The Next Big Thing In False Claims Act Litigation

Posted on November 4, 2009 by Anthony Munter

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“Securities fraud,” said the state official and with that about 20 attorneys, all experts in False Claims Act litigation, fell off their chairs.

We were in a small room, down the hall in the last break out session of the annual meeting of False Claims Act attorneys sponsored by Taxpayers Against Fraud. 

Most of our colleagues chose to go to another session involving particular issues of pleading fraud. That issue comes up in every case: plead fraud with particularity. Having to plead with particularity so often, we knew enough about it to understand that is a big headache.

So, looking for something different, a few of us went to a seminar on State Cases.  We were experts. We all had filed a lot of federal cases. There are only so many people who specialize in this area, so by the end of the conference we were acting a little smug.

Nobody has filed many purely State False Claims cases. Sure there are a lot of State qui tam laws now. Most of the laws aren’t even five years old.  Even in the states with older laws most of the cases are filed as part of, or the result of a big federal case. Even when  the cases are not Medicare or Medicaid related, most purely state cases look like the same thing as a federal case. The state gets ripped off so somebody files a qui tam action. States are defrauded just like the federal government.
 
We thought the only big difference in filing such a case under state law as opposed to the federal law is the agency you work with to conduct the initial investigation under seal –instead of working with the Federal Department of Justice, you work with the state Attorney General.  We figured there were some technical differences with State qui tam laws, but nothing experienced qui tam attorneys could not handle.

Indeed, in the first part of the seminar the state officials on the dais played to our smugness. Both state officials said, “You may have to work with the local Attorney General’s office to explain how their state qui tam law can work.” Sure we can do that, we thought. We can lecture the highest law enforcement officials of a state as to how their own law can work for them.

In truth, a lack of information is a problem because State False Claims Acts are new. State prosecutors have a lot of experience going after consumer protection cases, but do not yet know much about how to apply the qui tam procedures even to similar facts. Those procedures can be very tricky at every level. We know the procedure. We know the law and we know what can make a good claim in a False Claims case.

So, one lawyer a veteran of many conferences, asked what we all wanted to know, but few figured would elicit such a surprising answer. He asked “What kind of cases do you see being filed in State Court in the future?” When the state official answered “securities fraud” we were a little stunned.

We looked at each other. Maybe this guy is thinking of Sarbanes Oxley or class action cases? Then the penny dropped and we started to see dollar signs. Big dollar signs with lots of zeroes.

Pension funds. States have pension funds. The Federal Government has a printing press--not investments.  

In the federal context the Securities and Exchange Commission handles fraud issues. The federal government does not usually own stocks or bonds.

Some states, like Illinois or California, allow us to sue on behalf of any political subdivision. So, if the city of Santa Monica has a pension fund and there is a securities fraud violation we can sue under the California False Claims Act.

When there is securities fraud usually a state pension fund will have bought the security. The City of New York supposedly has 80 billion dollars in assets in its pension fund alone. The damages for fraud have the potential to be huge and this is a new area of qui tam action.

Three days later a colleague sent me a story on the State of California suing for $200 million in securities violations.  

So, if you have heard of any major securities scam, do what any smart whistleblower should do. Hire a lawyer who knows about qui tam and run to your nearest state court house.

If your state does not have a qui tam provision, maybe they should. After all, why should the pension funds covering workers in Columbus, Ohio not get the same protection as the pension funds for those who work in Richmond, Virginia?

You can see if your state has a qui tam law by clicking here.
 
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DC federal court upholds jury verdict for fraud whistleblower

Posted on September 17, 2009 by Richard Renner

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U.S. District Judge Gladys Kessler has rejected employer attempts to constrict the whistleblower protections of the federal and District of Columbia False Claims Acts.  In a decision issued last week, she corrected a judgment from a jury verdict, and overruled the employer's attempts to vacate that verdict. The case is Kakeh v. United Planning Organization, Case No. 05-1271 (GK) in the U.S. District Court for the District of Columbia.

