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Advice to a Potential Relator About Taking Documents from an Employer to Support a False Claims Act Lawsuit

By Sherrie Savett

Common Sense Advice Your Client Can Understand

It is important to advise your Relator client about the parameters of securing documents and information derived from an employer’s or former employer’s computer system.  Many clients still work at the company or have left and some have signed confidential agreements.  They are nervous about “stealing” information or breaching their agreement.

Lay language is needed to relax the client and have them understand they are not breaking the law, but instead are enforcing it.  Below is some useful language.

We believe that the law protects you when taking documents from your employer to support your allegations of fraud.  Because whistleblowers are encouraged to come forward, there is a policy to allow a relator to take evidence and documents from his or her employer so long as the documents are ones that the Relator would have seen during the scope of his or her regular employment.  While a relator is not allowed to root through the entire document database of a business to search for a fraud, we believe you are within the bounds of legal protection here.

Follow With a Sound Legal Analysis 

Advise your Relator client that he or she is permitted to take documents and information when obtaining the materials was reasonably necessary to pursue a qui tam action.  For example, in one recent case, a court noted both “a public policy exception to confidentiality agreements to protect whistleblowers who appropriate company documents” and an employer’s countervailing interest in “the enforcement of confidentiality agreements.”  Erhart v. BofI Holding, Inc., 2017 WL 588390, at *12 (S.D. Cal. Feb. 14, 2017).  Thus, the proper means to balance these competing interests is to ask whether “removal of documents was reasonably necessary to support [a relator’s] allegations of wrongdoing” Id. at *13 (internal quotation marks omitted).

Various courts across the county have reached similar rulings.  See e.g. Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1062 (9th Cir. 2011) (explaining that if an employer asserts a counterclaim against a relator for breach of a confidentiality agreement, the relator “need[s] to justify why removal of the documents was reasonably necessary to pursue an FCA claim”); Shmushkovich v. Home Bound Healthcare, Inc., 2015 WL 3896947, at *2 (N.D. Ill. June 23, 2015) (“The protections afforded self-help discovery under the False Claims Act . . . have only extended to the collection of materials that are reasonably related to the formation of a case.”); U.S. ex rel. Notorfransesco v. Surgical Monitoring Assoc., Inc., 2014 WL 7008561, at *5 (E.D. Pa. Dec. 12, 2014) (distinguishing between “materials [that] are reasonably necessary to pursuing [a relator’s] FCA claim” and “information that is not related to proving [the] claim”) (internal quotation marks omitted); Walsh v. Amerisource Bergen Corp., No. CIV.A. 11-7584, 2014 WL 2738215, at *7 (E.D. Pa. June 17, 2014) (similar); U.S. ex rel. Ruhe v. Masimo Corp., 929 F. Supp. 2d 1033, 1039 (C.D. Cal. 2012) (denying a defendant’s motion to strike documents obtained by relators in alleged violation of a confidentiality agreement where the relators “limited their taking to documents relevant to the alleged fraud”).

Furthermore, the HIPAA statute specifically allows whistleblowers to disclose protected health information (PHI) to attorneys to determine how to proceed legally.  Below is the exact language of the statute:

45 CFR 164.502 – Uses and disclosures of protected health information: General rules.

(j)Standard: Disclosures by whistleblowers and workforce member crime victims –

(1)Disclosures by whistleblowers. A covered entity is not considered to have violated the requirements of this subpart if a member of its workforce or a business associate discloses protected health information, provided that:

(i) The workforce member or business associate believes in good faith that the covered entity has engaged in conduct that is unlawful or otherwise violates professional or clinical standards, or that the care, services, or conditions provided by the covered entity potentially endangers one or more patients, workers, or the public; and

(ii) The disclosure is to:

(A) A health oversight agency or public health authority authorized by law to investigate or otherwise oversee the relevant conduct or conditions of the covered entity or to an appropriate health care accreditation organization for the purpose of reporting the allegation of failure to meet professional standards or misconduct by the covered entity; or

(B) An attorney retained by or on behalf of the workforce member or business associate for the purpose of determining the legal options of the workforce member or business associate with regard to the conduct described in paragraph (j)(1)(i) of this section.

Conclusion

You will have an empowered client who understands what he or she can and cannot do.  That client is then better able to transmit valuable information to capable qui tam attorneys who then have better ammunition to use when writing the complaint.

It is free to speak with our nationally recognized whistleblower attorneys:


Another Appeals Court Limits One of the Barriers to a Whistleblower Lawsuit

By Susan Thomas

In United States ex rel. Hayes v. Allstate Ins. Co., et al., Case No. 16­705, 2017 WL 1228551 (2d Cir. Apr. 4, 2017), the Second Circuit addressed an objection that it lacked jurisdiction over a whistleblower’s qui tam suit pursuant to what is known as the “first-to-file” rule.   31 U.S.C. § 3730(b)(5). That provision of the False Claims Act (“FCA”) states that “[w]hen a person brings an action under [the FCA], no person other than the Government may . . . bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).  Defendants argued that an earlier ­filed case deprived the court of jurisdiction pursuant to the first-to-file rule.  Before addressing a multitude of arguments on the merits, the Second Circuit joined the D.C. Circuit in holding that the FCA’s first-to-file rule is not jurisdictional.  2017 WL 1228551 at *3.  Accordingly, the court did not resolve the first-to-file challenge, since it chose instead to rule on other issues.

Importance of the Court’s Ruling

The court’s determination that a first-to-file issue is not jurisdictional is important for several reasons.  First, unlike jurisdictional issues, which a court must consider at any stage of the proceedings, non-jurisdictional challenges can be waived if not timely asserted.  Jurisdictional issues must even be considered sua sponte by a court at any stage of the proceedings. Second, challenges that are non-jurisdictional are more easily remedied by amendment, whereas jurisdictional challenges involve complicated analysis of whether or when an initial complaint can be amended.  The procedural process varies also, for example, in terms of burden of proof and ability to introduce evidence outside the complaint.  Finally, jurisdictional issues are not subject to equitable exceptions, which may apply to certain non-jurisdictional challenges.

