Tuesday, March 27, 2012

Opportunistic Relator or Enterprising Whistleblower?

I try to spare readers from too many "can you believe this happened in a case?" entries, but on occasion, I do find just such a story worth highlighting.  The firm of Horwood Marcus & Berk ("HMB") recently highlighted an "opportunistic" (others might say, enterprising) relator and law firm in Illinois who, HMB reports, have brought over 200 cases under the Illinois False Claims Act against retailers operating nationwide who "allegedly have fraudulently failed to collect tax on the shipping portion of sales to Illinois customers." See "Opportunistic 'Whistleblower' Exploits Illinois False Claims Act."  Though it does not list the cases, HMB claims that the relator's claims are based on tax advice provided by the Illinois Department of Revenue to retailers.  Relator's "lawsuits accuse retailers of committing fraud by not collecting tax on shipping charges to Illinois customers, a position that the Department of Revenue has endorsed explicitly in the case of several tax payers, and more generally in over 30 information letters."  Moreover, HMB essentially accuses the relator and the plaintiff's firm that has brought all 200 cases of being "opportunists," as the relator reportedly has no insider knowledge and bears little resemblance to the classic whistleblower.  HMB complains further that taxpayers "attempting to understand Illinois law on the proper taxation of shipping charges will likely finish the exercise with more questions than answers" and that the Illinois Department of Revenue is partly responsible for creating this "muddled and confusing  . . . legal landscape."

HMB predicts that another frontier for opportunistic qui tam suits will be claims over the payment of unclaimed property obligations, another area where HMB believes there is real confusion about what property is subject to unclaimed property laws and must be reported to the state.

by A. Brian Albritton
     March 27, 2012

A Helpful Primer on the False Claims Act and the Anti-Kickback Act

I commend the PowerPoint presentation "The Evolution of the False Claims Act and Anti-Kickback Allegations and Theories of Liability in FCA Litigation" posted today by Antonia Giuliana on the FCA Alert blog.  Her presentation (1) discusses how the legal standards applicable to the Anti-Kickback Act and False Claims Act  ("FCA") have changed, especially as a result of the 2010 Patient Protection and Affordable Care Act amendments and the use of Anti-Kickback claims as a basis for "false certification" theories of liability; (2) how kickback allegations have evolved in FCA cases for the period of 1995 - 2009 along with a helpful chart; and (3) uses the case of US ex rel Jamison v. McKesson Corp. et al., (N.D. Miss) to illustrate the application of the Anti-Kickback Act to a False Claims Act case.  This is a useful primer on the subject.

by A. Brian Albritton
     March 27, 2012

Friday, March 23, 2012

Court Finds FCA Retaliation Claims Subject to Arbitration

A U.S. District Court in Texas recently held that a False Claims Act  ("FCA") retaliation claim brought pursuant to 31 U.S.C. 3730(h) by a sales representative against his employer was subject to the arbitration clause of his Employment Agreement and dismissed the sales representative's case in favor of arbitration.  James v. Conceptus, Inc., 2012 WL 845122 (March 12, 2012, S.D. Tex).

In that case, the plaintiff, a sales representative for a medical device firm alleged that his employer, Conceptus, Inc., retaliated against by discharging him when he questioned the legality of how a sales representative marketed his employer's medical devices and how physicians billed Medicaid for such devices.  The plaintiff brought a "whistleblower-retaliation action under the False Claims Act, 31 U.S.C. 3730(h), in the Southern District of Texas.  His employer moved to compel arbitration under the plaintiff's employment agreement and to dismiss the suit in favor of arbitration.  The employment agreement specified the application of California law as well as a California forum, and the Court spent much of its opinion evaluating whether California law permitted the arbitration of such claims, finding in the end that such claims may be subject to arbitration.

The Plaintiff also claimed that arbitration provision of his employment agreement did not apply to his FCA retaliation claim on the grounds that the Dodd-Frank Act made such arbitration clauses for whistleblower claims unenforceable.  The Court observed that the Dodd-Frank Act, 7 USC 26(n) and 18 USC 1514A(e) amended the "whistleblower provisions of the Commodity Exchange Act and the Sarbanes-Oxley Act to make unenforceable any predispute arbitration clause of disputes arsing under those whistleblower sections as well as the Dodd-Frank Act itself, 12 USC 5567(d).  The Court, however, found that Dodd-Frank did not apply to the False Claims Act and 31 USC 3730(h) contains no similar provision.  Beyond its discussion of California law, the Court did not cite any other federal law or cases in making its determination that that the antiretaliation provisions of the False Claims Act would be made subject to arbitration.

