The Department of Justice announced in November 2014 that it recovered nearly $6 billion from False Claims Act cases in fiscal year 2014. This is the second consecutive year in which over 700 qui tam suits were filed and the first year in which recoveries exceeded $5 billion. More than half of DOJ’s recoveries come from qui tam complaints filed by individual relators on behalf of the United States. From those recoveries, the Government paid out $435 million in qui tam awards to relators in 2014.
The recoveries demonstrate the government’s focus on holding financial industries accountable for the fraudulent acts that led to the 2008-2009 mortgage crisis. Huge recoveries from Bank of America and other key players in the mortgage crisis significantly contributed to DOJ’s nearly $6 billion recovery. DOJ expects FCA recovery for fiscal year 2015 to exceed 2014’s record total, as the end of the six-year statute of limitations on FCA claims stemming from the mortgage crisis nears.
The DOJ’s success with the FCA has exceeded expectations. Overall, the financial sector, followed closely by the healthcare sector, is the biggest contributors to FCA recoveries. In total, the FCA has allowed the Department of Justice to recover $44.75 billion since January 2009.
The Department of Justice recently released recommendations from a report by the Attorney General that reviewed protections for FBI whistleblowers. The DOJ has already begun implementing the recommendations and will implement additional changes over time. Specifically, the report proposes the following changes:
– Provide voluntary alternative dispute resolution in FBI whistleblower cases
– Award compensatory damages for retaliation
– Expand the list of persons to whom a protected disclosure may be made
– Report findings of wrongdoing to the appropriate authority
– Provide authority to sanction violators of protective orders
– Expedite the OARM process through the use of acknowledgement and show cause orders
– Equalize access to witnesses
– Expand resources for OARM to reduce the time needed to adjudicate FBI whistleblower cases
– Publish decisions with appropriate redactions
– Publish annual reports to be submitted to the President
Senators Grassley and Wyden, who initially inquired about the Attorney General’s report in August 2014, have generally endorsed the new FBI whistleblower protection recommendations and are optimistic that the recommendations will provide better protection for whistleblowers. The recommendations and changes reflect a need to pay special attention to whistleblowers who have access to classified information and to ensure that they are protected under the law.
Whistleblower Receives $1.2 Million in $6 Million Settlement of Qui Tam Action Against Caremark For Failing to Reimburse Medicaid for Drug Costs Covered by Both Medicaid and a Private Health Plan
The Department of Justice announced that Caremark, a pharmacy benefit management (PMB) company, will pay $6 million to settle allegations that it violated the False Claims Act; and the former Caremark employee who blew the whistle on the violations will receive $1.2 million from the settlement. Caremark allegedly knowingly failed to reimburse Medicaid for the cost of drugs for beneficiaries who were covered by both Medicaid and a private health plan. These patients are referred to as “dual eligible” and their private insurer or PMB must assume the cost of the prescription drugs rather than submit claims to Medicaid.
If Medicaid pays for the drugs when a private insurer or PMB should have assumed the cost, the private insurer or PMB must reimburse Medicaid. Caremark caused Medicaid to pay the drug costs when Caremark should have paid.
Canadian Court Holds Employee Has No Duty to Accept Lower Position If Constructively Dismissed Via Demotion
In Farwell v. Citair, Inc., the Canadian Superior Court of Justice affirmed a trial court ruling that Citair had wrongfully dismissed Kenneth Farwell. The Court held that Farwell did not have an obligation to accept an alternative position offered to him by Citair. The alternative job was below Farwell’s most recent position; and though it had the same salary and working conditions as Farwell’s most recent position, it involved a likely reduction in bonus.
The Court found that an employee cannot be obligated to mitigate by working in an atmosphere of hostility, embarrassment, or humiliation. And since accepting a position lower than his previous position would humiliate Farwell, he did not have a duty to accept it.
Federal District Court in New York Holds that Retaliation under FRSA is Governed by AIR 21’s Burden-shifting Framework
The U.S. District Court for the Northern District of New York recently denied summary judgment in a suit filed by Robin Young against his former employer, CSX Transportation. Young alleged that CSX violated the Federal Rail Safety Act’s anti-retaliation provisions when it fired him after it was informed that he had filed a complaint with the Occupational Safety and Health Administration (OSHA). Young’s complaint to OSHA alleged that CSX told him to “refrain from providing extensive testimony about related safety issues” during a formal hearing with the Federal Railroad Administration; and then fired him because he refused to comply with this order.
