THE FALSE CLAIMS ACT AND WHISTLEBLOWER
RETALIATION CASES
1. When is a Whistleblowing Employee
Entitled to Protection?
2. What is a Protected Whistleblower Activity?
3. Are Protests to the Employer Enough to Trigger Protection?
4. Who Can the Whistleblower Sue?
7. Possible Defenses to State Law Public Policy
Tort Claims
8. The Case of the Purloined Letters --
Can the Whistleblower Keep and Copy Employer
Documents?
9. Settling the Employment Case While Preserving
the Qui Tam Case
10. Allocation Issues in Settling the Employment Claim
11. Parallel Employment and Qui Tam
Proceedings
Not surprisingly, whistleblowers often develop employment-related problems,
and the whistleblower protection provisions of the False Claims Act are designed
to act like a public policy tort on steroids. The Congressional history of
the anti-retaliation provisions is clear:
"The Committee recognizes that few individuals will expose fraud if they
fear their disclosures will lead to harassment, demotion, loss of employment,
or any other form of retaliation ... the Committee seeks to halt companies
and individuals from using the threat of retaliation to silence 'whistleblowers',
as well as assure those who may be considering exposing fraud that they are
legally protected form retaliatory acts." (1)
The Committee stressed that the whistleblower protection is patterned after
other similar statutes, and includes "make whole" relief, including all
applicable tort damages, and that having made out a prima facie
case, the burden shifts to the defendant:
"[P]rotection should extend not only to actual qui tam litigants,
but those who assist or testify for the litigant, as well as those who assist
the Government in bringing a false claims action. Protected activity should
therefore be interpreted broadly."
"Additionally, as in the Safe Drinking Water Act, Clean Air Act, and Federal
Water Pollution Act, the employer would not have to be proven in violation
of the False Claims Act in order for this section to protect the employee's
actions. However, the actions of the employee must result from a 'good faith'
belief that violations exist."
"Any employee who is discharged, demoted, suspended, threatened, harassed,
or in any other manner discriminated against in the terms and conditions
of employment by his or her employer because of lawful acts done by the employee
on behalf of the employee or others in furtherance of an investigation for,
initiation of, testimony for, or assistance in an action filed or to be filed
under this section, shall be entitled to all relief necessary to make the
employee whole." (2)
Analyzing whistleblower protection requires the answer to three different
questions: What is false claim? What is a protected whistleblower activity?
How can an employee prove that retaliation is for a protected qui
tam-type activity?
An employee who is retaliated against is entitled to double back pay, interest,
attorney's fees, general and punitive damages, and reinstatement. Because
the employee's interest in correcting the wrongdoing is so important to these
cases, the rest of the statute is equally important.
We know that investigating or reporting 'traditional' false claims is protected.
But how far does this protection extend? The courts have sometimes taken
a results-driven, narrow view of the subject. In U.S. ex rel Hopper v.
Anton, the Ninth Circuit rejected the plaintiff's claim that her firing
was in retaliation for steps in "furtherance of an action" under the FCA,
pointing to over a hundred letters and phone calls she had generated just
trying to get the school district to comply with federal
law. (3) In arriving at this conclusion
Hopper failed to overrule, and did not even consider a Northern
District of California case which arrived at exactly the opposite
conclusion. (4) The plaintiff in Clemes
was a schoolteacher who discovered that his school district was taking
federal funds for educating mostly female Native American students, but then
not delivering services to them, in violation of Title VI and Title IX of
the Civil Rights Act. Clemes first complained to his immediate supervisor,
and then took his complaints to the county district attorney, the school
board, and the Department of Justice. The district maintained that these
complaints did not qualify Clemes for protection under §3730(h). Judge
Patel wisely concluded that:
"[S]uch a narrow reading would be inconsistent with the purposes of the False
Claims Act. Congress enacted the False Claims Act in order to discourage
fraud against the government and to encourage persons with knowledge of fraud
to come forward. (cite omitted.) It would be inconsistent with these dual
goals to impose upon section 3730(h) some sort of exhaustion requirement,
as defendants appear to urge." (Id., at 595.)
Clemes was in keeping with an Eastern District decision in which
the defendant owned publicly assisted senior citizen's housing which was
managed by the relator's employer, United States ex rel Kent v.
Aiello, (5) Ms. Kent filed a whistleblower
action alleging false records were used to submit bills to the government,
and also alleged that she was fired in retaliation for her testimony about
this before a grand jury. The Kent court astutely observed that
3730(h)'s list of protected activities was nonexclusive: the law protects
a wide range of conduct, "including investigation for, initiation
of, testimony for, or assistance in an action filed or to be filed.")
(Id., at 724, emphasis in text). The court found Ms. Kent's grand
jury testimony worthy of protection.