Attorney Jason Zuckerman of The Employment Law Group writes today that, "Judge Kessler rejected several arguments by UPO that would undermine the statutory whistleblower protections under which Kakeh brought his claim, the D.C. Whistleblower Protection Act (“WPA”) and the retaliation provisions of the False Claims Act (“FCA”) and the D.C. False Claims Act (“DCFCA”)." These include attempts to apply the "but for" standard of causation that the U.S. Supreme Court applied to age discrimination cases in Gross v. FBL Fin. Svcs., Inc., 129 S.Ct. 2343 (2009), and the "duty speech" exclusion adopted for First Amendment claims in Garcetti v. Ceballos, 547 U.S. 410 (2006). Judge Kessler also rejected a proposal to require "magic words" of "waste, fraud and abuse," and held that even disclosure of public information about false claims is still protected. Jason Zuckerman's post follows in the continuation of this blog entry, reposted here with his permission

 

Favorable decision in a False Claims Act retaliation case
by Jason Zuckerman -  Sep 17, 2009

D.C. District Court Rejects Employer’s Attempt to Carve New Loopholes Into Whistleblower Protection Statutes

Affirming a jury’s finding that Mohammed Kakeh, a Controller for the United Planning Organization (“UPO”) was terminated for his refusal to engage in fraudulent billing and for providing information to the Office of Inspector General, Judge Kessler rejected several arguments by UPO that would undermine the statutory whistleblower protections under which Kakeh brought his claim, the D.C. Whistleblower Protection Act (“WPA”) and the retaliation provisions of the False Claims Act (“FCA”) and the D.C. False Claims Act (“DCFCA”). The opinion is attached.

Gross Does Not Apply to FCA Retaliation Claims

UPO argued that the Supreme Court’s recent holding in Gross v. FBL Fin. Svcs., Inc., 129 S. Ct. 2343 (2009) requires courts to apply a “but for” causation standard to the retaliation provisions in the Federal and D.C. False Claims Acts. Judge Kessler held that Gross does not apply to FCA retaliation claims, distinguishing Gross in part on the ground that it is an ADEA case. The “because of” causation standard in the text of the FCA’s retaliation provision has been construed as a “motivating factor” causation standard, i.e., plaintiff can prevail by demonstrating that the adverse action was motivated, at least in part, by the employee having engaging in protected activity.

The “Duty Speech” Doctrine Does Not Apply to FCA Retaliation Claims

UPO argued that Kakeh’s disclosures were not protected because they were made pursuant to his “regular job duties.” Relying on U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 736 (D.C. Cir. 1998), which sets forth a favorable standard of protected conduct under the FCA’s retaliation provision, Judge Kessler held that “an employee engages in protected activity when he discloses fraud and corruption, as opposed to making a ‘complaint about mere regulatory compliance’. . . Plaintiff repeatedly stated that he believed that Defendant’s billing practices were fraudulent and . . . . consistently framed these differences as matters of fraud and ethics, rather than routine disagreements about regulatory compliance. Therefore there was sufficient evidence for a reasonable juror to conclude that Plaintiff was engaging in protected activity.”

Plaintiff Need Not Use “Magic Words” to Engage in Protected Conduct

Defendant argued that to be covered by the WPA, Plaintiff’s disclosures must use “the language or terminology of fraud, waste, or misuse.” Judge Kessler concluded: “As Plaintiff correctly states, however, Plaintiff was not obligated to use “magic words” to trigger the protections of the WPA. As the WPA indicates, a disclosure is protected if the employee “reasonably believes” that he is revealing a gross misuse of public funds or a violation of a law, rule, regulation, or contract term. D.C. Code 2-223.01(7).”

Disclosure of Public Information Can Constitute Protected Conduct

UPO asserted that plaintiff did not disclose to his supervisor any information that “was not already known as [sic] result of the prior year-end audit reports, Mr. Eboda’s preliminary report, the Head Start monitoring review and/or The Washington Post articles.” Judge Kessler held that “[e]ven if this information was already public and even if Jones already had knowledge of it, Plaintiff was the one responsible for disclosing it in the first instance.”
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Long Island Business News reports on FCA amendments

Posted on July 8, 2009 by Richard Renner

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The Long Island Business News published an article yesterday about the Fraud Enforcement and Recovery Act of 2009 which improved the whistleblower protections of the False Claims Act (FCA).  Called, "Government Whistle Blowing Pays Off," the article invites those who want to make millions to, "buy a whistle."

“Billions and billions of dollars in new government spending has been authorized,” the article quotes Stephen M. Kohn, president of the National Whistleblowers Center. “The taxpayers need the strongest possible anti-fraud laws in order to prevent financial recovery monies from being looted.”

The article notes that over 20 state and local jurisdictions now have their own "Little FCAs" offering rewards and protection for those who report fraud against those jurisdictions. The National Whistleblowers Center (NWC) has a map showing these jurisdictions.

The article reports that since 1986, the FCA has recovered $14 billion, and whistleblowers got to keep over $2 billion of that.  “You have to compensate people for taking on that burden,” said Michael Sullivan in the article.  Sullivan is a partner at Atlanta-based Finch McCranie, specializing in whistleblower suits. “Being ostracized. Attacked. Sometimes they get sued by companies doing the wrong.”