Circuit Courts and the First-to-File Rule

As the court noted, there is a split among the circuit courts on the question whether first-to-file challenges are jurisdictional.   The Fourth, Fifth and Sixth Circuits have either held or just assumed that the issue is jurisdictional.  See U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171, 181 (4th Cir. 2013), aff’d in part, rev’d in part on other grounds sub nom. Kellogg Brown & Root, 11 135 S. Ct. 1979 (2015); U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376–77 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005).  On the other hand, in 2015, in U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112 (D.C. Cir. 2015), the D.C. Circuit broke ranks with most other courts and concluded that the first-to-file rule was not jurisdictional. Id. at 120-21. As the D.C. Circuit observed, the statutory language states that no person other than the government can bring a (later) action, which “speaks only to who may bring a private action and when,” Id. at 120, but “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts.” Id. (quotation omitted).

In the Hayes decision, the Second Circuit noted that the Supreme Court has warned against careless use of the term jurisdiction, 2017 WL 1228551 at *2, citing Sebelius v. Auburn Regʹl Med. Ctr., 133 S. Ct. 817, 824 (2013). Thus, the Supreme Court has “adopted a ‘readily administrable bright line’ for determining whether to classify a statutory limitation as jurisdictional.”  2017 WL 1228551 at *2. A court should find that a provision is jurisdictional only if Congress has clearly stated the jurisdictional component and absent such a clear statement . . .  ‘courts should treat the restriction as non-jurisdictional in character.’” Id.  As the D.C. Circuit had held, the first‐to‐file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending, ” 31 U.S.C. § 3730(b)(5), which makes no reference to jurisdiction. Heath, 791 F.3d at 121.

The First-to-File Rule and Limitations on Jurisdiction

Both the D.C. Circuit and the Second Circuit contrasted the language of the first-to-file bar with other provisions in the FCA that clearly state limitations on jurisdiction.  For example, there is a clear statement that “[n]o court shall have jurisdiction over an action brought by a former or present member of the armed forces … against a member of the armed forces arising out of such person’s service ….”   31 U.S.C. § 3730(e)(1).  Similarly, the FCA provides that “[n]o court shall have jurisdiction over an action brought . . . against a [government] official if the action is based on evidence or information known to the Government when the action was brought.” 31 U.S.C. § 3730(e)(2)(A).

Interestingly, the simple test of whether the provision in question refers explicitly to the court’s jurisdiction has been the subject of discussion among courts dealing with challenges under the Public Disclosure Bar (“PDB”) of the FCA, where a statutory amendment enacted as part of the Patient Protection and Affordable Care Act deleted a prior reference to jurisdiction. See Patient Protection and Affordable Care Act, PL 111-148, March 23, 2010, 124 Stat 119 (amending 31 U.S.C. § 3730(e)(4) to change the language of the PDB from “[n]o court shall have jurisdiction” to “[t]he court shall dismiss”).   Most courts have concluded that the elimination of the term jurisdiction in the statutory provision resulted in the PDB no longer being considered to be jurisdictional. E.g., U.S. ex rel. Advocates for Basic Leg. Equal., Inc. v. U.S. Bank, N.A., 816 F.3d 428, 433 (6th Cir. 2016)(“ Congress removed the jurisdictional language, and the different language leads to a different meaning. The public disclosure bar is no longer jurisdictional”); U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 300 (3d Cir. 2016)(“amended version does not set forth a jurisdictional bar”);  United States ex rel. Osheroff v. Humana, Inc., 2015 WL 223705 (11th Cir. Jan. 16, 2015)(amendments converted the public disclosure bar from a jurisdictional bar under Fed. R. Civ. P. 12(b)(1) into grounds for dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6));  U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916-17 (4th Cir. 2013)(after the 2010 amendments, “the public-disclosure bar is no longer a jurisdiction-removing provision.” ).

Conclusion

The Second Circuit’s common-sense interpretation of the first-to-file provision of the FCA will lessen the impact of the rule and potentially permit more whistleblower cases to move forward.

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The History of the False Claims Act and the Critical Role of Whistleblowers in Helping the Government Combat Fraud

By Joy Clairmont

Congress enacted the False Claims Act (“FCA”) more than a hundred and fifty years ago to combat fraud against the government by empowering private citizens to assist in this fight.  In the early years of the Act, during the Civil War, fraudulent practices exposed under the law included companies selling rancid food, ailing mules, and defective weapons to the Union Army.  However, the Act was never limited to the military sphere, but rather was intended as a broad and flexible tool for eradicating fraud throughout all aspects of government.  In more recent times, the Act has been used to root out fraud involving a great variety of government agencies including the Department of Education, the Food and Drug Administration and the Centers for Medicare and Medicaid Services.  In particular, the Act has been instrumental in addressing frauds in the healthcare field, which is responsible for many billions of dollars in federal spending annually.

The history of the FCA reveals two longstanding aims: strongly encouraging private parties (relators) to play a significant role in fraud enforcement as a necessary supplement to the government’s finite resources, and widely reaching all types of fraud that cause financial loss to the government. See Rainwater v. U.S., 356 U.S. 590, 592 (1958) (“It seems quite clear that the objective of Congress was broadly to protect the funds and property of the Government”); United States v. Neifert-White Co., 390 U.S. 228, 233 (1968) (the FCA “reaches beyond claims which might be legally enforced to all fraudulent attempts to cause the Government to pay out sums of money”); United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 306 (3d Cir. 2011) (pointing to “Congress’ expressly stated purpose that the FCA should reach all fraudulent attempts to cause the Government to pay out sums of money”).

Over the Years Congress Has Strengthened the False Claims Act to Encourage Whistleblowers to Report Fraud

From 1943 until 1986, the FCA contained an insurmountable jurisdictional bar, which effectively foreclosed fraud detection and enforcement under the Act.  During this time, the FCA barred jurisdiction over any claim “whenever it shall be made to appear that such suit was based upon evidence or information in the possession of the United States, or any agency, officer, or employee thereof, at the time such suit was brought.”  31 U.S.C. § 232(C) (1976).  Courts broadly construed this language as categorically prohibiting any qui tam relator from bringing a case in which the government was already aware of the allegations of fraud.  Courts enforced this absolute bar even when it was the relator himself who first reported the fraud to the government, as relators were legally required to do under the Act.[1]  As a consequence of this perverse catch-22 for potential relators, during this time, fraud against the government went largely unidentified and unprosecuted.  Predictably, government fraud skyrocketed.

