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Sixth Circuit Finds Teleworking a Reasonable Accommodation Depending on the Situation

In EEOC v. Ford Motor Co., the Sixth Circuit ruled that Jane Harris, a resale buyer at Ford who suffers from irritable bowel syndrome (IBS), was not qualified for her position, and therefore Ford did not discriminate against Harris when it denied her request to telework as a reasonable accommodation.

The EEOC brought claims on Harris’s behalf under the Americans with Disabilities Act, alleging that Ford failed to reasonably accommodate Harris when it denied her request for a schedule with maximum flexibility to telework, and retaliated against her for reporting this denial to the EEOC. The District Court granted summary judgment to Ford on both claims.

The Sixth Circuit reversed the District Court and held that whether teleworking is a reasonable accommodation was a question for a jury. In an en banc review, the Sixth Circuit affirmed the District Court’s grant of summary judgment. In the en banc opinion, the Sixth Circuit determined that no reasonable jury could find that telecommuting was a reasonable accommodation under this particular set of facts, but also held that telecommuting could be a reasonable accommodation under a different fact pattern.

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SEC Awards Whistleblower Maximum Possible Share of Settlement in Dodd-Frank Retaliation Case

On April 28, 2015, the Securities and Exchange Commission announced that it was awarding a whistleblower 30 percent of funds recovered in settlement of the Commission’s first retaliation charges brought under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The whistleblower’s share will be more than $600,000. In deciding to award the maximum 30 percent, the SEC’s Claims Review Staff weighed heavily the “substantial evidence that the whistleblower suffered unique hardships as a result of reporting.”

In the Matter of Paradigm Capital Management, Inc. and Candace King Weir, File No. 3-15930 (June 16, 2014), the SEC charged the hedge fund investment adviser with retaliating against the whistleblower for reporting what the whistleblower believed to be misconduct to the SEC. The SEC found that Paradigm removed the whistleblower from the whistleblower’s then-current position, changed the whistleblower’s job function, and removed the whistleblower’s supervisory responsibilities, among other retaliatory acts.
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Middle District of Florida Affirms Use of Statistical Sampling in Qui Tam Actions

Allegations of fraud against Medicare, a frequent impetus for qui tam actions under the False Claims Act, often involve an enormous number of false claims as part of a larger scheme of fraud committed by an entity. These large numbers of claims present a practical problem in determining liability and calculating damages. In a recent case, United States ex rel. Angela Ruckh v. Genoa Healthcare, et al., the United States District Court for Middle District of Florida affirmed the use of statistical sampling to demonstrate liability in a qui tam action.

In Ruckh, the Relator alleges that a number of health care facilities defrauded the U.S. government by “upcoding” (billing for higher level services than the facility actually performed). The Relator alleges that the Defendants submitted false claims from fifty-three different health care facilities. Given the impracticality of analyzing each and every claim from the various facilities, the Relator sought to use statistical sampling, as well as expert testimony, to extrapolate the amount of overpayment and assess liability. The Defendants in Ruckh relied on a footnote in a 1993 district court case from Massachusetts, United States v. Friedman, No. 86-0610-MA, 1993 U.S. Dist. LEXIS 21496 (D. Ma. Jul 23, 1993), for the proposition that statistical sampling cannot be used to demonstrate liability and calculate damages.
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Whistleblower Not Obligated to Produce Evidence of Retaliatory Termination

On March 20, 2015, the Department of Labor Administrative Review Board (ARB) reversed and remanded a decision by the DOL’s Office of Administrative Law Judges (OALJ) that held a railroad employee had not proved that his report of a workplace injury was a contributing factor to management’s decision to terminate his employment.

Robert Powers reported to his employer, Union Pacific Railroad Company, that he injured his hand while operating a rail saw at work in May 2007. Over slightly more than a year, Powers saw several doctors who prescribed various treatments. His doctors also imposed a series of work restrictions, including limits on lifting and repetitive motions.

Union Pacific became suspicious about Powers’ reported injuries and resultant work restrictions. The company hired a private investigator who filmed Powers performing tasks around his property, including using a sledgehammer and carrying boxes of ammunition. After an internal administrative procedure that determined that Powers had violated the company’s dishonesty policy and had failed to stay within his medical restrictions, the company terminated Powers’ employment.
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SEC Awards $1.5 Million to Compliance Officer

On April 22, 2015, the U.S. Securities and Exchange Commission announced its second-ever whistleblower award to a compliance professional. The SEC’s award demonstrates that compliance professionals and other fiduciaries can be whistleblowers when the employer fails to take action to address misconduct reported by a fiduciary.

