In a report released November 30, 2015, the Government Accountability Office found that the IRS Whistleblower Office had recovered $2 billion in tax revenue that would have been lost without the efforts of whistleblowers. But despite this success, the GAO concluded that the IRS Whistleblower Office is plagued by administrative issues, and recommended that Congress pass new employment protections for tax whistleblowers.
The Tax Relief and Health Care Act of 2006 created the Whistleblower Office within the IRS. It manages and tracks claims made under two programs, one for claims of under $2 million (26 U.S.C. 7623(a)) and the other for claims of more than $2 million (26 U.S.C. 7623(b)). The 7623(b) program was also created by the Tax Relief and Health Care Act of 2006.
Tax whistleblowers have helped the IRS collect nearly $2 billion in additional revenue since the first 7623(b) claim was paid in 2011 under the expanded program that awards whistleblowers between 15 percent and 30 percent of collected proceeds. Since that time, the Whistleblower Office has awarded more than $315 million to whistleblowers.
On January 5, 2016, former Viacom Vice President for Financial Planning and Analysis Nataki Williams filed suit under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act against the entertainment company. In her complaint filed in federal court in the Southern District of New York, Williams claims that Viacom fired her in retaliation for questions she raised about a scheme in which Viacom allegedly sought to avoid paying taxes on licensing rights to the “Teenage Mutant Ninja Turtles” (TMNT) franchise.
Viacom acquired the international licensing rights to TMNT in 2009 from The Mirage Group and 4Kids Entertainment. Williams alleges that shortly after Viacom acquired the licensing rights, Viacom concocted a scheme to attribute TMNT’s revenue to the Netherlands to avoid the U.S. tax burden. TMNT is owned by a Netherlands-based entity, but Williams asserts that all of TMNT’s business took place in New York. She further claims that a Netherlands-based employee was tasked with making immaterial changes to draft contracts in order to legitimize business contacts outside of New York. Williams’ superiors were allegedly in on the scheme, joking that they do not “look good in orange.”
Whistleblowers are a legal class of persons who expose what they reasonably believe to be unlawful activity to a person or entity that has the power to correct that wrongdoing. A number of laws at both the federal and state level protect whistleblowers from retaliation. These protections exist because whistleblowers often expose fraud or other unlawful activity that would otherwise remain undisclosed. The Department of Labor’s Occupational Safety & Health Administration, for example, enforces the anti-retaliation provisions of twenty-two different statutes that protect employees in the private sector. The United States Office of Special Counsel enforces the Whistleblower Protection Act, which covers most, but not all, civilian employees of the federal government. In recent years, whistleblower protections have been extended, through the National Defense Authorization Act of 2013, to employees of government contractors who disclose fraud or mismanagement related to a contract with the federal government. And in 2014, the Supreme Court extended the anti-retaliation provisions of the Sarbanes-Oxley Act to employees of contractors who provide services to publicly held companies.
But there are limits to the many protections that already exist for whistleblowers. The WPA, for example, specifically excludes members of the Intelligence Community. Members of the Intelligence Community are covered instead under the Intelligence Community Whistleblower Protection Act, which lacks an anti-retaliation provision. Even Presidential Policy Directive 19, which President Obama signed in October 2012 to provide some protection from retaliation to those serving in the Intelligence Community, fails to provide a private right of action to an aggrieved employee. And in recent years, there have been a number of cases involving whistleblower retaliation in the Department of Veterans Affairs.
Fiscal 2015 was arguably the most successful year in the short history of the whistleblower program at the Securities & Exchange Commission: In the 12 months ended September 30, almost 4,000 tips were received from whistleblowers around the world — a record number — and more than $37 million was paid out in rewards.
The whistleblower program was created by the Dodd-Frank Act of 2010: Under the statute, people who report securities violations may be eligible for a reward if the SEC uses their information to recover more than $1 million for taxpayers.
The 2015 tallies are reported in the SEC program’s new annual report. Beyond the monetary rewards being paid to whistleblowers, the report highlights a number of steps taken by the SEC to help insiders who share information about corporate wrongdoing.
Senator Claire McCaskill (D-MO) asked the Navy for a briefing on the case of an admiral who avoided disciplinary action despite an investigation finding that he retaliated against staff members he erroneously suspected of being whistleblowers.
In an October 26, 2015 letter to Secretary of the Navy, Ray Mabus, McCaskill said she was disturbed to learn that Rear Admiral Brian Losey was not being “held accountable” for retaliatory actions taken against subordinates cited in a Department of Defense Inspector General report. McCaskill’s letter followed an October 21, 2015 Washington Post article that reported the Navy’s decision not to discipline Losey for violating whistleblower protection laws and to promote him. The article did note that the Navy issued Losey a “letter of counseling” asking him to be “thoughtful and careful” when handling such matters in the future, but not finding any wrongdoing on his part.