The 1986 Amendments to the False Claims Act

In 1986, recognizing that the FCA was “in desperate need of reform” and that “the Government need[ed] help and, in fact, need[ed] lots of help to adequately protect the Treasury against growing and increasingly sophisticated fraud[,]” Senator Charles “Chuck” Grassley (R-IA) spearheaded “much needed amendments to the False Claims Act.”[2]

Significantly, the 1986 Amendments eliminated the absolute government knowledge defense.[3]  Congress replaced it with a mechanism known as the “public disclosure bar,” which was specifically tailored only to preclude qui tam lawsuits based on information already known to the government through certain enumerated government proceedings and reports or the news media.  S. Rep. 99-345, 1986 U.S.C.C.A.N. 5266, 5295.  “The goal of this [new] provision was to ensure that any individual qui tam relator who came forward with legitimate information that started the Government looking into an area it would otherwise not have looked, could proceed with an FCA case.”  S. Rep. 110-507 at 5.

Congress passed several amendments to the FCA after 1986 to further strengthen its provisions and correct certain judicial decisions that had limited the scope of the Act.[4]

The False Claims Act has been Enormously Successful in Fighting Fraud

With the assistance of private individuals and entities serving as whistleblowers, the FCA has been enormously successful in returning money to the federal fisc.  In less than thirty years, in the healthcare arena alone, the government has recovered more than $31.1 billion of taxpayers’ funds via the FCA.[5]

 

[1]              See United States ex rel. Stinson, Lyons, Gerfin  & Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d  1149, 1153-54 (3d Cir. 1991) (discussing such “restrictive interpretations” as United States ex rel. Wisconsin v. Dean, 729 F.2d 1100, 1106 (7th Cir. 1984) (holding that the “district court had no jurisdiction over a qui tam action brought by Wisconsin based on information of Medicaid fraud the state had uncovered because the state had reported the Medicaid fraud to the federal government as required under the Act”)).

[2]        U.S. Senate, Subcommittee on Administrative Practice and Procedure of the Committee on the Judiciary, S. 1562, Hearing, pg. 2, Sept. 17, 1985 (S. Hrg. 99-452). Washington: Government Printing Office, 1986; The Grassley Amendments, Pub.L. No. 99-562, 100 Stat. 3153 (Oct. 27, 1986).

[3]        See Merena v. Smithkline Beecham, 52 F. Supp. 2d 420, 441 (E.D. Pa. 1998), rev’d on other grounds, 205 F.3d 97 (3d Cir. 2000) (finding that one of the purposes of the 1986 amendments to the FCA was “to prevent the harsh preclusive effect of mere governmental knowledge or investigation.”).

[4]               See, e.g., The Fraud Enforcement and Recovery Act (“FERA”), Pub. L. No. 111-21, § 4, 123 Stat. 1617; Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, 124 Stat. 1376 (July 21, 2010); The Patient Protection and Affordable Care Act,  Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010).

[5]        U.S. Dep’t of Justice, Fraud Statistics – Overview October 1, 1987 – September 30, 2015 (Nov. 23, 2015), https://www.justice.gov/opa/file/796866/download (last visited March 1, 2017).

It is free to speak with our nationally recognized whistleblower attorneys:


Small Business Association 504 Loan Program and Liability under the False Claims Act

By Shauna Itri 

Basics of the Small Business Association 504 Loan Program

The Small Business Association (“SBA”) 504 Loan Program offers small businesses long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. A Certified Development Company (“CDC”) is a nonprofit corporation certified by the SBA that generates, closes, and services 504 loans.

Financing 504 projects typically consists of (1) a contribution from the borrower covering approximately 10 percent of the project costs; (2) a loan obtained from a CDC and assigned to the SBA, covering approximately 40 percent of the project costs and certain administrative costs, collateralized by a second lien on the project property; and (3) a loan secured from a private sector lender covering the remainder of the project costs (approximately 50 percent) and collateralized by a first lien on the project property. 13 C.F.R. § 120.801, § 120.900.

In general, a borrower applies for 504 financing through a CDC. If the SBA approves the loan application, the SBA issues a loan authorization agreeing to guarantee part of the financing for the project if certain conditions are met. After the loan authorization, projects usually require interim financing before the completion of the 504 project. This interim financing is often provided by the same private sector lender that provides a portion of the permanent financing. Once the 504 project is completed, the CDC is responsible for closing the 504 loan. If all the requirements of the loan authorization are met, the loan is bundled with other loans and sold on the public market as a debenture. The debenture is guaranteed 100 percent by the SBA with the full faith and credit of the United States. Proceeds from the sale of the debenture fund the 504 loan and pay off the interim loan.

Before the debenture is issued, the interim lender must certify the amount disbursed. The CDC must certify that the project was completed in accordance with the final plans and specifications. 13 C.F.R. § 120.891.

Following the completion of the project, certifications must be made before the 504 loan closing, the interim lender, the borrower, and the CDC must certify that since the date of the loan application, there has been no unremedied substantial adverse change in the borrower’s financial condition or ability to repay the 504 loan. 13 C.F.R. § 120.892.

The SBA may decline to close the debenture, direct the transfer of the 504 loan to another CDC, or cancel its guarantee of the debenture prior to sale if the CDC, third party lender, or the borrower failed to disclose or misrepresented a material fact to the SBA regarding the project or the 504 loan, or if the SBA determines that there has been an unremedied material adverse change since the 504 loan was approved. 13 C.F.R. § 120.960.

SBA 504 Loan False Certifications That Can Violate the False Claims Act

Prior to the SBA 504 Loan closing, the bank must make the following certifications to the SBA:

  • Bank executed the Interim Lender Certification certifying that (1) it had no knowledge of any unremedied substantial adverse change in the Borrower’s financial condition since the date of the application for the SBA 504 Loan; and (2) the Bank had disclosed to the SBA all material information known to it and necessary to ensure that the Interim Lender Certification was not misleading.
  • The Bank executed a Third Party Lender Agreement certifying that all the information that it provided to the SBA, including all information regarding the Borrower’s financial condition, is accurate and that the Bank had not withheld any material information.

Prior to the SBA 504 Loan closing, the CDC must make the following certifications to the SBA:

  • CDC executed an Authorization certifying that (1) there has been no substantial unremedied adverse change in the Borrower’s financial condition, organization, operation, or assets, as set forth on the CDC Certification (SBA Form 2101), and (2) all elements of Project Costs have been paid in full and that the Interim Lender, Third Party Lender, Borrower, and CDC have each contributed to the Project in the amount and manner authorized by SBA.
  • CDC executed a CDC Certification certifying that (1) it has obtained all necessary agreements and certifications set forth in the Authorization, which have been properly completed and executed without modification; (2) since the date of Borrower’s application to CDC for this loan, there has been no unremedied substantial adverse change in the financial condition of Borrower and no change in the operation or assets of Borrower; (3) Borrower currently occupies, or with the prior approval of SBA, will occupy within a reasonable period of time, the percentage of the Project required by the Authorization; and (4) CDC has disclosed to SBA all material information known by CDC and necessary to ensure that this Certification is not misleading.