The complainant, in his role as a fiduciary, was statutorily required to disclose the suspected misconduct internally and then wait 120 days for the employer to investigate and take corrective measures before initiating an action under the SEC’s whistleblower award program. Here, the complainant did as required, and the SEC found that the employer did not take meaningful corrective action. The SEC held the financial award to the whistleblower was appropriate given the employer’s failure to remediate.

The SEC’s first ever award to a whistleblower was in 2014. The SEC releases limited information about whistleblower case as it is bound by the law to protect the confidentiality of whistleblowers.

ARB Rules Airline Workers Exempt From Arbitration

In Willbanks v. Atlas Air Worldwide Holdings, Inc. et al., the Administrative Review Board for the U.S. Department of Labor ruled that airline workers are transportation workers and thus exempt from the arbitration requirements of the Federal Arbitration Act. The ARB ruling reversed an Administrative Law Judge’s grant of a motion to stay proceedings pending arbitration,.

The FAA provides that arbitration agreements are valid unless grounds exist for revoking the agreement. But the FAA specifically exempts contracts for the employment of “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In its ruling, the ARB acknowledged that the FAA should be interpreted liberally to favor arbitration, and that any exceptions should be viewed narrowly.
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Fourth Circuit Interprets ADAAA Broadly in Overturning Summary Judgment

The U.S. Court of Appeals for the Fourth Circuit, in a recent case on appeal from the Eastern District of North Carolina, interpreted the 2008 Amendments to the Americans with Disabilities Act (ADAAA) broadly and reversed the district court’s grant of summary judgment in favor of the defendant. The opinion contains a number of holdings favorable to ADA plaintiffs, including: 1) that the EEOC’s interpretation of what constitutes a “major life activity” under the ADA deserves Chevron deference from the courts; 2) that reasonable accommodations may include the restructuring of a plaintiff’s job, including the trading of some duties; and 3) that an employer’s retrospective addition of reasons for termination may bolster evidence of pretext on a retaliation claim.

In Jacobs v. N.C. Admin. Office of the Courts, a former deputy clerk at the courthouse in New Hanover County, North Carolina asked that her employer accommodate her social anxiety disorder by reassigning her from providing customer service at the front counter of the courthouse to a job which would require less personal interaction. The employer waited three weeks before acting on the request and then terminated the deputy clerk.
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Two Senators Launch Bipartisan Whistleblower Protection Caucus

In February 2015, Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon) announced the Whistleblower Protection Caucus, signaling that whistleblower protection is a topic on which politicians on both sides of the aisle can agree. Grassley, a long-time advocate for whistleblower rights, initially announced plans to form the Caucus in April 2014.

The purpose of the Caucus is to bring together like-minded Senators who can shed light on the need for ongoing whistleblower protections. The Caucus will focus on enforcement of whistleblower protections and creating a culture that understands and respects the right to blow the whistle on wrongdoing.
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Home Health Care Fraud on the Rise

In February 2015, two Florida doctors and their spouses paid $1.13 million to settle allegations that they received kickbacks in exchange for home health care referrals. Drs. Alan Buhler and Craig Prokos hired their wives as “marketers,” and referred patients for home care services. The settlement will resolve the allegations brought by a relator under the qui tam provisions of the federal False Claims Act, which allows private parties to bring suit on behalf of the United States government to recover funds paid by the government based on false claims. The relator is entitled to a share of the settlement amount.

Home health care is an area of continuing and rising fraud. Fraudulent conduct has become part of a number of companies’ business plans. Some businesses view making a settlement payment a cost of doing business, knowing that the settlement will be only a fraction of the money they have fraudulently received. Often, though, criminal charges are also brought against the fraudster.
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ARB Affirms Dismissal of Standard-Setting Case

Although the Department of Labor’s Administrative Review Board affirmed the dismissal of James Speegle’s whistleblower retaliation complaint, his case cemented a new standard for employees to meet when they invoke the “same decision” defense. In previous posts on May 15, 2014, September 3, 2014, and January 13, 2015, we discussed the Speegle standard and the burden it places on employers. Under Speegle, when an employer uses the “same decision” defense (arguing that it would have taken the same adverse action against an employee in the absence of his protected activity), the administrative judge must examine the defense by excising both the protected activity and the entangled facts from consideration.

