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.
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.”
In United States ex rel. Denk v. PharMerica Corp., in July 2009, Relator Jennifer Denk filed a qui tam action alleging that PharMerica Corp. dispensed medicine with inadequate prescriptions. In January 2010, Denk amended her complaint to include kickback allegations. In May 2013, after an almost three year investigation, the government notified the court of its decision to intervene on Denk’s claims related to inadequate prescriptions, but not to intervene in Denk’s kickback claims. In November 2013, Denk voluntarily dismissed her kickback claims with prejudice.
In a separate qui tam action, United States ex rel. Kurnik v. PharMerica Corp. and Kindred Healthcare, Inc., Relator Frank Kurnik alleged that PharMerica and Kindred solicited and received illegal kickbacks to induce doctors to prescribe certain drugs. Kurnik filed his original complaint in June 2011 and filed an amended complaint in April 2014. Thus, when Kunik filed his amended complaint (in April 2014), Denk’s kickback claims were no longer pending (as she dismissed them on November 20, 2013).
In the Kurnik case, PharMerica and Kindred Healthcare filed a motion to dismiss, alleging that Kurnik’s complaint was barred by the first-to-file rule. The district court analyzed the first-to-file rule and held that it applies only when the first-filed complaint is still pending in court. Denk voluntarily dismissed her kickback claims before Kurnik filed his kickback claims, and as such, when Kurnick filed his kickback claims, there was no pending action on the kickback claims. In other words, though Denk was first-to-file on the kickback claims, Kurnik is not barred by the first-to-file rule and can proceed with his kickback claims because Denk voluntarily dismissed those claims before Kurnik filed his kickback claims. Additionally, since the court resolved the motion to dismiss by analyzing whether Denk’s complaint was “pending” at the time that Kurnik filed his kickback claims, the court did not engage in any further analysis comparing the complaints.
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.
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.”
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.
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.
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 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.
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.”
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.
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.
Social media may be part of your lawsuit.
On January 7, 2015, a three judge panel sitting on Florida’s Fourth District Court of Appeals ruled that a plaintiff had to produce photos she had posted on Facebook. The court granted Defendant Target Corporation’s request to compel Plaintiff Maria Nucci to produce the photos.
Prior to this decision, Florida trial courts were split as to whether information posted on social media sites is discoverable in a lawsuit.
When Target moved to compel Nucci to produce photos from her Facebook page, Nucci argued that, as a Facebook user, she had a reasonable expectation of privacy. Nucci cited the fact that Facebook generally prevents the public from accessing her page without her permission.
Rejecting Nucci’s argument, the Florida Court held that Facebook users have only very limited privacy rights. The court noted that Facebook requires users to acknowledge their limited rights when they sign up for the site. The court then held that photos depicting Nucci’s quality of life before and after an accident at a Target store were highly relevant to the lawsuit—and discoverable.
It remains to be seen how other Florida courts will follow and apply the decision by the Florida Fourth District Court of Appeals.
On January 16, 2015, the U.S. Court of Appeals for the District of Columbia Circuit held in Williams v. Johnson that the District of Columbia Whistleblower Protection Act (DCWPA) protects employees who cooperate in good faith in an investigation. In April 2005, Christina Williams was tasked by her employer, the D.C. Department of Health, Addiction Prevention and Recovery Administration (APRA), with overseeing the implementation of ACIS, a new client information system. Williams was later required to testify before the D.C. Council regarding the implementation. Williams testified that the program was not useful and that its rollout was behind schedule. Williams’s testimony contradicted more optimistic testimony given by her supervisors.
The supervisors harassed Williams after her testimony. Williams sued under the DCWPA and eventually resigned her position with APRA. At trial, a jury determined that Williams’s testimony warranted protection under the DCWPA and awarded her $300,000.
On appeal by APRA, the D.C. Court of Appeals affirmed the jury’s verdict. The Court of Appeals held that a reasonable jury could view the statements Williams made in her testimony as disclosing an abuse of authority or a violation of law and thus warranting protection under the DCWPA. The Court noted that Williams testified truthfully, knowing that her statements conflicted with what her supervisors wanted her to say.
In its recent FY 2016 Budget Request, the Securities and Exchange Commission touted the success of its Whistleblower Program and proposed increased funding for the program to help with an increased workload caused by a surge in whistleblower tips. The SEC’s Enforcement Division, in the 2016 Budget Request, revealed that it had received approximately 3,600 tips in FY 2014 through the Whistleblower Program, the largest number of tips ever received by the SEC. The SEC also reported in its request that it had granted the largest number of rewards in its history to whistleblowers in 2014.
