Protected Whistleblower or Ungrateful Whiner: What’s the Law, How to Manage?

Protected Whistleblower or Ungrateful Whiner:
What’s the Law, How to Manage?
By Monte K. Hurst* and Virginia E. Simms**
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. WHAT YOU SHOULD KNOW: THE LAW . . . . . .
A. The False Claims Act . . . . . . . . . . . . . . . . . . . . . . .
1. Recent Cases under the FCA . . . . . . . . . . . .
a. One Bad Apple Can Spoil the Bunch:
Paul Blakeslee v. Shaw
Infrastructure, Inc. . . . . . . . . . . . . . . . . . .
b. Paying Not to Play: Lien Kyri v.
Parkland Hospital . . . . . . . . . . . . . . . . . . .
2. The Current Landscape Effect . . . . . . . . . . .
B. Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . .
1. A Potential Game-Changer for SOX
Retaliation Cases: Contract Workers . . . .
2. The Next Wave of SOX Cases: Why You
Should Be Concerned . . . . . . . . . . . . . . . . . . . .
C. Affordable Care Act . . . . . . . . . . . . . . . . . . . . . . . . .
1. Look Into the First ACA Cases and See
the Whistleblowing Future: What to
Expect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. What You, the Employer, Can Do Now . .
D. Texas Medicaid Fraud Prevention Act . . . . . . .
1. Halfway Through Trial, a $158 Million
Settlement Offer: A Recent TMFPA Case
Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Recent Revision Increases “Protected
Persons” Exponentially, Another On The
Way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. AN OUNCE OF PREPARATION IS WORTH A
POUND OF CURE: WHAT YOU SHOULD DO .
A. Internal Reporting Procedures . . . . . . . . . . . . . .
1. Have a Written Procedure in Place . . . . . .
* Hermes Sargent Bates, LLP, Dallas, Texas.
** Hermes Sargent Bates, LLP, Dallas, Texas.
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2. Offer Anonymous or Consequence Free
Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Treat Employees Uniformly . . . . . . . . . . . . . . . . .
C. Document Discipline and Termination . . . . . .
IV. LOOKING AHEAD: WHAT YOU CAN
EXPECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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I. INTRODUCTION
The recent massive National Security Administration leak,
executed by twenty-nine-year-old former CIA-assistant and
Booz Allen Hamilton employee Edward Snowden, has yielded
much political and security-centered discussion, but it has also
shined a fresh light on the villain and hero of business (depending on the observer): the whistleblower.1
Whistleblowing, the act of publicly disclosing alleged
wrongdoing, is a practice that has been protected by federal law
since the Civil War. The earliest formal whistleblower protection was created on the national level through the False Claims
Act (“FCA”). Initially, the FCA was enacted to spurn the widespread fraud committed by government contractors who were
exaggerating their invoices and delivering faulty goods to the
government.2 Since then, a number of state and federal laws
have been passed, and much debated, providing protections to
whistleblowers.
Last year, 2013, has already been called “the year of the
whistleblower.”3 Although the act, art, and laws of whistleblowing may be old, the terrain has changed dramatically. First,
and perhaps most obviously, the proliferation of the digital
workplace means that a whistleblower need not sneak into the
boss’ office to get information. Today, a whistleblower likely
1. Barton Gellman, Aaron Blake & Greg Miller, Edward Snowden Comes
Forward as Source of NSA Leaks, WASH. POST (June 9, 2013), http://
articles.washingtonpost.com/2013-06-09/politics/39856642_1_extradition-nsa-leaks-disclosures; Erik Wemple, Edward Snowden: ‘Leaker,’
‘Source,’ or ‘Whistleblower’?, WASH. POST (June 10, 2013) http://www.
washingtonpost.com/blogs/erik-wemple/wp/2013/06/10/edwardsnowden-leaker-source-or-whistleblower/.
2. See United States v. Riviera, 55 F.3d 703, 709 (1st Cir. 1995).
3. Patrick McCurdy, Whistleblowing 2.0 – From the Pentagon Papers to
Bradley Manning to PRISM, WAGING NONVIOLENCE (June 19, 2013),
http://wagingnonviolence.org/feature/whistleblowing-2-0-from-the-pentagon-papers-to-bradley-manning-to-prism/; Adam Resnick, The Year of
the Whistleblower, TAMPA TRIBUNE (Feb. 20, 2013), http://tbo.com/list/
news-opinion-commentary/the-year-of-the-whistleblower-638651.
Protected Whistleblower or Ungrateful Whiner
65
has more access to more information than ever before, no matter how lowly his/her position. Almost three years ago, when
Wikileaks took over headlines, the BBC estimated that a whopping “2.5 million U.S. military and civilian personnel have access to the [Secret Internet Protocol Router Network].”4 Gone
are the days when whistleblowers stood alone. The online community has rallied around whistleblowers like Snowden, pledging public support and often money.5 Entitled to the same
protections and incentives previously available, whistleblowers
now benefit from increased access and a climate of support. So,
what is the employer to do?