In Speegle, the complainant and other supervisors had expressed concerns about Stone & Webster’s use of apprentices to apply paint coatings in a nuclear plant. Stone & Webster fired Speegle, ostensibly for insubordination after his obscene outburst at a meeting. The case then moved back and forth between DOL’s Office of Administrative Law Judges (the ALJ), the ARB, and the Eleventh Circuit, eventually establishing the present standard.
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South Carolina Holds FCA’s First-to-File Rule Overcome by Previous Voluntary Dismissal

The United States District Court for the District of South Carolina held that the False Claims Act’s (FCA) first-to-file rule requires that another complaint must be pending. Thus, the voluntary dismissal of an earlier-filed complaint clears the way for subsequent complaints, and no comparison of content of the complaints is necessary to allow the later-filed case to proceed.

The FCA’s first-to-file bar provides that when a private person brings an FCA action, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”
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Federal Court in South Carolina Holds That A Complaint Is Not Barred by The FCA’s First-to-File Rule If the Earlier-Filed Complaint was Voluntary Dismissed

The United States District Court for the District of South Carolina held that the False Claims Act’s (FCA) first-to-file rule requires that another complaint must be pending. Thus, the voluntary dismissal of an earlier-filed complaint clears the way for subsequent complaints, and no comparison of content of the complaints is necessary to allow the later-filed case to proceed.

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Adverse Action Extends to Employee Sent Home to Obtain Medical Release

On March 20, 2015, the U.S. Department of Labor’s Administrative Review Board affirmed an Administrative Law Judge’s holding in Jackson v. Union Pacific Railroad Co., finding that an adverse action extends to an employee sent home to obtain a medical release.

On August 29, 2011, Union Pacific Railroad switchman/brakeman Michael A. Jackson reported to his manager a foul smoky odor in Union’s freight yard outside Avondale, Louisiana. When Jackson, because of health and safety concerns, requested assignment to an area free from smoke, his supervisor told Jackson to go home and return to work only after obtaining a medical release.

On December 1, 2011, Jackson filed a complaint with the DOL’s Occupational Safety and Health Administration, seeking damages because he had been temporarily suspended from work after raising health and safety concerns.

Concluding that Union violated the Federal Railroad Safety Act’s whistleblower protection provision, an ALJ awarded Jackson compensatory damages. The ARB, affirming OSHA’s decision, determined that Jackson engaged in protected activity when he reported safety concerns concerning foul smoky air to his manager.

The ARB’s finding—that Jackson was constructively discharged because he did not ask to go home—likely has broad implications for employees who face adverse actions for reporting health and safety concerns. The ARB’s decision affirms that the health and safety of our nation’s workforce is a top priority.

Adverse Action Extends to Employee Sent Home to Obtain Medical Release

On March 20, 2015, the U.S. Department of Labor’s Administrative Review Board affirmed an Administrative Law Judge’s holding in Jackson v. Union Pacific Railroad Co., finding that sending an employee home to obtain a medical release can constitute an actionable adverse employment action.

On August 29, 2011, Union Pacific Railroad switchman/brakeman Michael A. Jackson reported to his manager a foul smoky odor in Union’s freight yard outside Avondale, Louisiana. When Jackson, because of health and safety concerns, requested assignment to an area free from smoke, his supervisor told Jackson to go home and return to work only after obtaining a medical release.

On December 1, 2011, Jackson filed a complaint with the DOL’s Occupational Safety and Health Administration, seeking damages because he had been temporarily suspended from work after raising health and safety concerns.

Concluding that Union violated the Federal Railroad Safety Act’s whistleblower protection provision, an ALJ awarded Jackson compensatory damages. The ARB, affirming OSHA’s decision, determined that Jackson engaged in protected activity when he reported safety concerns concerning foul smoky air to his manager.

The ARB’s finding—that Jackson was constructively discharged because he did not ask to go home—likely has broad implications for employees who face adverse actions for reporting health and safety concerns. The ARB’s decision affirms that the health and safety of our nation’s workforce is a top priority.