Under the SEC’s Whistleblower Program, a whistleblower may receive a reward of between 10 and 30 percent of penalties collected by the SEC if the whistleblower provides information leading to a penalty of $1,000,000 or more. In fact, in September 2014, the SEC announced a reward of more than $30 million to a whistleblower.
The Budget Request praises the effectiveness of the program, stating, “Whistleblowers can often provide high-quality information that allows the Division to more quickly and efficiently detect and investigate alleged violations of the law.” The Request predicts that the surge in rewards, including the September 2014 reward of more than $30 million, will spur more tips and ultimately allow the Enforcement Division to “bring enforcement actions against violators where it would otherwise have not had sufficient information to do so.” The SEC proposes increased funding to hire more staff to handle the increased workload.
The Request demonstrates the success of the Program in protecting investors by ensuring a fair marketplace. It also shows the tangible impact that encouraging whistleblower activity has had in advancing the SEC’s mission. Finally, the Request’s proposal for additional funding, if approved, will allow the SEC’s Whistleblower Program to investigate more tips and prosecute wrongdoing more quickly and efficiently, and to reward more whistleblowers for providing important information to the government.
Fourth Circuit Holds that Disclosure to the Government is Not a “Public Disclosure” and Reinstates Long-Running Qui Tam Case
The United States Court of Appeals for the Fourth Circuit recently held that a disclosure outside of the government is required to trigger the False Claims Act’s public disclosure bar. The FCA’s public disclosure bar requires courts to dismiss a qui tam action if the action is based on information already made public, unless the relator bringing the action was the original source of the information.
In United States ex rel. Wilson v. Graham County Soil & Water Conservation Dist., Relator Karen Wilson alleged fraud in a federally-funded storm cleanup program in North Carolina. After discovering the fraud, Wilson wrote a letter to a government official disclosing her concerns. A few months later, a government agency prepared an audit report that included the information disclosed by Wilson. The report was distributed to other state and federal law agencies. Wilson’s case survived two trips to the Supreme Court and was most recently dismissed in district court for lack of jurisdiction based on the public disclosure bar.
The district court relied on a Seventh Circuit case to dismiss Wilson’s complaint, holding that disclosure to a public official is sufficient to trigger the bar, absent a disclosure to the public at large. In its February 3, 2015 decision, the Fourth Circuit rejected the Seven Circuit’s approach and, falling in line with five other circuits, reasoned that Congress did not intend public disclosure to extend to disclosure to the government.
On February 5, 2015, Maryland proposed a new, expanded state False Claims Act that would better allow Maryland to deter and recover damages for fraud against the state. Maryland Attorney General Brian Frosh urged adoption of the Act, which would expand Maryland’s current limited version that only applies to Medicaid and health-care related fraud.
Under the proposed False Claims Act, Maryland may receive triple the damages for its losses, while the whistleblower who initiates the claim is allowed to receive a portion of the state’s recovery and is also protected against retaliation in the work place. The state’s current version of the Act has allowed it to recover $28 million a year in each of the past two years from Medicaid-related cases alone. Adopting the proposed expansion will allow Maryland to achieve greater success in deterring fraud and recovering funds, much like the federal government.
Under the federal False Claims Act, the federal government recouped nearly $5 billion in 2012. To incentivize states to adopt laws more closely mirroring the federal False Claims Act, the federal government, under the Deficit Reduction Act of 2005, allows states to collect an additional 10% of federal Medicaid funds recovered through a state action.
CareAll Management, a home healthcare provider based in Nashville, Tennessee, recently agreed to pay $25 million to settle charges that it violated the False Claims Act by submitting false and “upcoded” billings to Medicare and Medicaid. The settlement resolves a suit filed in the U.S. District Court for the Middle District of Tennessee. The suit alleged that CareAll overstated the severity of patients’ conditions to increase billings (upcoding) and billed for services that were not medically necessary and were rendered to patients who were not homebound. CareAll is one of the largest home healthcare providers in Tennessee.
As part of the settlement, the relator, Toney Gonzales, will receive more than $3.9 million as his share of the total recovery. Gonzales brought the lawsuit against CareAll under the qui tam provisions of the False Claims Act, which allows private citizens to sue on behalf of the United States for fraudulent uses of federal funds (including Medicare and Medicaid) and to share in any recovery.