Clemes and Kent are in line with Neal v.
Honeywell. (6) Dr. Judith Neal had been
working at Honeywell's Joliet, Illinois plant for less than two years when
her supervisor asked her to investigate low morale in the PVC department
where ammunition was tested to see if it met military requirements.
While interviewing PVC employees, she learned exactly why morale was low
-- the results of the ballistic tests were being falsified. Dr. Neal informed
her boss, who immediately told her she wasn't supposed to have "found out"
and that Management would handle it. When Management did nothing, Dr. Neal
reported it to Honeywell's corporate office on an employee hotline. Although
promises of anonymity by Honeywell's in-house legal department, within three
days at least half a dozen executives in Joliet and in Honeywell's corporate
suites knew what she had done.
One manager threatened to "get" her, and she was asked if she wanted physical
protection. The main perpetrator, who made repeated threats against Dr. Neal,
was promoted. He was made Director of another Honeywell plant, twice the
size of the Joliet facility, and, six months later, received a $10,000/year
salary hike. Dr. Neal, in contrast, was stripped of virtually all of her
responsibilities. She was isolated from other employees suffered insomnia,
nightmares, and severe depression.
After she was ultimately forced to quit, Dr. Neal sued under the FCA for
her employer's retaliation against her. The court held that whistleblower
protection statutes "should be broadly construed so as to include internal
or 'intra-corporate' whistleblowing, even where the conduct involved did
not come under the literal terms of the statute." (Id., at 270.)
Since the Act is intended to end fraud against the government, Neal
concluded that "public policy demands that internal whistleblowers like the
Plaintiff in the present case be protected from retaliation." (Honeywell
settled with the U.S. for $2.5 million.) The Court went on to observe:
"The False Claims Act is intended to put an end to fraud against the government
by encouraging those with knowledge of such fraud to come forward. In order
to further that purpose, public policy demands that internal whistleblowers
like the Plaintiff in the present case be protected from retaliation.
"...It would make little sense to protect an anonymous qui tam plaintiff
who filed an expensive and time-consuming lawsuit while ignoring someone
like the Plaintiff, whose bold conduct led to a quick, voluntary and efficient
disclosure of the fraud and reparation to the government. Thus we hold that
the whistleblower protection provision of the False Claims Act forbids
discrimination against an employee who has made an intra-corporate complaint
about fraud against the government." (Id., at
272-273.) (7)
Honeywell moved for summary judgement on the issues of retaliation and
constructive discharge. The first issue before the Court was how to weigh
Dr. Neal's retaliation claim. Honeywell argued that it should be treated
as a "constructive discharge" claim under a Title VII analysis. Under this
analysis, Honeywell could not be liable unless it "created working conditions
so intolerable that they would cause a reasonable employee in Neal's position
to immediately depart.
Dr. Neal pointed out that her claim arose under a very different statute:
31 U.S.C. § 3730(h). The Court denied summary judgment, holding that
any retaliation is forbidden by the statute, and not merely constructive
discharge, and that Dr. Neal's complaint that she was threatened and harassed
was enough to make out a retaliation claim, even though management had offered
her a different job:
"There are three elements to a claim under § 3730(h): (1) the plaintiff
was engaged in conduct protected under the False Claims Act; (2) the employer
must have known that the plaintiff was engaging in such conduct; and (3)
the employer must have discriminated against the plaintiff because of her
protected conduct." Neal v. Honeywell, Inc. 942 F.Supp. 388, 396
(N.D. Ill. 1996).
The Court went on to hold that the defendant's evidence of "reasonable and
timely remedial measures" is for the trier of fact, and that the employer
can prevail only if the plaintiff's evidence "is so inadequate as to bar
this part of her claim as a matter of law". Id. at 397.
However, the district court initially granted summary adjudication on the
constructive discharge claim itself, since there was no evidence that a
reasonable employee would have turned down the offers of alternate employment.
Although Dr. Neal was interviewed for and was actually offered positions
at two other Honeywell facilities, she did not take them because these
intra-corporate transfers involved no salary increase. Initially, the trial
court did not consider this grounds sufficient to sustain a claim of constructive
discharge. On plaintiff's motion for reconsideration, however, the court
reversed itself, and allowed Dr. Neal to proceed with her constructive discharge
theory as well. Crucial to this was the deposition testimony of a senior
Honeywell vice President that Honeywell had an unwritten policy of terminating
managers who were not promoted within two years of their hire. Neal stressed
that she should have gotten a promotion after two years, that she had reported
the fraud just a bit before her two-year period expired, land that she had
expected to receive a promotion. Thus, lateral transfers were in fact punishment
-- the denial of an expected promotion.