The article reports on a similar new program for those who report tax fraud costing the Internal Revenue Service over $2 million. Passed in December, 2006, the IRS Whistleblower Rewards Program, offers whistleblowers 15 percent to 30 percent of such recoveries - along with anonymity. FCA whistleblowers will not be anonymous once their suit is "unsealed" (after the government makes its decision whether or not to intervene in the case).
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Obama Administration Supports The Fraud Enforcement and Recovery Act

Posted on April 23, 2009 by Lindsey Williams

Here is an update to our earlier posting on S. 386.

The Office of Management and Budget issued a Statement of Administration Policy to the Senate on Monday, April 20th stating that the Obama Administration “strongly supports enactment of S. 386.”  The statement explained that the Fraud Enforcement and Recovery Act of 2009 (S. 386) would “benefit U.S. taxpayers by both addressing existing fraud and deterring waste, fraud, and abuse of public funds.”  It also pointed out that the bill would “amend the False Claims Act (FCA) in several important respects so that the FCA remains a potent and useful weapon against the misuse of taxpayer funds.”

Notably, the statement supporting the Fraud Enforcement and Recovery Act is the only statement the Office of Management and Budget has sent to the Senate since the beginning of the Obama Administration.

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Senator Grassley Expresses Support For Stronger Anti-Fraud Legislation

Posted on April 22, 2009 by Lindsey Williams

On Monday, Senator Grassley (R-IA) expressed his support for the Fraud Enforcement and Recovery Act of 2009 (S. 386) saying “we simply cannot allow unscrupulous individuals to defraud the government and rip off taxpayers.” The bill provides new tools for the federal government to fight fraud and makes much needed amendments to the Federal False Claims Act.

Under the False Claims Act, whistleblowers bring lawsuits against companies who defraud the federal government. As a reward for their courageous actions, whistleblower receive a portion of the amount the federal government recovers.  As Senator Grassley correctly pointed out in his floor statement,  “we would not have the case or the money returned if it wasn’t for the information of the whistleblower.”  This law has been used to recover more than $22 billion since 1986 and has deterred an incalculable amount of fraud.  

The amendments to the False Claims Act correct loopholes created by recent court decisions, including the Allison Engine case, which allow companies to avoid liability for fraud.  These amendments are absolutely necessary to protect taxpayer dollars – especially in light of the billions of dollars spent in the economic stimulus and TARP legislation.  However, Senator Grassley reminds us “you’re going to find those same special interests that have been around for the last 20 years, trying to gut the legislation. Why? Because it’s one of the most effective tools against fraud.”  We will be following this legislation and will keep you updated on its progress.  

In addition to the amendments to the False Claims Act, the bill authorizes funding for law enforcement and prosecutors, makes changes to federal criminal laws, redefines “financial institution” to include mortgage lending businesses, and adds commodities futures to the securities fraud statute.  The bill also makes it illegal to make false statements on mortgage applications and appraisals and ensures that economic relief funds and TARP funds are included in criminal law prohibiting fraud against the government.
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Supreme Court Will Hear False Claims Act Case

Posted on January 26, 2009 by Marshall Chriswell

The U.S. Supreme Court has granted a writ of certiorari in the case of Eisenstein v. New York. Eisenstein is a qui tam action brought by municipal employees in New York City. The complaint makes a rather unique argument, alleging that NYC is depriving the federal government of tax revenue by requiring city employees who are non-city residents to pay "a fee equivalent to the municipal income taxes paid by resident city employees." The non-resident employees then are permitted to take a federal tax deduction in the amount of the fee, which lowers their amount of taxable income, therefore lowering the amount of tax revenue going to the IRS.


The Supreme Court, however, is not looking at the substantive facts of the case. The Justices will be ruling only on the following issue: Whether a qui tam plaintiff has 30 or 60 days to file an appeal in a False Claims Act case in which the government has not intervened.


The Federal Rules of Civil Procedure Rule 4(a)(1)(A) requires all civil appeals to be filed in 30 days unless the United States is a party to the lawsuit, in which case Rule 4(a)(1)(B) extends the appeals deadline to 60 days. The plaintiffs in the Eisenstein case reason that, since the US government always stands to benefit from a qui tam action, then they are a "party" to the case even if they have not chosen to enter into the suit. However, the Second Circuit Court of Appeals threw out the Eisenstein case, holding that: 

"...where the United States has declined to intervene in a False Claims action, the United States is not a party to the action...therefore a notice of appeal must be filed in 30 days."


This is an interesting case. We will keep you updated on it's progress and outcome. Briefs are due to be filed by the end of March. See the links below for more information.