The CareAll settlement illustrates efforts by the Department of Justice (DOJ) to make home healthcare fraud a bigger enforcement priority. In many cases, the government is criminally prosecuting the individuals responsible for the fraud in addition to the corporate entity. In the same week that it announced the CareAll settlement, DOJ reached multi-million dollar settlements involving three other home healthcare fraud schemes. These settlements mark the success of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, a partnership between the Attorney General and the Secretary of Health and Human Services to increase efforts to prevent Medicare and Medicaid fraud.
The U.S. Court of Appeals for the Sixth Circuit recently ruled that federal statutes do not protect a job applicant from retaliation by a prospective employer based on whistleblowing at a previous employer. The decision puts the Court at odds with long-standing agency interpretation of the Energy Reorganization Act (ERA) by the Department of Labor (DOL), as well as assumptions underlying decisions in several other federal circuit Courts of Appeals. Gary Vander Boegh worked for the Department of Energy (DOE) for many years as landfill manager at the Paducha Gaseous Diffusion Plant (PDGP) under WESKEM, LLC, a subcontractor to Bechtel Jacobs Company (BJC). While working for WESKEM, Vander Boegh engaged in a range of protected whistleblowing, including reporting environmental violations. In 2005, DOE awarded the PGDP contract to Paducah Remediation Services, LLC (PRS). EnergySolutions subcontracted with PRS to provide waste management services. Vander Boegh applied to EnergySolutions to remain the landfill manager, but EnergySolutions hired another candidate. Vander Boegh filed a complaint against BJC, PRS, and EnergySolutions with DOL, alleging retaliation for prior protected conduct in violation of six federal statutes.
After the Sixth Circuit remanded a previous appeal by Vander Boegh, the district court again granted summary judgment to the one remaining defendant, EnergySolutions, holding that Vander Boegh lacked standing because he was an applicant and not an employee of EnergySolutions. On appeal, the Sixth Circuit affirmed, finding that Vander Boegh lacked standing under the ERA and the False Claims Act (FCA), and that the court thus did not have subject matter jurisdiction over Vander Boegh’s claims under four other federal environmental statutes: The Safe Drinking Water Act (SDWA), 42 U.S.C. § 300j-9(i); the Clean Water Act (CWA), 33 U.S.C. § 1367; the Toxic Substances Control Act (TSCA), 15 U.S.C. § 2622; and the Solid Waste Disposal Act (SWDA), 42 U.S.C. § 6971.
In its opinion filed on November 18, 2014, the Sixth Circuit noted that the Third Circuit had “assumed, without deciding, that applicants are employees under the ERA,” but declined to follow the Third Circuit’s reasoning. Vander Boegh argued that the term “employee” is ambiguous and the Court should thus apply Chevron deference to DOL’s interpretation of the term in the ERA and adopt the agency’s long-standing interpretation. But the Court reasoned that since the term “employer,” but not “employee,” was defined in the statute, it should be guided by the dictionary definition of “employee.” With that reasoning, the Court endorsed the following definitions of “employee” under the ERA: “[s]omeone who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance,” and “[a] person working for another person or a business firm for pay.”
The Court concluded that, by these definitions, Vander Boegh was not an employee because he never worked for EnergySolutions. It added that Congress had included, in its ERA definition of employer, “applicants” for Nuclear Regulatory Commission licenses, indicating that had it intended to include applicants within the definition of “employee,” it would have. The Court added that courts should “presume Congress intended a term to have its settled, common-law definition” absent a contrary indication in the statute.
But the Court did not address two other viable theories of statutory interpretation. The first is that Congress simply failed to define the term “employee” in the ERA, thus creating a statute with ambiguous language. The accepted doctrine of Chevron deference to agency interpretation in such instances would carry no weight if Congress intended Courts to defer to dictionary or common law definitions when faced with unintended ambiguity. The second possibility – that Congress knowingly left the term undefined, expecting the agency to use its discretion in defining it – even more strongly supports Chevron deference.