First Circuit Holds Healthcare Facility’s Use of Unlicensed Staff Violates the False Claims Act

On March 17, 2015, the First Circuit Court of Appeals reversed a District Court decision, holding that a counseling services’ failure to comply with state licensing requirements is a condition to payment under the False Claims Act.

The False Claims Act qui tam case at issue, US ex rel. Escobar v. Universal Health Services, Inc., was filed in the United States District Court for the District of Massachusetts. The suit alleges that Julio Escobar and Carmen Correa’s daughter, Yarushka Rivera, who died of a seizure in 2009, was treated by unlicensed and unsupervised staff at Arbor Counseling Services, a facility owned and operated by Universal Health.

Universal Health, according to the complaint, provided mental health services by unlicensed, unaccredited, and unsupervised therapists in violation of regulations set by MassHealth, a healthcare program administered by the Commonwealth of Massachusetts. Under MassHealth, mental health providers are required to employ qualified staff members as a condition to payment.

An unlicensed therapist employed by United Health then prescribed Trileptal to Rivera. Trileptal is a behavioral medication allegedly known to cause seizures after abrupt withdrawal. On May 13, 2009, Rivera suffered a fatal seizure after the unlicensed Universal Health therapist discontinued the medication.

In March 2014, the District Court dismissed the suit, concluding that Escobar’s claims were not actionable under the FCA because licensing requirements involve conditions for participation, rather than payment. Further, the District Court held that the FCA is designed to address financial fraud on the government rather than police general regulatory compliance.

The First Circuit, in reversing the District Court’s decision, held that Universal Health’s claims for reimbursement were within the meaning of the FCA. The Court of Appeals reasoned that services are only reimbursable when MassHealth standards are met.

In arriving at this decision, the First Circuit “ask[ed] simply whether the defendant, in submitting a claim for reimbursement, knowingly misrepresented compliance with a material precondition of payment.”

Eleventh Circuit Adopts False Certification Theory of FCA Claims

On March 11, 2015, the U.S. Court of Appeals for the Eleventh Circuit adopted the Ninth Circuit’s plaintiff-friendly approach to false certifications under the False Claims Act, preserving a former employee’s claim against a company that received funds under Title IV of the Higher Education Act.

Plaintiff Carlos Urquilla-Diaz alleged that Kaplan University, a for-profit education company, paid student recruiters based on the number of students they signed up. Urquilla-Diaz alleged that Kaplan falsely claimed to comply with the Higher Education Act, which forbids volume-based compensation of the sort it allegedly paid to recruiters. Urquilla-Diaz and co-plaintiff Jude Gillespie also named Kaplan Higher Education Corp. and Kaplan Inc. as co-defendants in the suit.

The district court dismissed all of the plaintiffs’ claims. On appeal, the Eleventh Circuit upheld the bulk of the district court ruling, including the dismissal of all of Gillespie’s claims on the grounds that he failed to establish the elements of an FCA claim. The three-judge panel also upheld the dismissal of all but one of Urquilla-Diaz’s claims for failure to plead with sufficient particularity The case is Urquilla-Diaz v. Kaplan University, case number 13-13672.

A typical FCA claim involves an entity submitting to the government a claim for payment that is false on its face. For instance, if an education company billed the government for teaching students who did not actually exist, its invoices would be false claims under the act.

But many U.S. Courts of Appeals, to varying degrees, have recognized a less direct theory of liability based on false certifications. Under this theory, a defendant can be liable for claims submitted to the government for work that was actually done, but which was performed in violation of some statutory, regulatory, or contractual provision. Under this theory, the claims are “false” because the company has falsely certified its compliance with all applicable provisions and the government would not have paid for the services without the false certification.

Urquilla-Diaz alleges that Kaplan violated the program participation agreement that it signed with the Department of Education to be eligible to receive Title IV funds. In conjunction with the agreement, Kaplan promised to abide by all statutes and regulations related to Title IV of the Higher Education Act. One such provision prohibits participants from paying recruiters “any commission, bonus, or other inventive payment based directly or indirectly on success in securing enrollments.”