Relying on these types of representations and certifications, the SBA transmits money to banks and borrowers. If the borrower subsequently experiences material (had a natural tendency to influence CDC’s decision to close the SBA 504 Loan and the SBA’s decision to fund the SBA 504 Loan) unremedied substantial adverse changes, and the bank intentionally fails to inform the SBA, then the bank potentially made false representations and certifications to the SBA to induce the SBA to close the SBA 504 Loan for the borrower to collect the SBA 504 Loan proceeds.

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Applying the Anti-Kickback Statute to Pursue Qui Tam Whistleblower Actions Under the Federal False Claims Act and the Delaware False Claims Act

By Daniel Miller 

Violations of the Anti-Kickback Statute Form the Basis of False Claims Act Liability

Congress has long viewed the elimination of kickbacks as central to any efforts to combat Medicare and Medicaid fraud and abuse.  United States v. Greber, 760 F.2d 68, 70-71 (3d. Cir. 1985).  Because kickback schemes negatively affect the integrity of federal health care programs, government payers have a strong interest in ensuring the continued viability of False Claims Act (“FCA”) actions to deter and redress health care fraud predicated upon kickbacks.  United States ex rel. Charles Wilkins and Daryl Willis v. United Health Group, Inc. et al., (3d Cir. Oct. 2010) (No. 10-2747) (Brief for the United States as Amicus Curie Supporting Appellant).

To protect against the erosion of patient care and patient safety, courts uniformly agree that compliance with the Anti-Kickback Statute (“AKS”) is a material condition of payment under the Medicare/Medicaid programs.[1]

These and other courts have held that a person or entity who violates the FCA and causes another to submit claims to the government has violated the FCA regardless of what form the claim or statement takes.  Many of these courts have reasoned that the claims are false, and thus violate the FCA, because there is a false certification – either express or implied – as to compliance with the AKS each time a claim is submitted.[2]

Moreover, the AKS was recently amended to expressly state what these courts had already held, namely, that a violation of the AKS constitutes a “false or fraudulent” claim under the FCA.  42 U.S.C. § 1320(a)-7b(g).

The Delaware Anti-Kickback Statute And Its Use In Qui Tam Actions Under The Delaware False Claims Act

The Delaware Anti-Kickback Statute (“DAKS”) makes it unlawful:

  • to solicit or receive any kickback, rebate or bribe directly or indirectly, overtly or covertly, in cash or in kind “in return for referring an individual to a provider for the furnishing or arranging for the furnishing of any medical care or medical assistance for which payment may be made in whole or in part under any public assistance program. 31 Del. C. § 1005(a)(1);
  • to offer or pay any remuneration (including any kickback, bribe or rebate) directly or indirectly, in cash or in kind to induce any other person “to refer an individual to a provider for the furnishing or arranging for the furnishing of any medical care or medical assistance for which payment may be made in whole or in part under any public assistance program. 31 Del. C. § 1005(b)(1); and
  • for a provider to charge, solicit, accept or receive for any service provided to a recipient, money or other consideration in addition to or at a rate in excess of the rates established by the State for such item or service. 31 Del. C. § 1005(c)(1).

Thus, a health care provider such as a hospital violates the DAKS by offering remuneration and incentives, in various forms, to induce physicians to make referrals to the hospital for health services billed to Medicare and Medicaid. Similarly, physicians violate the DAKS by accepting remuneration in exchange for referrals.  As explained above, these underlying DAKS violations provide the foundation for false claims act liability under the Delaware FCA.

Conclusion

The AKS and the DAKS are broadly interpreted statutes which can form the foundation of liability for qui tam actions brought by whistleblowers under the Federal and Delaware false claims acts.

[1] See United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004); United States ex rel. Roberts v. Aging Care Home Health, 2007 U.S. Dist. LEXIS 92864, *11 (W.D. La. Dec. 17, 2007); United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 20 F.Supp.2d 1017, 1042 (S.D. Tex. 1998); United States ex rel. Conner v. Salina Regional Health Ctr., 543 F.3d 1211, 1223 n.8 (10th Cir. 2008); United States ex rel. McNutt v. Haleyville Medical Supplies, 423 F.3d 1256, 1259-1260 (11th Cir. 2005); and United States v. Rogan, 459 F. Supp. 2d 692, 717 (N.D. Ill. 2006), aff’d, 517 F.3d 449 (7th Cir. 2008).

[2] See, e.g., United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008); United States ex rel. Roberts, 2007 U.S. Dist. LEXIS 92864, *11 (holding defendants both presented a false or fraudulent claim for payment and relied on a false or fraudulent statement or record to obtain payment from Medicare once Defendants obtained payment from Medicare for services “performed under a prohibited referral).  United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir.1997); United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 245 (3d Cir. 2004); Mason v. Medline Industries, Inc., 2010 WL 653542, at *5-9 (N.D. Ill. Feb. 18, 2010); United States v. ex rel. Jamison v. McKesson Corp., 2009 WL 3176168 (N.D. Miss. September 29, 2009); In re Pharmaceutical Indus. Average Wholesale Price Litig., 491 F. Supp. 2d 12, 17-18 (D. Mass. 2007); United States ex rel. Bidani v. Lewis, 264 F. Supp. 2d 612, 615-16; United States ex rel. Franklin v. Parke-Davis, 2003 WL 20048255 (D. Mass. August 22, 2003); United States ex rel. Pogue v. Diabetes Treatment Centers of America, 238 F. Supp. 2d 258, 264 (D.D.C. 2002); and United States ex rel. Bartlett v. Tyrone Hospital, Inc., 234 F.R.D. 113, 121 (W.D. Pa. 2001).

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Unexpected Problems with the Qui Tam Seal

By Arthur Stock

By law, qui tam cases must be filed under seal.  This means that there is no public record of the case having been filed, and the defendant is unaware of the case until the seal is lifted.  A plaintiff who breaks the seal by discussing the seal publicly may forfeit all right to recover in the action – even if the government takes it over, and wins a judgment or enters into a settlement.  While it is fairly simple to avoid issuing a press release, the seal requirement can cause complications in unexpected circumstances, where the legal requirement to stay silent conflicts with a different legal requirement to disclose.

