Whistleblower Law Blog

Air Force Times Interviews The Employment Law Group® Principal Dave Scher on Department of Veterans Affairs Whistleblowers

January 10, 2012

Dave Scher, Principal of The Employment Law Group® law firm, was interviewed by the Air Force Times, an independent weekly newspaper for U.S. Air Force personnel, retirees, and their families, regarding recent whistle-blowing by U.S. Department of Veterans Affairs (VA) physicians.

Commenting on the case of a VA doctor who was fired after filing a complaint about unsafe patient practices and dangerous working conditions at a VA Medical Center in Northport, N.Y., Scher noted that in November 2011, the U.S. Office of Special Counsel substantiated the allegations and that “the special counsel herself went out of her way to praise [the physician’s] courage in a press release.”

The Air Force Times feature article also profiled other cases in which The Employment Law Group® law firm has been involved in assisting VA doctors who claim that “they were fired or harassed for speaking out about problems affecting patient care”.

Specifically, the article mentioned the case of Shen v. Shinseki, in which The Employment Law Group® law firm succeeding in obtaining a rare order from a federal court that prohibited the VA from terminating a Title 38 physician while her complaint was pending.

Additionally, The Employment Law Group® law firm currently represents Dr. Shanker Raja who alleges that patients received improper doses of radiation, and the firm also helped Dr. Carolyn Gaston overturn her suspension after she was suspended for treating critical patients before those with nonthreatening illnesses in a VA medical center emergency room which she claimed was understaffed.

Principal Attorney Scher noted that such management problems frequently occur throughout the VA and that often times “supervisors either don’t know the rules, they don’t follow the rules or they don’t care.”

The article, entitled “Whistle-blowers Sue VA, Claim Reprisal”, appeared in the January 16, 2012 edition of the Air Force Times.

Capital Insider interviews Attorney Adam Augustine Carter about What Employees Should Know for 2012

January 10, 2012

Morris Jones of Capital Insider interviewed The Employment Law Group® law firm attorney Adam Augustine Carter on the recent changes in whistleblower and employment law that will affect employees in 2012.

The points Mr. Carter makes are that:

1. There are almost 2 million home health aides and in-home care providers working in our country. Now with new regulations these workers will get overtime and minimum wage protections.
2. There are now in effect regulations that implement the amendments to the Americans With Disabilities Act (ADAAA) that broaden the definition of who is covered as having a disability and the key change is that an impairment does not need to prevent or severely or significantly restrict a major life activity to be considered to be “substantially limiting” the activity.
3. Revisions to the Sarbanes-Oxley whistleblower regulations clarify and improve the procedures for handling Sarbanes-Oxley whistleblower complaints and implement statutory changes enacted into law as part of the 2010 Dodd-Frank Wall Street Reforms.
4. The Department of Labor’s Administrative Review Board has changed the landscape in 2011 for whistleblowers under Sarbanes-Oxley and the new Dodd Frank amendments to make these laws more powerful for whistleblower claims to succeed and for whistleblowers to be protected so that they don’t have to choose between their job and doing the right thing.

Related articles

• TELG Principal Quoted in Law360 Regarding New Sarbanes-Oxley Whistleblower Regulations (employmentlawgroupblog.com)
• TELG Principal Attorney Adam Augustine Carter Quoted in Bloomberg Article (executivecounselblog.com)
• U.S. DOL ARB Ends Landmark Year Holding Summary Decision Improper Unless Employer Proves Sarbanes-Oxley Act Does Not Apply (employmentlawgroupblog.com)

World’s Largest Container Shipping Company Pays Federal Government $31.9 Million to Settle Lawsuit

January 10, 2012

Last week the U.S. Department of Justice (DOJ) announced that Virginia-based container shipper, Maersk Line Ltd., and its Denmark-based affiliate, Maersk Line, entered into a settlement agreement in which Maersk will pay the federal government nearly $32 million to resolve allegations that the companies submitted false claims involving cargo shipments to U.S. military personnel in Afghanistan and Iraq.