The Court contrasted the lenient treatment of the plant manager, who received
a transfer (actually a promotion) and a salary increase with how Dr. Neal
was treated -- a one month paid leave when the investigation results were
announced. This was enough, according to the Neal court to raise
an issue for the trier of fact. Ultimately a jury awarded Dr. Neal $550,000.00
for emotional distress (she accepted a remittitur to $200,000.00) and $40,000.00
in back pay, which, when statutorily doubled and with interest added, became
$150,000.00. In addition to the $350,000.00 in damages, the judge awarded
Dr. Neal $1.46 million in attorneys' fees and $147,000.00 in costs, which
was upheld on appeal. (8)
Childree v. UAP/GA AG Chem, Inc. 92 F.3d 1140 (11th Cir. 1996)
also expanded the rights of whistleblowers to bring retaliation claims under
the False Claims Act even if they never br0ught a qui tam suit in
the first place. Childree stressed that the whistleblower protections
are available whenever a qui tam action is a "distinct possibility,"
even if one is never filed by the plaintiff or the government. Denise Childree
worked for a company she believed was submitting false bills to the U.S.
Department of Agriculture. She refused to cooperate in the fraud, and reported
it to her supervisors. One month later, when a USDA representative visited
the office and asked about the bills, Childree informed her of the fraud.
She then made copies of the false bills and took them home. Mrs. Childree
did nothing to pursue a false claims suit or to press the government to act
on her claim. However, when she was subpoenaed to a government hearing four
years later, she testified and turned over her documents. She was fired two
weeks later.
After she filed suit under the §3730(h) retaliation protections, the
district court granted summary judgment, finding that Mrs. Childree had never
performed any affirmative act to expose the fraud, had merely responded to
questions asked of her by an investigator, and testified after being served
with a subpoena duces tecum. The court concluded that Childree had failed
to show a nexus between her conduct and the furtherance of a potential False
Claims suit.
In reversing, the Eleventh Circuit followed Neal, and held that
Childree was protected because she assisted in what could have been
a False Claims action. In reaching this decision, the court relied on the
statute's plain language that protects any employee who has been punished
for assisting "in an action filed or to be filed" (emphasis added.)
(Id., at 1146.)
Neal identified the policy interest in protecting employees who
protest to their employers:
"...It would make little sense to protect an anonymous qui tam plaintiff
who filed an expensive and time-consuming lawsuit while ignoring someone
like the Plaintiff, whose bold conduct led to a quick, voluntary and efficient
disclosure of the fraud and reparation to the government. Thus we hold that
the whistleblower protection provision of the False Claims Act forbids
discrimination against an employee who has made an intra-corporate complaint
about fraud against the government." (Neal v. Honeywell, 826 F.Supp.
266, 272-273.)
The Fourth Circuit has agreed, holding that the whistleblower need not expressly
state an intention to bring a qui tam suit, so long as she engages
in some action which a fact finder could conclude put the employer on notice
that there might be a reasonable possibility of this. Such actions could
include, but not be limited to, characterizing the employer's conduct as
illegal or fraudulent, or recommending that legal counsel become
involved. (9)
This principle was also followed in Mikes v. Strauss, Ambinder &
Friedman. (10) Dr. Mikes found that
the medical group she worked for was running up the bills of Medicare patients
with needless tests. After complaining to her employers, she was fired. In
her retaliatory discharge suit, she filed an affidavit outlining the misuse
and overuse of these tests, asserted that many of the patients were Medicare
beneficiaries, that the defendants billed Medicare, and that plaintiff was
fired for her whistleblowing. The affidavit was held sufficient to overcome
a summary judgment motion.
The court ruled that Dr. Mikes need only prove that she was (1) engaged in
protected conduct, (2), the defendants knew of it, and (3) she was terminated
in retaliation for it.
However, there is another line of cases of special concern to compliance
officers, holding that the actions of an employee assigned to investigate
fraudulent activity does not trigger the FCA's protections because (1) the
employee is assigned those tasks, and (2) the mere carrying out of her or
his job functions does not necessarily put the employer on notice that the
employee is engaging in protected activity.
