1. Our first whistleblower law newsletter–who, what and why?
Who: We are Tycko & Zavareei LLP, a law firm founded in Washington, D.C. by attorneys Jonathan Tycko and Hassan Zavareei . In recent years, a significant portion of our practice has been devoted to representing whistleblowers in qui tam litigation under the False Claims Act, and in connection with tax whistleblower claims before the IRS Whistleblower Office. With the recent passage of the Dodd-Frank financial reform law (discussed in detail in item 4 of this newsletter), which has created a qui tam-like procedure for persons wishing to blow the whistle on securities and commodities law violations, we expect our representation of whistleblowers to expand into that area as well. In addition to representing whistleblowers, our firm also represents individuals and companies in the areas of employment, wage & hour, unfair competition, and real estate. We also handle class action litigation, and have been appointed by courts as class counsel in a number of large class actions.
What: The Tycko & Zavareei LLP Whistleblower Law Newsletter will be devoted to legal developments in the whistleblower area. Currently, this area of law falls into three primary categories. First, under the False Claims Act, private citizens can bring qui tam actions (lawsuits brought in the name of the government) against companies who have engaged in fraud on the government. Historically, False Claims Act litigation focused on fraud by defense contractors and, more recently, on fraud by healthcare providers and pharmaceutical companies on the Medicare and Medicaid systems. But the False Claims Act covers any company or person who does business with the government, and successful qui tam actions have been brought by whistleblowers in almost every industry sector that relies in whole or part on the federal fisc. A successful qui tam plaintiff can receive between 15% and 30% of the government’s recovery as his or her reward for disclosing the fraud. Second, under the 2006 Tax Relief and Healthcare Act, a similar bounty was offered to individuals who disclose tax fraud to the Internal Revenue Service, and the IRS Whistleblower Office was established. That office now has a set of procedures and standards that must be followed to perfect a claim for that bounty. And third, the recently-enacted financial reform law, commonly known as the Dodd-Frank Act, established a new set of procedures and standards intended to encourage those with knowledge of securities and commodities laws violations to disclose that information to the SEC or CSPC, and created financial incentives similar to those that apply in False Claims Act and tax whistleblower cases. The procedures and standards in these three categories of whistleblower laws are overlapping, and legal developments in one are certain to influence the others. And whistleblowers of all sorts share other common concerns, such as retaliation by employers, potential industry “black listing,” and other types of common fall-out from the act of blowing the whistle.
Why: Our firm has committed itself to being among the elite firms in the country for the representation of whistleblowers. We are in the midst of a “whistleblower revolution,” with greatly expanded incentives and protections for whistleblowers. We want to share this fascinating area of law with you, and to keep you abreast of developments.
2. Top 5 qui tam settlements of 2010–so far.
This year is turning into another big year for settlements of False Claims Act cases. As has been true generally in recent years, the largest settlements involve claims of “off-label” marketing of drugs by pharmaceutical companies. Here are our choices for the five top settlements of the year so far.
1. The largest False Claims Act settlement of the year, so far, was announced by the Department of Justice earlier this month. The pharmaceutical company Allergan, Inc. will pay $600 million to resolve claims arising out of its “off-label” marketing of Botox. Under the settlement, $375 million will be for criminal penalties and forfeitures, and $225 million will be for settlement of civil False Claims Act claims. The qui tam whistleblowers who initially disclosed the “off-label” marketing to the government will receive a reward of approximately $38 million.
2. Pharmaceutical titan AstraZeneca LP agreed to pay $520 million to settle a False Claims Act lawsuit alleging that the company engaged in an “off-label” marketing and kickback scheme in connection with the anti-psychotic drug Seroquel. The qui tam whistleblower who initiated the case will receive approximately $45 million from the settlement.
3. Information technology company EMC Corporation agreed to pay $87.5 million to settle a lawsuit alleging that the company violated the False Claims Act and the Federal Anti-Kickback Act by fraudulently inducing the General Services Administration to enter into a contract.
4. Pharmaceutical company Novartis Vaccines & Diagnostics, Inc. agreed to pay $72.5 million to resolve allegations that the company conducted an “off-label” marketing campaign in connection its cystic fibrosis drug TOBI. The qui tam whistleblowers will divide a $7,825,000 share of the settlement.
5. Nelnet, Inc. agreed to pay $55 million to settle a lawsuit alleging that the company made false statements in order to obtain government subsidies for originating federally-guaranteed student loans.
