State Courts have Concurrent Jurisdiction Over False Claims Act Retaliation Claims

Perhaps everyone knows this, but I didn't: a relator may bring a False Claims Act (FCA) retaliation claim in state court.  

Recently, in Driscoll v. Superior Court of Madera County, 2014 WL 333411 (January 30, 2014, Cal. App. 5 Dist.), the Court addressed whether state courts have concurrent jurisdiction over FCA retaliation claims, 31 U.S.C. 3730(h), and the Court found that they do. Regardless of whether concurrent jurisdiction exists, you normally would not expect to see FCA retaliation claims in state court because you would expect a defendant to remove a FCA retaliation claim to federal court under federal question jurisdiction, 28 U.S.C 1331. In Driscoll, however, the defendant brought the FCA retaliation claim against the plaintiffs as a cross claim. The plaintiffs moved to dismiss the FCA retaliation claim brought against them on the grounds that the California state court did not have subject matter jurisdiction, and though they won in the trial court, the appellate court found that the state court had jurisdiction and could proceed with the defendant's FCA retaliation claim. In so ruling, the California 5th District Court of Appeals acknowledged that section 3730(h)(2) provides that "an action under this subsection may be brought in the appropriate district court of the United States" and that section 31 U.S.C. 3732(a) provides further that "Any action under section 3730 may be brought in any judicial district . . . " Yet, the Court noted that the FCA does not "contain an explicit statutory directive ousting state court jurisdiction" and the "FCA's jurisdiction provision does not mention state courts or their jurisdiction." Consequently, asserted the Court, "we presume state courts share concurrent jurisdiction over FCA claims." The Court explained further that in retaliation claims the federal government is not a party nor are such claims brought in the name of the United States. Rather, "retaliation claims are personal to the individual."

Another FCA fun fact.

A. Brian Albritton
February 5, 2014

Whistleblower Counsel Going International: Focus on FCPA and Pharmaceutical Cases

Corporate Crime Reporter recently published an interview with Neil Getnick, a well known and successful plaintiff's attorney whose firm, Getnick and Getnick LLP, specializes in, among other things, federal and state whistleblower (qui tam) cases on behalf of relators and whistleblowers. The interview notes that Mr. Getnick seeks to catch the "next wave" of whistleblower cases: cases arising internationally. Getnick and Getnick is launching a "global anti-fraud and corruption unit focusing on international whistleblower cases."

In part, Mr. Getnick was referring to "Foreign Corrupt Practices Act (FCPA) whistleblower cases." The Foreign Corrupt Practices Act, 15 U.S.C. sec. 78dd-1 et seq, makes it unlawful to bribe or pay foreign officials to obtain or retain business, and according to the U.S. Department of Justice, requires that public companies "(a) make and keep books and records that accurately and fairly reflect the transactions of the corporation, and (b) devise and maintain an adequate system of internal accounting controls." The Securities and Exchange Commission's whistleblower program instituted in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) rewards individuals who assist the SEC in uncovering securities violations including violations of the FCPA. 

Mr. Getnick's anticipated focus on FCPA whistleblower cases should not come as a surprise. For example, in an article discussing the ramifications of the Dodd-Frank Act, the Arent Fox firm predicted that the passage of the Dodd-Frank whistleblower provisions will "likely result in the development of a 'cottage industry' with law firms and consultants stepping up to solicit potential FCPA whistleblowers." "To put this in context," the firm explained, "the fees collected worldwide in the recent Siemens FCPA investigation amounted to approximately $1.6 billion. Accordingly, a qualified whistleblower could have potentially received up to $480 million under this new program. The substantial financial incentives to potential whistleblowers will likely result in a significant increase in FCPA investigations initiated by the government as employees or informants perceive a big pay-off for information."

Along with the FCPA, Mr. Getnick predicted more "international cases targeting pharmaceutical manufacturing practices" such as the 2010 case against GlaxoSmithKline (GSK). In that case, the Getnick firm "successfully targeted [GSK's] largest pharmaceutical plant in the world for violating FDA current good manufacturing practices and selling adulterated drugs." "Pharmaceutical manufacturing companies are moving their plants overseas," Mr. Getnick observed, and if those pharmaceuticals are manufactured in a manner that violates FDA regulations and subsequently sold to the Medicare or Medicaid programs in the U.S., then "there is a sufficient nexus to assert jurisdiction in the United States" pursuant to the False Claims Act.

