The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) last week ordered AirTran Airways, a subsidiary of Dallas- based Southwest Airlines Co., to reinstate a former pilot who was fired in 2007 after he filed numerous reports of mechanical malfunctions. OSHA found that AirTran violated the whistleblower provision of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR21), which prohibits retaliation against airline employees who blow the whistle on safety concerns.
On August 23, 2007, AirTran removed the pilot from flight status until the airline could hold an internal hearing regarding the sudden spike in the number of mechanical malfunction reports (PIREPS) that he filed. A week after the hearing, the airline fired the pilot for failing to provide a satisfactory explanation for the number of PIREPS he had filed.
In addition to reinstating the former pilot, AirTran must pay the pilot more than $1 million in back wages plus interest and compensatory damages.
Dr. David Michaels, Assistant Secretary of Labor for Occupational Safety and Health, stated:
Retaliating against a pilot for reporting mechanical malfunctions is not consistent with a company that values the safety of its workers and customers… Whistleblower laws are designed to protect workers’ rights to speak out when they have safety concerns, and the Labor Department will vigilantly protect and defend those fundamental rights.
The Employment Law Group® law firm has an extensive whistleblower practice and represents employees nationally who have been victims of retaliation.
On January 19, 2012 Janssen Pharmaceuticals Inc., a subsidiary of Johnson & Johnson, announced that it had agreed to pay $158 million to settle a Medicaid fraud lawsuit in Texas which alleged that the company improperly marketed its antipsychotic drug Risperdal causing the state to overpay for the drug.
The lawsuit alleges that the company committed fraud by making false or misleading statements about the cost, effectiveness, and safety of the drug and exerted improper influence over physicians and state officials to recommend the drug, including allegations of providing kickbacks. Additionally, the lawsuit claimed that the company told physicians that the drug was safe to prescribe to children even though the Food and Drug Administration (FDA) had not approved such use.
Janssen announced that it agreed to pay the $158 million settlement in order to resolve all claims against it in Texas. The company noted, however, that it does not admit any liability or wrongdoing by entering into the settlement agreement. The settlement will put an end to the trial that began on January 10, 2012.
Some analysts have contended that the $158 million settlement is a victory for Johnson & Johnson because the company has made billions from the sales of Risperdal and the settlement will allow the company to avoid repaying the $579 million that the Texas Medicaid program spent on the drug in addition to the $500 million in penalties initially sought by Texas Attorney General Greg Abbot.
The suit was originally filed in 2004 when whistleblower Allen Jones, a former employee of the Office of Inspector General of Pennsylvania, claimed that he had uncovered the drug manufacturer’s alleged violations while he investigated claims in Pennsylvania. Texas joined the lawsuit two years later in 2006.
Mr. Jones will receive a portion of the settlement amount for his role as a whistleblower. The details of the settlement, including the amount of the award to be received by the whistleblower, have not yet been released.
Last week, the U.S. government filed an amicus brief urging the U.S. Court of Appeals for the First Circuit to reopen a False Claims Act (FCA) lawsuit against Pfizer Inc. that alleged the drug manufacturer paid kickbacks to physicians who prescribed its drug Genotropin.
The case, U.S. ex rel. Peter Rost v. Pfizer Inc., began in 2003 when relator Peter Rost, a former Pfizer vice president, alleged that the company and its affiliate Pharmacia Corp. engaged in practices involving kickbacks that led to pharmacies submitting false Medicaid claims for Pfizer’s drug Genotropin and that Pfizer induced pharmacies to prescribe the drug for off-label uses. The suit was unsealed in 2005 after the U.S. government opted not to intervene in the case.
In 2010, Judge Patti Saris of the U.S. District Court for the District of Massachusetts ruled that the alleged kickbacks did not constitute a cause of action under the FCA. The ruling, which was based on a theory of implied certification, held that the Medicaid claims that innocent third-party pharmacies submitted were not considered fraudulent within the meaning of the FCA even if Pfizer had violated the Anti-Kickback Statute. The judge also found the companies had not engaged in any illegal off-label marketing of Genotropin.
The government noted that it filed the amicus brief because of its interest in ensuring that the FCA would be used in qui tam lawsuits involving kickback claims. According to the brief:
“an entity that knowingly causes the submission of kickback-tainted claims to Medicare or Medicaid cannot avoid liability under the FCA simply because such claims are submitted by ‘innocent’ third parties…who have no knowledge of the underlying kickbacks.”
In urging the First Circuit to revive the case, the amicus brief also indicates that the First Circuit recently reopened similar qui tam cases against Amgen Inc. and Blackstone Medical Inc. that alleged kickbacks.
Mr. Rost’s attorney recently told reporters that he thinks that the government believes that it is “important to try to prevent the pharmaceutical industry from using these kickbacks to try to taint the judgment of doctors.”
Elmwood Place, Ohio Police Sergeant Gary Darty filed a lawsuit two weeks ago in the U.S. District Court for the Southern District of Ohio against Chief William Peskin, who Darty claims retaliated against him after he disclosed to local officials that Peskin had engaged in police misconduct.
