“[T]ransparency and disclosure are
essential in today’s marketplace.”
Rhode Island senator and author Joe Reed (June 16, 2009)
Although federal legislation is sprinkled with whistleblowng measures, the principal one is also the oldest: the False Claims Act. That measure dates back to the Civil War, when the statute was enacted to give monetary rewards to individuals who reported contactors providing shoddy goods to the Union army.
Known as the Honest Abe Law, referencing President Abraham Lincoln, the law morphed into its present state, 31 U.S.C. § 3729 – 3737, et seq. It now provides a vehicle for individuals, and their attorneys, to claim financial compensation for calling to the attention of authorities the wrongful receipt of money by federal contractors, ranging from the defense industry to health care providers.
Some of the awards have been staggering, including a number involving Minnesota claimants and companies. When successful, the awards usually are large because the amounts of money at stake are so substantial.
But while many cases get considerable attention, many of these lawsuits, known as qui tam actions, quietly fall by the wayside. There are a number of hurdles to pursuing these cases, and many are not easy to surmount.
One of the recurrent obstacles is the requirement that a qui tam whistleblower must have acquired the knowledge of the wrongdoing independently and not because of prior public disclosures. Known as the “original source” rule, the doctrine requires that the claimant be one who initially exposed the wrongdoing, not who just parasitically passed on information already in the public domain. A couple of concurrent rulings by the 8th U.S. Circuit Court of Appeals earlier this year addressed this bar, holding that the claimants failed to surmount it in both of them.
The pair of decisions was rendered fittingly at the time when Minnesota is in the midst of commemorating the 30th anniversary of whistleblowing in this state
Both of the 8th Circuit cases shared some similarities. Each involved employees of pharmaceutical companies suing after the government, which was given the option to join the case, declined to do so. They brought false claim qui tam cases against large drug companies for improper billing practices. Both cases were dismissed by the trial judges, and the appellate court upheld both of those decisions.
A claimant working in the pharmaceutical industry lost his suit against a large drug manufacturer for improperly claiming eligibility for reimbursements for Medicare and Medicaid for a particular drug that had not been approved by the Food and Drug Administration (FDA). The lower court dismissed the case on grounds of the “public disclosure” requirement, under § 3730 (e) (4), which precludes a qui tam case based upon information that has been publicly disclosed unless the person making the claims the “original” source of the information. U.S. v. Paddock Laboratories, LLC, 855 F.3d 949 (8th Cir. May 5, 2017).
The 8th Circuit affirmed, holding that the provision warrants dismissal. Although the doctrine is not jurisdictional, as claimed by the manufacturer, the defendant nevertheless was entitled to dismissal on the merits for failure to state a claim. Two separate sources previously revealed basically the same allegations contained in the lawsuit in various reports done by federal agencies and a complaint in a prior federal court lawsuit. These public disclosures prevent the lawsuit unless the claimant meets the criteria for the original source exception.
But she did not qualify as the original source, which is defined in § 373(e)(4)(A) as an individual who either voluntarily disclosed to the government information prior to other public disclosure or has knowledge that is independent of the material and adds to the publicly disclosed data and its provided information to the government before filing a lawsuit.
Although the claimant provided information concerning the anticipated lawsuit to the government before it was filed, she did not do so prior to the public disclosures. Therefore, the claimant did not qualify as an original source who presented independent knowledge that materially aided the case. The independent knowledge necessary to overcome the public disclosure bar was impermissibly derived from the public disclosures.
The claimant in this case did not adequately allege that she has independent knowledge, but merely was conclusory without providing any “detail … of that information or explain how it relates to her employment … in the pharmaceutical industry.” The sole independent knowledge in the claimant’s complaint consisted of information from a relative, who allegedly received reimbursement for an ineligible drug, which only provides an example of a false claim, but does not materially add to information regarding … the alleged fraud. Because the public disclosures bar applied and the claimant was not the original source the lawsuit was properly dismissed.
Another pharmaceutical-related qui tam case also fell by the wayside in U.S. v. CSL Behring, L.L.C., 855 F.3d 935 (8th Cir. May 5, 2017). The main defendant manufactured and distributed protein-based therapies self-administered by patients using a pump. Pharmacies that dispense the drug are paid through government health care programs, such as Medicare and Medicaid. The claimant asserted that the manufacturer conspired with others to defraud the government by billing for a higher sale price to pharmacies than actually were charged to them, resulting in overpayment in nearly $300 million dollars by government health care programs.