Urquilla-Diaz’s false certification claim rests on the idea that the government would not have paid Title IV funds to Kaplan had it known that the company was violating its program participation agreement. Specifically, Diaz alleged that Kaplan increased and decreased recruiters’ salaries based on the number of students they signed up. The Eleventh Circuit determined that Urquilla-Diaz had plausibly stated a claim under the FCA, in part because he included specifics about former Kaplan employees whose salaries were modified based on their recruiting success.

The Eleventh Circuit’s embrace of the Ninth Circuit’s false certification standard will make it easier for relators to bring similar cases in the future.

Appeals Court Rules that First Amendment Protects NYPD Officer from Retaliation for Opposing Stop-and-Frisk Quotas

In Matthews v. City of New York, the Second Circuit Court of Appeals overturned a holding by the U.S. District Court for the Southern District of New York (SDNY) that retaliation for a police officer’s concerns about stop-and-frisk policy was not barred because the officer had expressed his concerns in his role as a public employee. The Second Circuit held that the officer’s public role was to execute the policy, but he had expressed his concerns about the legality of the policy in the role of a private citizen.

The officer, Craig Matthews, alleged that his supervisors in the 42nd precinct developed an illegal quota system and that any officers failing to meet the quotas were identified and subject to retaliation. After Officer Matthews began reporting the allegedly illegal nature of the quota system, the NYPD retaliated against him by giving him punitive assignments and poor performance evaluations, denying him overtime and leave, separating him from his longtime partner, and subjecting him to constant harassment and threats.

Matthews asked the SDNY to find that the NYPD’s retaliatory actions violated his free speech rights under both the First Amendment and the New York State Constitution. But the Southern District granted the City’s Motion for Summary Judgment, finding that Matthews made his complaints as a public employee, and not as a private citizen.

On appeal, the Second Circuit disagreed with the SDNY, and remanded the case for further proceedings. The Second Circuit reasoned that Matthews’ opinions about the quota system and any corresponding complaints were not related to his actual or functional job responsibilities. Therefore, Matthews made these complaints in his capacity as a private citizen. The Second Circuit reasoned that, if a public employee’s job responsibilities do not entail creating, implementing, or providing feedback on a policy, any complaints made by the employee about the policy are made as a private citizen and are protected speech.

This decision further chips away at the United States Supreme Court decision in Lane v. Franks, which held that the First Amendment can protect government workers from punishment if they are testifying under oath about job-related matters.

Federal Court in New York Rules that SOX Protects Post-Employment Disclosures and Prevents Post-Employment Retaliation

In Kshetrapal v. Dish Network, the U.S. District Court for the Southern District of New York ruled that an employee stated a valid claim under the anti-retaliation provisions of the Sarbanes-Oxley Act for alleged retaliation for a disclosure he made after his employer terminated him.

Plaintiff Tarun Kshetrapal sued his former employer Dish Network LLC, for, among other things, retaliation in violation of SOX section 806. He alleged both pre- and post-termination protected activities, and pre- and post-termination retaliation for his disclosures. Under SOX, an employer may not “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” that an employee performs in blowing the whistle on certain types of fraud.

After Dish terminated Kshetrapal, he testified in a deposition, in a separate litigation, about his internal complaints to Dish about fraudulent invoices. In its ruling, the Court rejected Dish’s argument that Kshetrapal’s SOX claim was limited to pre-termination protected activities. The Court examined the purpose of SOX, which is to “combat what Congress identified as a corporate culture, supported by law, that discourages employees from reporting fraudulent behavior not only to the proper authorities . . . but even internally.” The Court reasoned that given the purpose and language of the statute, its scope should not be interpreted narrowly and, as properly interpreted, SOX protects post-employment disclosures and prevents post-employment retaliation.

Obesity Qualifies as a Disability under the ADA

A consensus has developed in the federal courts that obesity qualifies as a “disability” under the Americans with Disabilities Act (ADA), even in the absence of an underlying physical impairment. While the ADA does not explicitly say whether obesity is a disability, Congress broadened the definition of “disability” in the 2009 amendments to the ADA. Several jurisdictions interpret the language in the amendments to mean that severe obesity is a protected “disability,” so that employers may not take adverse actions against an employee based on the employee’s actual or perceived obesity, and are required to offer reasonable accommodations, if needed, to the disabled employee.