3. How this year’s health care reform will impact whistleblower litigation under the False Claims Act.
By Melanie Williamson, Associate
In March of this year, President Obama signed into law the healthcare overhaul bill, known as the Patient Protection and Affordable Care Act (“PPACA”). One focus of the PPACA is on rooting out and deterring billing fraud by healthcare providers. Even prior to the expansion of government-funded healthcare contemplated by the PPACA, estimates for the amount of fraud on the Medicare system have been as high as $80 billion per year. One aspect of the anti-fraud provisions of the PPACA is an amendment to the False Claims Act that limits the scope of the so-called “public disclosure bar.”
The “public disclosure bar” is a defense that can be raised by a defendant in a False Claims Act qui tam lawsuit. Courts have traditionally had the power, under the public disclosure bar, to dismiss qui tam cases based upon fraud that has already been publicly disclosed. What counts as “public disclosure,” however, has been a hotly-contested issue.
The PPACA changed the public disclosure bar in many respects to the benefit of both qui tam relators and the government. The public disclosure bar previously barred courts from considering qui tam lawsuits that were “based on” allegations of fraud that had already been publicly disclosed through a variety of avenues. The new public disclosure bar only bars actions and claims if they disclose information that is “substantially the same” as the previously disclosed allegations or transactions. The change from “based upon” to “substantially the same” was intended by Congress to both clarify and narrow the scope of the bar.
Perhaps more importantly, however, is how information disclosed in state and private legal proceedings is treated. The pre-PPACA bar treated such information as having been “publicly disclosed,” even if nobody outside the immediate participants in the legal proceedings knew of information, and the affected federal government agency knew nothing about it. Now, under the PPACA amendments to the False Claims Act, information is considered publicly disclosed only if it is disseminated in federal proceedings, reports, hearings, audits, or investigations. And with respect to federal criminal, civil or administrative trials and hearings, the government must actually be a party to the proceedings where the information is disclosed.
The PPACA also broadens what was previously the single exception to the public disclosure bar, called the “original source” exception. Under pre-PPACA version of the False Claims Act, an action based upon information that was “publicly disclosed” was not barred if the person had “direct and independent” knowledge of the information underlying the allegations. Now, the original source exception covers two types of whistleblowers. First, a person who disclosed the information to the government before it was publicly disclosed can still proceed with a lawsuit based under the False Claims Act. Second, a person who has knowledge that is “independent of and materially adds to” the publicly disclosed allegations or transactions, and who has provided the information to the government before filing a lawsuit under the False Claims Act, is excepted. While the exact meaning of these terms will likely be the subject of interpretation by the courts, it is clear that they are intended to broaden the “original source” exception.Finally, the amendments to the False Claims Act included in the PPACA for the first time give the government considerable discretion in deciding whether a case otherwise barred by the publicly disclosure may still go forward. Under the previous version of the law, the bar was considered “jurisdictional,” which meant that a court was required to dismiss a qui tam case if it fell within the public disclosure bar. Under the new version, the government may oppose dismissal of the case, even if it falls within the public disclosure bar, and thus permit the qui tam lawsuit to go forward. This gives the government the ability to assess the circumstances, including how the dismissal of the qui tam relator’s case will affect the government’s ability to fully prosecute the case.
4. Dodd-Frank, and the brave new world of securities and commodities whistleblowing.
By Lorenzo Cellini, Associate
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although the primary goal of the Dodd-Frank Act was to change the framework of financial regulation in the United States in the wake of the 2008 financial crisis, it also contains a number of very important whistleblower provisions designed to encourage individuals to expose fraudulent activities in connection with financial securities and commodities. The law creates a new program through which a whistleblower may provide information relating to a violation of the securities laws to the Securities Exchange Commission (SEC). If that information leads to a successful judicial or administrative action by the Government, then the SEC is required to award the whistleblower between 10-30% of the total amount of monetary sanctions collected. The exact amount of the award within this range is determined by the SEC in its sole discretion. Furthermore, whistleblowers are only entitled to an award if the judicial or administrative action results in monetary sanctions that exceed $1,000,000.
The new SEC whistleblower program also creates an avenue for whistleblowers to report violations of the Foreign Corrupt Practices Act (FCPA). The FCPA makes it unlawful for a company, or an individual acting on a company’s behalf, to offer, give, promise to give, or authorize the giving of anything of value to any foreign official in order to obtain or retain business, or to direct business to a certain person. In addition, the FCPA requires companies whose securities are listed in the United States to satisfy certain accounting requirements. Companies must also make and keep books and records that accurately and fairly reflect corporate assets and must create and maintain an accurate set of internal accounting controls. The SEC is responsible for civil enforcement of the FCPA. Accordingly, whistleblowers may provide information relating to FCPA violations through the same program for reporting violations of the securities laws.
