Archive for the ‘Federal False Claims Act’ Category

Information on the Internet is not Necessarily a Public Disclosure

Thursday, August 8th, 2019

On July 16, 2019, a district court in California found that not all information that is posted on the internet is considered a public disclosure by the “news media.” United States ex rel. Integra Med Analytics Llc v. Providence Health & Servs., No. CV 17-1694 PSG (SSx), 2019 U.S. Dist. LEXIS 125352 (C.D. Cal. July 16, 2019). Judge Phillip S. Gutierrez analyzed the text of news media public disclosure bar and declined to follow the trend of cases applying the news media public disclosure bar to all documents posted on the internet.

The Relator, Integra Med Analytics LLC, filed a qui tam lawsuit against Defendants Providence Health and Services, seven of its affiliated hospitals (collectively the “hospital defendants”) and Defendant J.A. Thomas and Associates, Inc. (JATA) alleging that the hospital defendants and JATA worked together to train doctors to describe medical conditions so that the hospital defendants could increase the acuity level and receive higher reimbursements from Medicare in violation of the False Claims Act (“FCA”). [1] The Relator was not an insider and had no “first-hand knowledge” of its allegations. Instead the Relator based the claims on CMS claims data and “information it gathered about JATA’s business practices.” Id. at *4-5.

The Defendants moved to dismiss the case based primarily on the public disclosure bar, as well as failure to adequately allege all elements of an FCA claim, failure to adequately plead a reverse FCA claim, failure to adequately plead FCA conspiracy, and failure to adequately plead an FCA violation based on the Anti-Kickback Statute (“AKS”).  Judge Gutierrez granted the Defendants motion to dismiss the claims that were based on the public disclosure of CMS Claims Data and denied the remaining Defendants’ motions.

Defendants Position

The Defendants asked to court to adopt the position that “information publicly available on the Internet generally qualifies as news media.” Id. at *31 (quoting United States ex rel. Hong v. Newport Sensors, Inc., No. SACV13-1164 JLS (JPRx), 2016 WL 8928246, at *5 (C.D. Cal. May 19, 2016) (Hong I). For this position the defendants stated since ninety-three percent of Americans get their news online, according to a poll by VOX, all information on the internet must qualify as news media. The defendants argue that Congress implicitly ratified previous holdings that all information on the internet was news media because Congress did not change the language of news media section while they amended the public disclosure bar in 2010. Judge Gutierrez did not find these arguments persuasive and noted that the Ninth Circuit had explicitly not adopted the “broad holding that most public webpages … generally fall within the category of news media.” United States ex rel. Hong v. Newport Sensors, Inc., 728 F’App’x 660, 662-663 (9th Cir. 2018) (Hong II).

Courts Position

In denying the defendants motion for claims based on JATA’s business practice information, Judge Gutierrez reviewed the plain text of the FCA statute as well the Supreme Court Case Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401 (2011). A claim is barred if “substantially the same allegations or transactions, as alleged in the action or claim were publicly disclosed… from the news media.” 31 U.S.C. § 3730(e)(4)(A)(iii). The bar does not capture all information that is public but applies to “some methods of public disclosure and not others.” Schindler Elevator, 563 U.S. at 414. 

In deciding that everything posted on the internet is not subject to the public disclosure, Judge Gutierrez defined news media as methods of communication used to transmit information. Judge Gutierrez then used common sense to contrast a restaurant’s menu or a doctor’s website posting next available appointment, with intent to transmit information.

Having found that not everything on the internet is news media for the purpose of the public disclosure bar, Judge Gutierrez did not specifically address whether “proprietary and confidential” information posted only on “internal staff homepages” or internal newsletters, were news media. However, he did state that those facts “could be relevant to whether the sources at issue were ‘news media’ sources within the meaning of the FCA.”  


A Relator’s personal information is always the most important thing that they bring to the case. It is often the difference between a successful and an unsuccessful qui tam action. This holding potentially broadens the categories of information upon which a successful qui tam action can be based.

[1] Of note, The Relator recently had similar claims based on CMS Data dismissed with prejudice for failure to state a claim in the Western District of Texas. U.S. ex rel. Integra Med Analytics, LLC v. Baylor Scott & White Health et al., No. 5:17-cv-00886-DAE (W.D. Tex. August 5, 2019).

Whistleblowing: Dutch Style

Friday, June 14th, 2019

What Happened

On July 1, 2016, the Dutch Whistleblowers Act (Wet Huis voor klokkenluiders, “Whistleblowers Act”) came  into effect, requiring all employers in the Netherlands with 50 employees or more to implement internal reporting procedures and ban retaliatory acts against employees who report wrongdoing.  The Act also created an external administrative entity to assist whistleblowers, the House for Whistleblowers (“House”). The House performs both advisory and investigative functions.