Section 26(n) of Title 7 also provides that the "rights and remedies provided for" under the Commodities and Exchange Act qui tam provisions may not be waived.  Section 1514A(e) of Title 18 provides for a similar provision as the Sarbanes-Oxley Act.

Tuesday, March 13, 2012

Insights from a Qui Tam Plaintiff's Lawyer

In a recent interview with Corporate Crime Reporter, qui tam attorney Joseph E.B. "Jeb" White of the firm Nolan & Auerbach, P.A. described what kind of plaintiff/relator cases his firm is interested in and, more importantly, the kinds of cases in which the government will intervene.

White says that the government does not want "low hanging fruit.  They want boxed fruit."  He notes that the government intervenes in "only about 25 percent" of False Claims Act (FCA) cases, and due to "tightening budgets," the government's approach to taking FCA cases is changing.  Increasingly, the government delays its decision to intervene because "sometimes the case simply isn't ready.  The relator hasn't fully flushed out the allegations sufficiently for the government to intervene."  Moreover, courts frequently "pressure the government to make up its mind before the government is ready to make up its mind."  These pressures, he says, lead the government to often say in qui tam cases that they are "not intervening at this time" but nevertheless "signaling to the relator's lawyer" to keep the case alive because they government is "going to come back later."  While it may not be able to investigate or intervene in a case due to a lack of resources, says White, the government encourages relators to "move forward" with meritorious cases, letting the relator use what may be his or her superior resources to develop the case further.  In short, the government, White explains, often declines, but in doing so it frequently indicates to the relator to "pick up the ball and move it forward for us."

White's firm, Nolan & Auerbach, only does FCA cases on behalf of relators.  He says the firm takes roughly one in ten FCA cases, and that they can only bring a "handful of cases in any given year."  White states that when his firm brings a case to the government, they want the government to have "some level of confidence" that the case has been "fully vetted."  In considering whether to take a case, White explains that the firm is looking for several things: (1) "evidence of systematic fraud" as opposed to just some "rogue employee," hopefully involving a "scheme from the top of the company;" (2) a "credible witness" who can withstand scrutiny at trial; and (3) whether there are "common road blocks," such as the public disclosure bar.

White estimates that there are 100 FCA cases every year, of which "five of them are blockbusters."  He estimates that the remaining "95 settle for about $10 million each," and that the average whistleblower award is around 16.2 percent.

The entire interview is at 26 Corporate Crime Reporter 8, February 20, 2012 print edition.

A. Brian Albritton

Tuesday, March 6, 2012

Calculating the Relator's Share: US ex rel Shea v. Verizon Communications, Inc.

A new blog began last month that is devoted to the False Claims Act, "The Original Source:  The Sidley Austin False Claims Act Blog."  They have done a number good blog articles in the short time they have been publishing.

I wanted to commend their recent blog discussion of US ex rel Shea v. Verizon Communications, No. 07-111(GK) (D.D.C. Feb. 23, 2012), 2012 U.S. Dist. LEXIS 22776.  This very interesting case discusses the criteria for awarding the relator a share of a False Claims Act award and the key contributions that a relator can make to the investigation and resolution of a qui tam.  As the Sidley Blog points out, the case highlights a number of contributions by the relator and his counsel that were instrumental to the success of the Government's case.  For example, the Court notes that the relator "directed the Government to focus" on two surcharges of the defendant, "thereby enabling the Government to save enormous amounts of lawyer time, auditor time, and staff time."  In another instance, the Government solicited the relator to prepare a legal memo explaining why "each surcharge" was prohibited by the applicable law and to rank the surcharges for investigation.  The opinion goes on that the relator assisted the Government in drafting subpoenas; identified witnesses; and "participated fully in all aspects of the Government's investigation and settlement" and devoted "hundreds of hours each year on the case."   This informative case summarizes the elements and contributions for determining the relator's share of an award.

Notwithstanding the relator's contributions to the case as outlined by the Court, the Government opposed awarding the relator anything more than 16% of the award, or only 1% more than the minimum to which the relator was entitled.  The Court criticized the Government for making a "profoundly unfair characterization of the nature and extent" of the contributions of the relator and his counsel and for arguing that the relator's "share of the proceeds depends upon the extent of the [relator's] contribution the case rather than the contribution of his counsel." The Court observed that case law does not base the relator's contribution on just what he or she individually contributed, finding than the "relator should be compensated for all of the ways in which his investment of time, resources, information, and assistance contributed to the Government's recovery." In the end, the Court ruled in favor of the relator, awarding him 20% of the lions share of the recovery.

A. Brian Albritton