The DOJ brought the suit in the U.S. District Court for the Northern District of California under the whistleblower provisions of the False Claims Act (FCA). The suit was initially filed in 2004 against another shipping firm, American President Lines (APL), by its former employee, Jerry H. Brown. In 2007 the suit was amended to include Maersk as a defendant.

APL agreed to settle the suit with the government for $26.3 million in 2009 with the whistleblower, Mr. Brown, receiving $5.19 million. Mr. Brown is entitled to $3.6 million of the current settlement with Maersk.

According to the allegations, the companies “inaccurately billed the U.S. military for certain…services rendered during war-time conditions in Iraq, Pakistan, and Afghanistan.” Specifically, the DOJ alleged that Maersk “knowingly overcharged the Department of Defense to transport thousands of containers from ports to inland delivery” and that Maersk “inflated its invoices in various ways” including overcharging the government.

Maersk attorney, James Philbin, claims that “once Maersk became aware of the allegations [it] commenced an extensive internal review…and voluntarily disclosed these findings” to the government.

U.S. Attorney for the Northern District of California, Melinda Haag, noted that “contractors that submit false claims for monies they are not owed cost the government millions of dollars every year,”  and that this settlement “should send a strong signal that the government is committed to safeguarding taxpayer funds by ensuring that contractors operate ethically and responsibly.”

BNY Mellon Whistleblower Provides Information Aiding Several States’ Lawsuits

January 06, 2012

Last month, Louisiana Municipal Police Employees’ Retirement System (“LAMPERS”) filed a securities class action lawsuit in the U.S. District Court for the Southern District of New York against The Bank of New York Mellon Corporation (BNY Mellon) under the Securities Exchange Act of 1934. The lawsuit filed by LAMPERS, discussed in an article published by Reuters, arose from the actions of whistleblower Grant Wilson, a former employee of BNY Mellon, who exposed widespread overcharging of pension funds by the bank.

Wilson worked for BNY Mellon for 19 years as a foreign-exchange trader and left the company this past spring.  During the last few years of his employment with BNY Mellon, Wilson began to gather evidence that the bank was improperly charging state and local pension funds for foreign currency exchanges.  The information that Wilson disclosed provided the basis for lawsuits filed against BNY Mellon by five states, including Florida, New York, and Virginia.

According to the LAMPERS complaint, “While BNY Mellon’s FX trading services were offered to clients as [being] ‘free of charge,’ in truth, BNY Mellon rigged the pricing of its FX transactions in order to reap illicit profits.”  The complaint also alleges that “the Company’s deceptive practice began to surface in January 2011 after two whistleblower (or qui tam) lawsuits against BNY Mellon were unsealed in Virginia and Florida,” leading to other lawsuits, including the recent suit filed by LAMPERS.

OSHA Orders Union Pacific to Reinstate and Pay Whistleblower Employee $300,000

January 05, 2012

On December 21, 2011 the Occupational Safety & Health Administration (OSHA), a division of the Department of Labor ordered Union Pacific Railroad. Co. to rehire a former employee after an unlawful termination.

The employee, who remains unidentified due to OSHA policy, filed a whistleblower complaint against Union Pacific after the company suspended then fired the employee 23 days after the employee reported an on-the-job injury.  OSHA conducted an extensive investigation and found reasonable cause to believe that Union Pacific terminated the employee as a disciplinary action for reporting a workplace injury in violation of the Federal Railroad Safety Act’s whistleblower protection provisions.

OSHA’s Assistant Secretary of Labor David Michaels voiced his support of this decision, stating

“This case sends a clear message that OSHA will not tolerate retaliation against workers for reporting a work-related injury. An unreported injury is an uninvestigated injury. Nothing is learned that can help prevent the next injury.”

In addition to being reinstated, the employee will receive  $300,000 in back wages plus compensatory damages, punitive damages, and attorney’s fees.  OSHA also ordered the railroad not to retaliate against any other employees in the future.

