by Author | Oct 5, 2014 | False Claims Act
Can I threaten to expose False Claims Act fraud to get a settlement (or bigger settlement) on non-whistleblower claims, or would that be False Claims Act Extortion? A recent California appellate court decision shows how a pre-litigation threat to reveal FCA violations during early negotiations can be recast as Civil Extortion. In Stenehjem v. Sareen, 226 Cal. App. 4th 1405 (June 13, 2014), the Court of Appeal of California, Sixth Appellate District, held that an email which contained vague threats to report a former employer for violating the False Claims Act in connection with a Department of Defense contract –if the ex-employee’s demand to settle his potential claims of defamation and wrongful termination were not met– was an act of civil extortion as a matter of law. There, the ex-employee had repeatedly sought without success to obtain a large settlement payment via negotiations between his counsel and the former employer’s attorney. In apparent desperation after his own attorney resigned, the ex-employee wrote an email directly to the former employer’s lawyer trying to resolve his employment claims in a “gentlemanly” manner and noted that he did not want to involve the US Attorney General, US Department of Justice or DOD, or turn the matter into a “federal case.” The fired employee’s email also mentioned “false billing practices” and alluded to the term “Qui Tam” and the possibility of retaining a Qui Tam Attorney, but did not make any specific threats to go to the authorities or demand any specific amount of money in exchange for silence. Nevertheless, the appellate court found the email on its face to be an unprotected extortionate demand. In so ruling, the court denied the ex-employee’s motion under California’s anti-SLAPP statute to summarily dismiss the former employer’s civil extortion counterclaim, which had been filed in opposition to the ex-employee’s claim for defamation and wrongful termination.
Practical take away: A settlement demand to resolve an individual’s employment or other personal claims should never include any reference to possible Qui Tam, False Claims Act or other whistleblower matters. Additionally, the amount of any settlement demand should fairly reflect the actual damages for the individual’s claims and not be increased substantially to include any benefit to the employer for buying a “gag” provision in a settlement agreement.
by Author | Sep 27, 2014 | False Claims Act
Can I still pursue a False Claims Act Qui Tam action if the intended corporate target has been sold to, or merged with, another company? Under FCA Successor Liability law that depends on two things: (1) where you are filing your False Claims Act Qui Tam lawsuit; and (2) what are the terms of sale or merger and the economic realities of the transaction.
There are essentially two competing legal positions on this issue. One is known as the “traditional rule”; the other has been called the “substantial continuity rule.” The traditional rule is more difficult for whistleblowers to satisfy. Under traditional common law rule of successor liability, a corporation that acquires the assets of another corporation does not take the liabilities of the corporation from which the assets are acquired unless one of four exceptions applies: (1) the successor expressly or impliedly agrees to assume the liabilities of the predecessor; (2) the transaction may be considered a de facto merger; (3) the successor may be considered a mere continuation of the predecessor; or (4) the transaction is fraudulent. With regard to the third exception, a corporation is not to be considered the mere continuation of a predecessor unless, after the transfer of assets, only one corporation remains, and there is an identity of stock, stockholders, and directors between the two corporations.
The substantial continuity rule is easier for a whistleblower to establish. Under it one needs to prove only that: (1) that the new company had notice of the whistleblower’s claim before the sale or merger transaction; and (2) the business operations of both the old and new companies are essentially the same, for example the employees of the new company are doing the same jobs in the same working conditions under the same supervisors and the new company has the same production process, produces the same products or provides the same services, and basically has the same body of customers or clients. The notice requirement can be met in some cases simply by showing continuity in ownership and/or senior management.
Federal courts in different parts of the United States have applied one or the other of these competing rules to FCA cases. Recently, the US District Court in the Eastern District of Virginia applied the more stringent traditional rule in US ex rel. Bunk v. Birkart Globistics, No. l:02-cv-1168(AJT/TRJ) (Sept. 9, 2014). In contrast, the US District Court in the District of D.C. applied the more lax substantial continuity test in United States ex rel Fisher v. Network Software Assocs., Inc., 180 F. Supp. 2d 192 (D.D.C. 2002).