Now, following the 150th anniversary of the False Claims
Act, is an appropriate time to distill the key laws involving
whistleblowing, identify how employers can anticipate handling
a whistleblower in their ranks, and manage that risk. This article will provide a brief overview of four major federal and Texas
State laws providing formal whistleblower protection. To understand the way these laws are enforced and anticipate the
current trend in whistleblower litigation, noteworthy cases
from the past year are included in the context of each law. Finally, this article will leave employers and their in-house counsel with several recommendations to stave off whistleblower
litigation before it begins, and manage the aftermath if a claim
is filed.
II. WHAT YOU SHOULD KNOW: THE LAW
A. The False Claims Act
The False Claims Act was first enacted in 1863 to impose
liability upon any person who knowingly makes or causes to be
made false statements, records, or claims to the government, or
defrauds the government.6 FCA whistleblowers, private indi4. Siprnet: Where the leaked cables come from, BRITISH BROAD. CORP. (Nov.
29, 2010), http://www.bbc.co.uk/news/world-us-canada-11863618.
5. Allison Kilkenny, Protesters Worldwide Rally to Support Whistleblower
Edward Snowden, THE NATION (June 12, 2013), http://www.thenation.
com/blog/174763/protesters-worldwide-rally-support-whistleblower-edward-snowden#.
6. 31 U.S.C. § 3729(a). “(1) IN GENERAL.—Subject to paragraph (2), any
person who— (A) knowingly presents, or causes to be presented, a false
or fraudulent claim for payment or approval; (B) knowingly makes,
uses, or causes to be made or used, a false record or statement material
to a false or fraudulent; (C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G); (D) has possession, custody, or control
66 Corporate Counsel Review
viduals who report potential FCA violations, can earn a hefty
percentage of any proceeds collected as a result of his/her reporting.7 These individuals also have the right to sue for FCA
violations on behalf of the government, should the government
decline to sue, and, if they are successful, receive a portion of
the money collected.8 These are known as “qui tam” actions and
the would-be successful whistleblowers are “relators.”9 Qui tam
actions give employees greater incentive to whistleblow, because they can receive more than protection or retribution–they
could earn a cash payout of up to thirty percent of the proceeds
of any settlement.10 Depending on the company and the fraud,
this amount could be tantamount to winning the lottery, although the path is much more arduous than buying a ticket.
Naturally, this incentive and protection for employee
whistleblowers creates a risk for the employer. Acknowledging
the potential for employers to dissuade or threaten employees
into keeping quiet, the FCA also now specifically prohibits employers from retaliating against individuals for lawful acts
taken in furtherance of efforts to stop violations of the FCA.11
Retaliation is prohibited not just against employees, but against
contractors or agents as well.12
Illegal retaliation is not limited to termination, and may include demotion, suspension, threats, harassment, or a negative
impact on any term or condition of employment.13 If an em-
7.
8.
9.
10.
11.
12.
13.
of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or
property; (E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending
to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true; (F) knowingly buys, or receives as a pledge of an obligation or debt, public
property from an officer or employee of the Government, or a member of
the Armed Forces, who lawfully may not sell or pledge property; or (G)
knowingly makes, uses, or causes to be made or used, a false record or
statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or
property to the Government, is liable to the United States
government. . . .”
31 U.S.C. § 3730(b)-(c) (2010).
Id.
Id. § 3730(c) (2010).
Id. §3730(d)(2) (2010).
31 U.S.C. § 3730(h)(1) (2010).
Id.
Id.
Protected Whistleblower or Ungrateful Whiner
67
ployer is found liable for retaliating against an employee, contractor, or agent in violation of this provision, the relief
available may include reinstatement, twice the amount of back
pay plus interest, and special damages sustained including attorney’s fees and litigation costs.14
In order to bring a successful claim for FCA retaliation, a
whistleblower must satisfy three elements: (1) he/she was engaged in protected activity; (2) the employer knew of the employee’s activity and had notice that the activity may result in
an FCA complaint being filed; and (3) the employer discriminated/retaliated against the employee at least partially due to
the employee engaging in the protected activity.15 General complaints or concerns do not constitute “protected activity” under
the FCA, as applied by courts.16 In order to qualify for FCA
protection, an employee must reference concerns about the company defrauding the government, committing illegal activity, or
a possible qui tam action.17
1. Recent Cases under the FCA
Though the law may be old, celebrating its 150th birthday
in fact in 2013, the case law regarding employee, or former employee, claims for whistleblowing retaliation under the FCA is
always evolving, and the payouts are huge.
a. One Bad Apple Can Spoil the Bunch: Paul
Blakeslee v. Shaw Infrastructure, Inc.
