for employees and third-parties who believe they are experiencing retaliation as a result of raising concerns.
Specific training to educate all employees about their rights and available protections (including both internal and external programs).
Specific training for managers who may receive complaints or information from employees, requiring the manager to be considerate of the employee making the report, to be diligent, and, most importantly, to act on the information with no corporate tolerance of the “just telling me as a friend, not as a manager” excuse.
Internal monitoring and measurement of corporate compliance efforts and the effectiveness of the speak-up and non-retaliation culture, without contributing to the suppression of employee reporting.
Independent auditing to determine if the whistleblower protection and anti-retaliation system is actually working.

Post written by Denise K. Drake of Polsinelli LLP.

$11M Settlement of FCA Lawsuit Against 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

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

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

Whistleblower Wins Big in Case that Tests Limits of Confidentiality Agreements

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

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

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.

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

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

Tag: Whistleblower

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