Whistleblower Law Blog

Fourth Circuit Holds SOX Retaliation Plaintiffs May Recover Emotional Distress Damages

March 19, 2015

The U.S. Court of Appeals for the Fourth Circuit is now the third federal appeals court –joining the Fifth and Tenth circuits – to hold that emotional distress damages are available under the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (SOX ). SOX section 806 protects employees from firing or other adverse actions for reporting that their publically traded employers misstated or omitted information in filings with the Securities and Exchange Commission or violated any SEC rule.

In Jones v. SouthPeak Interactive Corp. of Delaware, (4th Cir. 2015), the former Chief Financial Officer of video game publisher SouthPeak, Andrea Gail Jones, sued under the SOX anti-retaliation provision. Jones alleged that SouthPeak fired her because she refused to sign a proposed amendment that denied SouthPeak intentionally omitted a $307,400 wire transfer in the company’s balance sheet and quarterly financial report filed with the SEC. Jones allegedly refused to sign because when she first notified her supervisor of the omission, he rebuffed her and failed to add it to the filing.

The Fourth Circuit upheld the jury’s award of emotional distress damages to Jones, finding that the relief is permissible because 18 U.S.C. 1514A(c)(1) states that an employee prevailing in a SOX retaliation action “shall be entitled to all relief necessary to make the plaintiff whole.”

Round-Up of Recent Qui Tam Settlements

March 18, 2015

The False Claims Act allows private citizens with knowledge of false claims to bring civil actions on behalf of the United States government and to share in the recovery from these actions. These private citizens, known as relators, may receive a portion of the government’s recovery even if the actions are settled. The following are examples of three settled false claims (or “qui tam”) actions in which the relators received large monetary sums as their share.

AstraZeneca entered into a settlement agreement for $7.9 million with the United States to resolve allegations that the company agreed to provide remuneration to a pharmacy benefits manager in exchange for maintaining exclusive status to formularies. The relator received $1.42 million from the settlement.

California-based C.R. Laurence Co. Inc., Florida-based Southeastern Aluminum Products Inc., and Texas-based Waterfall Group LLC agreed to pay $2,300,000, $650,000 and $100,000, respectively, to resolve a qui tam action. The action alleged that the companies schemed to elude customs duties on imports. The relator received a $555,000 reward. Customs regulations are in place to level the playing field between companies who purchase products domestically and those who import their products. Evading customs regulations poses serious harm to United States manufacturers.

Ageless Men’s Health, LLC agreed to pay $1.6 million to the United States to resolve allegations that it billed Medicare and Tricare for medically unnecessary evaluation and management services. Medicare and Tricare will only reimburse for medically necessary procedures. The relator and the United States alleged that Ageless Men’s Health improperly billed for each office visit during which a testosterone shot was administered. The relator will receive $250,000 from the settlement.

New York Attorney General Proposes State Equivalent of Dodd-Frank Whistleblower Program

March 15, 2015

On February 26, 2015, New York Attorney General Eric Schneiderman announced plans to introduce state legislation to protect and reward employees who report information about illegal activity in the banking, insurance, and financial services industries.

Schneiderman’s proposal, titled the Financial Frauds Whistleblower Act, would create a state-level equivalent of the federal Dodd-Frank Wall Street and Consumer Protection Act. The Dodd-Frank Act provides financial incentives and anti-retaliation protections to whistleblowers who report fraud in the financial services industry.

While a number of states have whistleblower programs modeled after the federal False Claims Act, the Financial Frauds Whistleblower Act would be the first state-level equivalent of the Dodd-Frank Act, which created the whistleblower programs at U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission.

Schneiderman’s proposal would also address the limitations on awards imposed by federal law. Under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), rewards to whistleblowers who report financial crime are capped at $1.6 million.

The Financial Frauds Whistleblower Act would compensate whistleblowers whose information leads to action by the state’s banking and insurance regulator, the New York Department of Financial Services—providing the potential for large awards.