Darty wrote a letter to the Elmwood Place Village Council and mayor in July 2011 citing instances in which the Chief of Police committed “unlawful and immoral acts” in the workplace. According to Darty, Peskin destroyed evidence, allowed uncertified officers to use radar guns and chemical spray, poked a handcuffed man until the man’s nose bled, and mistreated officers by firing plastic bullets at them.
Darty claims that Peskin became aware of the allegations in September and suspended Darty for three days for allegedly “lying about how a shift was covered.” According to Darty’s complaint, Peskin continued to retaliate by scheduling Darty to work unfavorable and additional shifts, including on Christmas and weekends. When Darty told Peskin that he could not work a third shift because of his childcare obligations, Peskin responded, “Maybe it’s time to a find a new job.”
The lawsuit also alleges that Elmwood Place Mayor Stephanie Morgan was negligent in investigating the incidents of police misconduct that Darty described in his July 2011 letter. Under Ohio law, it is mandatory that government officials act upon claims of this nature.
The Employment Law Group® law firm represents employees nationally who have blown the whistle on hostile work conditions and have been the victims of retaliation.
On January 11, 20101, The Occupational Safety and Health Administration (OSHA) cited Prolerized New England Co. LLC, a recycling company in Everett, Massachusetts, for ten serious workplace safety violations and proposed that the company pay $70,000 in fines. OSHA investigated Prolerized’s Schnitzer Northeast facility in Everett, Massachusetts after an incident in September 2011 in which two workers were seriously injured when a large rotating drum used to sort scrap material for recycling activated while the workers were performing maintenance on the drum.
OSHA’s inspection found that the company neglected to properly train employees on safety procedures and proper equipment use. In addition, the company allegedly exposed employees to the danger of falling into the rotating drum through an unguarded chute opening.
“The unexpected startup of machinery during maintenance can injure or kill workers in seconds,” said Jeffrey Erskine, OSHA’s area director for Essex and Middlesex counties. “Preventing this hazard requires a combination of effective hazard control procedures, training and diligence to ensure that the proper safeguards are in place, in use and understood by workers.”
On December 29, 2011, the U.S. Department of Justice (DOJ) announced that GE Healthcare Inc. agreed to pay thirty million dollars to settle a False Claims Act lawsuit in the U.S. District Court for the Eastern District of Michigan against Amersham Health Inc., a holding company of GE Healthcare. The DOJ alleged that from 2000 to 2003, Amersham submitted false claims to Medicare for Myoview, a radiopharmaceutical that allows doctors to observe blood flow in images of patients’ hearts.
According to the DOJ, Amersham also unnecessarily increased the amount of Myoview in a dose to increase the drug’s sales. GE Healthcare denies any wrongdoing, stating that it acquired Amersham in 2004, after the alleged False Claims Act violations took place. “It’s important for drug manufacturers to provide accurate pricing information to Medicare so that taxpayers aren’t overcharged for medicines purchased with their dollars,” said Tony West, assistant attorney general for the Justice Department’s Civil Division, in a statement about the settlement.
James Wagel, a salesman for Cardiolite, a competitor to Myoview, brought his concerns to the DOJ in 2006 and was awarded $5.1 million from the total settlement. Wagel claimed that many of his clients purchased Myvoview over Cardiolite because they were able to get more use out of the product. When doctors used Myoview in testing, however, results showed false problems with patients’ hearts and led to unnecessary and expensive testing.
The U.S. Department of Justice last week announced that it filed a complaint in a whistleblower lawsuit against AseraCare Hospice, a for-profit organization with 65 hospice providers in 19 states. The complaint alleges that AseraCare violated the False Claims Act when it knowingly enrolled in hospice care individuals who were not terminally ill with a prognosis of six months or less left to live. AseraCare fraudulently collected millions of dollars in Medicare payments by enrolling patients who were ineligible for hospice care.
If the Justice Department succeeds in proving that AseraCare knowingly submitted false claims, the federal government could recover from AseraCare three times the amount of the false claims submitted, and $5,500 to $11,000 in penalties for each claim. This lawsuit joins another whistleblower lawsuit originally filed in 2009 in the U.S. District Court for the Northern District of Alabama by former employees, Dawn Richardson and Marsha Brown. If the Justice Department prevails, Richardson and Brown would be entitled to receive a portion of the money recovered.
The Occupational Safety and Health Administration (OSHA) recently issued 13 citations to LaBolt Farmers Grain Company, Inc. for exposing workers to unsafe conditions. OSHA fined Labolt $95,920 for the cited violations. LaBolt, based in South Dakota, allegedly failed to neutralize an auger, which severely injured a worker’s leg during a moving bin sweep. As a result of this incident, OSHA investigated and cited Labolt. OSHA issued four citations for “willful” violations; six for “repeat” violations; and three for “serious” violations. OSHA issued the “willful” citations because LaBolt allegedly failed to complete confined space and grain bin entry permits; failed to design and execute a confined space program; and failed to provide a competent individual to observe work and ensure that dangerous equipment was neutralized. The citations for repeat violations alleged lack of control over grain dust accumulations; lack of effective guard floor openings, pulleys and vertical belts; lack of a written housekeeping program; and failure to use only approved electrical equipment. Finally, OSHA cited Labolt for “serious” violations because LaBolt allegedly did not perform atmospheric tests and did not provide effective training for employees working in confined spaces and grain bins.