A. Brian Albritton
November 11, 2012

SEC Received Nearly 3,000 Whistleblower Tips in 2012

The MarketWatch site of the Wall Street Journal reported SEC Commissioner Luis Aguilar's comments about the SEC's Dodd-Frank whistleblower program which began last year.  Like the False Claims Act's qui tam provisions, the SEC's program pays a bounty to whistleblowers who, according to the SEC, "come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered." Commissioner Aguilar reports that the SEC  has received 2,820 whistleblower tips as of August of this year and that "[t]ips have come from around the US and from 45 foreign countries." He further stated that agency staff have "seen a noticeable difference in the quality of information they receive since the inception of the program."

Notwithstanding the number of tips, the article points out the SEC has made only one reward payment thus far to a whistleblower.

A. Brian Albritton
October 23, 2012

An Insider's View of Florida ex rel FX Analytics v. Mellon Bank Qui Tam: Florida Attorney General Releases Hundreds of Confidential Documents Provided by Relator

As reported by the The Wall Street Journal and other news sources last week, documents released by the Florida Attorney General's Office provide an insider's glimpse into the Florida state qui tam action against Bank of New York Mellon Corporation (Mellon Bank).  That suit, State of Florida ex rel FX Analytics v. Bank of New York  Mellon Corporation, was initially filed by a foreign currency trader and whistleblower at the bank, Mr. Grant Wilson, in 2009 and the Florida Attorney General intervened in 2011.  In this qui tam case, the Florida Attorney General alleged that Mellon Bank conducted foreign currency trades on behalf of the Florida Retirement System Trust Fund, and in so doing, fraudulently "added hidden spreads . . . to these foreign exchange trades rather than pricing the trades at the exchange rates at which it actually executed the transactions, causing the [Trust Fund] to pay far more than it should have for buys and receive much less than it should have for sells."

The Florida Attorney General released "hundreds of pages of confidential documents" that Mr. Wilson had obtained while working at Mellon Bank.  According to the Wall Street Journal, the documents reportedly show "how the bank allegedly scrambled to contain the fallout from a fast-growing government investigation," and included "company materials, emails and observations."  As described in a Huffington Post article, the documents reflected the important role played by the relator's counsel.  For example, Wilson's lawyers provided "a question-and-answer tutorial so the Florida Attorney General's office knows the right questions to ask BNY Mellon employees;" and in another memo, the lawyers discredit Mellon's claims that "difficulty in production" delayed its document productions because, according to Wilson, documents are "centrally stored" and can be "easily obtained."  In another released memo, Wilson's "legal team provided detailed biographies of fellow traders and employees at BNY Mellon to help determine whether they might be helpful in the whistleblower legal effort."

Beyond the insight into the qui tam against Mellon Bank, these articles prompt several observations:  First, the Florida Attorney General's release of these documents show that there is far less confidentiality surrounding relators and the documents they provide in state qui tams than in federal qui tams.  This difference is especially stark when dealing with states like Florida, which have public records laws that permit the public broad access to government records.  The case is ongoing, with the State having intervened only months ago, and yet hundreds of pages of internal confidential documents, both from Mellon and the relator's lawyers have been released.  It is not clear that Wilson, his lawyers, or Mellon wanted these documents released.

Second, the experience of Mr. Wilson as a whistleblower shows just how lucrative the role of a relator can be.  The Wall Street Journal reports that Wilson, a foreign trader with Mellon for more than a decade, "walked away from deferred bonuses totaling roughly $5 million."  Clearly, he anticipates making much more than that from the qui tam.

Third, from these articles, you can see the important role that whistleblower counsel can play in ensuring a successful qui tam suit and in pressing for a vigorous prosecution against the defendant.  In Wilson's case, counsel apparently went so far as to "provide intimate snapshots of [Wilson's] colleagues, including details about their families, personal problems and financial standing."

Finally, where was the bank's compliance officer?  Wilson reportedly worked for two years as an informant, allegedly detailing the bank's scheme to overcharge its clients for whom it made foreign exchange trades.  He was, documents appear to show, not the only one who knew about these suspect practices. If that is true, how could such conduct be kept from the bank's compliance officers?

U.S. Tax Court Rules that IRS Whistleblower Claimant May Remain Anonymous but Refuses to Seal Case

As discussed previously, courts increasingly refuse the request of relators to seal their False Claims Act (“FCA”) cases when the government declines to intervene and they seek to dismiss.  See blog entries 11/14/11, 10/31/11. The U.S. Tax Court recently addressed this issue of protecting the identity of a tax whistleblower in a Tax Court case and arrived at a very different conclusion:  the tax whistleblower may remain anonymous but it refused to seal the case. See Whistleblower 14106-10W v. Commissioner of Internal Revenue, United States Tax Court, 137 T.C. No. 15.   The Tax Court based its decision in large part on the fact that the Internal Revenue Service’s Whistleblower Program does not protect whistleblowers from retaliation and that the Internal Revenue Service (“IRS”) treats whistleblowers as confidential informants.