 

 

 

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U.S. Businesses in Hungary want whistleblower law

Posted on January 2, 2009 by Richard Renner

"Whistle-blower legislation brings in a lot of money," proclaims the headline in Business Hungary magazine. The article in November's issue reports on a trip to Hungary by Stephen M. Kohn, President of the National Whistlelbower Center. 

Stephen M. Kohn speaks to the American Chamber of Commerce in Hungary, October 2008Stephen Kohn traveled to Hungary last Fall to urge Hungarian officials to adopt a whistleblower law similar to America's False Claims Act (FCA).  Under the FCA, those whistleblowers who are the original source of information leading to the recovery of federal funds fraudulently obtained can recover between 15% and 30%  of those funds. Since a 1987 amendment, FCA claims have helped taxpayers here  reclaim $20 billion. To help us make these recoveries, the whistleblowers faced
discharge, financial ruin or worse. Even whistleblowers who are not the "original source" of information are still protected from retaliation.

More significant than the money recovered, the FCA compels business to stay honest with the government -- cleaning up entire industries.  No wonder, then, that Hungary's Minister of Justice, Tibor Draskovics, announced plans for a similar law in Hungary. A recent Transparency International report also recommended whistleblower protection legislation as a way to deter corruption.
Business Hungary article on Whistle-blower Legislation
The Hungarian branch of the Chamber of Commerce recognizes how whistleblower remedies, and even cash awards, will encourage reports of wrongdoing and help honest businesses compete. I wonder, though, why honest American businesses are not promoting the FCA here in their homeland. The FCA routs out the the dishonest operators here too, and levels the playing field for honest businesspeople everywhere. It would be logical, then, if these same American businesses would support the False Claims Corrections Act when it is reintroduced in the new Congress.

Click here for an image of this Business Hungary article.

 

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Supreme Court May Hear Case To Limit False Claims Act Recoveries

Posted on December 9, 2008 by Marshall Chriswell

The Boston Globe is reporting that the Supreme Court is considering taking up a case that "might set new limits on whistle-blower lawsuits against drugmakers, biotechnology companies, and other businesses." The court has requested advice from the Department of Justice regarding the suit.


The case in question deals with the False Claims Act and specifically whether FCA cases can be based on allegations which have previously been made public in state government documents. Limitations have currently only been applied when the whistleblowers' allegations have previously seen light in Federal Government documents.


Industry groups support the new limitations, which is no surprise considering the FCA has been the most effective fraud-fighting law in history, netting over $1 Billion in fraud recoveries for American taxpayers last year alone. 

FCA-type laws are also helping uncover massive government contractor fraud schemes in countries like South Korea

Click here to DIGG this story

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CBO Says Proposed False Claims Act Amendment Legislation Will Increase Government Revenue

Posted on November 24, 2008 by Marshall Chriswell

Last week the Congressional Budget Office released this report on the revenue-creating potential of current proposed legislation in the to amend the False Claims Act. Similar bills are now pending in the Senate (S. 2041) and the House of Representatives (H.R. 4854). This marks a turnaround in opinion for the CBO on this issue. In April, the CBO released a report stating that the Senate version of the bill would not significantly increase government revenues, but this most recent report (which officially only deals with the House version of the bill) indicates that they have improved their assessment with regard to both bills.


This 2-page document offers a concise description of the legislation (H.R. 4854), and states that: 

"[The] CBO originally estimated that S. 2041 would not significantly increase revenues and collections. However, based on additional information, CBO now expects that either H.R. 4854 or S. 2041 could increase revenues and collections."

 

This is another promising sign for this much-needed legislation. For more blog posts about the False Claims Act, click here.

 

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Whistleblowers Help DOJ Recover $1 Billion in Government Contractor Fraud Scams in FY 2008

Posted on November 11, 2008 by Marshall Chriswell

Did you know that whistleblowers reporting under the False Claims Act have accounted for over $1 Billion in recovered federal and state taxpayer dollars this (fiscal) year alone?  This Marketwatch.com article details the biggest fraud recoveries in '08, including hundreds of millions of dollars from companies such as Amerigroup, Merck, Bechtel, CVS, and Pratt & Whitney. 


Despite these results, the False Claims Act (a civil war-era law that was last amended in 1986) is in need of some retooling. Senators Grassley and Leahy are pushing an amendment package (Bill # S. 2041) that would close the loopholes created by destructive Supreme Court decisions, such as Allison Engine Co. v. U.S. . this legislation should be enacted immediately. Further, because we know that the DOJ is letting hundreds of FCA cases languish without investigation, the DOJ needs to hire more civil fraud attorneys and focus more resources on ferreting out government contractor fraud.

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