What Did NOT Happen

Like other whistleblower laws in Europe, the law in the Netherlands did not create a mechanism for the whistleblower to commence an action on behalf of the government, or provide any award as an incentive for whistleblowers to come forward.

The Background

Before the July 2016 implementation of the Act, all whistleblower reports were handled by the Advice Center for Whistleblowers in the Netherlands. However, at the time, there was no specific legislation dedicated to whistleblowing.

The Motivation

As we have noted in separate blogs related to whistleblower laws in France, Canada, and Germany, a lack of uniform and meaningful whistleblower legislation leads to a shortage of whistleblowers. The lack of reporting motivated the Dutch Parliament to enact the Dutch Whistleblowers Act. The Act created the House for Whistleblowers that includes departments for Advice, Investigation, and Research and Prevention. Despite the enthusiasm and optimism in the Dutch Parliament for the Whistleblowers Act, the progress for moving reports through the House was slow. In 2017 and 2018, changes in the House leadership, increases in staffing, and new processes were aimed at streamlining whistleblower reporting.

Who Can Be A Whistleblower in the Netherlands?

Whistleblowers are broadly defined under the Whistleblowers Act as individuals in an employment relationship with a Dutch organization who report wrongdoing related to a public interest. Whistleblowers can be current employees, former employees, trainees, or volunteers. The wrongdoing must relate to non-compliance with legislation, risk to public health, danger to public safety, environmental hazards, or risk to a governmental organization. To receive protection under the Act, whistleblowers must have a reasonable suspicion of wrongdoing. A reasonable suspicion requires the whistleblowers to personally observe the wrongdoing, not base their reports on secondhand knowledge or rumors.

What Protections Can a Whistleblower Receive?

The Whistleblowers Act amended a number of Dutch laws (the Civil Code, the Central and Local Government Personnel Act, the Police Act of 2012, the Military Personnel Act of 1931, and the Works Councils Act) to protect whistleblowers in the public sector and the private sector from retaliation. Under the Act, whistleblowers may not be disadvantaged in any way for good faith reporting of suspected wrongdoing. “Disadvantages” include, but are not limited to: bullying; demotion; refusing a promotion; transfer; or dismissal. The Act also provides psychological and social support to whistleblowers (although more guidance is expected on this provision this year).

How to Blow the Whistle in the Netherlands

In the Netherlands, employees must first report wrongdoing internally to their employer. If the employer fails to address the reported concerns, the employees must then report to an external supervisor. If the external supervisor does not adequately address the report, the employees may submit a request for investigation to the Investigation Department of the House for Whistleblowers. This request for investigation may be submitted electronically on the House for Whistleblowers’ website or through the mail.

Even though it is not mandatory, the House for Whistleblowers encourages potential whistleblowers to contact the Advice Department of the House before submitting a request for investigation. The Advice Department advises and counsels whistleblowers regarding the reporting process, follow-up steps whistleblowers should take, and risks associated with blowing the whistle.

The Take Away

The Dutch Whistleblowers Act is a good first step toward a whistleblower program, but leaves much to be desired. While the Act prohibits retaliation against whistleblowers, it does not establish penalties for employers who retaliate. The Act requires employers to set up internal reporting procedures, but does not include consequences for employers who fail to do so. The Whistleblowers Act alludes to psychological support for whistleblowers, but does not provide details or procedures for implementing them. Critically, the Whistleblowers Act does not include a financial award to Dutch whistleblowers, in spite of the recognition by the House for Whistleblowers that financial hardships associated with blowing the whistle often prevent whistleblowers from following through with the reporting process. Without such incentives it is unlikely that the Act will have its intended impact.

Why the European Union Whistleblower Laws Are All Doomed To Fail

Monday, June 3rd, 2019

As seen on the EU blog,

Member States of the European Union, over the last several years, have passed a series of so-called “Whistleblower Laws.”  These laws are being implemented allegedly to bolster anti-corruption efforts throughout Europe.  While corruption is no stranger to either side of the Atlantic, the European Union would advance their fraud fighting efforts exponentially by taking a focused look at the highly successful American False Claims Act.

France, Ireland, Italy, Greece, Germany, Netherlands, Sweden, Hungary, Lithuania, Malta, Slovakia, the United Kingdom, as well as others, have passed or amended some type of a putative whistleblower law.  Here is the issue.  None of these whistleblower statutes, in our opinion, contain the basic tenents of a strong and effective whistleblower program.  The development of the whistleblower statutes within the United States of America illustrates the bedrock elements of an effective and successful whistleblower law.

In 1986, the U.S. Congress amended the existing whistleblower statute, the False Claims Act, which was passed during the American Civil War by President Abraham Lincoln.  The 1986 Amendments to the False Claims Act included provisions that finally gave the law real fraud combatting teeth. Examining these 1986 Amendments (and even more recent Amendments) illustrates the changes needed in the European Union member States’ whistleblowing statutes.  Without such robust amendments the European Union laws will never have a real and palpable impact on fraud, waste and abuse.

