In an unusually blunt opinion, the U.S. Tax Court rebuked the Internal Revenue Service for continuing to fight award claims made by two anonymous whistleblowers — even as the agency was reopening the same claims in a related investigation.

In a dismissal order issued on May 10, 2013, Judge Maurice Foley slammed the IRS for providing “incomplete, misleading, and possibly inaccurate information” in the case.

“We do not know whether these failures were the result of bureaucratic confusion or ineptitude,” wrote Judge Foley. “We do know, however, that the obfuscation surrounding this matter has either been caused or exacerbated by” the federal agency.

Judge Foley kicked the case back to the IRS, which must determine anew whether to acknowledge a link between its investigation and the two whistleblowers’ tips. If there is a link, the duo may get a share of any money the government recovers from “Company X,” the alleged wrongdoer.

Full details of the tax probe remain secret, except that it is being conducted by the Small Business/Self-Employed division of the IRS.

The order was a further illustration of chronically crossed wires — or worse — between the IRS and citizens who report possible tax fraud. Whistleblower advocates including Sen. Chuck Grassley (R-Iowa) have complained that the agency seems hostile to such tipsters, declining to give them rewards, credit, updates, or even basic encouragement.

“At least the IRS Whistleblower Office reopened the awards claim in this case,” said R. Scott Oswald, managing principal of The Employment Law Group, a law firm that represents whistleblowers. “I applaud that. But this whole story is about failed communication. Judge Foley is calling for more openness from the IRS — and he’s absolutely right.”

The Company X whistleblowers filed their original tips in 2009; the IRS denied their award claims, saying it had taken no action based on the reports. The agency later opened an investigation into Company X, but claimed the action was unrelated.

As the whistleblowers tried to get their claims reinstated by the Tax Court, the IRS resisted at each step—and eventually won a motion for summary judgment late last year. In that order, Judge Foley questioned the agency’s claim that its investigation wasn’t triggered by the whistleblowers’ tips, but said there was no legal mechanism to challenge it.

The parties continued to trade documents in court, with the IRS standing its ground through late March 2013 — more than a month after it had informed the whistleblowers, in writing, that it would consider their claims after all.

Clearly irked, Judge Foley vacated his earlier order for the IRS and, on his own initiative, ejected the case from Tax Court entirely.

The whistleblowers may return, he said, if they get denied again.

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Utah’s Intermountain Healthcare Inc. will pay $25.5 million to settle claims that it violated federal laws, including the Stark Law against profit-driven referrals by doctors.

The healthcare network, based in Salt Lake City, had voluntarily reported the issues to the U.S. Department of Justice in 2009. In a statement the non-profit company didn’t admit liability but portrayed its conduct as a “primarily technical” failure to comply with “nearly 300 pages of federal regulations and commentary.”

Intermountain made its confession “recognizing full well that there would be an economic consequence,” Brent Wallace, its chief medical officer, told The Salt Lake Tribune.

Mr. Wallace said the company, which is often cited as a paragon of affordable medical excellence, discovered its problems during a review that was inspired by its executives’ attendance at a conference about the Stark Law, which forbids doctors from benefiting from referrals they provide to Medicare patients.

Intermountain may have violated the law for about 10 years by paying bonuses to doctors based on referrals, according to the settlement agreement, and also via improper leases and other financial arrangements with doctors who sent patients to its network.

In its statement, Intermountain said it was “embarrassed” by the lapse, but denied that it ever affected the quality or cost of patient care.

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The U.S. Court of Appeals for the Third Circuit won’t grant an en banc review of an earlier panel decision that made it easier for whistleblowers to claim protection under the Sarbanes-Oxley Act (SOX).

As a result, SOX whistleblowers in that jurisdiction — which includes Pennsylvania and Delaware — now are shielded from retaliation as long as they acted under a “reasonable belief” that their company was acting fraudulently.

The Sarbanes-Oxley Act of 2002 sets strict accountability standards for financial behavior by public companies and, under Section 806, protects workers against retaliation for blowing the whistle on a number of specific violations.

Until now, employers have used a narrow interpretation of Section 806 to kill whistleblower lawsuits in their infancy. Many federal courts require workers to show a detailed understanding of fraud regulations — and to have warned their supervisors in very specific terms — in order to get a hearing on the merits.

In Wiest v. Lynch, filed by Jeffrey Wiest against his former employers at Tyco Electronics,  a three-judge panel in the Third Circuit rejected this “formalistic approach” to endorse a looser standard set by the U.S. Department of Labor in a landmark ruling.