In April of 2013, a federal jury awarded a whistleblower
$3.5 million in a verdict that, with additional fees, is likely to
surpass the $4 million mark in total.18 Seventy-six-year-old
manager Paul Blakeslee was working for Shaw Environment
and Infrastructure (“Shaw”) when he began to suspect that his
project manager was engaging in inside dealings on the govern14. Id. § 3730(h)(2) (2010).
15. Id. § 3730(h)(1) (2010); see Robertson v. Bell Helicopter Textron, Inc., 32
F.3d 948, 951 (5th Cir. 1994).
16. Robertson, 32 F.3d at 951.
17. Id.
18. Casey Grove, Jury Awards Anchorage Man $3.5 million in a Wrongful
Termination Lawsuit, ANCHORAGE DAILY NEWS (Mar. 23, 2013), available at http://www.adn.com/2013/03/23/2837635/jury-awards-anchorageman-35m.html. The $3.5 million consists of $445,574 in lost wages,
$486,458 in emotional distress, and $2.5 million in punitive damages.
Id.
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ment’s dime.19 Blakeslee discovered that this project manager
owned a significant stake in a private company that was leasing
equipment to Shaw, with whom both Blakeslee and the project
manager were employed, absent competitive bidding. Further,
the invoices for the equipment were ultimately billed to the military bases that hired Shaw to maintain their facilities.20
Enter: the FCA. Blakeslee claimed that when the project manager found out that he was writing a letter to the company’s
CEO, he made a comment about his age and Blakeslee was fired
on the next business day.21 After Blakeslee complained to management, Shaw fired the project manager.22
But the “bad apple” excuse did not save Shaw from having
to defend itself through a lengthy trial, and the company ultimately got slapped with a seven-figure verdict for retaliation
against this whistleblower. Where did the company go wrong?
Shaw should have reinstated Blakeslee. By firing the project
manager, Shaw removed the bad actor, but did nothing to remedy the retaliation. Not only did this keep Blakeslee’s claim
alive, it also increased his damages with each passing day that
he was not reinstated.
b. Paying Not to Play: Lien Kyri v. Parkland
Hospital
In another recent case, Dallas’ Parkland Hospital (“Parkland”) agreed to pay $1.4 million to settle a qui tam lawsuit
brought by former doctor-turned-whistleblower, Lien Kyri.23
Dr. Kyri was a resident of Parkland when he alleged he discovered that Parkland was submitting false claims for Medicaid
and Medicare support for rehabilitation consultations that
never occurred.24 Interestingly, although he brought a claim for
retaliation, Dr. Kyri’s residency was never terminated and he
did not blow the whistle until a year after he left Parkland of
his own accord.25 But when Dr. Kyri applied for a California
19.
20.
21.
22.
23.
Id.
Id.
Id.
Id.
Miles Moffeit & Brooks Egerton, Parkland Hospital Paying $1.4 Million
to Settle Another Government Fraud Investigation, DALL. NEWS (May 22,
2013), available at http://www.dallasnews.com/investigations/patientsafety/headlines/20130522-parkland-hospital-paying-1.4-million-to-settle-another-government-fraud-investigation.ece.
24. Id.
25. Id.
Protected Whistleblower or Ungrateful Whiner
69
medical license, he had to answer questions about being on an
extended probation for much of his Parkland residency.26 Dr.
Kyri’s supervisor said he was put on probation for “drowsiness,
poor performance and absenteeism,” which Dr. Kyri argued was
actually a retaliatory tactic.27 Dr. Kyri was also diagnosed with
major depression during his Parkland residency.28 California
psychiatrists who investigated Dr. Kyri and his supervisor’s
competing reasons for the discipline came to conflicting conclusions about what really happened.29
In the end, Parkland’s decision to settle was a cautious one.
This was ostensibly far from a clear-cut case. Dr. Kyri was
never terminated and had a documented history of questionable
job performance and mental health issues. But Parkland,
which has come under heat and formal investigation frequently
in recent history, likely considered the cost of continuing to litigate and the price of yet another potential scandal.
Dr. Kyri’s retaliation case also shines a light on how private
entities are increasingly targeted by whistleblowers.30 Dr.
Kyri, as a resident at Parkland, was actually a part of the UT
Southwestern Medical Center’s doctor-training program (“UT
Southwestern”), not strictly a Parkland employee.31 Indeed, Dr.
Kyri’s supervisor who disciplined him was a part of the UT
Southwestern program.32 But, UT Southwestern benefits from
a 2000 United States Supreme Court ruling allowing state entities to claim immunity from FCA qui tam lawsuits.33 Under
that ruling, states are not “persons” subject to FCA qui tam liability.34 So, Dr. Kyri did not bother trying to sue the medical
school. Instead, he sued Parkland and five UT Southwestern
faculty doctors, as individuals.35
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
Id.