7th Circuit Reinstates RICO Whistleblower Lawsuit, Applies Broad Relationship Standard

December 30, 2011

The United States Court of Appeals for the Seventh Circuit reversed a lower court decision dismissing whistleblower Michael DeGuelle’s lawsuit against his former employer, S.C. Johnson & Son, Inc. (SCJ) and members of management.  The Court recounted the facts alleged by DeGuelle that gave rise to the lawsuit:

[While working in SCJ’s tax department,]DeGuelle discovered that SCJ improperly received over $5 million in foreign tax credits.  In January of 2001, DeGuelle reported his findings to [Daniel Wenzel, SCJ’s Global Tax Counsel,] and asked how these errors should be remedied.  Wenzel responded that they should wait and “[t]his is why I go to church on Sundays.”  Wenzel reported DeGuelle’s findings to Robert Randleman, Vice President and Corporate Tax Counsel, but not to the IRS.  Instead Wenzel directed DeGuelle to alter or destroy records so that the errors would not be detected.  Subsequently, altered reports were submitted to the IRS. . . .

In 2002, Wenzel instructed DeGuelle and a fellow employee to structure a transaction so that SCJ could claim a tax deduction by exploiting tax accounting rules.  Wenzel told DeGuelle and his fellow employee to fabricate a business purpose for the transaction and then destroy associated business records in case “the IRS examines this transaction in the future.” DeGuelle believes SCJ received a benefit in excess of $2 million in the form of reduced tax liability as a result of this structured transaction. Further, Wenzel received a significant discretionary bonus for his role.

In February of 2005, Wenzel directed DeGuelle to fraudulently alter an income statement, which would result in approximately $3.7 million in financial benefits for SCJ.  DeGuelle refused to alter the statement.  He discussed his concerns with Donald Pappenfuss, a supervisor within the tax department, who instructed DeGuelle to alter the form pursuant to Wenzel’s instructions.  Wenzel approved the altered income statement and submitted it to the IRS by mail.

. . .

In March of 2008, Wenzel told DeGuelle to bring any concerns about issues in the tax department to appropriate department personnel instead of taking such concerns to accounting or human resources.  Wenzel was loud and physically aggressive toward DeGuelle during this meeting.  Wenzel also made disparaging comments about DeGuelle in front of other SCJ employees.  That same month, DeGuelle received a negative six-month performance review even though such mid-year reviews were not routine, and despite the fact that DeGuelle received an Officer’s Award in recognition of his superior job performance in January of that year.

. . .

On September 23, 2008, Wenzel and DeGuelle had another verbal altercation and DeGuelle received a negative “needs improvement” performance review from Wenzel.  DeGuelle contacted [Kristen Camilli, Director of human Resources,] and alleged that his review was retaliation for his whistleblowing activities.  Camilli informed DeGuelle on October 10, 2008, that the negative review would be investigated.

. . .

On December 18, 2008, DeGuelle met with [another manager, Gayle Kosterman,] and Camilli.  They informed DeGuelle that the negative review was retaliatory in nature and it would be revoked. . . .  Kosterman directed DeGuelle to drop his complaints of tax fraud, but DeGuelle stated he would file a whistleblower complaint with the Department of Labor.  Later that day, Kosterman and Camilli contacted DeGuelle by telephone and. . . offered to make a partial payment of DeGuelle’s attorney’s fees if DeGuelle agreed to sign a release of claims and confidentiality agreement.

. . .

DeGuelle continued to contact federal agencies about SCJ’s tax fraud.

. . .

On March 19, 2009, DeGuelle provided SCJ counsel with a five-page memorandum detailing his concerns about tax fraud within the company. . . . Kosterman met with DeGuelle and offered him the opportunity to resign with one year of salary and benefits if he signed a confidentiality agreement and released all claims.  Again, DeGuelle refused SCJ’s offer.