“Despite awareness of the hazardous nature of grain bin entries and of the means and methods to prevent such hazards, the employer failed to develop and enforce recognized safe work practices,” said Tom Deutscher, OSHA’s area director in Bismarck.
In Harding v. So. Cal Precision Aircraft, U.S. Department of Labor Administrative Law Judge (ALJ) Russell D. Pulver held that 31-year military veteran Michael Harding had engaged in protected whistleblower activity when he reported his employer’s unsafe working conditions to the Federal Aviation Administration (FAA). ALJ Pulver further held that Harding’s employer violated Section 519 of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21), when it terminated Harding for engaging in protected whistleblowing activity.
In December 2006, Harding began work as an inspector at So. Cal. Precision Aircraft, Inc. (later purchased by Norton Aircraft Maintenance Services, Inc.). He was quickly promoted to lead inspector and later to senior auditor inspector. Harding made daily complaints to management regarding significant safety issues at work, such as:
the improper use of an acetylene torch;
the propping open of a 1500-pound cargo door with a wooden 2×4 instead of opening it hydraulically and locking it in place;
the operation of the plant without a qualified Director of Maintenance.
Harding regularly documented these complaints in his notebook. After management found out that Harding reported the safety violations to the FAA, he testified that:
[His manager] entered the office upset and cursing, telling [Harding] that he had six attorneys who were going to “kick [his] ass.” When [Harding] attempted to leave, [his manager] spit in his face and blocked his way. [Harding] called for security but when the officer arrived [his manager] told the officer that [Harding] had attacked him and was to leave immediately.
(Internal citations omitted).
ALJ Pulver awarded Harding his lost wages and all expenses reasonably incurred by Harding. He also ordered Harding immediately reinstated at his former employer.
Dave Scher, Principal of The Employment Law Group® law firm, was interviewed by the Air Force Times, an independent weekly newspaper for U.S. Air Force personnel, retirees, and their families, regarding recent whistle-blowing by U.S. Department of Veterans Affairs (VA) physicians.
Commenting on the case of Dr. Colin Clarke, a whistleblower who was fired after filing a complaining about unsafe patient practices and dangerous working conditions at the Northport, New York VA Medical Center, attorney Dave Scher noted that in November 2011, the U.S. Office of Special Counsel substantiated the allegations and that “the special counsel herself went out of her way to praise [Dr. Clarke’s] courage in a press release.”
The Air Force Times feature article also profiled other cases in which The Employment Law Group® law firm has been involved in assisting VA doctors who claim that “they were fired or harassed for speaking out about problems affecting patient care”.
Specifically, the article mentioned the case of Shen v. Shinseki, in which The Employment Law Group® law firm succeeding in obtaining a rare order from a federal court that prohibited the VA from terminating a Title 38 physician while her complaint was pending.
Additionally, The Employment Law Group® law firm currently represents Dr. Shanker Raja who alleges that patients received improper doses of radiation, and the firm also helped Dr. Carolyn Gaston overturn her suspension after she was suspended for treating critical patients before those with nonthreatening illnesses in a VA medical center emergency room which she claimed was understaffed.
Principal Attorney Scher noted that such management problems frequently occur throughout the VA and that often times “supervisors either don’t know the rules, they don’t follow the rules or they don’t care.”
The article, entitled “Whistle-blowers Sue VA, Claim Reprisal”, appeared in the January 16, 2012 edition of the Air Force Times.
Morris Jones of Capital Insider interviewed The Employment Law Group® law firm attorney Adam Augustine Carter on the recent changes in whistleblower and employment law that will affect employees in 2012.
The points Mr. Carter makes are that:
There are almost 2 million home health aides and in-home care providers working in our country. Now with new regulations these workers will get overtime and minimum wage protections.
There are now in effect regulations that implement the amendments to the Americans With Disabilities Act (ADAAA) that broaden the definition of who is covered as having a disability and the key change is that an impairment does not need to prevent or severely or significantly restrict a major life activity to be considered to be “substantially limiting” the activity.
Revisions to the Sarbanes-Oxley whistleblower regulations clarify and improve the procedures for handling Sarbanes-Oxley whistleblower complaints and implement statutory changes enacted into law as part of the 2010 Dodd-Frank Wall Street Reforms.
The Department of Labor’s Administrative Review Board has changed the landscape in 2011 for whistleblowers under Sarbanes-Oxley and the new Dodd Frank amendments to make these laws more powerful for whistleblower claims to succeed and for whistleblowers to be protected so that they don’t have to choose between their job and doing the right thing.
In the interview, Mr. Carter states that “no person should have to choose between their job and doing the right thing.”