Id.
Id.
Id.
Miles Moffeit, Supreme Court Ruling Has Chilled Fraud Probes of State
Institutions, DALL. NEWS (May 27, 2013), available at http://www.dallasnews.com/investigations/headlines/20130527-supreme-court-ruling-haschilled-fraud-probes-of-state-institutions.ece.
Id.
Moffeit & Egerton, supra note 23.
Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765,
786-88 (2000); see also Moffeit, supra note 23.
Vt. Agency of Natural Res., 529 U.S. at 782.
Moffeit, supra note 30.
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What can we learn from Parkland’s recent $1.4 million settlement? Non-government institutions that contract with the
government or have overlapping programs should be on higher
alert. It is well established that plaintiffs will look for the deepest pockets, but they will also look for the pockets they can access. With state entities wielding the ability to cry immunity,
whistleblowers are incentivized to look for an entity to sue who
cannot raise that defense.
2. The Current Landscape Effect
With the carrots of a personal payout for retaliation in addition to a percentage of funds collected by the government,
whistleblowers today have great incentive to report suspected
fraud. Perhaps even more worrisome for all employers, these
recent multi-million dollar verdicts and settlements may signal
an increase in social sympathy for whistleblowers. The current
cultural temperature means a great deal when the factfinders
in retaliation cases are members of that culture. Unpredictable
as they may be, trends in jury verdicts and fellow-employer decisions to settle early and settle high would be foolish to ignore.
Your juror may be donating to Edward Snowden’s defense today, and assessing your client’s guilt tomorrow.
B. Sarbanes-Oxley Act
The Sarbanes-Oxley Act (“SOX”) forbids publicly-traded
companies from retaliating against an employee who reports
any conduct the employee believes constitutes a violation of (1)
federal criminal law provisions prohibiting mail, wire, or bank
fraud, (2) any rule or regulation of the Securities and Exchange
Commission (the “SEC”), or (3) any provision of federal law relating to fraud against shareholders.36 Protected activity under
SOX is not limited to formal reporting to a federal or law enforcement agency, though.37 Even concerns expressed internally to the employee’s supervisor or other persons with
investigative or disciplinary authority qualify as protected activity. However, the employee’s belief in the illegal nature of
the action must be reasonable.38
A SOX whistleblower must meet four elements to be successful in his/her claim: (1) the employee engaged in a protected
36. 18 U.S.C. § 1514A(a)(1) (2010).
37. Id.; see Allen v. Admin. Review Bd., 514 F.3d 468, 475-77 (5th Cir. 2008).
38. Id.
Protected Whistleblower or Ungrateful Whiner
71
activity; (2) the employer knew that the employee engaged in
the protected activity; (3) the employee suffered an unfavorable
personnel action; and (4) the protected activity was a contributing factor in the unfavorable action.39 Notably, SOX comes with
a relatively short statute of limitations as related to retaliation
claims. Complaints must be filed within 180 days after the violation occurs or the complainant becomes aware of the retaliatory action.40
1. A Potential Game-Changer for SOX Retaliation
Cases: Contract Workers
Two recent lawsuits have asked courts to define the reach
of SOX protections to contract workers. Jackie Lawson and
Jonathan Zang worked for a private contractor who provided
services to Fidelity, a publicly-traded company.41 Both contractors complained that fraud was being committed, and the employment of both contractors was subsequently terminated,
allegedly in retaliation for whistleblowing.42 Although Fidelity
argued that both Lawson and Zang had poor job performance,
the sticking point for the Court of Appeals for the First Circuit
in denying SOX protection in both cases was that Lawson and
Zang were contractors who did not “work for” the publiclytraded company.43
The court was divided though, and dissenting Judge O.
Rogeriee Thompson scolded the majority’s decision, branding it
“judicial overreaching of the highest order.”44 Judge Thompson
reprimanded her fellow judges for cherry-picking legislative history, and vehemently argued that, based on the language, context, and legislative history, a broader reading of the SOX’s
whistleblower protections is appropriate.45 She wrote: “the majority have had to work very hard to reject not only our own
39. Id.
40. 18 U.S.C. § 1514A(b)(2)(D) (2010).
41. Greg Stohr, Sarbanes-Oxley Whistle-Blower Rules Get Top Court Review, BLOOMBERG (May 20, 2013), http://www.bloomberg.com/news/
2013-05-20/sarbanes-oxley-whistle-blower-rules-get-court-review.html;
see also Travis Sanford, No Whistleblower Shield for Private Contractors, COURTHOUSE NEWS SERVICE (Feb. 17, 2012), http://www.
courthousenews.com/2012/02/17/44007.htm.
42. Id. Zang was terminated from his position, and Lawson resigned but
later claimed she was constructively discharged.