DeGuelle was subsequently terminated by SCJ.  DeGuelle’s complaint alleges that Wenzel, Randleman, and Pappenfuss engaged in tax fraud in order to receive significantly higher discretionary bonuses, and that management retaliated against him for disclosing the fraud to the government – a violation of the Racketeer Influence and Corrupt Organizations Act (RICO).

Sec. 1962(c) of RICO makes it unlawful for an employee of an enterprise engaged in interstate commerce “to conduct or participate, directly or indirectly, in the conduct of such enterprise’s racketeering activity . . . .”  Violations of RICO can include mail fraud, tax fraud, the destruction of records, and whistleblower retaliation.

The district court erroneously determined that the alleged tax fraud and alleged retaliation were patently unrelated for purposes of RICO, because the schemes “involved different actors, motives, and victims.”  The Seventh reversed the district court and agreed with DeGuelle’s argument that the Sarbanes-Oxley Act’s addition of Sec. 1513(e) as a RICO predicate act allows his claim to proceed.  Under RICO, violations of Sec. 1513 constitute “racketeering activity.”  Congress enacted the Sarbanes-Oxley Act or SOX to address growing concerns about the reliability and accuracy of disclosures made by publically-traded corporations.

Applying a relatively broad relationship standard, the Seventh Circuit stated:

When an employer retaliates against an employee, there is always an underlying motivation.  In this case, for example, the motivation was to retaliate against DeGuelle for disclosing the tax scheme.

. . .

We believe the district court erred in finding that the retaliatory actions taken against DeGuelle were unrelated to the ongoing tax fraud scheme.

The case is DeGuelle v. Camilli.

Related articles

• Tax Court Protects Identity of IRS Whistleblower (employmentlawgroupblog.com)
• U.S. DOL ARB Ends Landmark Year Holding Summary Decision Improper Unless Employer Proves Sarbanes-Oxley Act Does Not Apply (employmentlawgroupblog.com)
• OSHA Sues Whole Foods for Terminating Whistleblower (employmentlawgroupblog.com)

U.S. DOL ARB Ends Landmark Year Holding Summary Decision Improper Unless Employer Proves Sarbanes-Oxley Act Does Not Apply

December 30, 2011

On December 16, 2011, the United States Department of Labor’s Administrative Review Board issued important decision for whistleblowers and their advocates to end a year of landmark Sarbanes-Oxley Act of 2002 (SOX) decisions by the ARB, including:

• Vannoy v. Celanese, ARB No. 09-118, ALJ No. 2008-SOX-064 (ARB September 28, 2011) (holding that whistleblower disclosures containing employer confidential information are protected under SOX when those disclosures contain original information evidencing the purported securities law violation);
• Menendez v. Halliburton, ARB Nos. 09-002, 09-003, ALJ No. 2007-SOX-005 (ARB September 13, 2011) (affirming whistleblowers are protected under SOX even when mistaken, holding the employer’s disclosure of the whistleblower’s identity to constitute an adverse employment action, and finding that whistleblowers establish causation by showing their whistleblowing activity was merely a contributing factor in the employer’s decision to take the adverse action);
• Sylvester v. Parexel Int’l LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-039, -042 (ARB May 25, 2011) (holding that the heightened pleading standard of federal courts does not apply to SOX claims before the Department of Labor and affirming that allegations of shareholder fraud are not a requirement under the SOX whistleblower provisions);
• Johnson v. Siemens Bldg. Techs, Inc., ARB No. 08-032, ALJ No. 2005-SOX-015 (ARB March 31, 2011) (clarifying that the whistleblower protection provisions of SOX extend to employees of subsidiaries of publicly-traded companies even if those subsidiaries are privately owned); and
• Brown v. Lockheed Martin Corp., ARB No. 10-050, ALJ No. 2008-SOX-049 (ARB February 28, 2011) (applying an appropriately broad reading of SOX where whistleblowers are not required to allege shareholder fraud to receive SOX’s protection – an allegation of mail or wire fraud is sufficient).