The Dodd-Frank Act also establishes a program for reporting fraud in connection with the sale of commodities that is analogous to the SEC’s program. Under this program, whistleblowers may disclose information relating to commodities fraud to the Commodity Futures Trading Commission (CFTC). As is the case with the SEC’s program, if the information leads to a successful judicial or administrative action, then the CFTC will award the whistleblower between 10-30% of the total amount of monetary sanctions obtained by the Government, provided that the sanctions exceed $1,000,000.
Finally, the Dodd-Frank Act includes a number of provisions designed to protect whistleblowers from retaliation by their employers. The law prohibits employers from taking any adverse employment action, or otherwise discriminating against an employee, for providing information to the SEC or CFTC. Any employee that is subjected to discrimination or retaliation has the right to file a lawsuit against his or her employer and seek reinstatement with the same seniority status, two times the amount of back pay owed the employee, and compensation for litigation costs, including attorneys’ fees. And in order to further protect whistleblowers from retaliation, the Dodd-Frank Act allows a whistleblower to anonymously submit information to the SEC or CFTC, as long as the whistleblower is represented by an attorney who submits the information on the whistleblower’s behalf. The SEC, CFTC, and any other government agency assisting the SEC or CFTC in an investigation, must then keep the information provided by the whistleblower confidential until the SEC or CFTC is required to disclose the information in connection with a public proceeding.
5. Case law developments–Rule 9(b) as applied to qui tam complaints: courts begin the move to a more pragmatic approach.
By Andrea Gold, Associate
Under the Federal Rules of Civil Procedure, whistleblowers seeking to expose fraud against the government must satisfy the requirements of Rule 9(b). That rule requires that whistleblowers explain the factual details of the alleged fraud “with particularity” in their initial complaint. This requirement, which is more stringent than the requirement in cases not alleging fraud, has posed significant challenges for some whistleblowers–namely, those who possess significant information about some aspects of the fraud, but do not have detailed knowledge of every aspect. Some courts have dismissed these types of claims–even though the whistleblower presented allegations strongly suggesting the existence of a fraud on the government–by applying a strict interpretation of the Rule. In short, according to these courts, because the whistleblowers only knew some, but not all, of the details of the fraudulent scheme, the allegations of their complaints were not alleged with sufficient “particularity.”
Recently, many courts have adopted a more commonsense application of Rule 9(b), the federal rule governing the level of factual detail required of qui tam relators alleging fraud against the government. This more favorable reading of Rule 9(b) is highlighted in a recently-decided Ninth Circuit case, U.S. ex rel. Ebeid v. Lungwitz et al., 2010 WL 3092637 (9th Cir. 2010).
In Ebeid, an outsider private physician claimed that the defendants–two individuals and three health care businesses–submitted false certifications to the government in connection with Medicare payments. The crux of the relator’s claims was that the Defendant engaged in the “unlawful corporate practice of medicine” and that referrals among the health care businesses were unlawful, making every claim for Medicare reimbursement that they submitted fraudulent.
Relying on the Fifth Circuit’s decision in Grubbs v. Ravikumar Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009), the Ninth Circuit held that, under Rule 9(b), “it is sufficient to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Ebeid, 2010 WL 3092637, at *4 (internal citations omitted). Importantly, the Court explicitly rejected an application of 9(b) that would require “a relator to identify representative examples of false claims to support every allegation [in the relator’s complaint].” Id. However, even applying this more relaxed standard, the Ninth Circuit found that Ebeid’s complaint did not survive Rule 9(b) because, rather than allege the “who, what, when, where and how” of the defendants’ misconduct, Ebeid simply made “general allegations–lacking any details or facts[.]” Id. at *5.
Although the result in Ebeid was unfavorable for the relator, the Ninth Circuit’s endorsement of Grubbs is encouraging. In Grubbs, the Fifth Circuit made it clear that Rule 9(b)’s time, place, content, and identity requirements are not “a straitjacket.” 565 F.3d at 190. Instead, Rule 9 (b) is “context specific and flexible.” Id. In short, under Grubbs, and now Ebeid, whistleblowers need not have specific knowledge–at the time they file their complaint–of every detail of the defendants’ specific false claims so long as they can properly allege the details of defendants’ scheme to submit such claims.
6. Check out our website and blog
For the past couple of years, we’ve had a website and a blog devoted exclusively to qui tam litigation and whistleblower law. The website is FraudFighters.net, and the blog is FraudFighters.WordPress.com. We update the blog fairly regularly, whenever we get news of a significant development in the law, or a big settlement or other result in a case. Want to learn more about the other types of cases our firm is handling? Our general firm website is tzlegal.com.