Last week the U.S. Department of Justice (DOJ) announced that Virginia-based container shipper, Maersk Line Ltd., and its Denmark-based affiliate, Maersk Line, entered into a settlement agreement in which Maersk will pay the federal government nearly $32 million to resolve allegations that the companies submitted false claims involving cargo shipments to U.S. military personnel in Afghanistan and Iraq.
The DOJ brought the suit in the U.S. District Court for the Northern District of California under the whistleblower provisions of the False Claims Act (FCA). The suit was initially filed in 2004 against another shipping firm, American President Lines (APL), by its former employee, Jerry H. Brown. In 2007 the suit was amended to include Maersk as a defendant.
APL agreed to settle the suit with the government for $26.3 million in 2009 with the whistleblower, Mr. Brown, receiving $5.19 million. Mr. Brown is entitled to $3.6 million of the current settlement with Maersk.
According to the allegations, the companies “inaccurately billed the U.S. military for certain…services rendered during war-time conditions in Iraq, Pakistan, and Afghanistan.” Specifically, the DOJ alleged that Maersk “knowingly overcharged the Department of Defense to transport thousands of containers from ports to inland delivery” and that Maersk “inflated its invoices in various ways” including overcharging the government.
Maersk attorney, James Philbin, claims that “once Maersk became aware of the allegations [it] commenced an extensive internal review…and voluntarily disclosed these findings” to the government.
U.S. Attorney for the Northern District of California, Melinda Haag, noted that “contractors that submit false claims for monies they are not owed cost the government millions of dollars every year,” and that this settlement “should send a strong signal that the government is committed to safeguarding taxpayer funds by ensuring that contractors operate ethically and responsibly.”
Last month, Louisiana Municipal Police Employees’ Retirement System (“LAMPERS”) filed a securities class action lawsuit in the U.S. District Court for the Southern District of New York against The Bank of New York Mellon Corporation (BNY Mellon) under the Securities Exchange Act of 1934. The lawsuit filed by LAMPERS, discussed in an article published by Reuters, arose from the actions of whistleblower Grant Wilson, a former employee of BNY Mellon, who exposed widespread overcharging of pension funds by the bank.
Wilson worked for BNY Mellon for 19 years as a foreign-exchange trader and left the company this past spring. During the last few years of his employment with BNY Mellon, Wilson began to gather evidence that the bank was improperly charging state and local pension funds for foreign currency exchanges. The information that Wilson disclosed provided the basis for lawsuits filed against BNY Mellon by five states, including Florida, New York, and Virginia.
According to the LAMPERS complaint, “While BNY Mellon’s FX trading services were offered to clients as [being] ‘free of charge,’ in truth, BNY Mellon rigged the pricing of its FX transactions in order to reap illicit profits.” The complaint also alleges that “the Company’s deceptive practice began to surface in January 2011 after two whistleblower (or qui tam) lawsuits against BNY Mellon were unsealed in Virginia and Florida,” leading to other lawsuits, including the recent suit filed by LAMPERS.
On December 21, 2011 the Occupational Safety & Health Administration (OSHA), a division of the Department of Labor ordered Union Pacific Railroad. Co. to rehire a former employee after an unlawful termination.
The employee, who remains unidentified due to OSHA policy, filed a whistleblower complaint against Union Pacific after the company suspended then fired the employee 23 days after the employee reported an on-the-job injury. OSHA conducted an extensive investigation and found reasonable cause to believe that Union Pacific terminated the employee as a disciplinary action for reporting a workplace injury in violation of the Federal Railroad Safety Act’s whistleblower protection provisions.
OSHA’s Assistant Secretary of Labor David Michaels voiced his support of this decision, stating
“This case sends a clear message that OSHA will not tolerate retaliation against workers for reporting a work-related injury. An unreported injury is an uninvestigated injury. Nothing is learned that can help prevent the next injury.”
In addition to being reinstated, the employee will receive $300,000 in back wages plus compensatory damages, punitive damages, and attorney’s fees. OSHA also ordered the railroad not to retaliate against any other employees in the future.
The United States Court of Appeals for the Seventh Circuit reversed a lower court decision dismissing whistleblower Michael DeGuelle’s lawsuit against his former employer, S.C. Johnson & Son, Inc. (SCJ) and members of management. The Court recounted the facts alleged by DeGuelle that gave rise to the lawsuit:
[While working in SCJ’s tax department,]DeGuelle discovered that SCJ improperly received over $5 million in foreign tax credits. In January of 2001, DeGuelle reported his findings to [Daniel Wenzel, SCJ’s Global Tax Counsel,] and asked how these errors should be remedied. Wenzel responded that they should wait and “[t]his is why I go to church on Sundays.” Wenzel reported DeGuelle’s findings to Robert Randleman, Vice President and Corporate Tax Counsel, but not to the IRS. Instead Wenzel directed DeGuelle to alter or destroy records so that the errors would not be detected. Subsequently, altered reports were submitted to the IRS. . . .