The American statute, known as federal False Claims Act, or the Qui Tam Law, has at its heart the following key provisions:

  • The United States has what is known as a “qui tam[4] or whistleblower provision.
  • A whistleblower who comes forward and meets the statutory requirements is authorized by the statute to bring an action on behalf of the government and is entitled to receive a set amount of any settlement or judgment the government receives from the defendant from 15% to 30%. This strong financial incentive has, singlehandedly, made the American statute the most successful fraud, waste and abuse statute in the world.  Of this fact there is no debate.
  • The United States’ Congress has provided strong protections against professional retaliation against whistleblowers. In contrast, the European statutes contain weak non-existent or watered down versions of this protection.  In fact, some of the European laws actually put the whistleblower at risk if he or she is incorrect in their allegations. 
  • The American whistleblower statute attracts skilled lawyers who take these cases on a contingent-fee basis, award legal fees and costs to whistleblowers and their counsel, if they prevail in their claims against a defendant.
  • The American statute provides government attorneys with muscular investigative powers. For example, while the case is under seal, the government can issue document requests, written interrogatories, take depositions of key individuals, etc.  These broad investigative tools are lacking in most of the current European statutes.
  • As a result of the key amendments in 1986, the American whistleblower statute has returned more than $62 billion to the U.S. Treasury. No other whistleblower law in Europe (or anywhere) has had such success.

The European legislative bodies still do appear to be committed (culturally or legally) to the type of whistleblowing legislation that will not make a real difference for their respective countries.  Here are some of the reasons why the statutes in Europe shall continue to be as ineffective as the pre-1986 American Whistleblower Law:

  • The European statutes do not truly embrace the concept that whistleblowers need to be encouraged to come forward to expose corruption inside large, well regarded institutions. The majority of the European laws do not contain any financial reward for successful whistleblowers.  Most importantly, none of the European statutes have a strong financial reward that would balance the risks against the rewards.  The European laws seem to go through the motions of supporting, yet not incentivizing, whistleblowers.
  • There is no clear and distinct prosecutorial entity in charge of effectively enforcing the individual European statutes.
  • Many of the European statutes lack strong protections for whistleblowers who come forward and risk their careers and livelihood. While there is a lot of “lip service,” there is no economic insurance that they will be protected.

While Americans and Europeans have shared and adopted approaches to governance over the centuries, their differences in efforts to curtail fraud, waste and abuse through whistleblower statutes is considerable.  Europe need look no further than its young sister state across the Atlantic for lessons that may be worth billions of dollars in recoveries.

Supreme Court Delivers Important Victory for Qui Tam Whistleblowers

Wednesday, May 15th, 2019

On May 13, 2019, the Supreme Court of the United States, in a unanimous decision, delivered an important victory for qui tam whistleblowers.  United States ex rel. Hunt v. Cochise Consultancy, Inc., No. 18-315 (decided May 13, 2019) (referred to as “Hunt”). The decision, authored by Justice Clarence Thomas, held that private qui tam whistleblowers are entitled to the extended statute of limitations period in the federal False Claims Act (“FCA”) that many federal courts had previously reserved  only for FCA lawsuits filed by the government.  This decision is important because: (1) it affords whistleblowers the same amount of time as the government to file a claim against those who defraud taxpayer-funded programs; and (2) it resolves a split in the lower federal courts as to how to interpret the statute of limitations provisions in the FCA.

            The Supreme Court’s decision resolves the application of the FCA’s statute of limitations provisions, which provide:

“(b) A civil action under section 3730 may not be brought— “(1) more than 6 years after the date on which the violation of section 3729 is committed, or “(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, “whichever occurs last.” 

31 U.S.C. §3731(b).

            While federal courts have unanimously applied the 6-year statute of limitations to qui tam lawsuits, there was a split between lower federal courts as to whether section 3731(b)(2)’s 3-year limitations period also applied to qui tam lawsuits.  In its decision, the Supreme Court unanimously held that it does.

            Justice Thomas, writing for the Court, held that “both Government-initiated suits under §3730(a) and relator initiated suits under §3730(b) are “civil action[s] under section 3730.  Thus, the plain text of the statute makes the two [statute of] limitations periods applicable to both types of cases.”  Hunt Opinion, p.5. 

            The Supreme Court also made clear that when applying the 3-year limitations period in section 3731(b)(2) the relator’s knowledge of the fraud does not start the clock on the statute of limitations because private relators are not “responsible official[s] of the United States charged with responsibility to act.”  Hunt Opinion, p.8-9.  This decision is important because whistleblowers, many of whom are employees working for the defendant, might gain knowledge of the fraud long before “the responsible government official.”  The Supreme Court’s decision makes clear that the statute of limitations clock under Section 3731(b)(2) of the FCA does not begin to run as a result of the private whistleblower’s knowledge of the fraud.