The practical take away from this analysis: have a clear understanding of the legal technicalities of the sale or merger (especially in terms of how the old company’s liabilities are treated), know what the business operations and organizational structures were before and after the transaction, and choose a court that has favorably decided the successor liability question, as well as other legal issues relevant to your case, in the past.
by Author | Sep 18, 2014 | False Claims Act
Relator’s Counsel Timothy J. McInnis introduced US Attorney Richard Hartunian from the Northern District of New York at the Taxpayers Against Fraud Education Fund’s (TAFEF) 14th annual whistleblower False Claims Act (FCA) conference in Washington, D.C. Approximately 300 whistleblower lawyers from throughout the United States attended the three day conference. During his presentation US Attorney Hartunian encouraged relators’ counsel to consider filing False Claims Act Qui Tam cases with his office in the Northern District of New York, which includes, the cities of Albany, Syracuse, Binghamton and Plattsburg. He specifically mentioned being interested in FCA cases involving healthcare, Medicaid, defense contracting and other types of government program fraud. US Attorney Hartunian emphasized that his office would be interested in cases of all sizes, even ones involving less than one million dollars in losses. He said this is because he is concerned not only with the amount of recoveries but also other important factors, such as patient safety and care and harm to US military personnel.
by Author | Sep 3, 2014 | False Claims Act
You may be wondering, “Is my Qui Tam Case Too Small to pursue?” The answer is probably no, not just because of its size. This does not mean that the amount of potential damages is irrelevant. Every lawyer will (or should) do a cost-benefit analysis before taking a case, and the Government certainly will do so when its lawyers are making intervention decisions on False Claims Act (FCA) matters. After all, you cannot rationally spend more money litigating a case than you are likely to recover in damages. But, generally the most important thing is whether the case’s allegations are meritorious and provable. Additionally, if you have a whistleblower retaliation component to your case, that might also tip the balance in favor of commencing a lawsuit.
Therefore, while it is true that Relators’ Counsel are often more willing to take an “iffy” case if the upside is quite substantial, you still should be able to find an experienced and capable lawyer to take a small damages case, provided the theory of liability is straightforward and there is strong evidence that can be readily obtained. Although the $100 million or even billion dollar qui tam FCA cases garner the most media coverage, there are actually many FCA cases that get resolved for somewhere between $100,000 and $1 million.
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by Author | Sep 2, 2014 | False Claims Act
Ground breaking case opening door to FCA Defendants’ Hidden Legal Advice. A noteworthy decision was handed down by a federal judge in Georgia on August 29, 2014 concerning a hospital’s waiver of the attorney client privilege. See Barker v. Columbus Reg’l Healthcare Sys., Case No. 4:12-cv-108 (CDL). There, the court held that a defendant who does nothing more than say it intends to show at trial that it believed its conduct was “lawful” waived the attorney client privilege for all records and communications relating to that issue. In other words, according to Barker, a defendant does not have to specifically and expressly assert the “reliance on advice of counsel” affirmative defense to trigger the waiver. The court reasoned that FCA defendants cannot use a claim of good faith intent as a sword to prevail at trial while simultaneously using the attorney client privilege as a shield to withhold contrary legal advice.
This ruling is a potential game changer for relators attempting to get discovery from FCA defendants, especially on the issue of a defendant’s “knowing” violation of the False Claims Act. If Barker case is followed widely, it will allow relators to obtain “all of the information at [a defendant’s] disposal when it made the decision to [act as it did],” including all communications to and from all attorneys, not just the selective memos the defendants may want relators and the Government to see.
by Author | Jul 30, 2014 | False Claims Act
Many people ask me, “Can I get Whistleblower Immunity if I file a qui tam False Claims Act case?” This really translates into two related questions: “Can I get into trouble with the authorities and risk paying a fine or going to jail?” And, “Can I still receive a reward for coming forward with my information?” These questions arise because very often (but not always) a whistleblower played some role in carrying out the fraudulent scheme, for example by filling out the false billing forms or invoices that were submitted to the government. In many cases the answer is “yes,” the whistleblower will not be penalized and he or she will still be eligible for a reward. However, no one can say for sure without getting additional facts and consulting the affected governmental authorities. An attorney who is familiar with, and experienced in, criminal prosecutions and immunity matters will know what questions to ask and who to talk to at the government. That is the only way the attorney can competently guide the client through this complicated issue.