Tyco asked the court to convene all 14 of its judges for an en banc review of the decision, but such a move would have been very unusual.

Wiest is binding only in the Third Circuit, but it frames the debate for other federal circuits — including the Tenth Circuit, where another important appeal is pending, and potentially for the Supreme Court.

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The U.S. Department of Labor’s Administrative Review Board (ARB) upheld a punitive-damages award of $100,000 in a truck driver’s retaliation case against UPS, flagging its broader reluctance to reject as excessive any punitive award under the Surface Transportation Assistance Act (STAA).

The ARB noted that STAA imposes a low $250,000 cap on punitive damages; awards that fall within the legal cap simply don’t raise a constitutional “excessiveness” concern, it said.

The panel also declined to impose a “bright-line ratio” that limits punitive damages to a certain multiple of compensatory damages. Here, too, the ARB cited the STAA’s low cap on punitive damages, which it said eliminated any specter of “limitless punitive damages in cases where no harm had occurred.”

The ARB’s ruling came in the case of Youngermann v. United Parcel Service, Inc. A lower-level judge had previously ordered UPS to pay $111,000 — including the $100,000 in punitive damages — for firing Mr. Youngermann after he refused to drive a truck and trailer with inoperable lights.

UPS appealed only the award of punitive damages, saying it was both unwarranted and excessive. The ARB disagreed on both counts, citing “substantial evidence” that UPS managers knowingly ordered Mr. Youngermann to violate federal safety regulations — and fired him for insubordination when he refused.

Besides falling comfortably with the STAA’s limits on punitive damages, the $100,000 award was in line with comparable cases, the ARB found. Such an award “is sufficient in size to deter a company such as UPS from similar conduct without being grossly excessive,” the panel said.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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An Alabama contractor agreed to pay $1.15 million to settle civil claims that it lied about hiring a Native American-owned company to help build barracks at two U.S. Army bases.

According to the U.S. Department of Justice, Caddell Construction illegally claimed reimbursements under two Department of Defense programs: The Mentor-Protégé Program, which helps disadvantaged small businesses, and the Indian Incentive Program, which helps businesses owned by Native Americans.

Caddell said it was building the barracks in a mentoring relationship with Montana-based Mountain Chief Management Services, a Native American- and woman-owned business. In reality, Mountain Chief performed no work, the Justice Department said — and Caddell’s claims violated the False Claims Act.

In December 2012 Caddell paid a $2 million penalty to settle related charges of criminal fraud. A former Caddell executive, Mark Hill, and Mountain Chief’s former president, Daniel Chattin, were indicted in federal court and await trial for fraud.

Caddell avoided criminal charges by cooperating with prosecutors, the Justice Department said.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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A federal jury awarded whistleblower Paul Blakeslee $3.5 million after finding that his former employer fired him for reporting suspicious dealings by a manager of the company’s maintenance work on Alaskan military bases.

The verdict was one of the largest in an employment case in Alaska history, Mr. Blakeslee’s lawyers said, and included $2.5 million in punitive damages. After supplemental awards by the court, the final value of the verdict will likely pass $4 million.

Mr. Blakeslee had worked for Shaw Environment & Infrastructure Inc, a Louisiana-based contractor for the U.S. Army. The jury found that Shaw fired him for reporting that the other manager was billing the Army at inflated rates for equipment leased from his own company. Shaw claimed the firing was independent, but the jury called it retaliation and said it violated the False Claims Act.

The jury also found that Shaw discriminated against Mr. Blakeslee because of his age — 71 at the time — and fired him for reporting that discrimination, too.

After a 12-day trial in the U.S. District Court for the District of Alaska, Mr. Blakeslee won $454,000 in back wages, $486,000 for emotional distress, and $2.5 million in punitive damages. He told the Anchorage Daily News that, at age 76 and facing a likely appeal, he doesn’t expect to see much of the award money — but he hopes his children will. “I was just interested in vindication,” he said.

Shaw’s parent company was acquired this year by Chicago Bridge & Iron Company N.V., a multinational contractor and engineering firm. The other manager was ultimately fired.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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A big technology distributor will pay $5.66 million to settle a whistleblower’s claims that it overbilled and underpaid the U.S. government — and also sold it Chinese-made products, in violation of federal trade law.

CDW-Government LLC (CDW-G) denied wrongdoing, saying it settled only to avoid a drawn-out lawsuit.