Conflict #1: Pending Cases Against the Same Defendant

Many qui tam whistleblowers are employees or ex-employees of the defendant, and may have other lawsuits against the same defendant, for wrongful discharge, violation of the WARN Act (which requires advance of layoffs by large employers, or age, race, or gender discrimination).  In such a case, a plaintiff may be asked at trial or at deposition whether they have any other pending cases against the same defendant.  Disclosure will break the seal, refusing to answer might result in dismissal of the other action, and a false answer could lead to both loss of the other case and a charge of perjury.

Conflict #2: Disclosure of Assets

Bankruptcy Courts require disclosure of all assets to the Bankruptcy court.  This disclosure is filed publicly.  A pending lawsuit, including a qui tam action, is an asset, because it may result in receiving money in the future.  Again, disclosure to the Bankruptcy Court may break the seal, but failure to disclose could be Bankruptcy fraud, potentially a criminal violation.

The same issues commonly arise in divorce and child support proceedings:  Assets must be disclosed.

Conflict #3: Government Program Eligibility

Eligibility for many government programs–ranging from Small Business Administration loans to some Veterans Benefits to Section 8 housing subsidies and food stamps–also depends on the assets of the applicant, although the requirements for disclosure vary widely from program to program, and some may not require disclosure of pending lawsuits.

If you have a pending qui tam case and any of these situations arise in your life, make sure to talk to your qui tam attorney before taking any action.  DON’T RELY SOLELY ON YOUR DIVORCE OR BANKRUPTCY ATTORNEY.  Even the most experienced attorneys in these areas may never have come across a qui tam plaintiff before, and may accidentally break the seal or otherwise get you into trouble.

Berger & Montague, P.C.  has successfully advised many of our clients through these minefields, without any additional cost to them.

It is free to speak with our nationally recognized whistleblower attorneys:


What Happens If a Prospective Employer Refuses to Hire You Because You Have Been a Whistleblower Before?

By Susan Thomas

Although the federal False Claims Act (“FCA”) and most state statutes provide a whistleblower with claims against retaliation by an employer, it is not clear whether that protection extends beyond the specific company that you reported against.  Unfortunately, some prospective or subsequent employers might try to avoid hiring you or even fire you if your prior litigation comes to light.  Are you protected in that situation?

There really isn’t a clear answer to that question.  And one warning about this entire discussion – although we will talk about protection against retaliation, it is important to understand that all a statute can do is allow you to sue if you believe you have been retaliated against.  You are not “protected” in the sense that being fired or refused a job can’t happen.

The Federal False Claims Act’s Anti-Retaliation Provision

Focusing on the federal FCA, there were changes made to the anti-retaliation provision in 2010.  The newer provision has a broader reach, but it is still not clear how far that reach extends.

Under both the prior version of the anti-retaliation provision and following the 2010 amendment, courts have reached different decisions as to whether an employer could be liable for retaliation in a situation where the employee’s conduct involved reports of wrongdoing by another entity.  Compare United States ex rel. Sanchez v. Lymphatx, Inc., 596 F.3d 1300, 1304 (11th Cir. 2010) (“If an employee’s actions, as alleged in the complaint, are sufficient to support a reasonable conclusion that the employer could have feared being reported to the government for fraud or sued in a qui tam action by the employee, then the complaint states a claim for retaliatory discharge under § 3730(h).”); Sefen ex rel. United States v. Animas Corp., 2014 WL 2710957 (E.D. Pa. 2014) (dismissing plaintiff’s retaliation case because he failed to allege any connection to a false claim for payment against his employer); Mann v. Olsten Certified Healthcare Corp., 49 F. Supp. 2d 1307, 1314 (M.D. Ala. 1999) (“Whether the employee engaged in conduct from which a fact finder could reasonably conclude that the employer could have feared that the employee was contemplating filing a qui-tam action against it or reporting the employer to the government for fraud”) with Townsend v. Bayer Corp., 774 F.3d 446, 459 (8th Cir. 2014) (retaliating employer need not be accused of or involved in fraud for purposes of facing liability under § 3730(h)(1)); Cestra v. Mylan, Inc., 2015 WL 2455420 (W.D. Pa. 2015)(“Contrary to Defendants assertion, § 3730(h)(1) does not provide that a plaintiff will only be covered by this provision if the terminating employer either (a) violated the FCA or (b) had a close relationship with or was influenced by the target of the investigation.”); United States ex rel. Lang v. Nw. Univ., 2005 WL 670612, at *2 (N.D. Ill. Mar. 22, 2005) (“statute … contains no language requiring proof that the retaliation was for protected activity involving false claims by that same employer.”); Nguyen v. City of Cleveland, 121 F.Supp.2d 643, 649 (N.D. Ohio 2000) (finding the FCA’s retaliation provision “reaches an employer who discriminates against an employee” for reporting the false claims of a customer).  See also United States ex. rel. Bias v. Tangipahoa Parish School Bd., 816 F.3d 315 (5th Cir. 2016) (upholding claim against school board participating in Marine Jr. ROTC program where school board’s harassment and unfounded complaints led US Marine Corps to take adverse employment action against officer).

Anti-Retaliation Provision Case Examples

The cases that allow claims to be asserted against a company other than the one involved in the fraud that a whistleblower reported have stressed the need to have broad protections for whistleblowers.  As the court stated in Cestra v. Mylan, Inc., “[t]he purpose of § 3730(h) is ‘to protect persons who assist the discovery and prosecution of fraud and thus to improve the federal government’s prospects of deterring and redressing crime.’” 2015 WL 2455420, at *2 (W.D. Pa. May 22, 2015)(internal citations and quotation marks omitted). In Townsend v. Bayer Corp., the court discussed the rationale for providing protection against a different employer by addressing the employer’s motivation to retaliate if the employee reports a fraud, for example, against a major customer:

For example, an employer may lose a customer’s multi-million dollar account because an employee reports the customer’s fraudulent activities to the government. The employer clearly has motive to retaliate against its employee under those circumstances. We therefore agree with Townsend that the protections of the FCA’s anti-retaliation provisions should extend to such an employee, without requiring a showing that the employer itself was acting in concert with its customer to defraud the government, or acting in concert with the customer to orchestrate the retaliation.