On Monday morning the U.S. Supreme Court will hear arguments on the rules federal employees must follow when they’re forced out of their jobs by discrimination or retaliation.
The case in question, Green v. Brennan, is about legal deadlines. That sounds technical, but really it boils down to simple justice. If the Court affirms a lower judgment, it will become far too easy to deprive federal workers of their day in court.
Fourth Circuit Holds that Suit Alleging Racial Discrimination Does Not Bar Later Suit for Unlawful FRSA Retaliation
The U.S. Court of Appeals for the Fourth Circuit, in Lee v. Norfolk Southern Ry. Co., 802 F.3d 626 (4th Cir. 2015), held that a plaintiff who alleged his suspension resulted from racial discrimination was not barred from claiming in another lawsuit that his employer suspended him as retaliation for refusing to ignore safety regulations, in violation of the Federal Railroad Safety Act (FRSA).
In Lee, the defendant, Norfolk Southern Railway, suspended the plaintiff, Charles Lee, for six months in 2011 for allegedly consuming beer on the job. Lee’s duties for Norfolk Southern included inspecting rail cars for possible safety hazards. Lee sued Norfolk Southern under 42 U.S.C. § 1981, alleging that his suspension resulted from racial discrimination. According to Lee, his white supervisor consumed alcohol on the job and did not face adverse consequences. Lee also alleged that his white co-workers received promotions under a collective bargaining agreement while his African-American co-workers did not, and he claimed that he faced harassment because of his race. Lee eventually lost that lawsuit on summary judgment.
Two Office of Special Counsel investigations into whistleblower cases recently resulted in settlements. In October 2015, the OSC reported that the Army settled a claim filed by Teresa Gilbert. The next month, the OSC announced that the Department of Veterans Affairs settled claims brought by David Tharp.
Gilbert worked as a civilian infection control analyst at the Womack Army Medical Center in Fort Bragg, North Carolina. In January 2014, she reported concerns to the Joint Commission about infection control problems at the Medical Center. During the Commission’s investigation, Gilbert’s supervisors prevented her from participating in the investigation. After its investigation, the Commission found that the hospital was not following required protocols. Shortly thereafter, in April 2014, the Army began an internal investigation based on the Commission’s findings. Gilbert provided information to the Army investigators. As a result of both investigations, various senior employees at the hospital were disciplined.
In a memorandum issued on September 15, 2015, Deputy Attorney General Sally Quillian Yates declared an end to the U.S. Justice Department’s historical leniency on white-collar crime, repudiating the so-called Holder Doctrine — also known as “Too Big to Jail.”
The Holder Doctrine grew out of a June 1999 memorandum written by Eric H. Holder Jr., who at the time served as Deputy Attorney General in the Clinton Administration. Holder later became U.S. Attorney General under President Obama.
Although Holder never recommended leniency for corporate wrongdoers, he instructed prosecutors to consider the “collateral consequences” that could result from pursuing criminal charges against large corporations — and, by extension, the bigwigs who run them. The instability caused by such prosecutions could end up harming “innocent third parties” such as shareholders and employees, he warned; over time, this fear extended to possible damage to the U.S. economy, especially in the case of financial institutions.
The first known case interpreting the Affordable Care Act’s repayment provision, United States. ex rel. Robert Kane v. Healthfirst, was recently approved for settlement talks after the United Stated District Court for the Southern District of New York denied Healthfirst’s motion to dismiss.
Effective March 23, 2010, the Affordable Care Act requires health care providers to report and return an overpayment to Medicare or Medicaid within sixty days of identification. The ACA also requires health care providers to submit a statement identifying the reasons for overpayment. The ACA authorizes civil monetary penalties of $10,000 per item or claim, as well as treble damages, for a provider who fails to report and return known overpayments.
