Whistleblower Watch

Whistleblower Watch

Reports and Analysis of Developments in Whistleblower Law

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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District Court finds SEC Regulation on Dodd-Frank Not Entitled To Deference on Whistleblower Protections

Posted in Dodd-Frank Act (Dodd-Frank), Whistleblower Retaliation
Kris D. Meade

Another federal court has joined the Fifth Circuit on one side of a circuit court split, rejecting the SEC’s interpretation that a whistleblower need not report potential Dodd-Frank Act violations to the SEC to gain protection under the anti-retaliation provisions of the Dodd-Frank Act. Federal District judge Thomas A. Varlan of the Eastern District of Tennessee reached that conclusion in a case brought by a former employee against Morgan Stanley, Verble v. Morgan Stanley Smith Barney LLC et al., Case No. 3:15-cv-00074 (E.D. Tenn.). Like other courts on this side of the appellate court split, Judge Varlan rejected the SEC’s position, finding that “the Dodd-Frank Act is unambiguous on th[e] issue” of whether conduct must be reported to the SEC and “consequently, the court will not give deference to the SEC regulation.” Because the former employee provided information to the FBI, but not the SEC, before his termination, “he does not qualify as a whistleblower as defined in Dodd-Frank and has no protection.”

Judge Varlan also dismissed the former employee’s other claims, including a Sarbanes-Oxley (SOX) retaliation claim. As to the SOX claim, the former employee failed to allege in his civil complaint that he had filed a SOX complaint with OSHA.  As a result, the court determined it lacked subject matter jurisdiction over the SOX claim.

With this most recent decision, the drumbeat has become louder for Supreme Court resolution of the circuit court split as to whether the SEC’s regulation is entitled to deference and, thus, whether a whistleblower may proceed with Dodd-Frank retaliation claims even when the whistleblower fails to report the alleged misconduct to the SEC.

Cert Granted on Implied Certification Theory

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

Last week, in a case that will have a significant impact on the health care and government contracting industries, and also on potential whistleblowers, the Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar, a False Claims Act (FCA) case from the First Circuit. By agreeing to hear the case, the Court appears set to resolve a circuit split over the “implied certification” theory of legal falsity under the FCA.  Specifically, the court will consider: (1) whether the implied certification theory of legal falsity under the FCA is viable; and (2) if so, whether a government contractor’s reimbursement claim can be legally false when the claimant failed to comply with a statute, regulation, or contractual provision that is deemed “material” to the government’s decision to pay the claim, even when the statute, regulation or contractual provision does not expressly state that compliance with that provision is a condition of payment.

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2015 SEC Whistleblower Report Highlights Successes and Trends

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

In November, the Securities and Exchange Commission issued its 2015 annual report to Congress on the agency’s Dodd-Frank Whistleblower Program. The report notes an increased number of tips made by whistleblowers to the SEC — up 8% from last year and 30% since 2012.  The statistics in the report also provide an interesting profile of the successful whistleblowers.  Nearly half of the whistleblowers who received awards were current or former employees of the company they reported.  About 80% of the whistleblowers had either raised their complaint internally or knew that the company was aware of the alleged violations before the SEC complaint was initiated, and approximately 20% of the whistleblowers submitted their tips anonymously.

The SEC’s report also discusses the agency’s future goals and objectives for the program. The SEC will hire two new attorneys to handle the increasing number of whistleblower tips .  Additionally, the SEC has made clear that, going forward, it will continue to place stronger emphasis on certain aspects of the whistleblower program, including investigating whistleblower retaliation claims and claims regarding confidentiality agreements that may stifle a whistleblower’s ability to raise concerns with the SEC.

United States v. AseraCare: A Look at the First (and Perhaps Last) Bifurcated FCA Trial

Posted in False Claims Act (FCA)
John BrennanJason M. Crawford

“False Claims Act cases have been particularly hot in 2015.”  So reads the first line of Judge Karen Bowdre’s order granting a new trial in United States v. AseraCare Inc., No. 2:12-CV-245-KOB (N.D. Ala. Nov. 3, 2015).  If 2015 has been a “hot” year for FCA cases, then AseraCare—and its unprecedented procedural twists—is undoubtedly one of the hottest.

By way of background, the qui tam suit against AseraCare was filed under seal in 2008 by three admissions nurses who alleged that the national chain of hospice providers improperly recruited and certified patients, some of whom were not terminally ill, in an effort to make as much profit as possible from Medicare.  The government intervened in 2012 and sought more than $200 million in fines and penalties, making it the largest FCA case ever brought against a hospice provider.

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Second Circuit Creates Circuit Split Over Internal Whistleblowers

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

The Second Circuit ruled in Berman v. Neo@Ogilvy LLC that a whistleblower whose employment was terminated after he raised concerns internally at his company, rather than filing a formal complaint with the SEC, was protected from retaliation under the Dodd-Frank Act. While recognizing that the statutory protections do not clearly cover internal complainants, the Second Circuit found the SEC’s regulatory interpretation of the statute – that whistleblowers are protected from retaliation even if they only report their concerns internally – is entitled to deference.

The Berman decision creates a circuit split on the issue of whether whistleblowers who raise concerns under Dodd-Frank only internally can avail themselves of the non-retaliation provisions of the statute. In Asadi v. G.E. Energy (USA), L.L.C., the Fifth Circuit rejected the SEC’s arguments and instead found that the anti-retaliation provisions of Dodd-Frank, on their face, do not extend to internal whistleblowers. The Fifth Circuit is the only other Court of Appeals to address the issue at this point. Neo@Ogilvy has requested Supreme Court review of the Berman decision, in light of the circuit split, and the case is a strong candidate for Supreme Court resolution. We will continue to monitor developments on this issue, including the Supreme Court’s decision on the Neo@Ogilvy petition and the outcome of cases pending in other circuits, including Wadler v. Bio-Rad Laboratories, Inc., No. 2:15-cv-2356 (N.D. Cal.).

Relator-Friendly Ruling Highlights Dangers of Imprecise Settlement Agreements

Posted in Department of Justice (DOJ), False Claims Act (FCA)
Stephanie Willis

The Middle District of Tennessee ruled recently that Community Health Systems, Inc. (CHS) cannot rely upon the “first to file” and “public disclosure” bars to avoid paying attorneys’ fees and costs where a settlement agreement did not specify these grounds for precluding such awards to the relators. This outcome should warn defense counsel to clearly and precisely reserve the right to challenge a whistleblower’s claims to such fees in settlement agreements resolving multiple False Claims Act (FCA) suits brought by distinct relators.

The fee dispute arose after CHS entered into a $98.15 million global settlement of seven qui tams brought in jurisdictions across the country. The FCA settlement resolved two sets of covered conduct:

  1. that CHS improperly admitted Medicare, Medicaid, and TRICARE program beneficiaries from multiple hospitals’ emergency departments (EDs) as inpatients and billed these government health care programs for services that should have been provided for and billed as outpatient or observation services (ED Claims); and
  2. that a CHS-affiliated hospital, Laredo Medical Center (LMC), improperly billed Medicare for services referred to LMC by a physician who was offered a medical directorship at LMC, in violation of the Physician Self-Referral Law (commonly referred to as the “Stark Law”).

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