What is a False Claims Act case?

Both the United States and California have False Claims Acts, which allow employees to file actions on behalf of the government against employers who submit claims for payment that are false. In a recent example of the substantial payments that such lawsuits can lead to, a former Countrywide employee is set to receive $14.5 million based on his allegations that Countrywide inflated appraisals on government-insured loans. In what circumstances may such actions (also called qui tam actions) be brought?

The federal provisions, found in 31 U.S.C. sections 3729 through 3732, allow a private person to file an action in federal court on behalf of the United States against anyone who has presented a fraudulent claim for payment or approval. The action must remain under seal for 60 days, during which time the United States decides whether to take over the prosecution of the action, or to allow the private individual to pursue the claim. The statute provides for recovery of a civil penalty of $5,000 to $10,000 plus three times the actual damages, and reasonable attorney's fees and expenses. If the government prosecutes the action, the private individual receives up to 25 percent of the recovery. If the private person litigates the case alone, he or she receives up to 30 percent. The statute also bars retaliation against any employee who participates in a qui tam action.

The California provisions are similar. Under California Government Code section 12650 through 12656, a private person may file an action for false claims presented to the State or any political subdivision of the state. The action remains under seal for 60 days, to allow the appropriate government entity to take over the prosecution of the action. The remedies are similar.

Following are some examples of qui tam actions, which illustrate the broad range of activities encompassed by the statutes:

• The Department of Justice decided to intervene in a qui tam action by former employees of American Commercial College, who had alleged that their employer false certified that it had complied with a federal law barring colleges from obtaining more than 90 percent of their yearly tuition from federal student aid. (2/28/2012)
• Boeing agreed to pay $4.4 million to settle claims by a whistle blowing employee that the company billed the government for work on Chinook helicopters that it had already paid for. (1/20/2012)
• A Genentech employee received $5.7 million from a $20 million settlement based on allegations that the company encouraged off-label use of Rituxan. (12/2/2011)
• An Oracle employee was to receive $40 million under a settlement with the Department of Justice based on claims that Oracle did not provide complete information about discounts to other customers under a software licensing and technical support contract with the United States. (10/7/2011)
• A former GlaxoSmithKline employee got $96 million from a $750 million settlement of claims involving manufacturing flaws at a manufacturing plant in Puerto Rico. (9/22/2011)
• As a result of allegations of fraudulent Medicaid billings by one of its pharmacists, CVS Pharmacy agreed to pay the United States and 10 states (including California) $17.5 million. (4/15/2011)
• Two former University of Phoenix employees received $19 million from a settlement of claims that the school illegally paid admissions counselors based on the number of students they recruited. (12/15/2009)

Whistleblower Lawsuits

Last week, an employee whistle blower complaint was filed against individuals and organizations associated with the Lap-Band weight-loss device. Deuel v. 1 800 Get Thin, LLC, Case No. BC477064 (Jan. 17, 2012). A copy of the complaint is available here. This prompts a reminder that whistle blower, or retaliation, lawsuits pose difficult problems for employers.

There are two types of whistle blower lawsuits. In a qui tam action, the plaintiff seeks relief against the substantive wrongdoing on behalf of the government. The federal False Claims Act is an example. It allows a civil action by a private person on behalf of the government against a contractor who fraudulently bills the government. The successful plaintiff gets a portion of the recovery and attorney's fees. California has its own False Claims Act, which provides for similar relief. For an example of a successful such action, see "Quest Diagnostics settles Medi-Cal whistle-blower suit" in the L.A. Times.

The more common type of whistle blower lawsuit is where an employee calls attention to illegal activity, and then is subjected to adverse action by the employer. The anti-discrimination laws all contain provisions that prohibit retaliation against employees who complain about discrimination and harassment. See EEOC v. Go Daddy Software, Inc., 581 F.3d 951 (9th Cir. 2009) ($135,000 in lost earnings, $5,000 for emotional distress, and $250,000 in punitive damages for retaliation against employee who complained about discrimination); Wysinger v. Automobile Club of Southern California, 157 Cal.App.4th 413, 69 Cal.Rptr.3d 1 (2007) (jury awarded $204,000 in economic damages, $80,000 in noneconomic and $1 million in punitive damages for retaliation against employee who complained about age discrimination).