(11)
A former assistant U.S. attorney discovered that the greener grass of private
industry is not always so tasty. When he became house counsel for a company
which sold computer equipment to the government he worried that sales of
rebuilt equipment violated federal regulations. He even warned a member of
X Corp's management committee that it faced possible qui tam liability
and circulated articles and memos on qui tam actions. After being
forced out, he sued for retaliatory discharge. The court held that since
his position as house counsel required him to raise relevant legal issues,
this did not mean that his employer had reasons to suspect that he was planning
to bring a qui tam action. Since his employer did not know that
his action was in the works, his firing could not have been in retaliation
for such activity. (12)
The Fifth Circuit takes a similarly dim view. In Robertson v. Bell Helicopter
Textron, Inc., a former contracts administrator sued for retaliatory
discharge alleging he had been fired for protesting million dollar overcharges
to the government. Robertson had complained to Bell officials, and had told
the government contracts officer not to process a $1.6 million request because
it had not been verified. Bell fired Robertson, contending that he had simply
been part of a general reduction in force. After a verdict for the plaintiff,
the trial court entered JNOV for Bell, and was upheld on appeal. The Fifth
Circuit acknowledged that several district courts have held that the FCA
protects internal whistleblowers, but stressed that Robertson had failed
to use the terms "illegal," "unlawful," or "qui tam" to his employers when
he protested these activities. (13) It remains
to be seen whether the "Simon says" defense will spread to other circuits.
Of course, Mr. Robertson was a contract's administrator whose duty it was
to ensure compliance with federal law, and Mr. Doe was house counsel, with
a duty to warn and educate senior management about these problems. Thus,
the defendants were able to argue that they did not know that these individual
employees were investigating or pursuing cases. (This has the perverse effect
of allowing an employer to fire a whistleblower who is conscientiously doing
her job, but not one who goes "beyond the call of duty.") The 'garden variety'
whistleblower case where there are no such job duties imposed on the plaintiff
should fare much better.
A recent decision from the Fourth Circuit rationalized these conflicting
lines of authority. In Eberhardt v. Integrated Design &
Construction, the court directly faced the question of when corporate
employees charged with ferreting out fraud are protected by the FCA's
whistleblower provisions. (14) Eberhardt
was in charge of government relations for a firm which managed the design
and construction of embassy facilities for the State Department. Just six
months after being hired, and just weeks after being promoted to Senior Staff
Vice President, he discovered that ID&C had billed for $1.3 million in
services they had not, as yet, provided. Eberhardt was ultimately ordered,
by ID&C's president, to lead the corporate investigation into this fraud
and to prepare a report to the company's board. Eberhardt concluded that
there might be criminal conduct and told the company president ID&C should
retain criminal counsel.
Ultimately, ID&C disclosed the fraud to the State Department, and Eberhardt
disbanded his investigation. His salary (along with that of other corporate
management) was reduced to help offset the costs of the fraud. In what ID&C
characterized as a corporate reorganization, Eberhardt was made responsible
for marketing and for developing a comprehensive business plan/budget - tasks
for which he felt unqualified. Eberhardt declined these assignments, told
the company president that he felt he was being singled out as punishment
in retaliation for leading the investigation, and that he was being set up
for a pretextual firing. Eberhardt specifically mentioned the False Claims
Act's whistleblower protections, and informed corporate counsel that he planned
to bring a case under the FCA.
The Fourth Circuit began its analysis by recognizing that for most employees,
their investigations would be protected activities so long as there was a
"definite possibility" of filing a false claims suit.
(15) The court then addressed the question of what notice to the
employer that a protected activity was undertaken was required when the employee
was charged with investigating the fraud. Eberhardt acknowledged
that employees tasked with ferreting out the fraud need to do more than other
employees, but said that this burden could be satisfied by:
[A]ny action which a factfinder reasonably could conclude would put the employer
on notice that litigation is a reasonable possibility. Such actions would
include, but are not limited to, characterizing the employer's conduct as
illegal or fraudulent or recommending that legal counsel become involved.
These types of actions are sufficient because they let the employer know,
regardless of whether the employee's job duties include investigating potential
fraud, that litigation is a reasonable possibility.
(16)
The basic rule is that a mere investigation by a regular employee would be
sufficient, but that compliance officers, auditors, or other investigative
employees need do something more.
Although the profusion of "partnering" arrangements, collaboration between
contractors and subcontractors, and the use of long-term independent contractors
suggests that the law should extend whistleblower protections to
encompass these new business relationships, this has not been the case. 31
U.S.C. §3730(h) makes it clear that the protections extend only to employees
who have suffered retaliation at the hands of their
employers. (17) Whistleblowers who are
independent contractors thus may have no protections under the
FCA. (18) (However, other statutes might
afford recourse against third parties. See Section 5, infra.) Strict
statutory construction, coupled with the courts' generous application of
the intra-corporate conspiracy doctrine, has served to protect corporate
superiors from liability for retaliation.