Discrimination based on an employee’s weight can come in subtle forms. For example, a supervisor may tease the employee in front of his or her coworkers or require an employee to take medical leave because of the employee’s weight, which may interfere with the employee’s performance of his or her job duties. In addition, an employer may terminate an overweight employee because his or her medical expenses are financially burdensome to the employee health insurance plan.

This trend in recognizing obesity as a legally protected disability enjoys international support. In a recent decision, the Court of Justice of the European Union, the EU’s top human rights court, ruled that obese workers can be considered disabled under European anti-discrimination laws if an employee’s obesity hinders “full and effective participation of that person in professional life on an equal basis with other workers.”

Meanwhile, some state legislatures in the United States—where almost 1 in 3 adults is obese, according to the World Health Organization—have enacted laws that explicitly prohibit discrimination based on a person’s weight. More states may soon follow, given that the American Medical Association recently for the first time recognized obesity (at any level of severity) as a disease. At the same time, a new study found that almost 75% of people support adding body weight as a protected characteristic under anti-discrimination laws.

MetLife Home Loans to Pay $123.5 Million to Settle Allegations of Mortgage Lending Fraud

On February 25, 2015, MetLife Home Loans LLC agreed to pay the U.S. Government $123.5 million to settle claims alleging that the company originated and underwrote loans insured by the Federal Housing Administration (FHA) to unqualified borrowers.

John Walsh, the U.S. Attorney for the District of Colorado, brought a False Claims Act action against Met Life Bank N.A., which merged into MetLife Home Loans LLC in June 2013. MetLife Home Loans is a wholly owned subsidiary of MetLife Inc., as was MetLife Bank before the merger.

The U.S. Government alleged that from September 2008 through March 2012, MetLife Bank knowingly submitted for FHA insurance numerous mortgage loans that did not meet Department of Housing and Urban Development (HUD) underwriting requirements. When FHA-insured loans default, the financial institution that originated the loans can submit insurance claims to the U.S. government. Therefore, when FHA-insured loans originated by MetLife Bank defaulted, U.S. taxpayers got stuck with the bill.

During the relevant period, MetLife Bank was as an FHA-approved Direct Endorsement Lender. Such lenders are authorized to originate, underwrite, and certify mortgages for FHA insurance. The FHA relies on Direct Endorsement Lenders to ensure that only loans that comply with HUD regulations are submitted for FHA insurance.

MetLife Bank’s internal findings showed that senior executives, including the CEO and the bank’s directors, had information showing that a substantial percentage of the loans were not eligible for FHA insurance. MetLife Bank’s records show that, between January 2009 and August 2010, between 25 percent and 60 percent of MetLife Bank’s FHA-insured loans had compliance deficiencies labeled “material/significant.” Despite these deficiencies, MetLife Bank moved many loans out of this category to the more favorable category of “moderate.” As one employee put it in an e-mail, “Why say significant when it feels so good to say moderate.”

Between January 2009 and December 2011, MetLife Bank self-reported only 321 FHA insured mortgages to HUD as materially violating HUD regulations, despite having internally identified 1,097 loans that it should have reported.

Although the government brought the FCA charges against MetLife Bank on its own, the False Claims Act allows private citizens (called “relators”) to file suits on behalf of the government for similar violations, such claims are known as a qui tam claims. On March 19, 2014, Keith Edwards, a former executive at JP Morgan, received a $69.3 million reward for blowing the whistle and disclosing allegations that JP Morgan violated the FCA by submitting toxic mortgages to the government for insurance.

In 2014, the U.S. government recovered nearly $6 billion through the False Claims Act.

Dow Chemical and CEO Settle SOX Whistleblower’s Retaliation Suit

Dow Chemical Company, a multinational corporation headquartered in Midland, Michigan, settled a case with a former employee, Kimberly Wood, who alleged that Dow terminated her in retaliation for blowing the whistle on it and its CEO Andrew Liveris’s improper spending and other financial wrongdoing.

Wood, a fraud investigator at Dow, alleged that Dow and Liveris violated Securities and Exchange Commission rules by exceeding the budget for a project by $13 million; paying for numerous unreported personal expenses for Liveris (including family trips to the Super Bowl, World Cup, and Masters Tournament); making payments, at the direction of Liveris, to certain charities, including Liveris’s own charity; excessive use of a corporate jet; improperly hiding cost overruns; and engaging in financial statement fraud.