Supreme Court of Hawaii Refuses to Enforce Arbitration Clause Giving Defendant “Sole Discretion” to Pick Arbitrator, Citing Lack of “Fundamental Fairness”
On October 31, 2014, the Supreme Court of Hawaii held that arbitration clauses that give a defendant “sole discretion” to select an arbitrator violate the “fundamental fairness standard” and are thus unenforceable.
In Nishimura v. Gentry Homes, Thomas and Colette Nishimura filed a class action suit against Gentry Homes. Gentry Homes filed a motion to compel arbitration, and the determination of that motion ultimately made its way to Hawaii’s highest Court.
The Hawaii Supreme Court’s refusal to enforce the arbitration provision is noteworthy for its use of the fundamental fairness standard developed by the Sixth Circuit Court of Appeals to ensure an employee’s right to a fair judicial forum. Specifically, the Hawaii Court cited the Sixth Circuit’s ruling in McMullen v. Meijer, Inc., which held that an arbitration agreement granting an employer exclusive control over a pool of arbitrators is unenforceable because the forum lacks neutrality. The Court also relied on the Sixth Circuit’s decision in Walker v. Ryan’s Family Steak Houses, Inc., which held that the symbiotic relationship between defendant and arbitration service can render an arbitration clause unenforceable.
Pennsylvania Pharmaceutical Company Agrees to Pay $56.5 Million to Settle Allegations It Engaged in Deceptive Marketing Practices
Pennsylvania-based pharmaceutical company, Shire Pharmaceuticals LLC, recently agreed to pay $56.5 million to resolve civil allegations that it violated the False Claims Act (FCA). Shire allegedly made false and misleading statements when marketing several drugs, including Adderall XR, the well-known drug used to treat attention deficit hyperactivity disorder (ADHD) in children and adults.
OSHA Finds BNSF, Rail Company Owned by Berkshire Hathaway, Liable in Three Retaliation Cases and Awards Damages to Employees
The Department of Labor’s Occupational Safety and Health Administration found a railway company owned by Warren Buffett’s Berkshire Hathaway liable in three retaliation complaints brought by employees. OSHA ordered Berkshire Hathaway’s Burlington Northern Santa Fe Railway Co. (BNSF) to pay more than $272,000 to these employees, plus various non-monetary relief.
OSHA found that BNSF violated the Federal Railroad Safety Act (FRSA) when it reprimanded a conductor who missed work in accordance with a physician’s treatment plan. In addition to ordering BNSF to pay $12,000 in monetary damages ($2,000 in compensatory damages and $10,000 in punitive damages, plus attorneys’ fees), OSHA ordered BNSF to purge the employee’s personnel record of all disciplinary information, and to distribute whistleblower rights information to all employees.
The ARB Reaffirms the Speegle Standard, which Requires an Employer to Show It would have Punished a Whistleblower Absent Any Protected Activity
In previous posts on May 15 and September 3, we discussed the Department of Labor Administrative Review Board’s new Speegle test—which places a tougher burden on employers to justify any adverse actions against whistleblowers. The ARB recently reaffirmed the Speegle standard in Cain v. BNSF Railway Co.
Cain involved the following facts: Shortly after an on-the-job traffic accident in January 2010, Christopher Cain filed a report to his employer, BNSF Railway, about minor injuries he sustained. A few weeks later, Cain’s symptoms had not disappeared, and he sought medical treatment. His doctors said his injuries were much worse than originally thought, including broken ribs and fluid around his lungs. Cain filed a second report about the more severe injuries, although his supervisors discouraged him from doing so. A short time after Cain filed his second report, BNSF opened an investigation into potential wrongdoing by Cain related to the accident. BNSF ultimately found that Cain violated its reporting rule by failing to report the full extent of his injuries in his first report. Cain then filed a complaint for whistleblower retaliation under the Federal Rail Safety Act of 1982 (FRSA).
Virginia Attorney General’s Office Intervenes in $1.15 Billion Suit Against 15 of the World’s Largest Banks in an Action Under the Virginia False Claims Act
Like most states, Virginia has its own state statute that mirrors the federal False Claims Act and allows whistleblowers to collect rewards for bringing to light fraud against the state government. Virginia’s Fraud Against Taxpayers Act, like its federal counterpart, permits the state to intervene in cases brought by qui tam (false claims) relators. On September 16, 2014, Virginia’s Attorney General Mark Herring did just that, filing a 317 page complaint alleging that fifteen of the world’s largest banks knowingly misrepresented the financial stability of mortgage securities to the state’s retirement system in the years leading up to the financial crisis in 2007 and 2008.