(19) In published decisions, district courts have divided on the
issue, with one pole staked out by U.S. ex rel Kent v. Aiello, which
held:
"The statute provides relief to "any employee who is discharged . . . by
[her] employer because of lawful acts done by the employee" in furtherance
of a qui tam action. 31 U.S.C. § 3730(h). It appears relatively clear
that properly read, the statute defines the class of plaintiffs who may bring
suit under 31 U.S.C. § 3730(h) rather than those against whom suit may
be brought. That is to say that while it is true that under the statute a
plaintiff must have been an employee, the statute says nothing about the
class of defendants. Thus the defendants' reliance on section 3730(h) as
requiring that defendants must have been plaintiff's employer is
unfounded." (20)
This is consistent with traditional Title VII litigation, in which the Sixth,
Seventh, and Ninth circuits have held that the term 'employee' must be read
in light of the mischief to be corrected and the end to be attained, and
that any defendant who significantly affects access to employment opportunities
may be liable.
Mruz v. Caring, Inc., took the directly opposite view, holding
that liability for retaliation does not extend to an employer's lawyers whom,
the plaintiffs alleged, were conspiring with the employer to intimidate and
retaliate. (21) Mruz sought to limit
Kent to its facts, characterizing Kent's holding as whether
or not an immediate past employer which had retaliated, and which was closely
tied to the present employer, could be sued along with the present employer.
Mruz, however, made no comment on Kent's analysis of the
statute's language.
In addition to the federal False Claims Act, employees may be able to avail
themselves of additional protections, some of which may well reach third
parties. Where money has been stolen from states as well as from the federal
government, state false claims acts may come into play.
(22) Additionally, many states have either statutory or common
law whistleblower protection provisions which are triggered whenever an employee
is discriminated against for opposing or reporting upon acts that are in
violation of a "substantial" public policy.
(23) Another possibility is to invoke federal civil rights statutes.
Whistleblowers who are fired for cooperating with federal health care fraud
investigations may enjoy federal civil rights protections even if they never
file a qui tam suit. In Haddle v. Garrison, a unanimous Supreme
Court ruled that an employer or a third party involved in whistleblower
retaliation may be sued for damages under 42 U.S.C. §1985(2), a
Reconstruction-era civil rights statute known as the Ku Klux Klan
Act. (24) The expansion of liability to include
third parties means that counsel or others who urge their business partners
to get rid of meddlesome whistleblowers may do so at their peril.
Michael Haddle was an employee of Healthmaster, Inc., and cooperated with
federal investigators in the investigation that led to the indictment of
Healthmaster and its officers, Jeannette Garrison and Dennis Kelly. Although
Haddle never testified before the Grand Jury, he was subpoenaed as a potential
witness.
Throughout this period Haddle continued working for Healthmaster, which by
then was under control of a bankruptcy trustee. When Haddle was fired, he
could not sue Healthmaster, because of the pending bankruptcy proceedings.
Haddle, however, alleged that Garrison and Kelly, who were barred from
participating in Healthmaster's affairs, had conspired with Healthmaster's
counsel and one of its remaining officers, G. Peter Molloy, Jr., to bring
about Haddle's firing. Haddle claimed the firing was in retaliation for his
cooperation with the federal investigation, even though he never testified
in the Grand Jury proceedings, and was also intended to deter him from testifying
in the upcoming criminal trial.
42 U.S.C. § 1985(2) prohibits any "two or more persons" from conspiring
to "deter, by force, intimidation or threat, any party or witness in any
court of the United States from attending such court, or from testifying..."
Retaliation for appearing or testifying is also prohibited.
Haddle's suit was dismissed by the district court, and this was affirmed
by the 11th Circuit
Court of Appeals. Chief Justice Rehnquist, writing for the Supreme Court,
made several points, both implicit and explicit, that are important for
practitioners in this field:
* If Haddle's allegations are correct, they make out a 1985(2) case. Since
the statute makes no distinction between civil and criminal proceedings,
an allegation that a firing was intended to deter testimony at some future
trial may well be sufficient, even if that future trial is an anticipated
qui tam case or hearing concerning a civil monetary penalty.
* Since §1985(2) prohibits any form of retaliation or deterrence, all
tort damages logically flowing from any wrongful acts are compensable. This
was a crucial point since the Healthmaster case arose in Georgia, a state
without any public policy exception to the doctrine of at-will employment.
Although only a handful of states still have no public policy exception,
some states which do provide whistleblower protection also impose procedural
hurdles for employees seeking to claim they were the victims of retaliation.
The Haddle decision makes it clear that even if a plaintiff might not otherwise
be entitled to the protections of a public policy exception, he or she still
has the full panoply of civil rights protections under §1985(2).
The Haddle decision recognizes that as a civil rights statute, the
right to be protected is access to the federal courts - and that any damages
caused in violation of this law are compensable. This renders inquiry into
whether or not an employee had a "protected property interest" in a job or
a job opportunity simply irrelevant.