On October 9, 2013, Wood reported an instance of financial statement fraud. The very next day, Dow notified Wood that it would terminate her employment by the end of the month. Wood sued Dow, alleging that it retaliated against her because of her protected activity in violation of the anti-retaliation provisions of the Sarbanes-Oxley Act of 2002 (SOX), 18 U.S.C. § 1514A. Under SOX, employers are prohibited from retaliating against employees who report certain illegal or unethical conduct. Employees are also protected when making disclosures about shareholder fraud or violations of any SEC rules and regulations.

In December 2014, the United States District Court for the Eastern District of Michigan denied Dow’s motion to dismiss Wood’s complaint. In its ruling, the Court held that SOX plaintiffs need not allege actual management knowledge of protected activity—it’s enough to allege sufficient facts from which such knowledge may be reasonably inferred. At that time the court denied its motion to dismiss, Dow said that it would defend its case “vigorously.” But just two months later, in February 2015, the parties announced that they reached an amicable settlement. The terms of the settlement are confidential.

Fourth Circuit Holds SOX Retaliation Plaintiffs May Recover Emotional Distress Damages

The U.S. Court of Appeals for the Fourth Circuit is now the third federal appeals court –joining the Fifth and Tenth circuits – to hold that emotional distress damages are available under the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (SOX ). SOX section 806 protects employees from firing or other adverse actions for reporting that their publically traded employers misstated or omitted information in filings with the Securities and Exchange Commission or violated any SEC rule.

In Jones v. SouthPeak Interactive Corp. of Delaware, (4th Cir. 2015), the former Chief Financial Officer of video game publisher SouthPeak, Andrea Gail Jones, sued under the SOX anti-retaliation provision. Jones alleged that SouthPeak fired her because she refused to sign a proposed amendment that denied SouthPeak intentionally omitted a $307,400 wire transfer in the company’s balance sheet and quarterly financial report filed with the SEC. Jones allegedly refused to sign because when she first notified her supervisor of the omission, he rebuffed her and failed to add it to the filing.

The Fourth Circuit upheld the jury’s award of emotional distress damages to Jones, finding that the relief is permissible because 18 U.S.C. 1514A(c)(1) states that an employee prevailing in a SOX retaliation action “shall be entitled to all relief necessary to make the plaintiff whole.”

Round-Up of Recent Qui Tam Settlements

The False Claims Act allows private citizens with knowledge of false claims to bring civil actions on behalf of the United States government and to share in the recovery from these actions. These private citizens, known as relators, may receive a portion of the government’s recovery even if the actions are settled. The following are examples of three settled false claims (or “qui tam”) actions in which the relators received large monetary sums as their share.

AstraZeneca entered into a settlement agreement for $7.9 million with the United States to resolve allegations that the company agreed to provide remuneration to a pharmacy benefits manager in exchange for maintaining exclusive status to formularies. The relator received $1.42 million from the settlement.

California-based C.R. Laurence Co. Inc., Florida-based Southeastern Aluminum Products Inc., and Texas-based Waterfall Group LLC agreed to pay $2,300,000, $650,000 and $100,000, respectively, to resolve a qui tam action. The action alleged that the companies schemed to elude customs duties on imports. The relator received a $555,000 reward. Customs regulations are in place to level the playing field between companies who purchase products domestically and those who import their products. Evading customs regulations poses serious harm to United States manufacturers.

Ageless Men’s Health, LLC agreed to pay $1.6 million to the United States to resolve allegations that it billed Medicare and Tricare for medically unnecessary evaluation and management services. Medicare and Tricare will only reimburse for medically necessary procedures. The relator and the United States alleged that Ageless Men’s Health improperly billed for each office visit during which a testosterone shot was administered. The relator will receive $250,000 from the settlement.

New York Attorney General Proposes State Equivalent of Dodd-Frank Whistleblower Program

On February 26, 2015, New York Attorney General Eric Schneiderman announced plans to introduce state legislation to protect and reward employees who report information about illegal activity in the banking, insurance, and financial services industries.

Schneiderman’s proposal, titled the Financial Frauds Whistleblower Act, would create a state-level equivalent of the federal Dodd-Frank Wall Street and Consumer Protection Act. The Dodd-Frank Act provides financial incentives and anti-retaliation protections to whistleblowers who report fraud in the financial services industry.