            This decision will ensure that whistleblowers who file FCA lawsuits across the United States have the full benefit of the extended statute of limitations period in Section 3731(b)(2).  This will allow all whistleblowers more time to file their lawsuits and will ultimately enhance the effectiveness of the FCA’s qui tam provisions in combatting fraud, waste, and abuse in government-funded programs, like healthcare and national defense.

            On a related note, the Supreme Court’s decision appeared to signal a resolution of another, unrelated challenge to the FCA’s qui tam whistleblower provisions.  In United States ex rel. Polukoff v. Intermountain Health Care, Inc., No 18-911, the defendant had filed a petition for certiorari to the Supreme Court arguing that the qui tam whistleblower provisions in the FCA were unconstitutional as they violated the “Appointments Clause” in Article II of the Constitution.  The “Appointments Clause” specifies the permissible means of appointing “Officers of the United States” to public offices “established by Law.” U.S. Const. Art. II, § 2, Cl. 2.  Intermountain argued in its petition that the FCA’s qui tam provisions improperly appointed private citizens as “Officials of the United States.”  While similar challenges had previously been rejected by numerous federal courts, this case caught the eye of many when the Supreme Court ordered the whistleblower and the United States to file a response to Intermountain’ s petition.  Many observers questioned whether the Supreme Court was signaling its interest in taking up this constitutional challenge to the FCA’s qui tam provisions. 

While the Supreme Court’s decision in Hunt does not specifically reject the arguments made by Intermountain, Justice Thomas clearly stated that “a private relator is not an ‘official of the United States’ in the ordinary sense of the phrase.  A relator is neither appointed as an officer of the United States [] nor employed by the United States.  Indeed, the provision that authorizes qui tam suits is entitled ‘Actions by Private Persons.”  Hunt Opinion, p.8-9.  This portion of the Hunt decision appears to flatly reject Intermountain’ s challenge that the qui tam provisions violates the Constitution’s “Appointments Clause.”  However, the Supreme Court may not get to rule directly on Intermountain’ s petition.  On April 29, 2019, Intermountain requested that the Supreme Court defer its petition because it has reached a settlement in principle of the underlying FCA lawsuit, and its petition may become moot.

Thus, the Supreme Court’s unanimous decision in Hunt delivers two important victories for qui tam whistleblowers under the federal False Claims Act.

European Union-Wide Whistleblower Protection: A Growing Trend?

Monday, April 29th, 2019

What Happened

On April 16, 2019, the European Parliament made history with the approval of the European Union (EU) Whistleblower Directive (“Directive”) that provides universal whistleblower protections for all potential “reporting persons” located within member states of the EU. These protections apply whether or not the reporting person is a citizen of an EU member.

The Background

Prior to this Directive, individual EU member states were charged with enacting whistleblowing laws and related procedures. Of the 28 EU member states, less than half (only 10) had implemented statutes that offered whistleblowers any protection from retaliation. Without a comprehensive system of whistleblower protections, violations of EU laws or violations within EU member states would go unreported because potential reporting persons feared retaliation.

The Motivation

In 2017, the European Commission estimated the loss of potential benefits in public procurement at the UE level to be €5.8 to €9.6 billion each year. This massive loss of potential EU funds coupled with threats to public safety, the environment, banking, and a desire for transparency led to a public outcry for uniform whistleblower protections. Ultimately, in 2019, the European Parliament was motivated to approve the EU Whistleblower Directive.

Who Can Be A Whistleblower in the European Union?

A “reporting person” may be anyone in contact with the target entity through work-related activities. The idea of “work” is broadly defined to include trainees, past and present employees, shareholders, consultants, suppliers, distributors, contractors, and volunteers whether associated with private or public entities.

To receive protection, the whistleblower must report a breach of the following areas of law: public procurement, financial services, financial interests, internal market, prevention of money laundering and terrorist financing, product safety, transport safety, environmental protection, radiation protection and nuclear safety, food safety, animal health and welfare, public health, consumer protection, protection of privacy, personal data, and network security. The whistleblower must also have reasonable grounds to believe the reported breach was true at the time of the report and make the report in accordance with the Directive.

What Protections Can a Whistleblower Receive?

Under the Directive, a whistleblower is protected from retaliation of any kind including, but not limited to, demotion, discharge, or industry blacklisting. There is a presumption of retaliation if the whistleblower can prove that he or she engaged in a protected activity and suffered a detriment as a result. If retaliation is found to have occurred, the whistleblower is to be compensated in full, including: lost wages; future loss of income; and/or restoration of the whistleblower’s employment position. The whistleblower is also eligible for damages such as attorney fees, medical expenses, and pain and suffering.