The complaint alleges that as a direct result of the banks’ misrepresentations, the state’s retirement system purchased doomed mortgage securities and ultimately lost $383.91 million. The Commonwealth seeks $1.15 billion in damages from the banks (three times the amount of actual damages, as permitted by the statute), plus civil penalties for each violation. The relator was Integra REC, LLC, a financial modeling firm. This historic lawsuit demonstrates the price that can be paid for fraud against taxpayers and the government. And because the relator may receive between 15 to 25 percent of the ultimate settlement ($172.5 million to $287.5 million if the full $1.15 billion sought is awarded), it also demonstrates the incentives for whistleblowers to expose fraud.
Federal Court in Pennsylvania Holds that Claims which Violate the Stark Act Necessarily Qualify as False Claims under the False Claims Act
On August 21, 2014, Judge Kim Gibson of the Western District of Pennsylvania held that physicians had engaged in unlawful conduct under the Stark Act when they made referrals to a hospital that used a radiation imaging company in which the doctors had financial interests. United States ex rel. Bartlett v. Ashcroft, __ F.Supp.2d___ , 2014 WL 4179862 at *15 (W.D. Pa., Aug. 21, 2014). The alleged pay scheme worked as follows: 1) physicians invested in Tri-County Imaging Associates, Inc., which performed radiation services, including CT scans, for Tyrone Hospital; 2) the same physicians referred patients to Tyrone Hospital, which almost exclusively used Tri-County for CT scans; and 3) Tyrone Hospital paid Tri-County, which, in turn, paid the same physicians their share of profits. Id. at *9.
The whistleblowers (Relators) in Bartlett, both former employees of Tyrone Hospital, filed a qui tam (false claims) action against Tri-County, Tyrone Hospital, and the physicians, alleging violations of the Stark Act, the Anti-Kickback Statute, and the False Claims Act. Id. at *1. The Court found that the Defendants could not show an applicable exception to the Stark Act and that the physicians had made “self-referrals” to Tyrone Hospital, which were prohibited under the Stark Act. Id. at *11-14.
DOJ Aggressively Pursues and Settles False Claims Actions Against Doctors and Clinical Labs for Kickbacks and Medically Unnecessary Testing
Over the past two years, the Department of Justice has announced several large settlements involving alleged violations by doctors and clinical laboratories of the False Claims Act and The Anti-Kickback Statute. Many clinical laboratories rely on referrals from physicians, hospitals, and other healthcare entities to obtain samples to examine –which is the crux of their business. However, as shown below, the relationships between clinical labs and physicians and other entities sometimes lead to unnecessary services, billing for more expensive services, and illegal kickback arrangements:
• In February 2013, Florida dermatologist Dr. Steven J. Wasserman, agreed to pay $26.1 million to resolve allegations that he violated the False Claims Act. The government alleged that Wasserman entered into an illegal kickback arrangement with a clinical laboratory and its owner, Dr. Jose Suarez Hoyos. Wasserman allegedly sent biopsy specimens for Medicare beneficiaries to the lab for testing and diagnosis; the lab then made it appear that Wasserman had performed diagnostic work. As part of the alleged kickback agreement, Wasserman substantially increased the number of skin biopsies he performed on Medicare patients, thus increasing referrals to the pathology lab.
• In August 2013, Bostwick Laboratories agreed to pay about $500,000 to resolve allegations it illegally paid physicians to induce them to enroll in a study sponsored by Bostwick. In October 2014, in a separate suit filed by a whistleblower against Bostwick, Bostwick agreed to pay $6.05 million to settle allegations that it made illegal payments to persuade physicians to use Bostwick’s services.
What does a fisherman’s criminal destruction of undersized fish have to do with the scope of federal whistleblower laws? The U.S. Supreme Court will soon tell us, after hearing oral arguments last week in Yates v. United States.
In deciding whether a fish is a “tangible object” as that term is used in the Sarbanes-Oxley Act (SOX), the justices will again signal how broadly they’re willing to apply SOX — a topic they last visited in March in Lawson v. FMR LLC, a sweeping decision that turned one section of SOX into something like a general-purpose whistleblower protection law.