While a number of states have whistleblower programs modeled after the federal False Claims Act, the Financial Frauds Whistleblower Act would be the first state-level equivalent of the Dodd-Frank Act, which created the whistleblower programs at U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission.

Schneiderman’s proposal would also address the limitations on awards imposed by federal law. Under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), rewards to whistleblowers who report financial crime are capped at $1.6 million.

The Financial Frauds Whistleblower Act would compensate whistleblowers whose information leads to action by the state’s banking and insurance regulator, the New York Department of Financial Services—providing the potential for large awards.

The legislation has yet to pass the New York State legislature.

U.S. Supreme Court Declines to Hear Appeal of California Ruling that Arbitration Agreements Cannot Waive Claims Under the State’s Private Attorneys General Act

On January 20, 2015, the U.S. Supreme Court declined to hear a challenge to a California Supreme Court ruling that employees could not, through arbitration agreements, waive representative claims under the state’s Private Attorneys General Act (PAGA). PAGA allows private citizens to step into the shoes of the government and sue for workplace violations on behalf of California’s Labor and Workforce Development Agency. Such plaintiffs can recover a share of any penalties recovered by the state. Workers can sue on behalf of themselves and other current and former employees in representative suits.

In Iskanian v. CLS Transportation Los Angeles LLC, the California Supreme Court held that arbitration agreements with mandatory class waivers are generally enforceable in light of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which established that the Federal Arbitration Act (FAA) preempted state laws finding such waivers unenforceable. However, in Iskanian, the California Supreme Court reasoned that agreements waiving workers’ rights to bring PAGA actions undermined the purpose of the statute and disabled a key enforcement mechanism for the state’s labor code.

The decision in Iskanian stemmed from a 2006 suit filed by former CLS Transportation limousine driver Arshavir Iskanian. Iskanian, who had signed an arbitration agreement with the company, brought a proposed wage class action under PAGA against CLS.

The California Supreme Court found that employees bringing representative claims against their employers are actually bringing those claims on behalf of the state, rather than the employees themselves. For that reason, the court found that the arbitration agreements signed by the employees did not preempt state law.

After the California Supreme Court ruled in Iskanian’s favor on June 23, 2014, CLS filed a petition for certiorari on September 22, 2014, asking the U.S. Supreme Court to review the decision. CLS argued that California’s courts and legislature had a history of ignoring the preemptive effect of the Federal Arbitration Act.

The U.S. Supreme Court’s decision to decline CLS’s petition is expected to increase the number of representative claims under PAGA and to incentivize defendants to remove such actions to federal courts. Law 360 quoted Nicholas Woodfield, Principal and General Counsel of The Employment Law Group, P.C., in a story about the implications of the Iskanian ruling:

Several federal district courts recently have refused to apply Iskanian, instead requiring the employees to arbitrate their PAGA claims, . . . As such, it is almost certain that we will see more employers trying to remove PAGA cases to federal court, as the federal courts are not bound by the California Supreme Court’s decision.

Illustrating this point, on October 17, 2014, the U.S. District Court for the Central District of California granted a defendant’s motion to compel arbitration in Langston v. 20/20 Cos. Inc., holding that the FAA preempts California’s rule against arbitration agreements in which the right to bring representative PAGA claims is waived.

However, in March 2014, the U.S. Court of Appeals for the Ninth Circuit determined that Chase Investment Services Corporation could not remove a PAGA suit to federal court. In Bauman v. Chase Investment Services Corp., the Ninth Circuit concluded that PAGA actions are not similar enough to class actions under Rule 23 of the Federal Rules of Civil Procedure to warrant removal from state court.

The California Supreme Court, on the same day it decided Iskanian, also held in Bridgestone Retail Operations LLC v. Milton Brown that representative claims under PAGA cannot be waived. Bridgestone has petitioned for certiorari as well, although the chances of the Court granting that petition now appear slim.

The state Supreme Court found that employees bringing representative claims against their employers are actually bringing those claims on behalf of the state, rather than the employees themselves. Therefore, the court found that the arbitration agreements signed by the employees did not preempt state law.

The Employment Law Group, P.C. produces this blog to provide general news and information about the field of employment law.

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