In 2002, Wenzel instructed DeGuelle and a fellow employee to structure a transaction so that SCJ could claim a tax deduction by exploiting tax accounting rules. Wenzel told DeGuelle and his fellow employee to fabricate a business purpose for the transaction and then destroy associated business records in case “the IRS examines this transaction in the future.” DeGuelle believes SCJ received a benefit in excess of $2 million in the form of reduced tax liability as a result of this structured transaction. Further, Wenzel received a significant discretionary bonus for his role.
In February of 2005, Wenzel directed DeGuelle to fraudulently alter an income statement, which would result in approximately $3.7 million in financial benefits for SCJ. DeGuelle refused to alter the statement. He discussed his concerns with Donald Pappenfuss, a supervisor within the tax department, who instructed DeGuelle to alter the form pursuant to Wenzel’s instructions. Wenzel approved the altered income statement and submitted it to the IRS by mail.
. . .
In March of 2008, Wenzel told DeGuelle to bring any concerns about issues in the tax department to appropriate department personnel instead of taking such concerns to accounting or human resources. Wenzel was loud and physically aggressive toward DeGuelle during this meeting. Wenzel also made disparaging comments about DeGuelle in front of other SCJ employees. That same month, DeGuelle received a negative six-month performance review even though such mid-year reviews were not routine, and despite the fact that DeGuelle received an Officer’s Award in recognition of his superior job performance in January of that year.
. . .
On September 23, 2008, Wenzel and DeGuelle had another verbal altercation and DeGuelle received a negative “needs improvement” performance review from Wenzel. DeGuelle contacted [Kristen Camilli, Director of human Resources,] and alleged that his review was retaliation for his whistleblowing activities. Camilli informed DeGuelle on October 10, 2008, that the negative review would be investigated.
. . .
On December 18, 2008, DeGuelle met with [another manager, Gayle Kosterman,] and Camilli. They informed DeGuelle that the negative review was retaliatory in nature and it would be revoked. . . . Kosterman directed DeGuelle to drop his complaints of tax fraud, but DeGuelle stated he would file a whistleblower complaint with the Department of Labor. Later that day, Kosterman and Camilli contacted DeGuelle by telephone and. . . offered to make a partial payment of DeGuelle’s attorney’s fees if DeGuelle agreed to sign a release of claims and confidentiality agreement.
. . .
DeGuelle continued to contact federal agencies about SCJ’s tax fraud.
. . .
On March 19, 2009, DeGuelle provided SCJ counsel with a five-page memorandum detailing his concerns about tax fraud within the company. . . . Kosterman met with DeGuelle and offered him the opportunity to resign with one year of salary and benefits if he signed a confidentiality agreement and released all claims. Again, DeGuelle refused SCJ’s offer.
DeGuelle was subsequently terminated by SCJ. DeGuelle’s complaint alleges that Wenzel, Randleman, and Pappenfuss engaged in tax fraud in order to receive significantly higher discretionary bonuses, and that management retaliated against him for disclosing the fraud to the government – a violation of the Racketeer Influence and Corrupt Organizations Act (RICO).
Sec. 1962(c) of RICO makes it unlawful for an employee of an enterprise engaged in interstate commerce “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s racketeering activity . . . .” Violations of RICO can include mail fraud, tax fraud, the destruction of records, and whistleblower retaliation.
The district court erroneously determined that the alleged tax fraud and alleged retaliation were patently unrelated for purposes of RICO, because the schemes “involved different actors, motives, and victims.” The Seventh reversed the district court and agreed with DeGuelle’s argument that the Sarbanes-Oxley Act’s addition of Sec. 1513(e) as a RICO predicate act allows his claim to proceed. Under RICO, violations of Sec. 1513 constitute “racketeering activity.” Congress enacted the Sarbanes-Oxley Act or SOX to address growing concerns about the reliability and accuracy of disclosures made by publically-traded corporations.
Applying a relatively broad relationship standard, the Seventh Circuit stated:
When an employer retaliates against an employee, there is always an underlying motivation. In this case, for example, the motivation was to retaliate against DeGuelle for disclosing the tax scheme.
. . .
We believe the district court erred in finding that the retaliatory actions taken against DeGuelle were unrelated to the ongoing tax fraud scheme.
On December 16, 2011, the United States Department of Labor’s Administrative Review Board issued important decision for whistleblowers and their advocates to end a year of landmark Sarbanes-Oxley Act of 2002 (SOX) decisions by the ARB, including:
Menendez v. Halliburton, ARB Nos. 09-002, 09-003, ALJ No. 2007-SOX-005 (ARB September 13, 2011) (affirming whistleblowers are protected under SOX even when mistaken, holding the employer’s disclosure of the whistleblower’s identity to constitute an adverse employment action, and finding that whistleblowers establish causation by showing their whistleblowing activity was merely a contributing factor in the employer’s decision to take the adverse action);
In the ARB’s final SOX decision for 2011, Charles v. Profit Inv. Mgmt., ARB No. 2009-SOX-40 (ARB December 16, 2011), the ARB overturned an Administrative Law Judge’s (ALJ) premature summary decision in favor of the employer. The ALJ believed erroneously that whistleblower Lisa Charles’s employer (Profit Investment Management) could not be subject to the whistleblower provisions of SOX.