Here’s the problem with telling the justices of the U.S. Supreme Court that they’re wrong: They always get the last word.
And the last word in Department of Homeland Security v. MacLean — based on today’s oral arguments in the case, at least — now seems likely to be a rejection of the Obama Administration’s contention that federal agencies may strip employees of their rights under the Whistleblower Protection Act of 1989 (WPA) simply by issuing regulations that forbid certain types of disclosure.
The U.S. Supreme Court next week will hear arguments in Department of Homeland Security v. MacLean, a case that could determine whether government officials are free to punish whistleblowers who disclose information that’s been labeled as “sensitive” — even if the information was never listed for protection by any law.
The Financial Industry Regulatory Authority — a self-policing arm of the securities industry — reminded its member firms not to ask their employees to sign confidentiality agreements that forbid reporting possible wrongdoing to FINRA itself, or to industry regulators such as the U.S. Securities and Exchange Commission.
FINRA may discipline firms that add such provisions to agreements with their employees, it said in a new regulatory notice. FINRA also said that any language that bars employees from sharing certain documents outside their firm can’t stop employees from giving the same documents to regulators.
Reversing a lower-level judge, the U.S. Department of Labor’s Administrative Review Board (ARB) said that that unions can be held liable for retaliating against whistleblowers under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21).
Just weeks before a planned trial, Michigan oncologist Farid Fata pleaded guilty to 16 of 23 criminal counts, including charges of giving chemotherapy to healthy patients in order to get Medicare payments.
The U.S. Department of Justice (DOJ) said it obtained a $1.3 million settlement of allegations that a cardiology practice violated the False Claims Act and the Stark Act by knowingly compensating its physicians based on the number of tests that the physicians referred.
The Stark Act prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician has a financial relationship (unless an exception applies). The Stark Act does not permit a practice to compensate a physician based directly on the volume or value of the physician’s referrals for services not personally performed by the ordering physician.
The DOJ received a tip that Cardiovascular Specialists, P.C., d/b/a New York Heart Center (NYHC),compensated its physicians in a manner that violated the Stark Act. From September 2007 through August 2008, NYHC allegedly determined the compensation for its physicians by taking into account the value of the physicians’ referrals for nuclear scans and CT scans. The government’s investigation revealed that NYHC knew that this compensation formula could have violated the Stark Act.
“Medical decisions should always be made on the basis on what’s best for the patient’s health, not the physician’s finances. The compensation system in place in this case had the potential to influence medical judgment, which would be unacceptable,” said Thomas O’ Donnell, Special Agent in Charge of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), New York region.
The U.S. Securities and Exchange Commission said it awarded more than $300,000 to a whistleblower who first reported wrongdoing internally — but then went to the feds after being ignored for four months.
The SEC typically doesn’t reveal details about the people who receive awards under the Dodd-Frank Act, since the law grants confidentiality to whistleblowers, but the agency said this was its first-ever payout to a person who worked in a company’s audit or compliance areas.
In affirming a pilot’s reinstatement and damages award, the U.S. Department of Labor’s Administrative Review Board (ARB) showed that its new Speegle test — which makes it tougher for employers to justify the firing of whistleblowers — will reach well beyond its initial application to the nuclear industry.
New York continued to crack down on tax cheats under its strengthened False Claims Act (FCA), awarding a whistleblower more than $300,000 for reporting an out-of-state retailer’s failure to collect sales tax on high-end appliances it delivered to New York customers.
In August 2014, the Internal Revenue Service issued final regulations amending its whistleblowing program. The most significant changes pertain to administrative proceedings outlined in 26 C.F.R. § 301.7623, and provide whistleblowers with more information regarding the status of IRS investigations of their claims. The changes also provide more structured timelines in which the IRS must process claims under its whistleblowing program.
The U.S. Department of Labor’s Administrative Review Board (ARB) said it would hear an airline whistleblower’s appeal of a decision forcing her into arbitration with her former employer, saying the delay of arbitration might jeopardize her rights under the the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21) — and therefore could undermine AIR 21 itself.
The U.S. Securities and Exchange Commission (SEC) said it filed — and promptly settled, for $2.2 milllion — its first-ever charges against a company for retaliating against a whistleblower who reported wrongdoing under the Dodd-Frank Act.
The SEC charged Paradigm Capital Management Inc., a hedge fund advisory firm, with engaging in prohibited principal transactions and then removing a head trader from his regular responsibilities after he reported the conflict of interest to the SEC.