The legislation has yet to pass the New York State legislature.

U.S. Supreme Court Declines to Hear Appeal of California Ruling that Arbitration Agreements Cannot Waive Claims Under the State’s Private Attorneys General Act

March 09, 2015

On January 20, 2015, the U.S. Supreme Court declined to hear a challenge to a California Supreme Court ruling that employees could not, through arbitration agreements, waive representative claims under the state’s Private Attorneys General Act (PAGA). PAGA allows private citizens to step into the shoes of the government and sue for workplace violations on behalf of California’s Labor and Workforce Development Agency. Such plaintiffs can recover a share of any penalties recovered by the state. Workers can sue on behalf of themselves and other current and former employees in representative suits.

In Iskanian v. CLS Transportation Los Angeles LLC, the California Supreme Court held that arbitration agreements with mandatory class waivers are generally enforceable in light of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which established that the Federal Arbitration Act (FAA) preempted state laws finding such waivers unenforceable. However, in Iskanian, the California Supreme Court reasoned that agreements waiving workers’ rights to bring PAGA actions undermined the purpose of the statute and disabled a key enforcement mechanism for the state’s labor code.

The decision in Iskanian stemmed from a 2006 suit filed by former CLS Transportation limousine driver Arshavir Iskanian. Iskanian, who had signed an arbitration agreement with the company, brought a proposed wage class action under PAGA against CLS.

The California Supreme Court found that employees bringing representative claims against their employers are actually bringing those claims on behalf of the state, rather than the employees themselves. For that reason, the court found that the arbitration agreements signed by the employees did not preempt state law.

After the California Supreme Court ruled in Iskanian’s favor on June 23, 2014, CLS filed a petition for certiorari on September 22, 2014, asking the U.S. Supreme Court to review the decision. CLS argued that California’s courts and legislature had a history of ignoring the preemptive effect of the Federal Arbitration Act.

The U.S. Supreme Court’s decision to decline CLS’s petition is expected to increase the number of representative claims under PAGA and to incentivize defendants to remove such actions to federal courts. Law 360 quoted Nicholas Woodfield, Principal and General Counsel of The Employment Law Group, P.C., in a story about the implications of the Iskanian ruling:

Several federal district courts recently have refused to apply Iskanian, instead requiring the employees to arbitrate their PAGA claims, . . . As such, it is almost certain that we will see more employers trying to remove PAGA cases to federal court, as the federal courts are not bound by the California Supreme Court’s decision.

Illustrating this point, on October 17, 2014, the U.S. District Court for the Central District of California granted a defendant’s motion to compel arbitration in Langston v. 20/20 Cos. Inc., holding that the FAA preempts California’s rule against arbitration agreements in which the right to bring representative PAGA claims is waived.

However, in March 2014, the U.S. Court of Appeals for the Ninth Circuit determined that Chase Investment Services Corporation could not remove a PAGA suit to federal court. In Bauman v. Chase Investment Services Corp., the Ninth Circuit concluded that PAGA actions are not similar enough to class actions under Rule 23 of the Federal Rules of Civil Procedure to warrant removal from state court.

The California Supreme Court, on the same day it decided Iskanian, also held in Bridgestone Retail Operations LLC v. Milton Brown that representative claims under PAGA cannot be waived. Bridgestone has petitioned for certiorari as well, although the chances of the Court granting that petition now appear slim.

The state Supreme Court found that employees bringing representative claims against their employers are actually bringing those claims on behalf of the state, rather than the employees themselves. Therefore, the court found that the arbitration agreements signed by the employees did not preempt state law.

Florida Court Says Facebook Posts May Not Be Private

February 28, 2015

Social media may be part of your lawsuit.

On January 7, 2015, a three judge panel sitting on Florida’s Fourth District Court of Appeals ruled that a plaintiff had to produce photos she had posted on Facebook. The court granted Defendant Target Corporation’s request to compel Plaintiff Maria Nucci to produce the photos.