Joe Liotine, a former CDW-G sales rep, will receive at least $1.34 million for his role in the case; the remainder goes to the government. Mr. Liotine sued CDW-G in 2005 under the qui tam provision of the False Claims Act (FCA), which allows private parties to sue on behalf of the United States for fraudulent use of government funds, and to share in any recovery.

Mr. Liotine had alleged that CDW-G had improperly charged the U.S. for shipping; had mischaracterized sales in order to duck certain fees; and had sold the government equipment made in China and other countries barred by the Trade Agreements Act.

While CDW-G will reimburse the U.S. for the amount it billed, the government gets to keep the equipment.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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The U.S. Department of Labor’s Administrative Review Board (ARB) refused to delay the reinstatement of a train conductor who was fired after repeatedly reporting safety violations.

Consolidated Rail Corp. (Conrail) had asked the ARB to delay the rehiring of Mark Bailey while it appealed Mr. Bailey’s success before a lower-level judge, who found Conrail liable for retaliation under the Federal Railroad Safety Act (FRSA).  But such delays are allowed only in “exceptional circumstances,” the panel held.

Since no such circumstances apply, Conrail must allow Mr. Bailey to return to work while the appeal is in progress.

The ARB’s ruling was routine, but it showed that the panel is steadfast in demanding reinstatement as a “make whole” measure under the FRSA, even when an employer is adamantly opposed.

Conrail had claimed that Mr. Bailey violated the company’s policy against workplace violence — by getting into a shouting match with his supervisor — and that he still presented a “threat of workplace violence.”

The ARB disagreed, noting a finding that the supervisor had triggered the earlier confrontation, not Mr. Bailey. Conrail must rehire the conductor to prevent further “emotional and financial hardship” for Mr. Bailey, it said.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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The University of California will pay $1.2 million to settle a whistleblower’s claims that one of its teaching hospitals submitted false Medicare and Medicaid claims.

Dennis O’Connor, a former professor and anesthesiologist at U.C. Irvine (UCI), will receive $120,000 for his role in the case; the remainder goes to the U.S. government. In his lawsuit, Dr. O’Connor alleged that UCI routinely gave patients anesthesia without a doctor being present, in violation of federal requirements.

Dr. O’Connor sued UCI under the qui tam provision of the False Claims Act (FCA), which allows private parties to sue on behalf of the United States for fraudulent use of government funds, and to share in any recovery.  The government may intervene in the lawsuit, but has no obligation.

According to Dr. O’Connor, UCI hospital staff “pre-filled” reports to make it look like an anesthesiologist was present, even though sometimes no such doctor was in the building. UCI then got reimbursed by federal programs such as Medicare, in violation of the programs’ rules, the suit claimed.

UCI denied the charges, but also said it had retooled its anesthesiology program to make such violations impossible.

The UCI anesthesiology program has faced similar allegations before, according to the Los Angeles Times, and in 2008 the California Medical Board accused its former head of gross negligence and incompetence.

“I won’t go there,” Dr. O’Connor told the Times, “and I wouldn’t take my family there.”

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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An Arizona hospice company will pay $12 million to settle charges that it bilked Medicare by inflating bills and admitting patients who weren’t ready for end-of-life care.

The U.S. Department of Justice reached the agreement with Hospice of Arizona L.C. The hospice was originally sued, along with two related companies, by whistleblower Ellen Momeyer, a former hospice employee; she will get $1.8 million for her role in the case.

Momeyer sued under the qui tam provision of the False Claims Act (FCA), which allows private parties to sue on behalf of the United States for fraudulent use of government funds, and to share in any recovery.  The government may intervene in the lawsuit, but has no obligation.

In this case, the Justice Department said, Hospice of Arizona spent eight years pushing its staff to find lucrative Medicare patients – then overbilled the government and kept patients at the hospice even when they didn’t need such services.

Medicare pays for hospice care, but only for terminally ill patients who expect to live six months or less. Hospices don’t try to cure illnesses; they treat symptoms such as pain and try to minimize patients’ suffering during their last months of life.

The Obama administration continues to wield the FCA as a weapon against Medicare and Medicaid fraud; since 2009 it has recovered more than $10 billion in similar FCA cases.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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President Obama’s proposed budget for fiscal 2014 includes good news for whistleblowers: Under his plan, the law finally would protect people who report tax cheats to the U.S. Internal Revenue Service (IRS).

Although the IRS Whistleblower Program has existed since 2006 – encouraging and rewarding tax-fraud tipsters – it has never explicitly shielded whistleblowers from retaliation.