In the ARB’s final SOX decision for 2011, Charles v. Profit Inv. Mgmt., ARB No. 2009-SOX-40 (ARB December 16, 2011), the ARB overturned an Administrative Law Judge’s (ALJ) premature summary decision in favor of the employer.  The ALJ believed erroneously that whistleblower Lisa Charles’s employer (Profit Investment Management) could not be subject to the whistleblower provisions of SOX.

Profit Investment Management employed Charles from 2004 to 2008, terminating her employment after she reported SEC violations to the CEO.  Charles then filed a SOX complaint with the U.S. Department of Labor in August 2008, resulting in the employer’s motion for summary decision.

The ALJ granted the employer’s motion for summary decision and dismissed the case at least in part on the basis that Charles’s former employer was not a covered employer under SOX, because it is a privately owned company.

The SOX whistleblower protection provision (Section 806) states:

(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES. No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company, . . . or any officer, employee, contractor, subcontractor, or agent of such company, . . .  may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee  —

(1)  to provide information, cause information to be provided, or otherwise assist in any investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire, radio, TV fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by – [a Federal regulatory or law enforcement agency, a supervisor, or in support of a related proceeding.]

The ARB noted that the burden lies with the moving party to demonstrate the absence of any material fact genuinely in dispute in order to prevail on a motion for summary decision.  In this case, there is a genuine issue of fact regarding whether Profit Investment is a covered employer under SOX.  Profit Investment failed to establish a record showing that it was not a subsidiary, contractor, or agent of a public company.  The ARB states:

The plain language of Section 806(a) identifies several categories of potentially covered entities beyond the registration and reporting requirements of SOX (i.e., “any officer, employee, contractor, subcontractor, or agent of such company”).  The Second and Sixth Circuits have concluded that the use of the term “any” preceding the listing of the several entities identified in Section 806(a) is an indication that Congress intended the clause “officer, employee, contractor, subcontractor, or agent” to be interpreted in an allencompassing manner.

(Internal citations omitted).

The ARB also cited its decision in Johnson, supra, in which it found that “. . . Congress intended to enact robust whistleblower protections for more than employees of publically traded companies.”  Congress also intended to not only protect whistleblowers who work for publically traded companies, but also “employees of private firms that work with, or contract with, publically traded companies.”

The ARB concluded that in this case the ALJ’s summary decision was improper.  Much of the factual record of the case remains in dispute: particularly the nature of the contractual relationship between Profit Investment Management and a publically traded firm to which it is connected.  Consequently, whistleblowers will more easily prevail against motions for summary decision based on employer coverage, unless the employer proves it has no connections to a public company that might give rise to Section 806 liability.

Related articles

• TELG Principal Quoted in Law360 Regarding New Sarbanes-Oxley Whistleblower Regulations (employmentlawgroupblog.com)
• DOL ALJ Orders Whistleblower Truck Driver Reinstated at Beacon Transport (employmentlawgroupblog.com)

Michigan Federal Court Rules Severance Agreement Cannot Bar Qui Tam Claim

December 28, 2011

McNulty further alleges that Arctic Glacier terminated him after he learned of and refused to participate in the anticompetitive scheme.  He later filed this qui tam claim under the False Claims Act (FCA), alleging that his employer overcharged the federal government for packaged ice.  Although the court dismissed McNulty’s claims on jurisdictional grounds and a failure to particularly plead his claim, more importantly the court also dismissed Arctic Glacier’s counterclaim alleging breach of the severance agreement – a significant victory for future whistleblowers.   The Court found the release of claims provision in the severance agreement unenforceable against qui tam claims that allege fraud that the government has not yet uncovered.  In support of its finding, the Court states:

. . . [T]hese courts have applied the balancing test set forth by the Supreme Court in Town of Newton v. Rumery, 480 U.S. 386, 392 (1987), which in the context of FCA claims, weighs “the public interest in having information brought forward that the government could not otherwise obtain [against] the public interest in encouraging parties to settle disputes.”  Nowak, 2011 WL 3208007, at *21 (internal quotation marks and citation omitted).  When considering a release of claim in the prefiling period, the court’s “focus must be on the incentive effect in achieving the FCA’s goals of detecting and deterring fraud.”

