Whistleblower Watch

Whistleblower Watch

Reports and Analysis of Developments in Whistleblower Law

Rise in FCA Penalties Could Incentivize More Whistleblower Suits

Posted in Department of Justice (DOJ), False Claims Act (FCA)
Jason M. Crawford

On June 30, 2016, the Department Of Justice, published an interim final rule nearly doubling the penalty range for violations under the civil False Claims Act (FCA).  The current range is $5,550-$11,000 for each false claim, but under the new rule the penalty for each false claim would be no less than $10,781 and not more than $21,563. Whistleblowers (referred to as relators under the statute) can collect up to 30 percent of any amount recovered under the FCA (including penalties). Accordingly, the increase in the penalty range will likely incentive the government and relators to bring more actions.  In a “Feature Comment” published in The Government Contractor, C&M attorneys analyze the new rule, the implications of dramatically increased penalty amounts on FCA litigation, and the likely effect on federal government contractors.


House Bill Lays Out New Whistleblower Protections for Contractors

Posted in Legislation
Tiffany Wynn

Last week, a group of House members led by Reps. Elijah Cummings (D-Md.) and Jason Chaffetz (R-Utah), introduced bipartisan legislation to extend the whistleblower protections currently afforded contractors, grant recipients and subcontractors, to subgrantees and personal services contractors.  The House legislation, named the Whistleblower Protections for Contractors Act (H.R. 5920), would also make the temporary civilian whistleblowing programs permanent. 

H.R. 5920 is the House counterpart to Senate bill S. 795 – introduced by Sen. Claire McCaskill (D-Mo.) in March 2015 – and the latest of a steady stream of measures geared towards protecting whistleblowers.


California State Whistleblower Claim Nets $30 Million Anti-Kickback Settlement from Life Sciences Company

Posted in State Whistleblower Laws
Keith HarrisonJason M. Crawford

Life sciences companies continue to be the focus of whistleblower actions, not just on the federal level, but on the state level as well. Bristol-Myers Squibb (“BMS”) recently agreed to pay the State of California $30 million to resolve allegations stemming from a whistleblower lawsuit alleging that it paid illegal kickbacks to physicians.  The settlement (available here) resolves nine years of whistleblower litigation.

The lawsuit was filed by three former BMS sales representatives with first-hand knowledge of the illegal practices, including former NBA point guard Lucius Allen. The lawsuit was brought under the qui tam provisions of the California Insurance Frauds Prevention Act (“IFPA”) and claimed that BMS violated the IFPA by using kickbacks to defraud insurance companies. The allegations in the complaint are extremely old—dating back to 1997—which explains why the drugs involved include long-off-patent medications such as the statin drug Pravachol.

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High Court Recognizes FCA Liability Based on Implied Certification

Posted in False Claims Act (FCA)
Brian Tully McLaughlinJason M. CrawfordSarah Hill

Last week in Universal Health Servs. v. U.S. ex rel. Escobar, the Supreme Court recognized the implied certification theory of FCA liability, subject to “rigorous” and “demanding” application of the scienter and materiality standards.  The Court unanimously held that a defendant may be liable under the FCA when, in connection with a claim for payment submitted to the government, the defendant “makes specific representations about the goods or services provided” and fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that makes the representations “misleading half-truths.” Universal Health had argued that “liability should be limited to undisclosed viola­tions of expressly designated conditions of payment to provide defendants with fair notice and to cabin liability.” Responding to Universal Health’s argument, the Court wrote that concerns about fair notice and open-ended liability can be effectively addressed through strict en­forcement of the Act’s materiality and scienter require­ments.

The decision leaves considerable room for interpretation, and both the whistleblower and defense bars have hailed the decision as a win for their respective camps.  In a “Feature Comment” published in The Government Contractor, C&M attorneys analyze the Court’s opinion, the legal and factual context in which it arose, and its likely effect on Government contractors, health care providers and all institutions that accept federal dollars.

Second-Largest Whistleblower Award Issued by SEC

Posted in Dodd-Frank Act (Dodd-Frank), Securities & Exchange Commission (SEC)
Christine Hawes

Last week, the SEC awarded more than $17 million to a single former corporate executive who provided a “detailed tip” regarding securities law violations by a financial services company.  Four other individuals made claims in the case, which the SEC denied because their information did not lead to successful enforcement of the securities law violations.   