43. Id.
44. Lawson v. FMR LLC, 670 F.3d 61, 89 (1st Cir. 2012).
45. Id. at 93.
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precedent but also the views of the other branches of government, to say nothing of grammar and logic.”46
The U.S. Supreme Court has agreed to hear the issue and
potentially decide definitively whether or not contractors can be
covered by SOX’s whistleblower protections.47
2. The Next Wave of SOX Cases: Why You Should
Be Concerned
The question of whether private contractors working for
public companies are covered under SOX is a big one, and could
be reasonably expected to dominate the next wave of SOX
whistleblower cases. Though the high court has agreed to hear
the issue, a definitive “yay” or “nay” is in no way guaranteed.
Particularly in a time when a struggling market has led companies to rely on contract workers to cut costs, it would be a natural result that a greater portion of corporate whistleblowers are
those who have passed through a revolving door of workers or
those who are/were contract workers in positions typically held
by full-time employees of the public company. If courts definitively decide that these workers are protected, employers can
prepare for even a new incentive for contract workers to
whistleblow. With little loyalty or long-term plans with the employers, contract workers benefitting from SOX’s protections
would be in an ideal position to report suspected fraud.
C. Affordable Care Act
Perhaps the newest retaliation claim available to employees was created by the Affordable Care Act (“ACA”), signed into
law in 2010 and upheld by the U.S. Supreme Court in 2012.48
The ACA requires that employers with 50 or more full-time employees provide “affordable” health care.49 Without delving into
the complexities of the new and still evolving statute, a basic
provision of the law is that employers are subject to assessable
payments and penalties for failing to comply with the various
46. Id.
47. Barbara Leonard, Whistle-Blower Issue Picked Up By Justices, COURTHOUSE NEWS SERV. (May 20, 2013), http://www.courthousenews.com/
2013/05/20/57787.htm.
48. Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012).
49. See Ari G. Burd, Health Care Obligations of Employers Under the Affordable Care Act, NAT’L L. REV. (June 12, 2013), http://www.natlaw
review.com/article/health-care-obligations-employers-under-affordablecare-act.
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requirements and regulations in the ACA relating to the coverage provided and its cost.50 The ACA also provides for tax credits for businesses to help cover the cost of health care premium
contributions, some as large as fifty percent of small business
employers’ payments toward their employees’ health care
premiums.51
With employers struggling to understand how to properly
comply with the ACA, there is an even greater chance that employers will, intentionally or not, violate the ACA and that employees will whistleblow. Anticipating the inevitable, and
mirroring its counterpart in the FCA, the ACA contains a retaliation provision creating a private cause of action for employees
who engage in protected activity under the act and are then
subjected to an adverse employment action because of that
activity.52
1. Look Into the First ACA Cases and See the
Whistleblowing Future: What to Expect
The first cases under the ACA were filed last year, and
likely signal the beginning of an onslaught of lawsuits against
employers for violating the ACA and retaliating against employees who complain.53 On June 4, 2013, the National Woman’s Law Center (“NWLC”) filed suit alleging that five
institutions, both public and private, violated the ACA by failing to provide pregnancy coverage for covered employees’ dependents. 54 The NWLC alleges that this constitutes sex
discrimination under Section 1157 of the ACA.55 With the case
being so new and the first of its kind, we have yet to see how
courts will respond, except to say that courts have seen many
50. See generally 26 U.S.C.A. § 4980H (2011).
51. Internal Revenue Service, What You Need to Know about the Small Business Health Tax Credit, Small Business Health Care Tax Credit for
Small Employers (2013), http://www.irs.gov/uac/Small-BusinessHealth-Care-Tax-Credit-for-Small-Employers (last updated Aug. 23,
2013).
52. 29 U.S.C.A. § 218(c) (West 2010).
53. See NWLC Files Complaints Against Five Institutions for Sex Discrimination in Health Care Coverage, NAT’L WOMEN’S L. CENTER (June 4,
2013), available at http://www.nwlc.org/press-release/nwlc-files-complaints-against-five-institutions-sex-discrimination-health-carecoverag. It is not clear at this point that retaliation will be a part of the
NWLC’s lawsuits under the ACA.
54. Id.
55. Id.
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sex discrimination cases brought by employees before and may
be expected to use prior precedent as a lens with which to assess these cases. Although these first cases find their roots in
discrimination claims, whistleblower retaliation cases are certain to follow, particularly once the major regulations of the
ACA take full effect in January 2015.
In short, the ACA will provide employees with another bite
at the discrimination/retaliation apple. If an employee is terminated or “otherwise discriminated against” and at any point
complained to his/her employer, based on his/her reasonable belief, that the employer was not compliant with the ACA, that
employee may be entitled to reinstatement, back pay, and compensatory damages under the ACA.56
2. What You, the Employer, Can Do Now
Employers who do not provide sufficient health insurance
under the ACA’s regulations clearly have the greatest risk of
liability under the whistleblower provisions of the ACA. First
and foremost, employers must analyze their healthcare plans
carefully to reduce the risk that any violations exist for a potential whistleblower to report.