Related articles

• Department of Justice Recovers Record-Setting $3 Billion in False Claims Act Settlements in 2011 (employmentlawgroupblog.com)
• Department of Justice 2011 Fraud Recovery Announcement, Part II: Kudos to Whistleblowers (pogoblog.typepad.com)
• Medtronic Pays $23.5M to Settle Kickback Allegations (employmentlawgroupblog.com)

Ranbaxy Laboratories to Pay $500 Million in Settlement with Food and Drug Administration

December 28, 2011

Last week, India’s largest drug manufacturer, Ranbaxy Laboratories Ltd., announced that it had entered into a consent decree with the Food and Drug Administration (FDA) and had set aside a provision of $500 million to cover any liability arising out of a separate investigation by the Department of Justice (DOJ).

The consent decree comes after a 2008 decision by the FDA to ban dozens of Ranbaxy’s generic drugs from entering the US due to alleged violations of FDA manufacturing and quality standards at two of Ranbaxy’s plants in India. Additionally, the FDA alleged that Ranbaxy had falsified data about the shelf life, ingredients, and stability of certain medications including drugs that were to be distributed to foreign countries as part of the President’s Emergency Plan for AIDS Relief program (PEPFAR).

According to the consent decree, Ranbaxy has agreed to strengthen its compliance with industry standards. While the agreement is not an approval for Ranbaxy to resume manufacturing and importing drugs to the U.S., it will allow the company to seek FDA approval to resume importing pharmaceuticals produced at the two allegedly tainted factories. The consent decree is pending approval by the U.S. District Court for the District of Maryland. The $500 million reserve is intended to cover any of Ranbaxy’s potential civil and criminal liability.

Japan-based Daiichi Sankyo Co. acquired a majority stake in Ranbaxy in 2008 and has announced that it expects its net income to decline over 60% in the coming year due to Ranbaxy’s settlement with the DOJ. Some analysts have predicted that the settlement may wipe out Ranbaxy’s expected profits for the next two years. Because of the $500 million provision and the decreased profit forecasts, Daiichi Sankyo Co. has decided to cut executive pay for six months.

SEC Charges GlaxoSmithKline Unit with Defrauding Employees in Low Valuation Stock Buybacks

December 22, 2011

Last week, the Securities and Exchange Commission (SEC) charged Stiefel Laboratories Inc. (Stiefel Labs), a subsidiary of GlaxoSmithKline PLC, and the company’s former chairman and chief executive officer Charles Stiefel with defrauding employees and company shareholders by allegedly making stock buybacks at significantly undervalued prices.

The SEC alleges that Stiefel Labs failed to report certain information to employees and shareholders, thereby enabling the company to buy back stock from employees and shareholders at undervalued prices.  According to the SEC’s complaint, which was filed in the U.S. District Court for the Southern District of Florida, “Charles Stiefel knew that five private equity firms had submitted offers to buy preferred stock in November 2006 based on equity valuations of Stiefel Labs that were approximately 50 to 200 percent higher than the valuation later used for stock buybacks.” Despite knowing of the offers, Stiefel Labs continued to purchase stocks that were below estimated equity valuations.  Shareholders and employees who sold undervalued stock to Stiefel Labs lost more than $110 million, according to Eric I. Bustillo, director of the SEC’s Miami Regional Office.

The SEC is seeking permanent injunctive relief for shareholders and employees, financial penalties, disgorgement of ill-received gains with prejudgment interest against both Stiefel Labs and Charles Stiefel. The SEC is also seeking to permanently bar former CEO Charles Stiefel from serving as an officer or director of any publicly traded company