* Haddle recognized that a third party's pressure to fire an employee was
"merely a species of the traditional torts of intentional interference with
contractual relations and intentional interference with prospective economic
advantage." This may be the holding with the most sweeping implications.
Increasingly tight business integration has led to a growing network of "leased
employees" and other arrangements where professionals working for one entity
work closely with managers or providers from independent, but related entities.
It now appears that the Supreme Court's willingness to import traditional
"interference with contract" and "interference with prospective economic
advantage" analyses into such cases may persuade courts to apply third party
liability principles in qui tam employment settings as well.
Adding state law claims may prove important since many state statutes or
common law causes of action permit recovery of punitive damages, which are
not allowed under the FCA. (25)
This is another area where there is more debate than clarity. The False Claims
Act itself contains a six-year statute of limitations.
(26) Some courts have, accordingly, held that retaliatory discharge
suits also have a six year statute of limitations.
(27) Other courts, in unpublished decisions, have applied state
statutes of limitations, which are typically far less
generous. (28) As a practical matter, if
state law claims will become part of the suit, it is imperative to carefully
attend to the state statutes of limitation in any event.
A California Appellate court found that an employee fired for revealing his
employer's violation of the False Statements Act (18 U.S.C. §1001),
which is quite similar to the False Claims Act, stated a cause of action
for termination in violation of public policy.
(29) Despite this, some courts have held that FCA violations cannot
be the basis for public policy tort claims.
(30) In rejecting this as a basis for such claims, the district
court concluded that in Illinois the courts have generally restricted public
policy to matters affecting health and safety, and the FCA is monetary in
nature. A more troublesome argument is the defendant's claim that the
whistleblower protection provisions of the FCA constitute federal
preemption. (31) Although this should be
a disfavored position, counsel would be well advised to plead state-specific,
non "false claim" bases, for their state law claims, such as violations of
patient safety or environmental concerns, tax fraud, or anything which the
courts would recognize as a substantial public policy embodied in a state
statute or regulation.
Qui tam defendants have occasionally gone to the police, alleging
that documents have been stolen or other crimes committed. Usually a conversation
with police investigators explaining the underlying facts (without disclosing
the pendency of sealed litigation) will resolve the problem. Although I am
unaware of any law enforcement agency actually opening a formal investigation
(much less seeking criminal charges) is it an unnerving experience for the
client. Defendants have also tried to sue their former employees.
The specious cry of theft is often raised whenever an employee, especially
a whistleblowing employee, stands up for her rights. These matters do not
press so heavily upon Relators and their counsel. First, if the case is taken
on by the government, there is typically little opportunity for the defense
to raise this argument since government subpoenas rapidly acquire the same
material. Second, counterclaims are expressly disallowed. The one trial court
to confront this issue reasoned that so long as the originals are returned,
and so long as there is no risk of further dissemination, a court order
compelling return is inappropriate as no discernible public interest exists
in returning the documents. This decision is especially noteworthy since
the Relator had previously signed a confidentiality agreement with his
employer. (32) Third, there is a strong argument
to be made that the defendant has no right to throw a proprietary veil of
secrecy over the instrumentalities of a fraud.
In some cases, the best way to defend the whistleblower from such charges
is a good offense. 18 U.S.C. §1518, for example, declares it a federal
offense to obstruct any criminal investigation into health care fraud against
federal programs. In the early stages of your communications with the
Department of Justice, Relators will have no way of knowing whether their
false claims complaint may be referred for criminal prosecution, the employer's
counsel should be warned that their demand for return of the documents may
be exposing them and their clients to a separate criminal offense.
Generally, your client can settle her independent employment tort cases without
jeopardizing her qui tam case. This is because public policy prohibits
enforcing a broad release executed by relator before the qui tam
is filed. "Settle and sue" cases are permitted employees under United
States ex rel Green v. Northrop. (33)
Green was a criminal investigator at Northrop who uncovered fraud, reported
it, and was fired. After settling his state court wrongful termination suit
for $190,000, he filed a qui tam action. When the government declined
to intervene, Northrop sought to have the action dismissed on the grounds
that it was encompassed in the general release Green signed. The Ninth Circuit
disagreed, holding that the prefiling release of a qui tam action
without the knowledge or consent of the government was against public policy,
and therefore unenforceable. (34)
However, in an unpublished decision the same circuit enforced a release under
only slightly different conditions. (35)
In Hall the government had investigated relator's allegations before
the wrongful termination settlement, and had decided not to intervene in
the action. The Ninth Circuit ruled that, under these circumstances, the
public interest underlying FCA enforcement by private citizens did not outweigh
the public interest of encouraging settlement of private disputes. And another
unpublished decision from west coast California has further muddied the
waters. (36) In Chandler the relator
had reported the fraud to the government, which had originally taken no action.
