Whistleblowers not entitled to share in multimillion-dollar recovery, waited too long to file claim

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by Michael Heygood

Anyone who has information that a business has somehow committed fraud against any branch of the government can potentially help file and pursue a lawsuit under the False Claims Act. If money is recovered, the “whistleblower” who helped initiate the lawsuit can potentially recover 10% to 30% of the total amount recovered.

For example, in response to a complaint from a whistleblower, the US government filed suit against Maersk for overcharging for shipments to US forces fighting in Iraq and Afghanistan. In a settlement announced in 2012, the company agreed to pay $31.9 million and the whistleblower was held to be entitled to $3.6 million of the settlement.

Similarly, in 2010, a subsidiary of Johnson & Johnson agreed to pay over $81 million in civil and criminal penalties to resolve allegations in a FCA suit filed by two whistleblowers. The suit alleged that Ortho-McNeil-Janssen Pharmaceuticals, Inc. acted improperly concerning the marketing, promotion and sale of the anti-convulsant drug Topamax. Specifically, the suit alleged that the drug company illegally marketed Topamax for “off-label” uses, i.e., for conditions other than those for which the FDA approved its use. The suit alleged that, as a result of the improper marketing, the drug company knowingly caused false or fraudulent claims for Topamax charges to be submitted to federally funded healthcare programs. The settlement resulted in over $9 million being paid to the whistleblowers who first filed the suits.

There are very specific procedures for filing and pursing a False Claims Act lawsuit. If the required procedures are not timely and properly performed, a whistleblower may be denied what could have been his or her share of the recovery. For example, the Fifth Circuit Court of Appeals recently held that two whistleblowers cannot share in a once-$43 million penalty arising out of claims for defrauding the federal government by submitting false claims at pain clinics. U.S. ex rel. Babalola v. Sharma, — F.3d —-, 2014 WL 593580 (5th Cir. February 14, 2014).

The whistleblowers in the case, Samuel Babalola and Kayode Samuel Adetunmbi, were former employees of the Allergy, Asthma, Arthritis Pain Center in Harris County, Texas. The case involved allegations that nearly every patient of the clinic was prescribed one or more controlled substances and put on a regimen of shots every two weeks. However, it was alleged that the government was billed for medical procedures that were never performed when patients declined to have the shots every two weeks. The clinics purportedly made the patients sign progress and procedure notes even though they did not receive the injections.

The whistleblowers first suspected the owners were filing fraudulent billing reports for reimbursement from federal programs like Medicare and Medicaid in 2005. Two years later, they sent an anonymous letter detailing the results of their own investigation to the Texas Medical Board, Medicare, Medicaid and various private insurance companies. In 2009, federal agents contacted both whistleblowers during the course of the government’s investigation and the whistleblowers admitted they were behind the anonymous letter.

Criminal indictments were handed down against the owners in July 2009 and each pleaded guilty to one count of conspiracy to commit health care fraud and mail fraud and one count of health care fraud. The former owners of the pain clinic were sentenced to prison for fraud and also ordered to forfeit $43 million in assets. (The Fifth Circuit overruled the amount of the fine and a new amount has not yet been determined).

The whistleblowers did not file their FCA lawsuit until 2011, and the government responded by arguing the whistleblowers were not entitled to a share of the criminal recovery. The Fifth Circuit agreed with the government, holding that a whistleblower’s qui tam action had to be in existence at the time of government’s election to pursue its claim via alternate remedy for them to claim, under the FCA, a right to recovery in the alternate proceeding. Babalola, 2014 WL 593580.

On appeal, the whistleblowers argued that the Fifth Circuit’s holding “would completely eviscerate the FCA by allowing the government to sidestep putative relators by racing to beat them to the courthouse through initiating related criminal or other actions as soon as a putative relator voluntarily discloses fraud to the government before filing suit …” The court of appeals disagreed:

We are not persuaded that our holding would allow such a scenario. The relators are correct that § 3730(e)(4)(B) provides that “ ‘original source’ means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action.” However, we have explained that this disclosure requirement is satisfied when, as directed by § 3730(b)(2), a relator serves the Government with a “copy of the [qui tam] complaint and written disclosure of substantially all material evidence and information the person possesses.” United States ex rel. Reagan v. East Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 175 (5th Cir.2004). Further, the FCA requires that the complaint be filed in camera and remain under seal for 60 days before being served on the defendant or until the court orders service. § 3730(b)(2). This procedure allows the Government 60 days after it receives the information to determine whether to intervene in the qui tam proceeding. Id. Accordingly, the FCA’s procedures require the relator to disclose his information to the Government at the time the qui tam complaint is filed in camera. At that point, there would be an existing qui tam action and therefore, if the Government elects to pursue the case in another proceeding, it would be an alternate remedy. No rush to the courthouse would ensue. Indeed, the FCA’s procedures set forth above protect the relator’s rights to the qui tam action and the Government’s right to decide whether to intervene in the action. We hold that the FCA requires that a qui tam proceeding must have been in existence at the time of the Government’s election of the alternate remedy.

Id.

Ultimately, the decision in Babalola is yet another reminder that whistleblowers should begin working with a qualified and experienced attorney as soon as they are able. If they wait too long or do not follow the proper procedures, they may lose a very valuable right to share in the government’s recovery.

Heygood, Orr & Pearson and Whistleblower Lawsuits

The lawyers at Heygood, Orr & Pearson represent 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, our lawyers 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.