The Court also failed to engage DOL’s reasoning for including applicants within the definition of “employees.” In Samodurov v. General Physics Corporation, the DOL Office of Administrative Appeals stated, “It is well established that the ERA covers applicants for employment.” The DOL reasoned that “[a] broad interpretation of ‘employee’ is necessary to give full effect to the purpose of the employee protection provision, which is to encourage reporting of safety deficiencies in the nuclear industry.” In Vander Boegh, the Sixth Circuit did not address either the DOL’s long-standing and settled interpretation of employee under the ERA, or DOL’s reasoning based on the congressional intent underlying the statue.
Finally, in addition to the Third Circuit opinion cited but not followed by the Court, other circuits have assumed that applicants are protected under the anti-retaliation provision of the ERA. The Fifth Circuit applied a three-part test to decide whether job applicants were protected under the ERA in Williams v. Administrative Review Board. In Hasan v. Department of Labor, the Tenth Circuit upheld the dismissal of an applicant’s claim under the whistleblower provision of the ERA, but not because the plaintiff was an applicant. Like the Fifth Circuit in Williams, the Tenth Circuit laid out the elements the applicant needed to show to sustain a claim under the act. At least three other circuits have thus deferred to DOL’s determination that applicants are within the definition of employee under the ERA.
For these reasons, the Sixth Circuit’s limited reading of “employee” under the ERA (and, by extension, other federal whistleblowing statutes) to exclude applicants is unlikely to be followed by other circuits.
On December 17, 2014, the Court of Appeals for the Eighth Circuit affirmed a lower court ruling ordering Bayer Corporation to reinstate a former pharmaceuticals sales representative, Mike Townsend, wrongfully terminated by Bayer in violation of the anti-retaliation provisions of the False Claims Act (FCA), 31 U.S.C. § 3730(h). Bayer had opposed the court-ordered relief, arguing that reinstating Townsend constituted an abuse of discretion by the lower court because Bayer had planned to eliminate Townsend’s position in a reorganization and the FCA did not permit reinstatement in those circumstances.
In April 2009, Townsend disclosed to his manager that a Bayer customer, Dr. Kelly Shrum, was committing Medicare fraud by buying a cheaper Canadian version of a contraceptive device and submitting reimbursement claims for the more expensive FDA-approved contraceptive. Townsend eventually reported Shrum to the Arkansas attorney general.
On May 5, 2010, Bayer fired Townsend, claiming he couldn’t do his job because his credit card had been deactivated. At trial, Bayer argued that the deactivated card prevented Townsend from entertaining physicians. The jury rejected Bayer’s stated reason for terminating Townsend as pretextual and found Bayer fired Townsend in retaliation for reporting Shrum’s Medicare fraud.
Judge James M. Moody of the District Court for the Eastern District of Arkansas ordered Bayer to reinstate Townsend. The Eighth Circuit affirmed reinstatement as an appropriate remedy for the retaliatory firing, given that Townsend had no performance issues, enjoyed working at Bayer, and there was no evidence that Townsend’s coworkers would harass him upon his return. The Court rejected Bayer’s planned reduction in force as an affirmative defense to bar Townsend’s reinstatement. The Court held that Bayer did not have to reinstate Townsend to the exact same position, but, at a minimum, had to put him in a position with “the same seniority status” he would have had but for Bayer’s unlawful conduct.
Arbon Equipment Corporation and its holding company, Rite-Hite Holding Company, agreed to pay $4 million to settle a suit alleging they violated the federal and California False Claims Act by failing to pay employees prevailing wages on certain government-funded projects. A former employee, Mark Brooks, filed the qui tam suit in the U.S. District Court for the Southern District of California. Brooks and other employees installed and serviced loading dock equipment at facilities owned by the federal or California state government. Arbon and Rite-Hite, as part of the settlement, also agreed to change their compensation practices and policies.
The Service Contract Act and the Davis-Bacon Act require contractors and subcontractors working on certain government-funded projects to pay employees specified hourly wages that are higher than minimum wage and often higher than wages paid for similar work on private projects. Courts recognize that false certifications regarding the mandated payments can form the basis for qui tam actions.
Because of Brooks’ decision to blow the whistle, he will receive an award of $1,164,000. Additionally, Arbon and Rite-Hite Holding have agreed to pay approximately $1,500 to each current and former employee who was not paid the required wages.
Department of Labor Administrative Review Board Upholds Compensatory Damages Award Based on Unrebutted Psychiatrist Testimony
On November 3, 2014, the U.S. Department of Labor Administrative Review Board ruled that a pilot was entitled to compensatory damages for retaliation by Continental Airlines for his protected refusal to fly a plane without an inspection.