The whistleblower is also protected from civil and criminal liability for claims regarding unlawfully obtained evidence, defamation, breach of contract, breach of copyright, breach of secrecy, breach of data protection rules, and disclosure of trade secrets if the whistleblower had reasonable grounds to believe that the disclosure of this information was necessary to reveal a breach under the Directive. Of note, member states may create additional protections to supplement the Directive.

How to Blow the Whistle

Pursuant to the Directive, member states (public entities) must establish external reporting channels. Private entities must establish both internal and external reporting channels. These  external and internal reporting channels must be independent and autonomous, must ensure the anonymity of the whistleblower, and be capable of receiving written and oral reports. Once the whistleblower reports a breach of the underlying standard through the appropriate reporting channel, they must receive feedback within 3 months. After that time, the whistleblower may publicly disclose the breach. In addition, a whistleblower may bypass the internal or external reporting channels altogether and make a public disclosure if the breach constitutes an imminent danger to the public interest or if there is a low probability that the reported breach will be addressed internally.

The Take Away

Even though the EU Whistleblower Directive provides broad protections for whistleblowers, it does not include a monetary award or bounty for the reporting person. While this step of providing protection against retaliation is laudable and may be enough to encourage whistleblowers in the 18 EU member states that did have previous protections in place, it may have little effect on reducing or curbing violations of laws in the 10 member states that already offered whistleblowers protection from retaliation. It has been shown that whistleblower statutes that reward the reporting person by providing a bounty actually incentivizes individuals with important information to come forward. As the EU Whistleblower Directive notes, the stakes for the reporting person are quite high. Member states have two years to implement the minimum protections provided in the Directive. It will be interesting to observe if any of the member states add their own whistleblower award, and if universal protection is enough to spur the rate of whistleblowing in the EU. There are other statutes which do afford a bounty for fraud occurring within the EU which impacts non-EU entities. For example, in the United States, the False Claims Act, the SEC Whistleblower Protection Program, and the IRS Whistleblower Program are set up to provide both protection against retaliation and a bounty for whistleblowers whose information results in a recovery.

Eastern District of Pennsylvania Court Joins the Ninth and Tenth Circuits in Applying the Rational Basis Test to Governmental Dismissals of Qui Tam Cases

Wednesday, April 10th, 2019

On April 3, 2019, in U.S. v. EMD Serono, Inc., CV 16-5594, 2019 WL 1468934 (E.D. Pa. Apr. 3, 2019), District Judge Timothy J. Savage of the Eastern District of Pennsylvania addressed a matter of first impression within the Third Circuit: what standard (if any) governs the government’s ability to dismiss a qui tam case over the objection of relators. 

The underlying case involved allegations that Pfizer and related healthcare companies had engaged in so-called “white coat marketing” and provide free educational and support services to boost prescriptions for a multiple sclerosis drug from physicians who availed themselves of such services. Id. Relators claimed that this amounted to illegal remuneration in violation of the Anti-Kickback Statute. Id. The government spent over 18 months investigating the case but declined to intervene finding that the alleged remuneration provided to physicians was not illegal remuneration under the AKS but legitimate (and legal) educational services. Id. Not only that, the government moved to dismiss the case, pursuant to 31 U.S.C. § 3730(c)(2)(A), on the basis that monitoring the non-intervened case would be, in effect, a waste of government resources. Id. Relators opposed the government, claiming that the case had merit and the potential to yield a sizeable recovery. Id. at *4.

The Government’s View

The government claimed that its discretion to seek dismissal of a qui tam action is unfettered, which the District of Columbia Circuit had found to be the case in Swift v. U.S., 318 F.3d 250, 252 (D.C. Cir. 2003). However, Judge Savage recognize that a circuit split existed with the Ninth and Tenth Circuits holding that the government must show that a rational relationship exists between the decision to seek dismissal and a legitimate government interest. U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139(9th Cir. 1998); Ridenour v. Kaiser-Hill Co., L.L.C., 397 F.3d 925 (10th Cir. 2005). If the government meets that burden then the relator must show “that [the] dismissal is fraudulent, arbitrary and capricious, or illegal.”  Sequoia, at 1145.

The Court’s View

Judge Savage sided with the Ninth and Tenth Circuits recognizing, inter alia, that the False Claims Act provides for a hearing when the government seeks dismissal over a relator’s objection and that, if the government’s discretion were unfettered, then the hearing would be a “nullity.” Id., at *3. If a hearing is to take place with the judge playing a role, then there must be some standard for the judge to apply. Judge Savage found that the rational basis standard was apt and “strikes a balance among the branches of government. It does not give unlimited power to the Executive to dismiss a legitimate action the Legislature created. Nor does it give the Judicial Branch unrestrained power to stop the Executive from acting to dismiss an action in the government’s interest.” Id. at *4. In essence, the rational basis test “acts as a check against the Executive from absolving a fraudster on a whim or for some illegitimate reason. It prevents the Executive from abusing power.” Id.