This award is the second largest in the history of the SEC’s whistleblower program, following the SEC’s $30 million whistleblower award in September 2014.  The SEC whistleblower program has been particularly active recently, having issued five awards in five weeks, totaling more than $26 million.  In total, the agency’s whistleblower program has paid out more than $85 million in awards to 32 whistleblowers since the program was created nearly five years ago.


Supreme Court to Hear FCA Seal Violation Issue

Posted in False Claims Act (FCA)
Brian Tully McLaughlinDavid W. O'BrienStephen M. ByersJason M. Crawford

For the third consecutive year, the Supreme Court will hear a case involving the False Claims Act (FCA).  On May 31, the Court granted review in State Farm Fire and Cas. Co. v. U.S. ex rel. Rigsby to address the applicable standard for dismissal in FCA cases when whistleblowers (referred to as relators under the statute) violate the FCA’s statutory sealing provision by publicly revealing the allegations in their complaint while it is under seal and being investigated by the government.  The case presents the Court with an opportunity to resolve a split in which circuits have applied three tests: (1) a bright-line rule that mandates dismissal; (2) a rule that considers whether the violation frustrates the congressional goals served by the seal requirement; and (3) a balancing test that focuses on whether the violation actually harms the government.  Crowell & Moring will monitor developments in this case closely and provide updates when the case is fully briefed and argued.

The Court decided that it would not hear the second question presented in State Farm’s petition for certiorari — whether a corporation may be deemed to have “knowingly” presented a false claim, or used or made a false record, in violation of the FCA based on the purported collective knowledge of employees other than the employee who made the decision to present the claim or record found to be false.  In Rigsby, the Fifth Circuit applied the collective knowledge doctrine in order to hold State Farm liable under the FCA even though the State Farm employee submitting the claim to the government did not know that the claim was false. The importance of this issue was underscored by the fact that several trade associations filed amicus briefs in support of a grant. (Crowell & Moring submitted an amicus brief on behalf of the Academy Advisors, a policy coalition associated with the Health Management Academy). Healthcare providers, government contractors, and all institutions that receive federal dollars can only hope that the Court will continue its pattern of hearing FCA cases and will address the collective knowledge doctrine in the near future.

Court Dismisses Counterclaim Against FCA Whistleblower for Disclosing Confidential Information

Posted in False Claims Act (FCA)
Stephen M. ByersJason M. CrawfordCharles Baek

On May 9, in United States ex rel. Cieszynski v. LifeWatch Servs., the U.S. District Court for the Northern District of Illinois dismissed the defendant health care company’s counterclaim against a former employee, ruling that Matthew Cieszynski’s disclosure of protected patient information fell within the public policy protections for whistleblowers.  In the underlying False Claims Act (FCA) suit, Cieszynski alleged that LifeWatch violated the FCA by submitting claims for reimbursement for heart monitoring services that it knew violated Medicare regulations because LifeWatch was allegedly sending some of the heart monitoring work offshore to technicians based in India.

In its counterclaim, LifeWatch argued that Cieszynski violated his confidentiality agreement, as well as the LifeWatch privacy policy, when he took and disclosed a spreadsheet containing information protected by the Health Insurance Portability and Accountability Act.  To support its argument that the disclosure was not entitled to whistleblower protections, LifeWatch cited United States ex rel. Wildhirt v. AARS Forever, Inc., 2013 WL 5304092 (N.D. Ill. September 19, 2013), in which the court allowed a counterclaim to proceed against an FCA whistleblower for disclosure of the defendant’s confidential information.

But in Cieszynski, the court rejected LifeWatch’s argument holding that: (1) The disclosure fell within public policy protections for whistleblowers because the disclosure didn’t go beyond what was necessary for Cieszynski to support his FCA claims—unlike in Wildhirt where the whistleblowers took HIPAA-protected documents home with them “haphazardly and for no particular purpose,” and (2) although Cieszynski disclosed more PHI than necessary as his disclosure included privately insured patient information, it is “unrealistic” for a whistleblower to bear the burden of knowing precisely how much information the government needs to uncover false claims.