774 F.3d at 460.

These cases provide much needed additional recourse for whistleblowers. Simply being able to recover back wages and related damages from an employer who fired you will be of limited use if you are essentially blacklisted from gaining employment in your field again.  As a practical matter, this might vary depending on how narrow your field of employment is.  Indeed,if your case comes to be widely regarded as  having exposed outrageous misconduct and cheating, other potential employers could applaud your initiative and public-mindedness.  It is equally likely, however, that many employers will simply not want to deal with someone who might speak out if problems are observed.

There are many instances where someone will witness fraud by an entity other than her own employer, but where the employer might react adversely once the reporting becomes known.  If the whistleblower is not given some recourse in that situation, there could well be significant issues that could not be remedied, and many useful whistleblowers would be discouraged from stepping forward.

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Sweeping Decision Leaves Intact False Claims Act Claims Against Allergan, Inc.

By Lane L. Vines

In an opinion issued on March 31, 2017, District Judge Jesse M. Furman of the Southern District of New York substantially denied defendant Allergan, Inc.’s motion to dismiss claims arising under the False Claims Act (“FCA”) and state statutory analogs, in litigation captioned United States ex rel. Wood v. Allergan, Inc., No. 10-cv-5645 (JMF) (S.D.N.Y).  This decision (Dkt. 112) let stand a former employee’s whistleblower claims that Allergan, between 2003 and 2011, provided hundreds of millions of dollars’ worth of illegal kickbacks to induce prescribing of its cataract surgery drugs.  In a thorough 89 page ruling, the Court addressed numerous issues in applying the provisions of the FCA.

The plaintiff-relator is represented by Sherrie R. Savett, Arthur Stock and Lane L. Vines of Berger Montague, P.C. and Scott Simmer and Thomas Poulin of the Simmer Law Group PLLC.  A copy of Judge Furman’s decision is available here.

Factual Background of Relator’s Claims

Relator Wood, a former Allergan sales representative, alleges that, from 2003 to 2011, Allergan engaged in a kickback scheme intended to induce physicians across the country to prescribe Allergan’s brand name cataract surgery-related prescription drugs, which included the topical steroid Pred Forte®, anti-infectives such as Zymar® and Zymaxid®, and non-steroidal anti-inflammatories such as Acular®, Acular LS® and Acuvail®.

The federal Anti-Kickback Statute (“AKS”) prohibits the offering of any type of incentive to a doctor in order to influence his or her prescribing behavior.  Relator Wood alleges that, during the years at issue, Allergan used free patient instruction sheets, cataract surgery Custom Care Kits (CCKs) containing “free” prescriptions of multiple Allergan eye care products, and pre-printed prescription pads for Allergan drugs that advertised the ophthalmologists’ clinics to induce them to prescribe the company’s brand name drugs instead of either competing brand name drugs or generics.  Relator Wood was fired by Allergan after blowing the whistle on the kickback scheme in 2010.  When his FCA case was filed that same year, it was third-filed; however, the first- and second-filed cases were under seal at the time and were subsequently dismissed after the Government declined to intervene.

Certain Highlights of the Court’s Ruling

  • The Court rejected Allergan’s argument that Relator Wood’s Third Amended Complaint should be dismissed under the public disclosure bar, holding that there could not be a “public” disclosure where the two earlier-filed cases were under seal. 112 at 15-16.
  • With regard to the “first-to-file” bar, the Court ruled that the Wood action is “related” to the two earlier-filed (and already dismissed) actions for purposes of the FCA’s first-to-file bar, 31 U.S.C. § 3730(b)(5) but found that bar is non-jurisdictional. The Court held that “[t]he more sensible approach, supported by the language and structure of the FCA, is to treat the first-to-file rule as a non-jurisdictional (albeit mandatory) rule.”  112 at 24.  The Court rejected defendant’s arguments that Wood must dismiss and refile his complaint, holding that “the structure and purpose of the FCA generally, and the first-to-file rule specifically, call for allowing a relator in Wood’s circumstances to avoid dismissal by amending or supplementing his complaint” because “[t]here can be no dispute that the primary purpose of the FCA is to permit the Government to recover for fraud inflicted upon it.”  Id. at 27.  According to the Court, “[t]he text and structure of the statute thus suggest that the primary, if not sole, purpose of the first-to-file rule is to help the Government uncover and fight fraud.”  Id. at 29.  The Court further held that “the first-to-file defect in the original [Wood] complaint was cured by the filing of the Third Amended Complaint after the earlier-filed actions had been dismissed.”  Id. at 88.
  • In ruling on the applicable statute of limitations, the Court adopted the reasoning of Judge Lamberth in United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 474 F. Supp. 2d 75, 85 (D.D.C. 2007) and held that the FCA permits claims by private relators to be brought for up to ten years depending on when the relevant facts are known or should be known to the official of the United States charged with responsibility to act. 112 at 34-37, 88 (citing 31 U.S.C. § 3731(b)(2)).
  • The Court also rejected Allergan’s argument that Wood’s initial complaint should be treated as a “legal nullity” because it was filed in violation of the first-to-file rule and that for statute of limitations purposes Wood’s Third Amended Complaint filed in 2016 could not relate back to his initial complaint filed in 2010. 112 at 39.  The Court reasoned that Fed. R. Civ. P. 15(c)(1)(B) applies to the question of whether the Third Amended Complaint “relates back” to the original complaint.  Thus, even though the original complaint was filed under seal and in violation of the “first-to-file” rule, none of Wood’s claims would be dismissed as time barred “because [the Third Amended Complaint] merely expands on the claims alleged in the initial pleading.”  Id. at 88.
  • The Court rejected Allergan’s contention that the free drugs, surgical kits and office supplies provided to ophthalmologists were not actionable “remuneration” under the AKS, holding that “the Court cannot say as a matter of law, let alone at this stage of the litigation, that Allergan’s provision of millions of free samples [as well as medical supplies, free patient instruction sheets and prescription pads] to cooperating physicians did not constitute ‘remuneration.'” 112 at 45.
  • The Court rejected Allergan’s interpretation of the Supreme Court’s recent decision in Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016). Among other things, the Court found that “Wood alleges at least two viable theories of liability under the FCA:  express certification of compliance with the AKS for Medicare Part D claims and implied certification of compliance with the AKS for non-Part D Medicare, Medicaid, and TRICARE/CHAMPUS claims.”  112 at 88.  The Court also rejected out of hand Allergan’s argument that there could be no false claims submitted by unwitting pharmacists, cautioning that it “borders on frivolous.”  Id. at 62.
  • The Court held that Wood’s allegations met the specificity requirements of Fed. R. Civ. P. 9(b) for pleading fraud with specificity, finding that Wood had identified a “multitude of specific physicians and healthcare centers who received alleged kickbacks from Allergan, including the type and amount of remuneration, and – for many physicians – the corresponding number of Allergan drug prescriptions written.” 112 at 69.  Wood’s allegations thus establish “a relationship between the kickbacks and the prescription of Allergan drugs.”  Id. at 72.  Specifically, the Court held that “Wood’s core claims under 31 U.S.C. § 3729(a)(1)(A) and (a)(1)(B) satisfy the heightened pleading requirements of Rule 9(b) with respect to Medicare, Medicaid, and TRICARE/CHAMPUS and may proceed.”  Id. at 88.  In addition, the Court rejected Allergan’s argument that Wood had failed to allege a multi-state, multi-year scheme with particularity, finding that the Third Amended Complaint “includes evidence that the alleged scheme was implemented nationwide by Allergan’s sales team and corporate officials ….”  Id. at 77.  To the extent that Wood was required by Escobar to have alleged that violations of the AKS were “material to the Government’s payment decisions, the allegations of the Third Amended Complaint plainly suffice.  Allergan certainly knew that violation of the statute carried substantial penalties, and Allergan’s own internal documents required employees to comply with the statute.”  Id. at 78.
  • With regard to Wood’s twenty-four state law claims, the Court denied Allergan’s motion in its entirety, except that it limited claims under nine states to Allergan’s conduct after the effective date of the statutes at issue (a position Wood did not oppose). 112 at 86, 89.  The Court also allowed Wood’s retaliation claims to go forward, holding he had alleged a plausible claim of unlawful retaliation under 31 U.S.C. § 3730(h), “as he was terminated just after internally reporting purported violations of federal law.”  Id. at 89.