The Court then moved to the facts at hand. The Court found that the government’s interest in not expending resources on a case that it found lacked merit was rationally related to the government’s interest in conserving litigation resources and effectuating policy goals (i.e., supporting bona fide pharmaceutical education programs). Id. The Relators, on the other hand, failed to meet their burden. Relators argued that the case had merit, the potential for a significant recovery, the government had not performed a sufficient investigation, and that the government was (they claimed) irrationally opposed to one of the relators (an investment-backed LLC, as opposed to an individual whistleblower). *4-5. Judge Savage found the Relators’ arguments unavailing, noting that the government had diligently investigated the matter, showed no animus toward the LLC Relator, and that the dispute essentially came down to one of conflicting judgments between the Relators and the government over the merits of the underling case. Id. at *5.


While EMD Serono provides relators facing a governmental dismissal motion with some judicial recourse and a check against abuses of executive power, the rational basis standard is an easy one to meet. Absent some truly arbitrary action or one that is otherwise likely to shock the court’s conscience, relators will continue to face an uphill battle in contesting dismissal motions under § 3730(c)(2)(A). 

Ontario’s First Whistleblower Award of $7.5 Million

Monday, March 18th, 2019

As discussed in a previous posting, the Ontario Securities Commission (OSC) implemented its whistleblowing program in July 2016 and became the first Canadian Province to include a controversial monetary award for whistleblowers. On February 27, 2019, the OSC made history yet again when it announced its first whistleblower award of $7.5 million. Outside of the United States few countries have adopted monetary awards for whistleblowers. While the OSC has said that protecting whistleblowers is of the utmost importance to the OSC, little information has been revealed regarding this unprecedented award. The only information that has been confirmed is that the $7.5 million award is to be split among three whistleblowers for three separate matters regarding Ontario Securities violations. The names of the whistleblowers and the companies remain confidential.

While some Canadians were concerned about the inclusion of a financial incentive for blowing the whistle, it has proven to be a successful provision in routing out wrongdoing in Ontario. Maureen Jensen, the OSC’s Chief Executive Officer and Chairperson, confirmed that the whistleblowing program is a “game-changer for the OSC’s enforcement efforts.” Jeff Kehoe, the OSC’s Director of Enforcement, also commented “Whistleblowers expose complex securities misconduct that may not otherwise come to light, allowing us to take timely action. We hope this announcement, alongside our substantive whistleblower protections, will encourage more whistleblowers to come forward.”

The Irish Paradox: A Tale of Two Whistleblower Laws

Wednesday, February 13th, 2019


What Happened in Ireland

On July 15, 2014, Ireland’s Protected Disclosures Act (PDA) came into effect. The PDA established whistleblower protections for both the public and private sectors for the first time in modern Irish legislative history.

The Background

The Republic of Ireland has less than 5 million people. It is roughly the size of West Virginia. It is a beautiful country with miles of rolling emerald green pastures, sheep, and cattle. Conversely, due to favorable tax treatment, it is home to some of the largest American companies in the world. Johnson & Johnson, Roche, Pfizer, Novartis, Merck Sharp & Dohme, Amgen, Sanofi Waterford, AbbVie, GlaxoSmithKline, Bayer, Eli Lilly and Company, Gilead Sciences, Bristol-Myers Squibb, Allergan, AstraZeneca, Abbott Laboratories, Novo Nordisk, Biogen, Shire Pharmaceuticals, Stryker Corporation, Regeneron Pharmaceuticals, Teva Pharmaceuticals, Baxter International, and Alexion Pharmaceuticals all call the Republic of Ireland home.

The Motivation

Over the past decade, American companies have been flocking to Ireland to take advantage of Ireland’s extremely favorable tax laws. This brings Ireland in contact with behemoth American companies and large American work forces. However, all is not idyllic in the Irish countryside for businesses that may not be compliant with the law. Accordingly, employees of companies based in Ireland have the option to blow the whistle under the United States’ False Claims Act (FCA) or Ireland’s Protected Disclosures Act (PDA). Few countries have this option.

Who Can Be A Whistleblower In the Republic of Ireland?

Under the PDA, a whistleblower is defined as a worker who makes a protected disclosure in the public interest to the appropriate party. A worker may be a present or former employee, trainee, or independent contractor. A disclosure is considered protected if it concerns a criminal offense, breach of a legal obligation, miscarriage of justice, misuse of public funds or mismanaged acts by a public body, danger to public health and safety, damage to the environment, or the concealment of information regarding any of the previous actions. The worker must reasonably believe that their employer is committing a wrongdoing to be afforded protection under the PDA.

What Protections Can A Whistleblower Receive?