In recent years, there has been increase in FCA defendants raising counterclaims based on breaches of confidentiality agreements.  Such counterclaims have forced courts to grapple with competing policy interests, and the law is unsettled regarding what documents a whistleblower can take in support of FCA allegations and what a whistleblower can do with those documents.  Indeed, in reaching his decision in Cieszynski, U.S. Magistrate Judge Sidney I. Schenkier acknowledged that courts must “balance the need to protect whistleblowers and prevent chilling their attempts to uncover fraud against the government against an employer’s legitimate expectations that its confidential information will be protected.”  (A recent article by C&M attorneys, available here, discusses the tension that companies face when drafting confidentiality agreements.)  For defense counsel, the distinction between Wildhirt and Cieszynski makes apparent that they must attack the nexus between the confidential documents and the false claim allegations rather than reflexively launching breach of confidentiality counterclaims.  Still, until courts more fully define the contours of the public policy exception for “self-help” discovery—in which a whistleblower takes documents they believe relevant to their claims—counterclaims for breach of confidentiality agreements will remain an area of active litigation.

FCA Whistleblowers’ Increasing Reliance on “Tainted Claim” Damages Theory

Posted in False Claims Act (FCA)
Jason M. CrawfordJared Engelking

In a “Feature Comment” published in The Government Contractor, Crowell & Moring attorneys explore how False Claims Act (FCA) plaintiffs are taking an increasingly aggressive posi­tion on how damages should be calculated—i.e., that the Government is entitled to three times the amount of the total contract value, regardless of any value actually received, because the claim for pay­ment was “tainted” by an underlying legal violation. Whistleblowers (referred to as relators under the FCA) have strong financial incentives to push for extensive damages the “tainted claim” theory because their bounty is tied to the amount of the Gov­ernment’s recovery. But to the defense bar and industry, such recoveries—in cases where goods and services were delivered—seem like a windfall. The article explores how courts have addressed the tainted claim theory in cases in which the market value of the harm is not readily calculable, such as in cases of fraudulent inducement and small business fraud.

Supreme Court Hears Arguments on FCA Implied Certification Theory

Posted in False Claims Act (FCA)
David W. O'BrienBrian Tully McLaughlinJason M. CrawfordSarah Hill

The Supreme Court heard arguments today in Universal Health Services, Inc. v. United States ex rel. Escobar, a False Claims Act (FCA) case with potentially far-reaching consequences for whistleblowers, healthcare providers, government contractors, and all companies and institutions that receive federal dollars.  There are two questions before the Court: (1) whether the “implied certification” theory of liability is ever viable, and (2) if it is, whether a government contractor’s reimbursement claim can be false if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment.

Based on the questions from the bench, it would appear that the implied certification theory of liability is here to stay as there was little discussion about the viability of the theory. Instead, most of the discussion centered on developing a standard that will help courts identify whether particular regulatory, statutory, or contractual requirements are “material” such that the failure to disclose their violation renders a claim for payment fraudulent. If the court defines materiality broadly, contractors face the risk that they will have to defend themselves in FCA actions based on their failure to comply with myriad contractual terms or regulations.

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No Escaping (Legislative) History

Posted in False Claims Act (FCA)
Gail D. ZirkelbachJason M. Crawford

Last month, in Gierer v. Rehab Medical, the U.S. District Court for the Eastern District of Missouri granted the defendant’s motion to dismiss the portions of the whistleblower’s complaint that alleged punitive damages against her former employer pursuant to her § 3730(h) FCA retaliation claim.

Courts have routinely held that Congress did not intend for a prevailing employee to receive punitive damages under the FCA.  See e.g., Leggins v. Orlando Housing Auth., 2013 WL 937739, at *2-3 (M.D. Fla. Mar. 11, 2013) (finding Congress did not intend for punitive damages to be available under the anti-retaliation section of the FCA). Gierer attempted to distinguish these cases because they had arisen in the context of a plaintiff attempting to recover punitive damages against a state entity whereas Gierer was attempting to recover against a private entity, a supplier of various electric-motorized wheelchairs.

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