Further, although we are far from seeing the full scope of
the ACA in litigation, it would be reasonable to anticipate that
future ACA cases will also become entangled with FCA claims.
As discussed above, the FCA was enacted to combat fraud
against the government from individuals submitting false
claims.57 Under the ACA, employers are eligible for tax credits,
incentive to inflate claims, just like claims under Medicaid programs. Therefore, employees may have the opportunity to
whistleblow on employers not only for failing to comply with the
ACA, but also for submitting false claims under the ACA, in violation of the FCA.
One thing is certain, we are poised to witness waterfall litigation related to the ACA, as employers struggle to understand
and comply. In fact, the Occupational Safety and Health Administration (“OSHA”) has already released a fact sheet entitled “Filing Whistleblower Complaints Under the Affordable
56. 29 U.S.C.A. § 218(c); 15 U.S.C.A. § 2087 (West 2008).
57. See 31 U.S.C. § 3729(a) (2009).
Protected Whistleblower or Ungrateful Whiner
75
Care Act” to help employees report suspected violations by their
employers. 58
D. Texas Medicaid Fraud Prevention Act
The Texas Medicaid Fraud Prevention Act (“TMFPA”), a
relatively new statute, was enacted to protect the interests of
the State of Texas when Medicaid fraud occurs, and to remedy
retaliation against those who aid in that effort.59 Under the
TMFPA, employers are prohibited from retaliating against persons who whistleblow on their employers for allegedly making
false statements to receive an unauthorized or inflated benefit
or payment under a Medicaid program.60 The protected individuals need not be employees, nor necessarily even contractors
or agents of the employer.61
Similar to the FCA, the TMFPA provides for qui tam actions initiated both by the Attorney General and by private persons, with a settlement percentage award for the
whistleblower.62 Thus, the incentive is significant, as Texas’
Civil Medicaid Fraud Division has collected more than $1.103
billion in Medicaid fraud enforcement litigation since 1999.63
Eighty-five percent of that total, over a billion dollars, has been
collected in the past five years.64
1. Halfway Through Trial, a $158 Million
Settlement Offer: A Recent TMFPA Case
Study
One of the largest state Medicaid fraud cases ended with a
$158 million settlement in 2012. Allen Jones was an investigator with the Pennsylvania Office of the Inspector General when
he started looking into payments to a high-level Pennsylvania
58. OSHA Fact Sheet: Filing Whistleblower Complaints Under the Affordable Care Act, OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION (Feb.
2013), available at http://www.osha.gov/Publications/whistleblower/
OSHAFS-3641.pdf.
59. See TEX. HUM. RES. CODE ANN. § 36.001 (West 2011), et al.
60. See id. § 36.002 (West 2013).
61. See id. § 36.115(a) (West 2013) (“A person, including an employee, contractor, or agent. . . .”) (emphasis added).
62. See id. §§ 36.051 (West 1997); 36.052 (West 2011); 36.053 (West 2005);
36.054 (West 2005); 36.055 (West 1997); 36.101 (West 1997). .
63. OFFICE OF THE ATT’Y GEN., Agency Strategic Plan: For the Fiscal
Years 2013-2017 Period, 10, (July 6, 2012), available at https://www.
oag.state.tx.us/AG_Publications/pdfs/strategicplan.pdf.
64. Id.
76 Corporate Counsel Review
pharmacist, who apparently took and hid money from pharmaceutical companies to push the new drug Risperdal.65 After investigating these suspected kickbacks, Jones was terminated.66
Jones subsequently filed a lawsuit against pharmaceutical company Johnson & Johnson, who marketed the drug nationally,
and the State of Texas joined in the suit.67
Trial began in January 2012 in Austin, and jurors heard
that Johnson & Johnson had defrauded the State of Texas
Medicaid program, and thus Texas taxpayers, by aggressively
marketing Risperdal for non-approved uses, including encouraging doctors to prescribe the intense anti-psychotic drug to
children.68 The plaintiffs’ attorneys further that these shady
marketing tactics helped Johnson & Johnson pocket $34 billion
from Risperdal sales alone since the drug hit the market.69 Two
weeks into trial, the parties reached a settlement for $158 million to be fully paid within ten days.70 Whistleblower Allen
Jones received seventeen percent of that number, coming in
around $27 million (before taxes).71
2. Recent Revision Increases “Protected Persons”
Exponentially, Another On The Way
Recent TMFPA litigation has not yet reflected the impact of
the TMFPA’s expanded provisions. A significant revision to the
TMFPA enacted in 2011 has greatly expanded the availability
of the retaliation remedy for whistleblowers. Prior to September 1, 2011, Section 36.115 of the Texas Human Resources Code
created a retaliation cause of action only for an employer’s actions against an employee bringing suit under the TMFPA or
assisting in an action under the TMFPA.72 But today, the
65. Jef Feeley, Margaret Cronin Fisk & David Voreacos, J&J to Pay $158M
to Settle Texas Drug Case, BLOOMBERG (Jan. 19, 2012), http://www.
bloomberg.com/news/2012-01-19/johnson-johnson-to-pay-158-million-tosettle-texas-risperdal-drug-case.html.