By contrast, the federal False Claims Act (FCA), a classic whistleblower statute, includes a strong anti-retaliation provision that offers victims remedies such as back pay, reinstatement, and special damages including attorneys’ fees.

Mr. Obama’s budget, submitted last week to Congress, may never become law. Both the U.S. Senate and the House of Representatives already have passed their own budgets, and all three plans are radically different.

But only the White House is looking to protect IRS whistleblowers and grow revenue by targeting tax dodgers. The President’s plan would boost overall IRS enforcement spending by $360 million, to $5.7 billion in fiscal 2014. The administration expects that each extra dollar spent will bring in $4 in revenue.

According to the U.S. Department of the Treasury, Mr. Obama’s plan would add FCA-style anti-retaliation measures to Section 7623 of the tax code, the IRS whistleblower provision. New language would outlaw retaliation against “lawful acts . . . in furtherance of [a whistleblower claim] or other efforts to stop 1 or more violations” of the code.

Because 7623 currently offers no such protection, it “may discourage whistleblowers from filing claims with the IRS,” the Treasury Department admits.

Though welcome, Mr. Obama’s proposal is long overdue: It was suggested in 2009, and again in 2012, by his own Treasury Department’s Inspector General for Tax Administration. Still, the ball is now in the hands of Congress, where legislators recently strengthened the FCA.

The revamped FCA is a good model with proven results: Whistleblower claims under the FCA rose almost 70 percent in the past year, while IRS claims have stagnated; the IRS has announced only one significant award in the past year.

Mr. Obama’s budget also proposes tighter protections for taxpayer information that is shared with whistleblowers during an IRS investigation.

At the U.S. Department of Labor, meanwhile, the President proposes giving the Occupational Safety and Health Administration – which enforces many whistleblower laws – an extra $5.9 million to investigate whistleblower allegations.

And the Labor Department’s Wage and Hour Division would get $3.4 million to boost enforcement of the Fair Labor Standards Act and the Family and Medical Leave Act.

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The U.S. Department of Labor’s Administrative Review Board (ARB) revisited a long-running case, once again ruling against Halliburton, the oilfield services giant, for retaliating against a whistleblower who reported accounting irregularities to the U.S. Securities and Exchange Commission (SEC).

The ARB awarded financial executive Anthony Menendez $30,000 in damages, plus costs and lawyers’ fees.

In its previous ruling in the case, Menendez v. Halliburton, Inc., the ARB in 2011 had reversed a lower court’s 2008 dismissal and found that Halliburton’s traumatic “outing” of Mr. Menendez to his colleagues as an SEC whistleblower could qualify as retaliation under the Sarbanes-Oxley Act of 2002 (SOX).

The ARB sent the case back to the lower court to determine whether Halliburton’s action had a retaliatory motive and, if so, whether the company could defend itself by showing “clear and convincing evidence” that it would have acted against Mr. Menendez anyway.

On both questions the ARB prescribed standards that were likely to favor Mr. Menendez — a signal that the board, under the Obama administration, favored broad protection for SOX whistleblowers.

Nevertheless the case bounced right back to the ARB, leading to the latest ruling on March 20, 2013.

Despite the ARB’s earlier order, the lower court once again dismissed Mr. Menendez’s case, rejecting as “metaphysically impossible” the idea that Halliburton could provide evidence to prove a hypothetical scenario.  Instead, the judge seized on an alternate phrasing in the ARB’s order and found that Halliburton had provided “clear and convincing evidence” that its unveiling of Mr. Menendez had “legitimate business reasons.”

Fully expecting to be overruled, however, the judge also supplied two fallback findings in favor of Mr. Menendez — one awarding him just $1,000 in damages, and an alternative that awarded him $30,000 in damages.

In March the ARB fulfilled the judge’s prophecy and entered judgment for Mr. Menendez, giving him the higher damages amount.

Without such an award, the ARB said, Mr. Menendez would have no remedy for retaliation by Halliburton that “so poisoned his work environment that he felt compelled to resign from the job he had loved.”

The board cited Section 806 of SOX, which requires that protected employees who experience retaliation get “all relief necessary to make [them] whole.”

