Court upholds $8 million whistleblower award arising from lawsuit over Comstor, Cisco fraud claims

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by Charles Miller

The False Claims Act allows anyone to bring a lawsuit in order to recover money on behalf of the U.S. government. If such a lawsuit results in a recovery for the government, the person who started the suit can recover up to one-third of the total amount recovered. If the government chooses to join the suit and help recover the money, the private person who blew the whistle and started the lawsuit is still entitled to “receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim.” A federal court of appeals recently affirmed such an award, totaling $8 million, to whistleblowers that alleged Cisco defrauded the government.

The whistleblowers file suit on behalf of government

Norman Rille is a former manager for Accenture and Neal Roberts is a former partner at PricewaterhouseCoopers. They filed False Claims Act lawsuits in federal court in Little Rock, Arkansas against several computer equipment and software manufacturers, including Accenture, Hewlett-Packard, Cisco and others.

Rille and Roberts alleged that the companies paid illegal kickbacks to consultants in exchange for the consultants recommending their products to the government rather than recommending some other company’s products. In addition, Rille and Roberts alleged that the companies conspired to withhold information about their best available prices from the government. The end result, according to the False Claims Act lawsuits, was that the government was being overcharged for computer equipment and software. The U.S. government ultimately decided to join the lawsuits.

The Government settles with Cisco and others

The U.S. reached settlements with many of the companies originally sued by Rille and Roberts. For example, Accenture paid over $63 million and Hewlett-Packard paid about $55 million to settle claims. Mr. Rille and Mr. Roberts were awarded more than $20 million from those settlements for their part in bringing the scheme to light.

The recent decision from the Eighth Circuit federal court of appeals involves the government’s settlement with Cisco and Cisco’s distributor, Comstor. The government collected $44.16 million from Cisco and $3.84 million from Comstor.

Rille and Roberts were not parties to the settlement agreement. However, Comstor and Cisco conditioned the settlement upon the dismissal with prejudice of the lawsuit brought by Rille and Roberts.

Court of appeals affirms $8 million award to the whistleblowers

The district court determined that Rille and Roberts were entitled to just over $8 million from the settlements with Cisco and Comstor. The government argued that the settlement was actually for different misconduct and thus Rille and Roberts were not entitled to a portion of the proceeds. The district court and the court of appeals rejected the government’s position. The courts concluded that the settlement was ultimately in response to the litigation efforts of Rille and Roberts. Significantly, Cisco and Comstor insisted, as part of the settlement, that the False Claims Act lawsuit filed by Rille and Roberts be dismissed with prejudice.

In False Claims Act or “qui tam” action in which the government elects to intervene, the law requires that the “relator” (or whistleblower) shall receive between fifteen and twenty-five percent “of the proceeds of the action or the settlement of the claim.” 31 U.S.C. § 3730(d)(1). The law contains two preconditions to an award. First, the government must “proceed … with an action” originally “brought by” the relator/whistleblower. In this case, the government elected to intervene in the action originally brought by Rille and Roberts against Cisco. In fact, the government did not even file their own complaint and instead adopted the complaint filed against Cisco by Rille and Roberts.

The second precondition to an award is that the government must receive “proceeds of the action or settlement of the claim.” The court of appeals rejected the government’s argument that the claim it settled with Cisco and Comstor was factually unrelated to the action brought by Rille and Roberts. The court emphasized that the government’s receipt of the settlement money required the claims of Rille and Roberts to be dismissed with prejudice. The court of appeals stated, “[t]he government cannot compromise a relator’s action by having it dismissed with prejudice and then claim the funds it received as a direct consequence are not ‘proceeds of the action.’” Thus, the Eight Circuit held that the district court had correctly awarded Rille and Roberts a share of the government’s recovery.

Heygood, Orr & Pearson and Whistleblower Lawsuits

The lawyers at Heygood, Orr & Pearson have experience representing clients who have witnessed fraud first-hand and wish to file a “qui tam” or whistleblower lawsuit against the corporations or individuals who were responsible. For example, attorney Eric Pearson successfully negotiated a $1.75 million award for a whistleblower in a large tax fraud case.

In addition, Heygood, Orr & Pearson is AV-rated, the highest legal and ethical rating available from the leading law firm rating service. Our partners Michael Heygood, Jim Orr, and Eric Pearson are all Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization. Mr. Heygood and Mr. Orr are additionally Board Certified in Civil Trial Advocacy Law by the National Board of Trial Advocacy. Our partners been voted by their peers as “Super Lawyers” in the state of Texas for several years in a row.*

The government has recovered billions as a result of False Claims Act lawsuits, and hundreds of millions have been paid to the private whistleblowers that made the lawsuits possible. If you have questions about how to pursue a claim under the False Claims Act, please let us know. You can reach us by calling our toll-free hotline at 1-877-446-9001, or by filling out our free legal consultation form on this website.

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2014.