66. Id.
67. Margaret Cronin Fisk & Kelley Shannon, J&J’s $158 Million Settlement
With Texas Approved By Court, BLOOMBERG BUSINESSWEEK (Mar. 27,
2012), http://www.businessweek.com/news/2012-03-27/j-and-j-s-158-million-settlement-with-texas-approved-by-court.
68. Id.
69. Feeley, supra note 65.
70. Fisk, supra note 67.
71. Id.
72. See TEX. HUM. RES. CODE ANN. § 36.115 (West 2013) (as added by 1997
Tex. Sess. Law Serv. Ch. 1153 (S.B. 30) (West)) (as amended by 2011
Tex. Sess. Law Serv. Ch. 398 (S.B. 544) (West)).
Protected Whistleblower or Ungrateful Whiner
77
TMFPA also provides a retaliation remedy for individuals engaging in “other efforts . . . to stop one or more violations of [the
TMFPA].”73 Therefore, the retaliation remedy could theoretically be available before a TMFPA action has been filed, or even
if one is not ultimately filed at all. And, what does “efforts”
mean? Unless the legislature decides to preempt the question
with another statutory revision, we can anticipate legal wrangling over the breadth of that category in courtrooms for years
to come.
Another set of amendments that took effect on September
1, 2013, expand the scope of more important TMFPA language.74 Under the newest revision, an individual who conspires to violate the TMFPA or conceals, avoids, or decreases an
obligation to repay funds or property to the State Medicaid program commits an illegal act.75 Further, the new TMFPA
amendments end a much-debated issue regarding the timeliness of claims brought under the statute-of-limitations-absent
law.76 Joining the theme of its fellow amendments in expanding the breadth of the statute, the TMFPA has a statute of
limitations for retaliation claims of three years for a person to
bring suit from the date the retaliation occurs.77
The new language of the TMFPA retaliation provision has
broadened the scope of protection so dramatically that there is
potential for an explosion of litigation from individuals who report employers to the State. No longer must the individual directly aid in a State investigation or legal action, nor must the
individual even be an employee. What’s more, the individual
has three years to decide to sue. With close to $1 billion collected from TMFPA lawsuits in the last five years, 1,095 days is
a long time to contemplate that potential payout and file suit. 78
73. Id.
74. See Kimberly J. Gold & Ellyn L. Sternfield, Texas Makes Changes to
Medicaid Laws and Programs, MARTINDALE (June 21, 2013), available
at http://www.martindale.com/health-care-law/article_Mintz-LevinCohn-Ferris-Glovsky-Popeo-PC_1848046.htm.
75. 2013 Tex. Sess. Law Serv. Ch. 752 (S.B. 746) (West).
76. See generally United States ex rel. Moore v. City of Dallas, 2011 WL
4912590, *8-9 (N.D.Tex. Sept. 27, 2011); United States ex rel. Wall v.
Vista Hospice Care, Inc., 778 F. Supp. 2d 709, 724-25 (N.D.Tex. 2011);
Riddle v. Dyncorp Int’l Inc., 666 F.3d 940, 941 (5th Cir. 2012).
77. 2013 Tex. Sess. Law Serv. Ch. 752 (S.B. 746) (West).
78. See Agency Strategic Plan, supra note 63.
78 Corporate Counsel Review
III. AN OUNCE OF PREPARATION IS WORTH A
POUND OF CURE: WHAT YOU SHOULD DO
Lawyers, particularly in-house counsel, can manage the
risk of whisteblowers and mitigate their damage by employing
certain practices and procedures that encourage internal reporting and prepare for the worst, should it occur. If these policies fail to stave off the threat of a whistleblower going public,
employers must resist the urge to crucify the whistleblower.
These individuals, who can be positively poisonous for an organization, misinformed, or just plain wrong, can be hailed as heroes today. Whistleblowers like Snowden and Julian Assange
are disclosing information that the public believes it is directly
affected by and had a right to know from the start. If employers
are not careful, prompt termination of an internal complainer or
later painting him/her as a bad seed can create a martyr.
A. Internal Reporting Procedures
1. Have a Written Procedure in Place
Providing a written, internal reporting procedure for potentially illegal actions or wrongdoing to employees can protect the
employer both before any violation is reported, and even after
litigation has ensued. A written procedure that is distributed to
employees, or even included in an employee handbook, serves
two critical purposes: (1) it gives an unsure employee a forum to
express a concern within the organization before taking it
outside, and (2) it serves to rebut a presumption or inference
that the company discourages employees from reporting potentially illegal actions.