The lower court dismissed the case because under the public disclosure because a number of government sources had previously disclosed the price differential, as did several media outlets.
The 8th Circuit affirmed, holding that the public disclosure doctrine dictated dismissal. The public disclosures in this case did not specifically identify the defendants who were named in the lawsuit, but they provided sufficient information about the participants in the scheme, such that the defendant is identifiable. This requirement was satisfied because the public disclosures, set the government squarely on the trail of the particular wrongdoer. Because there was enough information in the public domain to directly identify the defendants and the subject drugs, the public disclosure bar applied.
Moreover, the fraudulent activity that accounted for the pricing differential was “already in the public domain” before the suit was brought. The allegations of the qui tam case were substantially the same as those revealed in the public disclosures.
Because these public disclosures were sufficiently descriptive of the defendants in the case, and the fraudulent activity was also in the public domain, the qui tam case was barred.
But a suit by a pair of qui tam claimants was successful before the U.S. Supreme Court a few months before those two 8th Circuit setbacks in Bishop v. Wells Fargo, 137 S.Ct. 1067 (Feb. 21, 2017). The high court summarily vacated and remanded dismissal of a qui tam claim by a pair of ex-employees of Wells Fargo Bank that the institution made false representations to the Federal Reserve, enabling the bank to be viewed as a better credit risk. The Court held that, under its decision a year ago, in Universal Health Servs. v. United States, 136 S.Ct. 1989 (June 16, 2016), a false claim lawsuit need not plead a specific statute or regulation that infringed, overruling the more restrictive review of the lower courts in dismissing the lawsuit for failure to allege a specific underlying offense. A qui tam action based on an allegation of “misleading” financial data suffices even without citing an expressly designated statutory or regulatory violation.
Qui tam is a timely topic as the Minnesota whistleblower statute is marking its 30th anniversary. The concept was first recognized by the Court of Appeals as a matter of common law late in 1986 in Phipps v. Clark Oil Refining Grp., 396 N.W.2d 588 (Minn. App. 1986), and affirmed by the high court in mid-1987, 408 N.W.2d 169 (Minn. 1987). In the interim, the Legislature enacted the original state whistleblower law, Minn. Stat. § 181.932, which went into effect on Aug. 1, 1987, 30 years ago this week. The statute has been amended occasionally including major modifications in 2013 that bolstered the rights of employees and transformed the law from a relatively weak one to a much more potent measure. The state also added its own mini-qui tam law in 2010. Minn. Stat. § 15C.01, et seq. which parallels the federal statute, with some notable variations.
Despite expansion of the state whistleblower law four years ago, claimants still find it can be difficult to prevail. A recent failure was experienced by a professional engineer in Rosemount whose claim for retaliatory discharge after raising a concern about illegal billing practices by his company was rejected in early June by the 8th Circuit in Mervine v. Plant Eng’g. Servs., L.L.C., 859 F.3d 519 (8th Cir. June 9, 2017).
Affirming a ruling of U.S. District Court Judge Ann Montgomery in Minnesota, it held that there was insufficient proof of causal connection between the whistleblowing and the plaintiff’s subsequent discharge fewer than three weeks later. Any inference of a nexus was undermined by reporting of the employee’s inappropriate behavior and other misconduct that surfaced in the short intervening time period.
Further, the employer presented a legitimate reason of “unsatisfactory job performance” for the discharge, which the claimant could not show was pretextual. As a result, the whistleblower claim was properly dismissed.
Meanwhile, the Supreme Court is pondering an important whistleblower case: Friedlander v. Edwards Lifesciences LLC, No. A16-1916, which addresses the issue of whether a claim is viable if the employer is “already aware” of the information conveyed by the whistleblower. The case was certified by U.S. District Court Judge Susan Richard Nelson, under Minn. Stat. § 480.065. The court was asked if the 2013 amendments to the law eliminated the expose-an-illegality requirement imposed by prior case law, which bars whistleblower claims based on complaints to management of matters of which the employer was already aware. Its outcome could be significant in widening or narrowing the type of conduct protected under the statute.
These cases show that whistleblowing in many different formats remain an active and volatile field of practice and law as the Minnesota statute commemorates its 30-year anniversary.
Federal qui tam litigation: 2013 – 2015
- 2013: $2.9 billion in recoveries; 752 new cases filed.
- 2014: $3 billion in recoveries; 714 new cases filed.
- 2015: $2.9 billion in recoveries; 632 new cases filed.
This article was originally published in Minnesota Lawyer.