Click here to view an article published by Law360 that reports on the above referenced decision.

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How to Calculate Damages for False Claims Act Cases Based on Research Grant Fraud

By Joy Clairmont

The federal government, through its agencies, offers grant funding opportunities to private individuals and entities.  Numerous federal agencies offer grants, including the Department of Defense, Health and Human Services and the Department of Energy.  Often federal grants are aimed at funding innovative research.

In a nutshell, the grant process involves applying for the grant, obtaining the grant award and then conducting the research required under the grant.  Grant fraud can occur during any stage of this process.  A grant recipient may make false and misleading statements to the federal agency in order to obtain the grant award or may deceive the government as to how the award funding is being used.  As a result, grant recipient entities may be liable under the False Claims Act (“FCA”) and subject to treble damages for any violations of the FCA.

One question may arise with regard to grant fraud under the FCA:  How are damages calculated?  When the government funds a research grant, the end result is abstract and not easily measurable, as compared to the classic FCA case involving non-conforming products or goods.  As discussed below, courts have found that the government is entitled to the full amount of the funding under the research grant in calculating single damages.  And, the FCA provides for trebling of single damages for FCA violations.

The Government is Entitled to Recover the Full Amount of the Research Grant in Single Damages 

When a defendant obtains grant money under false pretenses, the measure of single damages under the FCA is the amount the government actually paid to the defendant under the research grant. United States ex rel. Laymon v. Bombardier Transp. United States, 656 F. Supp. 2d 540, 546 (W.D. Pa. 2009) (“where there is no tangible benefit to the government and the intangible benefit is impossible to calculate, it is appropriate to value damages in the amount the government actually paid to the Defendants.”); see also United States ex rel. Feldman v. van Gorp, 697 F.3d 78, 88 (2d Cir. 2012) (holding same).

Put slightly differently, “when a third-party successfully uses a false claim regarding how a grant will be used in order to obtain the grant, the government has entirely lost its opportunity to award the grant money to a recipient who would have used the money as the government intended.” Feldman, 697 F.3d at 88. “[T]he government receives nothing of measurable value when the third-party to whom the benefits of a governmental grant flow uses the grant for activities other than those for which funding was approved.” Id.

The Fifth Circuit First Addressed How to Calculate Damages Under the False Claims Act for Fraudulently Induced Research Grants

In 2009, the Fifth Circuit became the first circuit court to address the proper method of calculating damages for a fraudulently induced research grant. U.S. ex rel. Longhi v. Lithium Power Techs., Inc. 575 F.3d458, 472-73 (5th Cir. 2009). In that qui tam case, the defendants had been found liable for violations of the FCA based on false and misleading statements made in grant proposals to obtain federal funds aimed at supporting small businesses’ research and commercial development of thinner battery technology. Id. 575 F.3d at 462.  The district court assessed damages in an amount equal to three times the total amount the government had paid to defendants for the research grants. Id. at 575 F.3d, at 472.

On appeal, the defendants argued that because the government had suffered no actual injury, as the grant program’s intended purpose was to support small businesses to conduct research and advance commercial development, and not to provide anything to the government, the government was not entitled to any damages. Id. In rejecting this argument, the Court held that “where there is no tangible benefit to the government and the intangible benefit is impossible to calculate, it is appropriate to value damages in the amount the government actually paid to the Defendants.” Id. 575 F.3d at 473; see also United States ex rel. Feldman v. van Gorp, 697 F.3d 78, 88 (2d Cir. 2012) (holding same).

In finding that defendants owed the government the full amount paid under the research grants, the Court reasoned,

The contracts entered into between the government and the Defendants did not produce a tangible benefit to the BMDO or the Air Force. These were not, for example, standard procurement contracts where the government ordered a specific product or good. The end product did not belong to the BMDO or the Air Force. Instead, the purpose of the SBIR grant program was to enable small businesses to reach Phase III where they could commercially market their products. The Government’s benefit of the bargain was to award money to eligible deserving small businesses. The BMDO and the Air Force’s intangible benefit of providing an “eligible deserving” business with the grants was lost as a result of the Defendants’ fraud.

Longhi, 575 F.3d at 473.

Other Circuit Courts Have Agreed that the Government Should Receive the Full Amount of the Grant

The Second Circuit case of United States ex rel. Feldman v. van Gorp, 697 F.3d 78, 88 (2d Cir. 2012) held that “when a third-party successfully uses a false claim regarding how a grant will be used in order to obtain the grant, the government has entirely lost its opportunity to award the grant money to a recipient who would have used the money as the government intended.”  “[T]he government receives nothing of measurable value when the third-party to whom the benefits of a governmental grant flow uses the grant for activities other than those for which funding was approved. Id.