The whistleblower receives the protection of anonymity as well as the protection against adverse employment actions and unfair dismissal under the PDA. The worker may commence a civil action for suffering a detriment or unfair dismissal under the Unfair Dismissals Act of 1977. The whistleblower also receives immunity from civil liability for blowing the whistle, except for defamation actions under the Defamation Act of 2009. The worker may be liable for the unlawful disclosure of a trade secret pursuant to the European Union’s Protection of Trade Secrets Regulations unless the worker can prove that the disclosure was made to protect the general public’s interest. Of note, the PDA does not set forth a monetary award or compensation of attorney fees for blowing the whistle. The American Federal False Claims Act has all these protections and many more.

How One Blows The Whistle In Ireland

Under the PDA, a disclosure will only be considered protected if it is made to the whistleblower’s employer, a prescribed person set forth in the PDA, or a legal adviser. Of note, if the disclosure is made to a party other than the worker’s employer, the whistleblower must believe that the allegation of wrongdoing contained in the disclosure is substantially true or suffer the consequences.

The Take Away

With the enormous presence of companies in the Republic of Ireland, it is surprising that Ireland didn’t model its whistleblower program after the American False Claims Act (FCA). The FCA does not require a disclosure be in the public interest, nor does it require the whistleblower to disclose the wrongdoing to its employer before filing a claim with the Department of Justice. Further, all FCA complaints are initially filed ex parte and under seal. This ensues the utmost protection for the whistleblower. If a whistleblower can prove that he has been retaliated against for blowing the whistle, the FCA provides that person with strong protections which are not available under the PDA. These protections include reinstatement of the whistleblower’s employment position, two times the amount of pack pay plus interest, and damages the whistleblower incurred as a result of the retaliation.

Most importantly, the FCA offers a financial award of 15 to 25% of the amount recovered by the government in cases where the government decides to intervene, and 25 to 30% in cases where the government declines to intervene. A successful whistleblower is also entitled to be paid legal fees and expenses by the opposing party.

Since the FCA does not require the whistleblower to live or work in the United States, it will be interesting to observe the number of employees from companies located in Ireland that bring claims under the FCA versus the PDA.

Fourth Circuit Adopts the “Objective Reasonableness” Standard for Protected Activity for Retaliation Claims

Tuesday, January 8th, 2019

The Fourth Circuit Court of Appeals recently ruled on a Relator’s appeal in United States ex rel. Grant v. United Airlines, Inc. and adopted the objective reasonableness standard for retaliation claims brought under 31 U.S.C. §3730(h). The Fourth Circuit joins the Seventh, Eighth, and Ninth Circuits in applying this standard to 3730(h) retaliation claims.

In the underlying case, Relator David Grant brought a qui tam action against his former employer, United Airlines, which was contracted to perform service and maintenance on the Boeing C-17 Globemaster military transport planes. Relator alleged that from 2008 to 2014, he observed that United would certify repairs that were not actually completed, that were done with improper tools, and that were done by technicians who were not properly trained.

The district court dismissed the Relator’s False Claims Act (FCA) claims for failure to state a claim under Rule 12(b)(6) and Rule 9(b) because the Complaint failed to sufficiently alleged that United ever presented, or caused to be presented a false claim for payment to the government.  Additionally, the lower court also dismissed the Relator’s 3730(h) retaliation claim on the basis that the Complaint did not allege that Grant engaged in the type of activity protected by the FCA.

Of interest, the Fourth Circuit Court of Appeals affirmed the dismissal of the FCA claims and reasoned that the Complaint did not plead Relator’s claims with the requisite particularity, specifically that he failed to show that the scheme necessarily led to the presentment of a claim to the government for payment. Notably, however, the appellate court found that the district court erred in dismissing Grant’s retaliation claim. The Court held that the Plaintiff sufficiently pleaded retaliation under section 3730(h).

Amendment to Section 3730(h) in 2010

Prior to 2009, “protected activity” was defined as measures taken in furtherance of an action under the FCA, but the statute has since been expanded. 31 U.S.C. §3730(h) was amended in 2010 to include a second, broader category of protected activity. Accordingly, 31 U.S.C. §3730(h) now defines two types of protected activity: (1) Acts in furtherance of an FCA action or (2) other efforts to stop one or more FCA violations. The type of activity at issue in this case was the latter. Specifically, the appellate court found that the “distinct possibility” standard (which is used to evaluate protected activity in furtherance of an FCA action) does not apply when evaluating the second type of protected activity. Instead, the court adopted the “objective reasonableness” standard for evaluating other efforts to stop FCA violations.

The “Objective Reasonableness” Standard

Under the objective reasonableness standard, an act constitutes protected activity where it is motivated by an objectively reasonable belief that the employer is violating, or soon will violate, the FCA. A belief is objectively reasonable when the plaintiff/relator alleges facts sufficient to show that he believed his employer was violating the FCA, that this belief was reasonable, that he took action based on that belief, and that his actions were designed to stop one or more violations of the FCA. The court noted that the plaintiff’s actions do not need to lead to a viable FCA action to establish protected activity.