Profit Investment Management employed Charles from 2004 to 2008, terminating her employment after she reported SEC violations to the CEO. Charles then filed a SOX complaint with the U.S. Department of Labor in August 2008, resulting in the employer’s motion for summary decision.
The ALJ granted the employer’s motion for summary decision and dismissed the case at least in part on the basis that Charles’s former employer was not a covered employer under SOX, because it is a privately owned company.
The SOX whistleblower protection provision (Section 806) states:
(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES. No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, . . . or any officer, employee, contractor, subcontractor, or agent of such company, . . . may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee –
(1) to provide information, cause information to be provided, or otherwise assist in any investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire, radio, TV fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by – [a Federal regulatory or law enforcement agency, a supervisor, or in support of a related proceeding.]
The ARB noted that the burden lies with the moving party to demonstrate the absence of any material fact genuinely in dispute in order to prevail on a motion for summary decision. In this case, there is a genuine issue of fact regarding whether Profit Investment is a covered employer under SOX. Profit Investment failed to establish a record showing that it was not a subsidiary, contractor, or agent of a public company. The ARB states:
The plain language of Section 806(a) identifies several categories of potentially covered entities beyond the registration and reporting requirements of SOX (i.e., “any officer, employee, contractor, subcontractor, or agent of such company”). The Second and Sixth Circuits have concluded that the use of the term “any” preceding the listing of the several entities identified in Section 806(a) is an indication that Congress intended the clause “officer, employee, contractor, subcontractor, or agent” to be interpreted in an allencompassing manner.
(Internal citations omitted).
The ARB also cited its decision in Johnson, supra, in which it found that “. . . Congress intended to enact robust whistleblower protections for more than employees of publically traded companies.” Congress also intended to not only protect whistleblowers who work for publically traded companies, but also “employees of private firms that work with, or contract with, publically traded companies.”
The ARB concluded that in this case the ALJ’s summary decision was improper. Much of the factual record of the case remains in dispute: particularly the nature of the contractual relationship between Profit Investment Management and a publically traded firm to which it is connected. Consequently, whistleblowers will more easily prevail against motions for summary decision based on employer coverage, unless the employer proves it has no connections to a public company that might give rise to Section 806 liability.
In U.S. ex rel. McNulty v. Reddy Ice Holdings, Inc., the United States District court for the Eastern District of Michigan held that a whistleblower’s severance agreement releasing allclaims against the employer does not bar qui tam claims where the government was unaware of the underlying fraudulent activity when the severance agreement was signed. Whistleblower Martin G. McNulty alleges that his former employer, Arctic Glacier, colluded with competitors since 1997 to raise the price of packaged ice by geographically dividing the market. According to McNulty, the government spent in excess of $150 million on packaged ice during that time period.
McNulty further alleges that Arctic Glacier terminated him after he learned of and refused to participate in the anticompetitive scheme. He later filed this qui tam claim under the False Claims Act (FCA), alleging that his employer overcharged the federal government for packaged ice. Although the court dismissed McNulty’s claims on jurisdictional grounds and a failure to particularly plead his claim, more importantly the court also dismissed Arctic Glacier’s counterclaim alleging breach of the severance agreement – a significant victory for future whistleblowers. The Court found the release of claims provision in the severance agreement unenforceable against qui tam claims that allege fraud that the government has not yet uncovered. In support of its finding, the Court states:
. . . [T]hese courts have applied the balancing test set forth by the Supreme Court in Town of Newton v. Rumery, 480 U.S. 386, 392 (1987), which in the context of FCA claims, weighs “the public interest in having information brought forward that the government could not otherwise obtain [against] the public interest in encouraging parties to settle disputes.” Nowak, 2011 WL 3208007, at *21 (internal quotation marks and citation omitted). When considering a release of claim in the prefiling period, the court’s “focus must be on the incentive effect in achieving the FCA’s goals of detecting and deterring fraud.”
Last week, India’s largest drug manufacturer, Ranbaxy Laboratories Ltd., announced that it had entered into a consent decree with the Food and Drug Administration (FDA) and had set aside a provision of $500 million to cover any liability arising out of a separate investigation by the Department of Justice (DOJ).
The consent decree comes after a 2008 decision by the FDA to ban dozens of Ranbaxy’s generic drugs from entering the US due to alleged violations of FDA manufacturing and quality standards at two of Ranbaxy’s plants in India. Additionally, the FDA alleged that Ranbaxy had falsified data about the shelf life, ingredients, and stability of certain medications including drugs that were to be distributed to foreign countries as part of the President’s Emergency Plan for AIDS Relief program (PEPFAR).
According to the consent decree, Ranbaxy has agreed to strengthen its compliance with industry standards. While the agreement is not an approval for Ranbaxy to resume manufacturing and importing drugs to the U.S., it will allow the company to seek FDA approval to resume importing pharmaceuticals produced at the two allegedly tainted factories. The consent decree is pending approval by the U.S. District Court for the District of Maryland. The $500 million reserve is intended to cover any of Ranbaxy’s potential civil and criminal liability.