Further, a procedure that encourages internal investigations where appropriate may help challenge the “knowledge” element of any FCA violation. Indeed, a person does not violate
the FCA without knowledge of the falsity of the claim or statement at issue.79 Therefore, if an employee reports a potential
FCA violation and the employer conducts and memorializes the
findings of an internal investigation finding no violation, the
burden would thus be greater for the government to establish
how the employer “knew” of the particular violation.
79. 31 U.S.C. § 3729(a)(1) (2013).
Protected Whistleblower or Ungrateful Whiner
79
2. Offer Anonymous or Consequence Free Reporting
Internal reporting procedures that protect the anonymity of
the reporting employee or shield the employee from retaliation
also serve to counteract the financial incentive luring the potential whistleblower employee to file a report with a government
entity without going to his/her employer first. This may be particularly true when an employee suspects wrongdoing but is unsure if illegal behavior is actually taking place. If potentially
violative behavior can be caught internally, it may be corrected
and, when required, reported or disclosed by the employer itself.
Though employers incur some cost therein, they are much more
likely to avoid the potentially devastating cost of litigating the
alleged FCA violations, from both the employee and the
government.
As in the case of Paul Blakeslee, a whistleblower can be a
friend to the employer if the situation is handled appropriately.
All signs pointed to Blakeslee’s project manager simply being a
“bad apple” and were not necessarily indicative of systemic
wrongdoing. Shaw could have removed the project manager
and kept the employee who was loyal to the company and his
coworkers. Perhaps if Blakeslee had access to an internal reporting system, the time spent drafting a letter to executive
leadership, likely in the absence of a better idea, might have
prevented his project manager from catching wind of the
whistleblowing and terminating Blakeslee first.
B. Treat Employees Uniformly
Even merited discipline, or that which complies with internal policies, can constitute retaliation when it is not applied
consistently and equally. In a recent investigation, OSHA ordered the Metro North Commuter Railroad Company (“Metro
North”) to pay an employee $6,831.25 in punitive damages and
attorney’s fees for disciplining an employee after he reported an
injury on the job.80 The employee slipped and fell from a ladder
and promptly reported the incident to his employer. As it turns
out, the employee had been turned away from the ladder when
he fell and sustained injuries. Metro North said that the employee had thus violated a safety rule and issued him a letter of
warning. The employee subsequently “whistleblew,” reporting
80. U.S. Dep’t of Labor, OSHA Regional News Release (June 10, 2013),
available at http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEASES&p_id=24165.
80 Corporate Counsel Review
the discipline to OSHA. In its investigation, OSHA found that
Metro North violated the Federal Railroad Safety Act because
the company had not disciplined other employees who engaged
in the same conduct but did not report injuries. Thus, this disparate treatment indicated retaliation for the injury report/
complaint to OSHA.
C. Document Discipline and Termination
Termination can be effectuated without a successful retaliation lawsuit to follow. And for every true whistleblower, there
is surely also an employee who genuinely suspects fraud where
none exists, one who senses his own demise and plans a blazeof-glory exit, or one who is, frankly, whining. A poorly performing employee can be terminated, and downsizing can occur
without an inference of retaliation.
In this case, a strong offense is the best defense. Memorialize all employee counseling or discipline, at a minimum, in an email message. Better yet, have forms at the ready for managers
to complete and submit to human resources to document employee performance and violations. Whenever possible, maintain records of the actual acts as well, not just the discipline.
These records could include recordings, witness statements, or
poor work product. Though more work on the front-end, meticulously documenting the grounds for employee discipline and
termination establishes legitimate, non-retaliatory bases for the
employer’s decisions.
IV. LOOKING AHEAD: WHAT YOU CAN EXPECT
With the fallout from whistleblowing increasingly headlining national news reports and new legislation providing more
protections for those who come forward, we can only expect the
number of whistleblowers and consequent litigation to swell.
Companies that take a proactive approach by creating internal
reporting procedures and anticipating risk dramatically increase their chances of surviving an investigation or settlement
loss. As we have all witnessed on the national stage, it is the
employers who discourage transparency who pay the greatest
price.
In-house counsel are particularly poised to prepare for the
whistleblower threat by helping develop internal procedures
and providing continuity where those policies are ineffective
and the whistle has been blown. Counsel who represent companies in the healthcare industry should become familiar with the
Protected Whistleblower or Ungrateful Whiner
81
Texas Medicaid Fraud Prevention Act, particularly now that
September 2013 is past. The Affordable Care Act will affect all
employers, in ways we do not yet know. And the lion of
whistleblowing laws, the False Claims Act, remains the heart of
whistleblower protection.