In some circumstances, employees may also pursue claims for retaliation based on other types of unlawful conduct by the employer. For example, the California Whistleblower Protection Act authorizes claims by state employees who are subjected to adverse action for complaining about waste, fraud, abuse of authority, violation of law, or threat to public health. The employee must first file an administrative charge with the designated state agency.

Labor Code section 1102.5 is the basis for an action by employees of private and public employers who can prove that their employer retaliated against them for providing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. This and other whistle blower statutes establish a public policy to protect whistle blowers, which may be invoked to support a claim for wrongful termination in violation of pubic policy. See Green v. Ralee Engineering Co., 19 Cal.4th 66, 960 P.2d 1046, 78 Cal.Rptr.2d 16 (1998).

When an employee has complained about activity that is protected by one of the statutes, the employer must be prepared to prove a legitimate reason for any adverse action that it takes against that employee. That is because a complaining employee can prove a prima facie case of retaliation by establishing the protected activity, adverse action, and that the adverse action followed closely on the protected activity. The establishment of a prima facie case puts the burden on the employer to prove that it had a legitimate reason for its actions.

Whistleblower Protection for Consumer Product Complaints

A federal statute that became law on August 14 provides remedies against employers for employees who suffer adverse employment action for having complained about unsafe consumer products made or sold by their employer. The Consumer Product Safety Improvement Act of 2008 establishes an administrative complaint procedure backed by the possibility of a civil lawsuit if the agency does not act.

The protection is limited to employees of manufacturers, private labelers, distributors and retailers. It prohibits such employers from discharging or otherwise discriminating against employees who provide the federal government or a state attorney general with information about a violation of any law enforced by the federal Consumer Product Safety Commission, or who participate in a proceeding concerning such a violation, or who objected or refused to participate in any activity that the employee reasonably believes is a violation.

The Commission is concerned with "consumer" products, which means products (i) for sale to a consumer for use in or around a permanent or temporary household or residence, a school, in recreation, or otherwise, or (ii) for the personal use, consumption or enjoyment of a consumer in or around a permanent or temporary household or residence, a school, in recreation, or otherwise, but does not include on-road motor vehicles, boats, aircraft, food, drugs, cosmetics, pesticides, alcohol, tobacco, firearms, and medical devices.

According to the Department of Labor, the enforcement agency for the whistle blower provision, "otherwise" discriminating includes laying off, blacklisting, demoting, denying overtime or promotion, disciplining, denying benefits, failing to hire or rehire, intimidation, reassignment affecting promotion prospects and reducing pay or hours.

A person who believes that his or her employer has violated the new whistle blower provision may file a complaint within 180 days with the closest OSHA office (the responsible bureau within the Department of Labor). If the OSHA office determines that there was a violation it may order reinstatement with the same seniority and benefits, payment of back pay with interest, and compensatory damages, including compensation for special damages, expert witness fees, and reasonable attorney's fees. The losing party may seek a hearing before an administrative law judge, from which there is one administrative appeal.

A party dissatisfied with the final result may obtain review of the Department's decision in the United States Court of Appeals for the circuit in which the violation occurred. The employee may file a civil action in federal district court if the Department does not issue a final order within 210 days from the filing of the complaint, or within 90 days after issuance of a written determination by the OSHA office.

Although the statute does not say so directly, the administrative enforcement procedure appears to be the exclusive means for a private party to seek relief for a whistle blower violation.

The full text of the new statute is available at the Consumer Product Safety Commission website. Further information about enforcement is available at OSHA's Office of the Whistleblower Protection Program.