Japan-based Daiichi Sankyo Co. acquired a majority stake in Ranbaxy in 2008 and has announced that it expects its net income to decline over 60% in the coming year due to Ranbaxy’s settlement with the DOJ. Some analysts have predicted that the settlement may wipe out Ranbaxy’s expected profits for the next two years. Because of the $500 million provision and the decreased profit forecasts, Daiichi Sankyo Co. has decided to cut executive pay for six months.
Last week, the Securities and Exchange Commission (SEC) charged Stiefel Laboratories Inc. (Stiefel Labs), a subsidiary of GlaxoSmithKline PLC, and the company’s former chairman and chief executive officer Charles Stiefel with defrauding employees and company shareholders by allegedly making stock buybacks at significantly undervalued prices.
The SEC alleges that Stiefel Labs failed to report certain information to employees and shareholders, thereby enabling the company to buy back stock from employees and shareholders at undervalued prices. According to the SEC’s complaint, which was filed in the U.S. District Court for the Southern District of Florida, “Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were approximately 50 to 200 percent higher than the valuation later used for stock buybacks.” Despite knowing of the offers, Stiefel Labs continued to purchase stocks that were below estimated equity valuations. Shareholders and employees who sold undervalued stock to Stiefel Labs lost more than $110 million, according to Eric I. Bustillo, director of the SEC’s Miami Regional Office.
The SEC is seeking permanent injunctive relief for shareholders and employees, financial penalties, disgorgement of ill-received gains with prejudgment interest against both Stiefel Labs and Charles Stiefel. The SEC is also seeking to permanently bar former CEO Charles Stiefel from serving as an officer or director of any publicly traded company
According to Securities and Exchange Commission (SEC) Chairman Mary Schapiro, the SEC’s new whistleblower program is already providing “significant benefits” one year after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In a letter sent to Rep. Barney Frank (D-MA), co-author of Dodd-Frank, SEC Chairman Schapiro argued that recent calls to change the whistleblower law “before it has had an opportunity to demonstrate its full value seem premature, particularly in the absence of any evidence of problems with the current program.”
Chairman Schapiro’s letter came in advance of last week’s move by the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises to approve an amendment to Dodd-Frank. The bill, H.R. 2483, also known as the “Whistleblower Improvement Act of 2011”, is sponsored by Rep. Michael Grimm (R-NY) and would require potential whistleblowers first to report wrongdoing internally to employers prior to notifying the government in order to be eligible for a whistleblower award. The bill would wave this requirement in the event that the SEC determines that there is evidence that management of a company may have participated in wrongdoing or fraud. The full House Committee on Financial Services is yet to vote on the proposed legislation.
Chairman Schapiro noted in her letter that mandating internal reporting of suspected wrongdoing would likely “have a chilling effect” on whistleblowers and that the current program already allows whistleblowers to collect an award if they report information internally first. Those whistleblowers are still eligible for an award even if the company self-reports the same information to the SEC and that information leads to a successful SEC enforcement action against that company.
The proposed changes to Dodd-Frank may progress further in the House, but Senate passage is unlikely as a majority of members are expected to oppose efforts to make such changes to the Dodd-Frank Act whistleblower provisions.
On December 8, 2011, the United States Tax Court issued an opinion in Whistleblower v. Commissioner of Internal Revenue granting an IRS whistleblower’s motion for a protective order permitting the whistleblower to maintain his or her anonymity. The court stated:
We conclude that granting [the whistleblower's] request for anonymity strikes a reasonable balance between [the whistlebower's] privacy interests as a confidential informant and the relevant social interest, taking into account the nature and severity of the asserted harm from revealing [the whistleblower's] identity and relatively weak public interest in knowing [the whistleblower's] identity.
The U.S. Tax Court also discussed the long history of granting anonymity to whistleblowers, including the Second Circuit’s discussion of the informer anonymity privilege in Socialist Workers Party v. AttorneyGeneral (In re United States) as:
… an ancient doctrine with its roots in the English common law, founded upon the proposition that an informer may well suffer adverse effects from the disclosure of his identity. Illustrations of how physical harm may befall one who informs can be found in the reported cases. However, the likelihood of physical reprisal is not a prerequisite to the invocation of the privilege. Often, retaliation may be expected to take more subtle forms such as economic duress, blacklisting or social ostracism. The possibility that reprisals of some sort may occur constitutes nonetheless a strong deterrent to the wholehearted cooperation of the citizenry which is a requisite of effective law enforcement.
Courts have long recognized, therefore, that, to insure cooperation, the fear of reprisal must be removed and the most effective protection from retaliation is the anonymity of the informer.
Internal quotations and citations omitted. In the Tax Court’s first decision regarding anonymous whistleblower claims, the court ruled in favor of the anonymous whistleblower and established an important precedent for those future whistleblowers who expose their employer’s tax fraud.