Prior to this decision, Florida trial courts were split as to whether information posted on social media sites is discoverable in a lawsuit.

When Target moved to compel Nucci to produce photos from her Facebook page, Nucci argued that, as a Facebook user, she had a reasonable expectation of privacy. Nucci cited the fact that Facebook generally prevents the public from accessing her page without her permission.

Rejecting Nucci’s argument, the Florida Court held that Facebook users have only very limited privacy rights. The court noted that Facebook requires users to acknowledge their limited rights when they sign up for the site. The court then held that photos depicting Nucci’s quality of life before and after an accident at a Target store were highly relevant to the lawsuit—and discoverable.

It remains to be seen how other Florida courts will follow and apply the decision by the Florida Fourth District Court of Appeals.

DC Court of Appeals Upholds $300,000 Award to DC Employee Harassed for Giving Truthful Testimony

February 26, 2015

On January 16, 2015, the U.S. Court of Appeals for the District of Columbia Circuit held in Williams v. Johnson that the District of Columbia Whistleblower Protection Act (DCWPA) protects employees who cooperate in good faith in an investigation. In April 2005, Christina Williams was tasked by her employer, the D.C. Department of Health, Addiction Prevention and Recovery Administration (APRA), with overseeing the implementation of ACIS, a new client information system. Williams was later required to testify before the D.C. Council regarding the implementation. Williams testified that the program was not useful and that its rollout was behind schedule. Williams’s testimony contradicted more optimistic testimony given by her supervisors.

The supervisors harassed Williams after her testimony. Williams sued under the DCWPA and eventually resigned her position with APRA. At trial, a jury determined that Williams’s testimony warranted protection under the DCWPA and awarded her $300,000.

On appeal by APRA, the D.C. Court of Appeals affirmed the jury’s verdict. The Court of Appeals held that a reasonable jury could view the statements Williams made in her testimony as disclosing an abuse of authority or a violation of law and thus warranting protection under the DCWPA. The Court noted that Williams testified truthfully, knowing that her statements conflicted with what her supervisors wanted her to say.

SEC’s FY 2016 Budget Request Lauds Whistleblower Program and Predicts Its Growth

February 26, 2015

In its recent FY 2016 Budget Request, the Securities and Exchange Commission touted the success of its Whistleblower Program and proposed increased funding for the program to help with an increased workload caused by a surge in whistleblower tips. The SEC’s Enforcement Division, in the 2016 Budget Request, revealed that it had received approximately 3,600 tips in FY 2014 through the Whistleblower Program, the largest number of tips ever received by the SEC. The SEC also reported in its request that it had granted the largest number of rewards in its history to whistleblowers in 2014.

Under the SEC’s Whistleblower Program, a whistleblower may receive a reward of between 10 and 30 percent of penalties collected by the SEC if the whistleblower provides information leading to a penalty of $1,000,000 or more. In fact, in September 2014, the SEC announced a reward of more than $30 million to a whistleblower.

The Budget Request praises the effectiveness of the program, stating, “Whistleblowers can often provide high-quality information that allows the Division to more quickly and efficiently detect and investigate alleged violations of the law.” The Request predicts that the surge in rewards, including the September 2014 reward of more than $30 million, will spur more tips and ultimately allow the Enforcement Division to “bring enforcement actions against violators where it would otherwise have not had sufficient information to do so.” The SEC proposes increased funding to hire more staff to handle the increased workload.

The Request demonstrates the success of the Program in protecting investors by ensuring a fair marketplace. It also shows the tangible impact that encouraging whistleblower activity has had in advancing the SEC’s mission. Finally, the Request’s proposal for additional funding, if approved, will allow the SEC’s Whistleblower Program to investigate more tips and prosecute wrongdoing more quickly and efficiently, and to reward more whistleblowers for providing important information to the government.