The 2014 ARB decision upheld the determination made by an administrative law judge on remand from a previous ARB decision. On January 31, 2012, the ARB had affirmed the earlier ALJ decision, which found that Continental Airlines retaliated against Roger Luder. However, in its 2012 decision, the ARB held that the ALJ had improperly granted both back and front pay to Luder and remanded the case to determine the proper amount of damages.
Luder’s claims date back to 2007, when he and a co-pilot were scheduled to fly a Continental flight from Miami to Houston. Before departure, Luder’s co-pilot informed him that the plane had experienced turbulence during the previous flight that had gone unreported. Federal regulations require that planes be inspected after experiencing turbulence. Accordingly, Luder insisted that the plane be inspected prior to taking off and wrote a log entry regarding the turbulence.
As a result, Continental temporarily suspended Luder and issued him a “termination warning” letter citing “unprofessional behavior.” Luder eventually claimed to suffer from an array of ailments arising from the retaliation, and claimed those ailments caused him to fail a flight simulator test and be disqualified from flying.
Luder brought the suit under the whistleblower protection provision of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, also known as AIR 21, and its implementing regulations, 29 C.F.R. Part 1979 (2013). The ARB has authority to issue final agency decisions under AIR 21. The November 3, 2014 decision on damages was ARB Case No. 13-009.
The 2012 ARB decision had determined that Luder’s actions constituted protected activity under AIR 21 and that Continental’s suspension of Luder constituted an adverse action. The ALJ had awarded Luder compensatory damages for posttraumatic stress disorder, anxiety, and depression resulting from Continental’s retaliation for his refusal to fly an uninspected and potentially damaged plane. The ALJ relied on testimony by Luder and a psychiatrist, Dr. Shaulov. The ARB remanded to the ALJ for determination, under a preponderance of the evidence standard, that the retaliation caused the harm.
The ALJ entered a Recommended Decision and Order on Remand, determining that Luder proved that the retaliation caused his psychiatric condition that prevented him from returning to work. The ALJ found “ample support for causation . . . when the entire record, including the credible testimony of Dr. Shaulov, Dr. Jorgenson, and Luder, is considered.”
A dissenting opinion in the ARB’s recent 2014 decision argued that a judge should still examine undisputed expert testimony under Federal Rule of Evidence 702 for “sufficient facts or data that properly applied reliable principles and methods,” but stopped short of advocating a Daubert hearing.
The U.S. Department of Justice announced that taxpayers recovered nearly $6 billion from False Claims Act (FCA) cases in fiscal year 2014.
More than half the total came via lawsuits filed by individuals. Under the FCA’s qui tam provision, whistleblowers who uncover fraud may sue on behalf of the government — and get up to 30% of recovered funds as a reward.
In FY 2014, the Government paid out $435 million in such awards. It was the second consecutive year in which more than 700 qui tam suits were filed, and the first time FCA recoveries exceeded $5 billion.
Federal District Court Refuses To Dismiss Case Based on the Public Disclosure Bar When the Government Has Opposed Dismissal On that Basis
In United States ex rel. Karin Berntsen v. Prime Healthcare Services, Inc. et al., the U.S. District Court for the Central District of California denied Prime Healthcare’s motion to dismiss, ruling that a False Claims Act qui tam action cannot be dismissed under the “public disclosure bar” if the Government has opposed dismissal on that basis.
The False Claims Act prevents a private party from bring a qui tam action where the alleged fraud is already publicly known (this is often referred to as the public disclosure bar). In this case, Karin Berntsen, the relator, alleged that she was the original source of the information underlying her qui tam complaint and that she made these disclosures to the government before filing her lawsuit. But Prime Healthcare and the other defendants moved to dismiss, in part, because they claimed that Berntsen was not the original source. In support of their motion, they identified a number of publicly-available reports and articles regarding their allegedly fraudulent practices.
The relator argued that because the Government opposed the dismissal of the complaint on the basis of the public disclosure bar, the district court was barred from dismissing the complaint on that basis. The court agreed with the relator. The court also acknowledged a lack of legal authority on the issue and reviewed Congress’s intent in creating the public disclosure bar: to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits. Since the Government, through its opposition to the dismissal, had indicated that it supported the relator’s qui tam action, the court found that it would be “illogical” for it to conclude that the relator’s action was parasitic, and thus allowed the relator’s qui tam action to proceed.