The new ruling breaks little new ground, but reiterates all the lessons of the 2011 ARB decision:

• A SOX whistleblower is protected from retaliation even if, as in this case, his allegations don’t turn up any clear wrongdoing.
• An employer’s action that causes only intangible harm to an employee (being shunned by colleagues, for instance) is still an adverse action.
• To be unlawful, an adverse action must have been motivated at least in part by retaliation for a protected activity (i.e., SOX whistleblowing)
• A company may defend itself by claiming that the adverse action would have happened anyway, but it has the burden of showing “clear and convincing evidence.”
• A whistleblower can receive monetary damages for intangible harm.

Read the entire decision at the Department of Labor Web site.

The Employment Law Group® law firm has an extensive nationwide whistleblower practice representing employees who have been victims of retaliation.

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Whistleblower Joe Connolly appeared on 60 Minutes to accuse his former employer, the compounding pharmacy linked to 53 deaths from fungus-tainted shots, of ignoring warnings and destroying evidence of contamination at its lab.

Connolly, a lab technician and former employee of the New England Compounding Center (NECC), told the CBS News program that his supervisor literally shrugged when Connolly told him last year that the lab was overextended and likely to start making mistakes. Mold had been found in NECC’s “clean room” about a dozen times over three years, Connolly said.

NECC, which declared bankruptcy in December, faces more than 400 lawsuits for the October 2012 outbreak of fungal meningitis caused by its shots, and it remains under investigation by the Centers for Disease Control and Prevention (CDC) and other government agencies.

According to the CDC, 733 people so far have been sickened with meningitis after injecting themselves with NECC-produced methylprednisolone acetate (MPA), a compounded steroid cocktail used to treat chronic pain in the back, neck, and joints. Between May and September 2012 NECC sent the shots to 23 states, putting more than 13,500 patients at risk.

Connolly said NECC became “sloppy” as production increased in its compounding lab. Federal law requires compounding pharmacies to have an individual prescription for each compounded drug. But NECC began getting a flood of similar orders from dubious sources; Connolly said its output grew a thousand fold.

Since the outbreak started, NECC has recalled all of its products and shut down all operations. A lawyer for Barry Cadden, NECC’s co-founder, said it was “premature and unfair to accuse anybody of causing this contamination.”

The Employment Law Group® law firm has an extensive nationwide whistleblower practice representing employees who have been victims of retaliation.

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The U.S. Supreme Court made it easier for investors to gain class-action status when suing companies for securities fraud, making such lawsuits more likely in the future.

In Amgen v. Connecticut Retirement Plans and Trust Funds, the Court allowed class certification to be granted on a “fraud on the market” theory without any proof that a company made a “material misrepresentation” in its public statements; plaintiffs may merely assert the fraud.

When investors seek damages for securities fraud,  they must show that they lost money because they relied on a fraudulent statement. Normally each investor must show individual reliance and harm, which can be difficult and costly. But when a publicly traded company makes a public statement that causes its stock price to drop, all investors may claim reliance on the same statement.

This idea of “fraud on the market” opens the door for class-action suits; companies generally settle such lawsuits before they reach trial.

The Supreme Court didn’t change the legal standard for winning on a claim of securities fraud. Merely allowing such claims to proceed as class actions, however, gives plaintiffs an advantage.

The prospect of more class action suits also may make companies take internal whistleblowers more seriously.

The Court’s decision in Amgen resolved a split among federal circuits: Several circuits had already adopted similar fraud-on-the-market rules, but the Second Circuit had required proof of materiality in order to proceed as a class — and the Third Circuit straddled the issue, giving companies a chance to rebut materiality.

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A well-known New York City tailor pled guilty to tax-evasion charges and separately agreed to pay $5.5 million to settle a related whistleblower case brought under New York State’s False Claims Act (FCA).

The whistleblower, Vijay Tharwani, a former employee of the tailor, will receive $1.1 million of the settlement.

The case marked the first time the state’s recently strengthened FCA has been used successfully in a tax case; in 2010, New York became the first state to authorize citizens to sue tax cheats on its behalf.

Mohanbhai Ramchandani — a tailor to politicians and professional athletes — was tripped up, in part, by his belief in numerology: He made sure that the digits in each fabricated number on his tax forms added to ten.

In his guilty plea, Mr. Ramchandani admitted to reporting less than a quarter of his business’ $28 million revenue on tax returns — and simply keeping taxes that he collected from customers.

His business, Mohan’s Custom Tailors, was know for creating suits for celebrities such as basketball player Patrick Ewing and former New York City mayor Rudolph Giuliani.

The Employment Law Group® law firm’s whistleblower attorneys have helped many clients file suit against employers that fraudulently bill the U.S. government, and have established favorable precedents under the retaliation provision of the False Claims Act.

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