Fourth Circuit Holds that Disclosure to the Government is Not a “Public Disclosure” and Reinstates Long-Running Qui Tam Case

February 26, 2015

The United States Court of Appeals for the Fourth Circuit recently held that a disclosure outside of the government is required to trigger the False Claims Act’s public disclosure bar. The FCA’s public disclosure bar requires courts to dismiss a qui tam action if the action is based on information already made public, unless the relator bringing the action was the original source of the information.

In United States ex rel. Wilson v. Graham County Soil & Water Conservation Dist., Relator Karen Wilson alleged fraud in a federally-funded storm cleanup program in North Carolina. After discovering the fraud, Wilson wrote a letter to a government official disclosing her concerns. A few months later, a government agency prepared an audit report that included the information disclosed by Wilson. The report was distributed to other state and federal law agencies. Wilson’s case survived two trips to the Supreme Court and was most recently dismissed in district court for lack of jurisdiction based on the public disclosure bar.

The district court relied on a Seventh Circuit case to dismiss Wilson’s complaint, holding that disclosure to a public official is sufficient to trigger the bar, absent a disclosure to the public at large. In its February 3, 2015 decision, the Fourth Circuit rejected the Seven Circuit’s approach and, falling in line with five other circuits, reasoned that Congress did not intend public disclosure to extend to disclosure to the government.

Maryland Attorney General Urges Adoption of Expanded State False Claims Act

February 23, 2015

On February 5, 2015, Maryland proposed a new, expanded state False Claims Act that would better allow Maryland to deter and recover damages for fraud against the state. Maryland Attorney General Brian Frosh urged adoption of the Act, which would expand Maryland’s current limited version that only applies to Medicaid and health-care related fraud.

Under the proposed False Claims Act, Maryland may receive triple the damages for its losses, while the whistleblower who initiates the claim is allowed to receive a portion of the state’s recovery and is also protected against retaliation in the work place. The state’s current version of the Act has allowed it to recover $28 million a year in each of the past two years from Medicaid-related cases alone. Adopting the proposed expansion will allow Maryland to achieve greater success in deterring fraud and recovering funds, much like the federal government.

Under the federal False Claims Act, the federal government recouped nearly $5 billion in 2012. To incentivize states to adopt laws more closely mirroring the federal False Claims Act, the federal government, under the Deficit Reduction Act of 2005, allows states to collect an additional 10% of federal Medicaid funds recovered through a state action.

$25 Million Settlement Shows DOJ Focus on Home HealthCare Fraud

February 19, 2015

CareAll Management, a home healthcare provider based in Nashville, Tennessee, recently agreed to pay $25 million to settle charges that it violated the False Claims Act by submitting false and “upcoded” billings to Medicare and Medicaid. The settlement resolves a suit filed in the U.S. District Court for the Middle District of Tennessee. The suit alleged that CareAll overstated the severity of patients’ conditions to increase billings (upcoding) and billed for services that were not medically necessary and were rendered to patients who were not homebound. CareAll is one of the largest home healthcare providers in Tennessee.

As part of the settlement, the relator, Toney Gonzales, will receive more than $3.9 million as his share of the total recovery. Gonzales brought the lawsuit against CareAll under the qui tam provisions of the False Claims Act, which allows private citizens to sue on behalf of the United States for fraudulent uses of federal funds (including Medicare and Medicaid) and to share in any recovery.

The CareAll settlement illustrates efforts by the Department of Justice (DOJ) to make home healthcare fraud a bigger enforcement priority. In many cases, the government is criminally prosecuting the individuals responsible for the fraud in addition to the corporate entity. In the same week that it announced the CareAll settlement, DOJ reached multi-million dollar settlements involving three other home healthcare fraud schemes. These settlements mark the success of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, a partnership between the Attorney General and the Secretary of Health and Human Services to increase efforts to prevent Medicare and Medicaid fraud.