In 2011, Healthfirst fired Kane four days after he circulated an email with a spreadsheet documenting over 900 improperly billed claims worth more than $1 million in potential overpayments. read more…
Connecticut Supreme Court Grants Constitutional Protection to Whistleblowers in the Public and Private Sectors
In a recent opinion from the Supreme Court of the State of Connecticut, Trusz v. UBS Realty Investors, LLC, __ A.3d __, 319 Conn. 175 (Conn. 2015), the Court held that First Amendment protection “applies to speech in a public workplace under the state constitution and that [the state’s whistleblower protection law] extends the same protection to employee speech in a private workplace for claims involving the state constitution.” This ruling from Connecticut’s highest court comes a little more than a year after the U.S. Supreme Court’s ruling in Lane v. Franks, 134 S. Ct. 2369 (2014), which narrowed the strict holding of Garcetti v. Ceballos, 547 U.S. 410 (2006), and allows for First Amendment protection for government employees who testify truthfully under oath about matters related to their employment. This expansion of constitutional protection to public employees by the Connecticut Supreme Court is a hopeful sign for enhancing the protection of whistleblowers nationwide.
In Garcetti v. Ceballos, the U.S. Supreme Court held that First Amendment protection applied to the speech of government employees only when those employees spoke about non-job related duties. But last year, in Lane v. Franks, the Supreme Court opened the door to First Amendment protection for public employees’ speech related to job duties by considering both the employee’s “obligation to the court and society at large [to tell the truth in testimony]” and whether an absence of such protection “would place public employees who witness corruption in an impossible position, torn between the obligation to testify truthfully and the desire to avoid retaliation and keep their jobs.” Ultimately, in Lane, the Supreme Court held that the First Amendment affords protection to public employees who testify truthfully about job-related duties.
In United States ex rel. Michaels et al. v. Agape Senior Community Inc. et al., the United States District Court for the District of South Carolina certified its ruling rejecting the Plaintiff-Relators’ use of statistical sampling to prove liability and damages, setting the ruling for interlocutory appeal by the U.S. Court of Appeals for the Fourth Circuit. On September 29, 2015, the Fourth Circuit agreed to review whether statistical sampling can be used to prove liability in a fraud case.
In Agape, the Plaintiff-Relators claimed that Defendants, a network of twenty-four nursing homes, committed fraud by submitting false Medicare, Medicaid, and Tricare claims and seeking reimbursement for nursing home-related services. The government declined to intervene. The case involves claims for at least 10,166 patients. The district court found that “each claim asserted here presents the question of whether certain services furnished to nursing home patients were medically necessary,” meaning that each claim for each patient is distinct and unique from the other claims. read more…
In In the Matter of the Tax Liabilities Of: John Does, the United States District Court for the Southern District of Florida authorized the Internal Revenue Service to use “John Doe” summonses to identify U.S. taxpayers with undisclosed bank accounts in Belize. The IRS uses “John Doe” summonses to assist in investigations where the identities of individuals are unknown. This marks at least the third time the IRS has used this investigatory tool, which makes it easier for the IRS to pursue tax fraud cases.
The IRS sought records from Bank of America, N.A. and Citibank, N.A. identifying U.S. taxpayers with accounts at Belize Bank International Limited, Belize Bank Limited, or Belize Corporate Services. According to a Justice Department statement, these entities are subsidiaries of BCB Holdings Limited. read more…
On September 29, 2015, a federal judge in Washington revived a state retaliation claim against a contractor accused of False Claims Act (FCA) violations, citing a recent Washington State Supreme Court ruling that overturned a previous decision that would have made the FCA retaliation provision the plaintiff’s sole avenue for relief.
Maxmillian Salazar III had sued federal fire-safety contractor Monaco Enterprises, Inc. under the federal False Claims Act based on allegations that the company overbilled the U.S. Government. Salazar also alleged that Monaco fired him, in violation of Washington state common law, for reporting the overbilling. In October 2011, the company had fired Salazar, its former Director of Application Engineering, after he reported overbilling he witnessed while performing work related to Monaco’s procurement process.
Under Washington state precedent in place since the decision in Cudney v. Alsco, Inc., 259 P.3d 244 (Wash. 2011), Salazar was barred from bringing the state retaliation claim because the FCA includes its own anti-retaliation provision (31 U.S.C. § 3730(h)). Cudney held that a plaintiff could not bring a claim of wrongful discharge in violation of public policy under Washington state common law if an alternate remedy for the retaliatory filing existed under any state or federal statute.
In Berman v. Neo@ogilvy LLC, the Second Circuit held that there was enough ambiguity between the Dodd-Frank Act’s definition of “whistleblower” and its anti-retaliation provisions to trigger Chevron deference to the SEC’s interpretation of the statute. The Second Circuit thus accepted the SEC’s interpretation that Dodd-Frank does not require whistleblowers to report wrongdoing to the SEC to invoke the Act’s employee protection provisions. This is the opposite conclusion reached by the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C., setting the stage for the Supreme Court to resolve the conflict among the Circuits.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, 15 U.S.C. § 78u–6, was passed in 2010 in response to the 2008 economic crash. Section 922 of Dodd-Frank contains two courses of relief for whistleblowers: a whistleblower can provide information to the SEC and the SEC may provide that whistleblower with a monetary award; or a whistleblower may file a private cause of action against an employer who retaliates because of the whistleblower’s protected disclosures (this latter section is often referred to as the “anti-retaliation provision”).