The case arose out of claim made to the IRS by a whistleblower that his former employer had underpaid its tax.  The IRS denied the petitioner’s claim for a whistleblower award, and the whistleblower challenged that denial in Tax Court.  

As described on its website, the IRS has a “Whistleblower Program,” 26 U.S.C. § 7623(b), that “pays money to people who blow the whistle on persons who fail to pay the tax that they owe. See 26 U.S.C. § 7623(b).  If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.”  The IRS program further provides that if “the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court.”  Unlike the False Claims Act, however, if the IRS declines to pursue the claim, the whistleblower does not have an independent right to proceed with the claim against the defendant. 

In the Tax Court case, the Whistleblower filed a motion for protective order requesting the court to protect his identity and to seal the tax case.  The Whistleblower alleged that even though he no longer worked for the taxpayer, he feared retaliation by his former employer.  He also claimed that he would be professionally ostracized if his identity as a whistleblower were disclosed.  

In a lengthy and well-reasoned decision, the Tax Court surveyed federal law on whether and when courts can permit litigants to remain anonymous and can seal a case.  The Tax Court further noted that the IRS treats whistleblowers as “confidential informants” and that courts frequently protect the identify of informants.

The Tax Court granted the Whistleblower’s request to protect his identity, remain anonymous, and to redact identifying information, noting:

petitioner has demonstrated a risk of harm that far exceeds in severity mere embarrassment or annoyance. The retaliation, professional ostracism, and economic duress which petitioner reasonably fears are, we believe, no less severe than the harm posed to attorneys and doctors suing to enjoin disciplinary proceedings, unsuccessful job applicants suing to protect their reputation, public aid recipients, or Native Americans joining in a lawsuit pitting their personal interests against those of their communities--all cases in which plaintiffs have been allowed to proceed anonymously.

A key consideration that the Tax Court cited in protecting the Whistleblower’s identity was that the IRS Whistleblower program does not have an anti-retaliation protections like other whistleblower statutes have, such as the False Claims Act.  As the Tax  Court observed: 

the False Claims Act contains an antiretaliatory provision. See 31 U.S.C. sec. 3730(h). Moreover, almost all the States have enacted statutes protecting employees in the public and/or private sectors who report illegal conduct.  In stark contrast, section 7623 contains no antiretaliatory provisions.

US Attorney Intervenes in Whistleblower Suit Against Allied Home Mortgage

Ever since the financial meltdown and the crash of real estate, the U.S. Department of Justice (DOJ) has been looking to bring big mortgage fraud cases, both civil and criminal, against banks and other lending institutions. Assistant Attorneys General Breuer of the Criminal Division and West of the Civil Division identified mortgage fraud as a top priority.

There have been lots of mortgage fraud prosecutions:  a few big ones such as against the mortgage firm Taylor Bean & Whitaker, and lots of smaller ones against individuals and small companies such as in the Middle District of Florida's Mortgage Fraud Surge.  But, I have not heard of a large civil fraud case against a big lender until now.  This week the U.S. Attorney for the Southern District of New York filed an amended complaint against Allied Home Mortgage and two of its executives:  US ex rel Belli v. Allied Home Mortgage Capital Corp. The government alleges that the defendants' fraudulent mortgage lending practices led to huge default rates and over $800 million in losses that the FHA, the government insurer of the loans, had to cover.

I bring the matter up here because the case against Allied started as a qui tam brought by an Allied branch manager from Massachusetts, Peter Belli, who filed the initial case under seal. See ProPublica article.  The case involves claims pursuant to the False Claims Act and also provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (codified in Title 12 and 15 and better known as "FIRREA").

FIRREA contains a whistleblower provision, 12 U.S.C. §§ 4201-4212, though few people seem to know about it --which is understandable as it is hard to find and almost never cited.  The Act was codified over two different statutory titles and almost all the cites I have seen to it reference only the public law citation and not the United States Code.  I did find it . . . on another blog of course.  The Whistleblower Qui Tam Law Blog has a short section explaining the provisions of the FIRREA whistleblower provisions and the rewards that relators can obtain under that Act.