With that caveat in mind, here are some things for a prospective whistleblower who is worried about immunity to consider. Were you the mastermind of the fraudulent scheme or were you just an order follower at a mid- or lower-level within an organization? Did you get any additional compensation from the fraudulent scheme or did you simply receive your regular salary, wages and income? Was there anything unusual about the type of compensation you received (such as cash in a brown paper bag–it does happen) or did you only receive a regular pay check or bank deposit? Did you encourage other people to participate in the fraudulent scheme or did you more or less just go along with others to keep your job? Did you tell co-workers that what was going on was ok or did you express some misgivings or objections? Were you ever interviewed by a government investigator and, if so, did you lie to that person and/or did you destroy evidence or is what you did wrong limited to assisting on improper business and financial transactions? Knowing the answers to these kinds of questions will most likely enable your attorney to either give you the peace of mind you are seeking or tell you that it is not possible in your particular case.
by Author | Jul 24, 2014 | False Claims Act
Timothy McInnis of McInnis Law (New York, NY) and Thomas Fallati of Tabner Ryan & Keniry (Albany, NY) announced their firms’ formation of a strategic alliance to combine experiences and resources to represent whistleblower clients, including relators in False Claim Act qui tam law suits. Mr. McInnis is a former federal prosecutor who has been successfully representing whistleblowers since 1999. Mr. Fallati is also a former federal prosecutor who regularly represents plaintiffs in complex litigation matters.
In making this announcement, Attorney McInnis noted, “Tom and I have known each other for many years and this is the perfect time to jointly handle qui tam cases and other kinds of whistleblower matters, particularly ones arising in the Northern District of New York, which includes Albany, Binghamton, Plattsburgh, Syracuse and Utica.” Attorney Fallati added, “There is a real need for a robust whistleblower law presence in this region, especially in the areas of healthcare, defense industry and government contracting and grants.”
by Author | Jul 10, 2014 | False Claims Act
Qui Tam Attorney Timothy J. McInnis will be participating in a CLE program titled “False Claims Act and Qui Tam Enforcement: All Points of View,” that is being presented by the NDNY-FCBA CLE Committee on July 15, 2014, from 9:00 a.m. to 1:00 p.m., at the United States Courthouse, located at 445 Broadway, in Albany, New York. Attorney McInnis will be discussing the pursuit of FCA cases from the relator’s counsel point of view. Among other things, he will cover “Practical Issues in Filing Relator Cases,” including, the importance of obtaining favorable government intervention decisions and how to maximize them.
by Author | Apr 14, 2014 | False Claims Act
On April 9, 2014, the US Attorney’s Office for the SDNY settled a Customs Fraud civil Qui Tam case under the False Claims Act against Dana Kay for $10 million. According to the government, DANA KAY, INC. and SIOUNI & ZAR CORPORATION tried to avoid paying the correct amount of customs duties by using phony invoices that understated the value of imported clothing apparel. The government alleged the defendants paid one amount to their overseas manufacturers but they then deducted a flat fee of $2.50 per garment set before calculating the duty owed on the apparel. The defendants recorded only the lower value on entry forms presented to Customs. By doing this, the defendants illegally sought to save millions of dollars in Customs Duties.
This Customs Fraud matter is known as a Reverse False Claim case under the False Claims Act. The whistleblower (an employee of the defendants) who brought the case will receive $2.3 million as his relator’s share.
Read more: http://www.justice.gov/usao/nys/pressreleases/April14/DanaKayandSiouniandZarSettlementPR.php
by Author | Apr 14, 2014 | False Claims Act
Last week federal courts issued two Great Relator’s Share Decisions. In an appellate case, the 8th Circuit Court of Appeals held that two Whistleblowers were entitled to a significant percentage of recoveries that the federal government tried to keep them from receiving. The government had tried unsuccessfully to minimize the whistleblowers’ contributions after recovering $48 million through their assistance. The appellate court was not having any of it (even citing an earlier opinion where the court called the government “disingenuous”) and awarded the whistleblowers more than $8 million. See US ex rel. Rille v. PricewaterhouseCoopers LLP, No. 11-3514 (8th Cir. April 10, 2014).
And in a district court decision, the District Court for the Eastern District of Missouri, awarded the Whistleblower 19% of the amount the federal government had recovered from a settlement of the whistleblower’s case. The government took the position that the whistleblower should only get the absolute minimum allowed, namely, 15%. After considering all the pro’s and con’s of the whistleblower’s contribution and conduct, the court said that 19% was an appropriate award. See US ex rel. Peterson v. Sanborn Map Co., No. 4:11CV000902, E.D. Mo. April 10, 2014.
Regrettably, as in these cases, many Whistleblowers end up having to fight the government for their rightful share of a relator’s award. Fortunately, it seems that most of the time the courts tend to rule in favor of the whistleblowers and against the government. Relators and Whistleblower Attorneys can all look forward to the day when the government decides it is wiser to use its litigation resources to fight the fraudsters rather than the whistleblowers who sacrifice so much in aiding the government.