In recent testimony before the Senate Committee on Homeland Security and Governmental Affairs, Carolyn Lerner, head of the U.S. Office of Special Counsel, said that her office expects that 35 percent of the prohibited personnel practices complaints it receives in 2015 will come from aggrieved employees at the Department of Veterans Affairs. Lerner also told the Committee that, in 2014, “the VA surpassed the Department of Defense in the total number of cases filed with OSC, even though the Defense Department has twice the number of civilian employees as the VA.” Lerner’s testimony came on the heels of a September 17, 2015 letter to President Obama from her office that detailed numerous OSC findings of the VA’s failures to hold accountable employees responsible for wrongdoing, including unlawful retaliation. It also came shortly after the OSC announced that it found that the VA unlawfully retaliated against a former employee of its Baltimore Regional Office. These developments demonstrate the ongoing challenges in protecting the valuable role played by whistleblowers in exposing wrongdoing.
MSPB Holds that Hostile Work Environment is an Adverse Action under the Whistleblower Protection Act
On September 3, 2015, in Savage v. Dep’t of the Army, the Merit Systems Protection Board held that the creation of a hostile work environment is a prohibited personnel action under the Whistleblower Protection Act. The Board, in Savage, remanded an initial decision in part because the administrative judge did not consider creation of a hostile work environment a prohibited action under the WPA.
The Whistleblower Protection Act provides relief to federal whistleblowers who 1) disclose activity they reasonably believe is a violation of law, rule, or regulation, and 2) experience a prohibited personnel action as a result. The WPA defines twelve prohibited personnel actions, including termination, demotion, and transfer. The twelfth is a catchall for “any other significant change in duties, responsibilities, or working conditions.” The Savage decision placed hostile work environment claims within this category of prohibited personnel actions.
Tommie Savage was a supervisory Contract Specialist with the U.S. Army Engineer and Support Center in Huntsville, Alabama who received excellent performance ratings throughout her time in the job. Savage reported activities she believed to be illegal, and her disclosures led to a May 24, 2007 internal audit that the MSPB found validated her concerns.
On August 18, 2015, the Occupational Safety and Health Administration released a directive to its regional offices to adopt “early resolution” alternative dispute resolution in whistleblower cases. The directive follows a successful pilot program by OSHA in its Chicago and San Francisco regions.
From October 1, 2012, to September 30, 2013, OSHA ran a pilot ADR program in regions V (Chicago) and IX (San Francisco). The program provided two options for settling disputes: (1) an “early resolution” process offering parties the assistance of a “neutral, non-decision-making OSHA whistleblower expert;” and (2) a one-day, in-person mediation with a “professional third-party mediator.”
OSHA found the early resolution process a “very effective and viable alternative” to the normal OSHA investigative process. As a result, OSHA is expanding the pilot program to all of its regional offices, though OSHA did leave regional offices the choice to offer parties additional ADR options.
Currently, 25 federal laws protect whistleblowers in the workplace. The Seaman’s Protection Act (SPA), enacted by Congress in 2010, ensures that seamen (and women) on vessels are protected from retaliation for disclosing safety violations in the work place.
While a lesser known that other whistleblower statues, the SPA prohibits retaliation against mariners for engaging in protected activities. These protected activities include disclosures related to failure to comply with maritime safety laws and regulations, reporting maritime safety issues to the U.S. Coast Guard, and disclosing violations to any other federal agency.
Recent decisions highlight the protections and the limitations of the SPA. In Joseph Dady v. Harley Marine Services, Dady, a marine pilot, reported to the U.S. Coast Guard Harley Marine Service’s practice of dumping raw sewage into the ocean. He also reported repeated rudder failure and improper manning. The illegal sewage spills sickened crew members. Harley terminated Dady shortly after his internal disclosures and reports to the U.S. Coast Guard. While the Administrative Judge held that Dady had engaged in protected activity, he also held that Dady was unable to prove that his disclosures caused his termination.
The U.S. Department of Justice announced settlements in six large qui tam cases during August – including a medical fraud case where the whistleblower earned over a two million dollar reward.
The False Claims Act (FCA) penalizes fraud against the U.S. government. Its qui tam provision allows whistleblowers to sue on behalf of the government, and to get up to 30% of recovered funds as a reward.