On Monday, the Department of Justice (DOJ) announced that it collected more than $3 billion in judgments and settlements of fraud cases under the False Claims Act (FCA) for fiscal year 2011. This marks the second consecutive year in which the DOJ exceeded $3 billion in recoveries and brings the total recovered since 2009 to $8.7 billion – the largest ever three-year total.
Of the $3 billion recovered during fiscal year 2011, a record $2.8 billion was recovered under the whistleblower, or qui tam, provisions of the FCA which allow individuals to file lawsuits on behalf of the government and, as an incentive, offers whistleblowers a portion of the amount recovered. $2.4 billion of the amount recovered for fiscal year 2011 involved fraud against federal healthcare programs such as Medicaid, Medicare, and the Department of Defense’s TRICARE program.
Assistant Attorney General Tony West offered his praise for whistleblowers who have come forward to report fraud, saying “we are tremendously grateful to whistleblowers who have brought fraud allegations to the government’s attention and assisted us in this public-private partnership to fight fraud.”
In 1986, the FCA was amended to increase the incentives offered to whistleblowers. According to Sen. Chuck Grassley (R-IA), a co-sponsor of the amendments, the FCA has “[proven] to be the most powerful tool in rooting out fraud against the federal treasury.”
“The whistleblowers who bring these cases to light know the secrets hidden by those who are ripping off federal taxpayers,” he added. Since the 1986 amendments, the DOJ has successfully recovered more than $30 billion.
Last week, Medtronic Inc., the world’s largest manufacturer of medical devices, agreed to pay $23.5 million to settle two lawsuits alleging that the company paid kickbacks to doctors in an effort to encourage them to implant Medtronic pacemakers and defibrillators in their patients.
The Department of Justice alleged that Medtronic paid physicians between $1000 and $2000 for every patient implanted with a Medtronic defibrillator or pacemaker as a part of post-market studies designed to assess the performance of medical devices after approval by the Food and Drug Administration (FDA). According to the allegations, Medtronic solicited physicians for the studies to encourage them to use the company’s devices which, in turn, caused false claims to be submitted to Medicaid and Medicare.
The settlement resolves two whistleblower lawsuits pending in California and Minnesota which were brought under the qui tam provisions of the False Claims Act. As part of the settlement, the whistleblowers will receive a portion of the federal government’s share of the recovery totaling more than $3.96 million.
According to Benjamin Wagner, U.S. Attorney for the Eastern District of California, the “settlement highlights one of the key purposes of the Anti-Kickback law – to ensure that the judgment exercised by healthcare providers in treating Medicare and Medicaid patients is not influenced by unlawful payments.”
Medtronic denied any wrongdoing in settling the lawsuit, saying that the settlement is not an admission that any of the studies it sponsored were improper or unlawful.
Medtronic is facing another probe by the Department of Justice and U.S. Senate over concerns that physicians paid by the company may have failed to report side effects of one of its products, Infuse, which is a medical device used in spinal surgery.
Roy Fastabend, a welder and inspector, alleges that he was fired after reporting that in order to save time and money, a subcontractor cut corners in the construction of the new stadium that will be home to the Florida Marlins. Fastabend claims to have witnessed Mike Garcia, a fellow inspector , routinely ignoring engineering specifications and falsifying records, signing off on welds that were never examined.
When Miami-Dade County Inspector General (IG), Chris Mazzella, learned of Fastabend’s complaints, the IG sent the Marlins a letter asking detailed questions about the welding done in the ballpark. The Marlins general contractor, Hunt/Moss, reported that after receiving the Inspector General’s letter, it had many parts of the stadium redone or replaced . Miami-Dade County then had its engineer of record sign off on the final inspection.
“If people knew what was going on there or how they did things, I mean, I won’t go to that stadium… I won’t take my kids into that place,’’ said Fastabend. “Sadly, it looks beautiful, but there are questions.”
According to a recent study commissioned by Labaton Sucharow LLP, a securities and antitrust law firm, approximately three-quarter of Americans say that they would be willing to report wrongdoing in the workplace, as long as they were protected against retaliation, could remain anonymous, and would receive a monetary reward.
The “Ethics and Action Survey,” conducted from November 17 to 20, 2011, questioned 1007 Americans, and found that 78% of respondents would blow the whistle on workplace wrongdoing. The survey also found that 34% of respondents claim knowledge of wrongdoing in the workplace.
The Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111- 203, which was enacted by Congress in 2010, includes provisions intended to encourage reporting of fraud and other malfeasance. These include strong protections against retaliation and financial rewards for whistleblowers between 10 and 30% of the penalties or monies recovered by the Securities and Exchange Commission (SEC). The Ethics and Action Survey showed that a startling 68% of the individuals interviewed were unaware of the new whistleblower program operated by the SEC, following the enactment of Dodd-Frank.
Reflecting on its results, the study states:
It is disheartening to see that wrongdoing in the workplace continues to be so widespread. However, the findings affirm the need for, and value of, the SEC’s Whistleblower Program. This program, in concert with other regulatory reforms, has the potential to dramatically enhance investor protection and restore public faith in the markets.