The Feldman court further explained that, in other FCA cases, whether it be “medical care, security on mortgages, or subsidized housing,” the government got “what it bargained for but it did not get all that it bargained for” whereas in the third-party benefit grant context, the government bargains for “something qualitatively, but not quantifiably, different from what it received. Id. (emphasis in the original).

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Another Court Provides Strong Support for Whistleblower Use of Confidential Employer Documents to Expose Alleged Fraud

By Susan Thomas

One of the ways in which companies attempt to discourage whistleblowing or to punish actual whistleblowers is by asserting legal claims against them for using company documents, sometimes in violation of employment agreements or other company employee policies or under various tort laws.[1]  In one recent case, for example, the corporate employer brought a whole host of claims against an employee it had just terminated. Erhart v. BOFI Holding, Inc., Case No. 15-cv-02287-BAS-NLS, Order Granting in Part and Denying in Part BOFI Federal Bank’s Motion for Summary Adjudication, S.D.Cal. 2/14/2017.

This can be a powerful silencing device, since employees are worried about possible liability, or even just the notion of having to defend their conduct.  Especially when an employer asserts claims like this in conjunction with having terminated the employee, the risks and costs to the now-unemployed employee can be daunting.  And the intimidation against other employees considering similar reporting can be very strong.

In an effort to encourage whistleblowing activities so as to cut back on corporate fraud on the government, a number of statutes and regulations provide specific protection against these types of retaliatory suits by employers.  See, e.g,, Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, 130 Stat. 376 (2016) (amending 18 U.S.C. § 1833(b) and providing immunity from civil and criminal liability for individual who discloses a trade secret either to a government official or attorney in confidence to report a violation of law, or in a legal complaint filed under seal); An Act To enhance whistleblower protection for contractor and grantee employees, Pub. L. No. 114- 261, 130 Stat 1362 (2016), (extending protections from retaliation for employees of federal contractors, subcontractors, grantees, and sub-grantees who report a host of problems relating to federal contracts and funds); see also Press Release, Off. of Rep. Mike Coffman, Reps. Coffman, Rice, Speier and Blum Create House Whistleblower Protection Caucus (Apr. 26, 2016), (House Whistleblower Protection Caucus “will work to build bipartisan support for strong whistleblower protections [and] raise awareness about retaliation against whistleblowers.”).

On an even broader basis, however, courts have dismissed these types of claims by employers on general public policy grounds.  A recent opinion from the United States District Court for the Southern District of California relied on both statutory and public policy grounds in severely cabining the intimidating claims of the whistleblower’s former employer.  The court ruled that employer confidentiality agreements do not supersede federal whistleblower rights and warned that retaliatory lawsuits against whistleblowers are unlikely to succeed. Significantly, the court also provided concrete guidance to potential whistleblowers in terms of evaluating their risks and taking certain precautions so as to maximize the likelihood that their conduct will be deemed protected.

Erhart’s Whistleblower Claims

Charles Erhart worked as an internal auditor for BofI Federal Bank (BofI) and observed conduct that he believed was illegal in connection with the Bank’s decision to withhold responsive information to an SEC subpoena.  He sued BofI under the Sarbanes-Oxley Act and other whistleblower protection laws when he was fired in retaliation for his disclosing the alleged misconduct to federal regulators.  He also disclosed information to The New York Times, which resulted in a substantial decline in BofI’s stock price and general adverse publicity.

In response to Erhart’s retaliation suit, BofI further retaliated against him by suing him for alleged theft and dissemination of BofI’s confidential information, specifically 1) breach of contract; (2) conversion; (3) breach of the duty of loyalty; (4) negligence; (5) fraud; (6) violation of California Penal Code Section 502; (7) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(5); and (8) unfair business practices ….   BofI sought a ruling that Erhart’s whistleblowing activities were not a defense to BofI’s claims.

Key Provisions of Court Decision

  • Overall, the court held that “both federal and state law reflect a strong public policy in favor of whistleblowing and protecting whistleblowers from retaliation.” Slip op. at 19.  More specifically, the court concluded that “there is merit to a public policy exception to confidentiality agreements to protect whistleblowers who appropriate company documents. As discussed above, the Court recognizes the strong interest in the enforcement of confidentiality agreements like the one signed by Erhart. But at the same time, whistleblowers often need documentary evidence to substantiate their allegations.”  at 23.
  • Importantly, the court concluded that “if an employee is permitted to provide information regarding believed wrongdoing to the government, including documents, the employer cannot then seek to impose … liability on the employee for the same conduct.” at 33.
  • The court specifically recognized the importance of allowing documents to be taken or copied because of a concern that the documents might otherwise be destroyed before any investigation is commenced. Id. at 23.
  • In order to achieve a proper balancing between legitimate rights of employers to protect the confidentiality of their documents and the need of the government for private parties to report suspected fraud, the court reiterated the position taken by most courts that the whistleblower has to justify the need to have taken the documents. Hence the burden is on the party seeking to invoke the public policy exception “to justify why removal of the documents was reasonably necessary to support the allegations of wrongdoing.” Id. at 24 (internal quotations omitted).
  • Further, the court essentially set out guidelines for employees to follow to gain maximum protection for their activities. For example, if an employee is contemplating transmitting information to another’s computer or server, the employee should be prepared to demonstrate that the information taken was relevant to the reported wrongdoing, the information was transmitted out because there was a concern that the information would have been destroyed and the motivation for sending the information to another person was to support the allegations of wrongdoing. at 27-28.  Overall, the whistleblower should be careful to restrict copying of documents to only those closely related to the allegations of wrongdoing and to documents that the employee had appropriately accessed in the first instance. Id. at 26.

This is a welcome ruling providing support for whistleblowers who need to take company documents in order to support their allegations of corporate fraud on the government.

[1] See, e.g., Scott R. Grubman et al., Fighting Back: Asserting Counterclaims Against False Claims Act Relators, 27 THE HEALTH LAWYER 4, at 14 (Apr. 2015) (“Until recently, FCA Relators seldom, if ever, faced repercussions for taking and sharing what might otherwise be considered proprietary and confidential information to support their qui tam complaint. Recently, however, as more FCA cases work their way through litigation (particularly where the government declines to intervene and the Relator is left to pursue the case on behalf of the government), healthcare providers and their attorneys have become more willing to assert counterclaims against FCA Relators who appropriate confidential information to support an FCA qui tam.”).

 

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