The Department of Labor’s Occupational Safety and Health Administration is known for its role in implementing and enforcing safety standards in workplaces across the United States. But another main role played by OSHA is its enforcement of the whistleblower anti-retaliation provisions of a number of statutes, including but not limited to: The Occupational Safety and Health Act, the Sarbanes-Oxley Act, the Clean Air Act, the Surface Transportation Safety Act, and the Federal Railroad Safety Act. Several recent actions by OSHA demonstrate the seriousness with which OSHA enforces these statutes.
On August 4, 2015, OSHA announced that it filed suit against Continental Alloys and Services, Inc., a Houston-based company which provides steel for oil and gas companies, for violations of the Occupational Safety and Health Act’s whistleblower provision. In this case, a former employee filed a complaint for wrongful termination after Continental fired her, allegedly because she complained that the company failed to log workplace injuries in violation of OSHA regulations. The whistleblower reported several instances when the company failed to log injuries, and even recorded a meeting with the company official who failed to record the injuries in order to gather evidence for an internal investigation. Continental fired her as a result of her actions. In its suit, OSHA seeks an injunction barring further retaliation, and reinstatement, back pay, and any other damages suffered by the whistleblower.
In a recent case before the D.C. Circuit Court of Appeals, Coleman v. District of Columbia, et al., 794 F.3d 49 (D.C. 2015), the Court overturned the District Court’s grant of summary judgment in favor of the District of Columbia in a case involving a former Captain of the D.C. Fire Department who claimed her termination was retaliation for whistleblowing. The Court’s opinion, which contains important holdings regarding the standard of proof under the D.C. Whistleblower Protection Act, also emphasizes the moving party’s burden at summary judgment to show “no genuine dispute of material fact.”
In reversing, the Coleman Court noted two legal errors by the lower court: (1) it relied in part on reasons not given by the Fire Department, but instead “divined” by the court and deemed to have been “impliedly offered;” and (2) inappropriately shifted the burden of persuasion back to the plaintiff after the Department articulated a legitimate, non-retaliatory reason for its adverse actions.
As previously reported, prosecutors charged a Michigan oncologist, Farid Fata, with numerous criminal counts with the underlying allegation that Dr. Fata intentionally gave chemotherapy to healthy patients in order to maximize Medicare payments. Dr. Fata pled guilty to a majority of these charges.
U.S. District Judge Paul Borman sentenced Fata to 45 years in prison as Fata wept in court. Fata apologized for misusing his talents because of “power and greed.” While the sentence was considerably less than the 175 years sought by U.S Attorney Barbara McQuade’s prosecutors, McQuade said that the 45 year sentence was close to a life sentence for Fata. McQuade also expressed surprise that the case had uncovered such egregious conduct.
In late June 2015, the U.S. government filed papers in United States v. Novartis Pharmaceuticals Corp. notifying the court that it seeks $3.35 billion from Novartis in damages and civil fines. This amount roughly consists of $1.52 billion in treble damages and $1.83 billion in fines for the over 160,000 alleged false claims that Novartis submitted to the government.
Though news of the large potential damages is recent, the government has been investigating and litigating this case in the Southern District of New York for several years. In April 2013, the government filed its complaint and intervention against Novartis, alleging that Novartis violated both the False Claims Act and the Anti-Kickback Statute. The government contends that Novartis gave kickbacks, in the form of rebates and discounts, to twenty or more pharmacies in exchange for their switching kidney transplant patients from competitor drugs to Novartis’s drug. The government noted that Novartis is a repeat offender, referencing the government’s multi-million dollar settlement with the company less than three years ago for kickbacks.
Because this is a qui tam case, the whistleblower stands to receive a large award –between 15 to 25 percent of the ultimate settlement.
On May 21, 2015, Senator Chuck Grassley urged tighter policing of the Medicare Advantage program by the Department of Justice. Grassley relied on an investigative report by the Center for Public Integrity, which found that between 2008 and 2013, the Center for Medicare and Medicaid Services has paid more than $70 billion in improper payments to Medicare Advantage plans. Medicare Advantage plans are offered by private insurance companies that contract with Medicare to provide Part A and Part B benefits to beneficiaries.
According to a recent GAO report, the government “could save billions of dollars” by reducing abuse of Medicare Advantage’s payment system. Whistleblower lawsuits are one of the least costly and most effective tools for the government in fighting fraud. Through qui tam actions, whistleblowers are able to bring suit under seal and on behalf of the government to help the government recover funds it paid out as a result of false statements submitted for payment. Whistleblowers in qui tam actions are entitled to 15-25% of the government’s recovery.