Chandler then filed and settled an employment suit, including within it a
general release of all claims. The district court held that since the government
had already reviewed and rejected the allegations forming the basis of Chandler's
qui tam suit, the general release affected a release of the qui tam allegations
as well.
Whenever the government does not join in a false claims suit that includes
a whistleblower retaliation claim, the question of how to allocate the settlement
arises. Both prudence and a sense of propriety argue against allocating
settlement proceeds in a way which shortchanges the government. There is
something unseemly about a whistleblower who is ostensibly protecting the
public fisc joining in an effort to loot it. More practically, a Ninth Circuit
decision puts plaintiff's counsel at risk where there is suspicion of a collusive
s settlement.
In United States ex rel Killingsworth v. Northrop the whistleblower
brought a retaliation charge along with his false claims action. In settling
the case for $4.2 million, he sought to allocate $2.7 million to his employment
claim, and only $1.5 million to the actual false claim. Although the court
rejected the government's argument that it could, without intervening, veto
the settlement, the Ninth Circuit afforded the government the right to a
hearing on whether the settlement, including the allocation, was fair and
reasonable. (37)
The Ninth Circuit has also made it clear that the lawyer who tries to creatively
structure a settlement to deprive the United States of its share does so
at his or her peril. In United States ex rel Gibeault v. Texas
Instruments, the government objected to a $300,000 settlement labeled
as legal fees, when $124,500 of that money was turned over to the relators.
The district court was upheld on appeal when it found that the $124,500 was
actually proceeds of the qui tam action, to which the government
was entitled to a 70% share. Relators' counsel was ordered to pay $87,152,
or 70% of the "proceeds," to the government.
(38)
If possible do not file a separate retaliation case before filing your qui
tam action. At least one court, expanding on the holding of United
States ex rel Findley v. FPC-Boron Employee's Club
(39) and granted summary judgement and dismissed a qui
tam action on the grounds that the transactions had been disclosed --
in the Relator's own, previously filed whistleblower retaliation
suit! (40) The Sixth Circuit ruled, in keeping
with Findley, that even though the plaintiff had direct and independent
knowledge of the fraud, she was not an "original source" since she could
not establish that she had provided the knowledge to the government before
filing her qui tam action.
Another alternative is to file an unsealed wrongful termination case at the
same time that the sealed qui tam is filed. Although legally
permissible, this creates unending problems as the defendants use discovery
in the employment case to learn details about the false claims investigation.
The better practice, unless the client needs immediate resolution of the
employment dispute, is to attach the employment causes of action as pendent
state claims to the qui tam suit. If forced to appear in parallel proceedings,
counsel should consider asking the United States to seek a partial lifting
of the seal for the purpose of filing an in camera brief with the
state court tribunal, seeking either a protective order barring discovery
surrounding the false claims act prosecution and related investigations,
or even a stay of discovery.
Law Office of Mark Allen Kleiman
11755 Wilshire Blvd. Suite 2150
Los Angeles, California 90025
Phone 310 /268-0488 Fax 310 / 575-0097
ENDNOTES
2. 31 U.S.C. §3730(h).
3. United States ex rel Hopper v. Anton 91 F.3d
1261 (9th Cir. 1996)
4. Clemes v. Del Norte County Unified School Dist.,
843 F.Supp 583 (N.D. Cal. 1994)
5. United States ex rel Kent v. Aiello, 836 F.Supp.
720 (E.D. Cal. 1993)
6. 826 F.Supp. 266 (N.D. Ill. 1993), aff'd 33
F.3d 860 (7th Cir. 1994)
7. The Seventh Circuit imported a conservative policy
reading into the statute, finding a balancing between competing interests
(the taxpayer's on the one hand and the employer's interest in managing its
labor force on the other.) Neal v. Honeywell, 33 F.3d 860, 862 (7th
Cir. 1994). In dicta (or maledicta) the decision professed alarm over employees
whose careless or extortionate cries of fraud "over the disappointments of
daily life" clog the courts. After inveighing against predatory employees,
the Seventh Circuit ultimately acknowledged that the subsection's reference
to "acts done by the employee ... in furtherance of an action" implied some
kind of formal proceeding, and that the fact that the plaintiff, at the time
of her investigations and reports, could have filed such an action,
was enough. So strong is the Congressional mandate that even this court could
not avoid its obvious commands.
8. Neal v. Honeywell, 191 F.3d 827 (7th Cir. 1999)
9. Eberhardt v. Integrated Design and Construction,
Inc., 167 F.3d 861 (4th Cir.1999)
10. 889 F.Supp. 746 (S.D.N.Y. 1995).