In this case, the court found that it was (1) objectively reasonable for Grant to believe that United committed fraud and (2) his numerous verbal and written complaints, which were direct and specific in alleging the fraud, demonstrated action designed to stop one or more FCA violations. Accordingly, the court found that under the objective reasonableness standard, plaintiff sufficiently alleged that he was engaged in protected activity, United knew about the protected activity, and United terminated plaintiff because he engaged in the protected activity.

In adopting the objective reasonableness standard, the Fourth Circuit Court of Appeals made abundantly clear that retaliation claims can succeed with or without a viable FCA action intact.

Germany Whistleblowing Reform Law

Friday, January 4th, 2019

What Happened?

In July 2016, Germany amended the German Act on Financial Services Supervision (Finanzdienstleistungsaufsichtsgesetz – “FinDAG”) and created whistleblower protections for employees of all companies subject to the supervision of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”). BaFin, when formed in 2002, was one of the largest financial supervisory agencies in Europe. BaFin was created to supervise the banking, securities, and insurance sectors in Germany and ensures the stability of a European financial market. After major responsibility for banking oversight shifted to the European Central Bank in 2014, BaFin became more focused on its enforcement provisions. In 2016, it opened a new office dedicated to corporate whistleblowers in order to encourage business insiders to expose wrongdoing prohibited by the BaFin regulations and relevant European Union (“EU”) ordinances and directions.

The Background

Prior to the amended FinDAG, there was no German legislation expressly dedicated to whistleblower protection. Individuals had to piece together portions of other laws (the German Data Protection Act, the German Labor Protection Act, the German General Equal Treatment Act, and the German Works Constitution Act (“Four Acts”)) in an attempt to gain any protection under existing legislation. In theory, the Four Acts provided protection against unfair dismissal and discriminatory treatment. In reality, the Four Acts often left whistleblowers exposed to liability under labor and criminal laws.

The Motivation

The enactment of the German whistleblower protection law appears to be largely reactionary. In 2011, the European Court of Human Rights convicted Germany for restricting whistleblowers’ freedom of expression. This conviction, coupled with a rise in corruption and fraud, prompted the BaFin to reform its approach to whistleblowing. Recognizing the importance of whistleblowers, in 2016, BaFin implemented explicit whistleblowing protections for the first time in modern German history.

Who Can Be A Whistleblower Under Current German Law?

Under Section 4 of the FinDAG, a whistleblower is defined as an employed individual or contractor with specific knowledge of a company’s internal matters who reports potential or actual misconduct by a company that is under the supervision of the BaFin. Companies that fall under the supervision of the BaFin include, but are not limited to: banks; financial services institutions; capital management companies; insurance companies; and stock listed companies subject to the German Securities Trading Act.

What Protections Can A Whistleblower Receive under German Law?

Prior to the amended FinDAG, whistleblowers could be prosecuted for breaching the duty of loyalty to their employers or damaging their employers’ reputation. The amended FinDAG shields whistleblowers from all liability as long as they did not intentionally or negligently submit an untrue report. Whistleblowers are also afforded confidentiality. BaFin can reveal a whistleblower’s identity if the whistleblower consents to the disclosure. BaFin can also disclose the whistleblower’s identity if it is necessary to conduct further investigations or proceedings.

Blowing The Whistle In Germany

Whistleblowers may report misconduct internally, pursuant to their employers’ internal reporting mechanisms, or directly to the BaFin. In July 2016, BaFin established a central point of contact for whistleblowers to report supervisory violations. Whistleblowers can submit their reports of misconduct to BaFin by mail, e-mail telephone, or in person. As of January 2017, whistleblowers may also submit their report anonymously through an electronic reporting platform.

The Take Away

The amendment of the FinDAG to include whistleblower protections was considered by many to be revolutionary, given that previously, whistleblowers faced criminal liability or civil liability under labor laws for blowing the whistle. As of 2016, whistleblowers may report misconduct under the protective umbrella of freedom from liability and the added measure of confidentiality similar to American whistleblower statutes. Unlike the United States, however, German whistleblowers do not receive a financial reward for reporting alleged wrongdoing. Also, the FinDAG whistleblowing protections apply only to those who blow the whistle on activities that fall under the BaFin’s supervision or similar ordinances of the EU. Persons with knowledge of misconduct by German companies registered with the United States Securities and Exchange Commission (“SEC”) have the option of filing a report with the SEC. While many Germans are pushing for broad whistleblowing reform, it seems unlikely to happen in the near future. It raises the question, does Germany truly believe reform is unnecessary, or is financial wrongdoing the only fraud the country is interested in exposing through whistleblowing at this time?