11. See, e.g., United States ex rel. Ramseyer v.
Century Healthcare Corp., 90 F.3d 1514, 1522 (10th Cir. 1996);
Robertson v. Bell Helicopter Textron, Inc., 32 F.3d 948, 951 (5th Cir.
1994)
12. X. Corp. v. Doe, 816 F.Supp. 1086, 1096 (E.D. Va.
1993)
13. 32 F.3d 948, 951 (5th Cir. 1994), cert. den.513
U.S. 1154, 115 S.Ct. 1110, 130 L.Ed.2d 1075 (1995)
14. 167 F.3d 861 (4th Cir. 1999)
15. Id., at 867.
16. Id., at 868.
17. supra, n. 2.
18. Vessell v. DPS Assoc. of Charleston 148
F.3d 407 (4th Cir. 1998); U.S. ex rel Chandler v. Hektoen
Institute, et. al. 35 F.Supp.2d 1078, 1083 (N.D. Ill. 1999)
19. See, for example, Hoefer v. Fluor Daniel, Inc.
50 F.Supp. 975 (C.D. Cal. 1999), analyzing the splits between the circuits
regarding the intracorporate conspiracy doctrine, as well as differing opinions
by district courts within the Ninth Circuit, but holding nonetheless that
the doctrine applied to bar the plaintiff's suit for retaliation against
senior management.
20. n.5, supra.
21. 991 F. Supp. 701, 709, (D.N.J. 1998)
22. See, for example, California Government Code
§12650 et. seq; Texas Human Resources Code §§ 36.101,
36.115; Florida Stat. §§68.081-092; Tennessee Stat.
§§56-26-401 through 406; Illinois Stat. 175/1 et.
seq.
23. California Labor Code §1102.5
24. 119 S. Ct. 489; 142 L. Ed. 2d 502; 67 U.S.L.W.
4029,
25. Neal v. Honeywell, Inc., et. al., 995
F.Supp. 889, 895-96, (N.D. Ill. 1998)
26. 31 U.S.C. §3731(b)
27. Grand ex rel U.S. v Northrop 811 F.Supp.
333 (S.D. Ohio 1992)
28. U.S. ex rel Truong v.Northrop Corp. CV
88-967 (C.D. Cal. 1989)
29. Holmes v. General Dynamics Corp
17 Cal.App.4th 1418, 1429-1430 (1993)
30. U.S. ex rel Chandler v. Hektoen n. 18,
supra., at 1082.
31. Hoefer v. Daniel Fluor, n. 19,
supra. However, the district court invited relators to file a motion
for reconsideration of its ruling on this question, and the matter was argued
January 31, 2000. As of this writing, no ruling is yet available.
32. United States ex rel. Mikes v. Strauss, Ambinder
& Friedman 931 F.Supp. 248 (S.D.N.Y. 1996)
33. 59 F.3d 953, 963-967 (9th Cir. 1995).
34. Accord, United States ex rel DeCarlo
v. Kiewit/AFC Enterprises, Inc., et al. 937 F.Supp. 1039, 1043-46 (S.D.N.Y.
1996)
35. United States ex rel Hall v. Teledyne Wah Chang
Albany (1997 WL 121153 (9th Cir. Mar. 19, 1997)
36. U.S. ex rel Chandler v. Swords to Ploughshares
1999 U.S. Dist. LEXIS 3007 (N.D. Cal. 1999)
37. 37. 25 F.3d 715, 725 (9th Cir. 1994)
38. United States ex rel Gibeault v. Texas Instruments,
104 F.3d 276 (9th Cir. 1996)
39. 105 F.3d 675 (D.C. Cir. 1997)
40. 40. United States ex rel Jones v. Horizon
Healthcare Corp. , 160 F.3d 326 (6th Cir. 1998)
"GONNA PICK UP MY SWORD AND SHIELD"
They will do whatever we let them get away with.-- Joseph Heller
THE FALSE CLAIMS ACT AND WHISTLEBLOWER RETALIATION CASE
1. When is a Whistleblowing Employee Entitled to Protection?
2. What is a Protected Whistleblower Activity?
3. Are Protests to the Employer Enough to Trigger Protection?
4. Who Can the Whistleblower Sue?
5. Potential Causes of Action
6. Statutes of Limitation
7. Possible Defenses to State Law Public Policy Tort Claims
8. The Case of the Purloined Letters -- Can the Whistleblower
Keep and Copy Employer Documents?
9. Settling the Employment Case While Preserving the Qui Tam
Case
10. Allocation Issues in Settling the Employment Claim
11. Parallel Employment and Qui Tam Proceedings
1. See S. Rep. No. 345 at 34-35, reprinted in
1986 U.S.S.C.A.N. at 5299.