Whistleblower Law Blog

Federal Court in South Carolina Holds That A Complaint Is Not Barred by The FCA’s First-to-File Rule If the Earlier-Filed Complaint was Voluntary Dismissed

May 04, 2015

The United States District Court for the District of South Carolina held that the False Claims Act’s (FCA) first-to-file rule requires that another complaint must be pending. Thus, the voluntary dismissal of an earlier-filed complaint clears the way for subsequent complaints, and no comparison of content of the complaints is necessary to allow the later-filed case to proceed.

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Adverse Action Extends to Employee Sent Home to Obtain Medical Release

May 03, 2015

On March 20, 2015, the U.S. Department of Labor’s Administrative Review Board affirmed an Administrative Law Judge’s holding in Jackson v. Union Pacific Railroad Co., finding that an adverse action extends to an employee sent home to obtain a medical release.

On August 29, 2011, Union Pacific Railroad switchman/brakeman Michael A. Jackson reported to his manager a foul smoky odor in Union’s freight yard outside Avondale, Louisiana. When Jackson, because of health and safety concerns, requested assignment to an area free from smoke, his supervisor told Jackson to go home and return to work only after obtaining a medical release.

On December 1, 2011, Jackson filed a complaint with the DOL’s Occupational Safety and Health Administration, seeking damages because he had been temporarily suspended from work after raising health and safety concerns.

Concluding that Union violated the Federal Railroad Safety Act’s whistleblower protection provision, an ALJ awarded Jackson compensatory damages. The ARB, affirming OSHA’s decision, determined that Jackson engaged in protected activity when he reported safety concerns concerning foul smoky air to his manager.

The ARB’s finding—that Jackson was constructively discharged because he did not ask to go home—likely has broad implications for employees who face adverse actions for reporting health and safety concerns. The ARB’s decision affirms that the health and safety of our nation’s workforce is a top priority.

Adverse Action Extends to Employee Sent Home to Obtain Medical Release

May 03, 2015

On March 20, 2015, the U.S. Department of Labor’s Administrative Review Board affirmed an Administrative Law Judge’s holding in Jackson v. Union Pacific Railroad Co., finding that sending an employee home to obtain a medical release can constitute an actionable adverse employment action.

On August 29, 2011, Union Pacific Railroad switchman/brakeman Michael A. Jackson reported to his manager a foul smoky odor in Union’s freight yard outside Avondale, Louisiana. When Jackson, because of health and safety concerns, requested assignment to an area free from smoke, his supervisor told Jackson to go home and return to work only after obtaining a medical release.

On December 1, 2011, Jackson filed a complaint with the DOL’s Occupational Safety and Health Administration, seeking damages because he had been temporarily suspended from work after raising health and safety concerns.

Concluding that Union violated the Federal Railroad Safety Act’s whistleblower protection provision, an ALJ awarded Jackson compensatory damages. The ARB, affirming OSHA’s decision, determined that Jackson engaged in protected activity when he reported safety concerns concerning foul smoky air to his manager.

The ARB’s finding—that Jackson was constructively discharged because he did not ask to go home—likely has broad implications for employees who face adverse actions for reporting health and safety concerns. The ARB’s decision affirms that the health and safety of our nation’s workforce is a top priority.

First Circuit Holds Healthcare Facility’s Use of Unlicensed Staff Violates the False Claims Act

April 17, 2015

On March 17, 2015, the First Circuit Court of Appeals reversed a District Court decision, holding that a counseling services’ failure to comply with state licensing requirements is a condition to payment under the False Claims Act.

The False Claims Act qui tam case at issue, US ex rel. Escobar v. Universal Health Services, Inc., was filed in the United States District Court for the District of Massachusetts. The suit alleges that Julio Escobar and Carmen Correa’s daughter, Yarushka Rivera, who died of a seizure in 2009, was treated by unlicensed and unsupervised staff at Arbor Counseling Services, a facility owned and operated by Universal Health.

Universal Health, according to the complaint, provided mental health services by unlicensed, unaccredited, and unsupervised therapists in violation of regulations set by MassHealth, a healthcare program administered by the Commonwealth of Massachusetts. Under MassHealth, mental health providers are required to employ qualified staff members as a condition to payment.

An unlicensed therapist employed by United Health then prescribed Trileptal to Rivera. Trileptal is a behavioral medication allegedly known to cause seizures after abrupt withdrawal. On May 13, 2009, Rivera suffered a fatal seizure after the unlicensed Universal Health therapist discontinued the medication.

In March 2014, the District Court dismissed the suit, concluding that Escobar’s claims were not actionable under the FCA because licensing requirements involve conditions for participation, rather than payment. Further, the District Court held that the FCA is designed to address financial fraud on the government rather than police general regulatory compliance.

The First Circuit, in reversing the District Court’s decision, held that Universal Health’s claims for reimbursement were within the meaning of the FCA. The Court of Appeals reasoned that services are only reimbursable when MassHealth standards are met.

In arriving at this decision, the First Circuit “ask[ed] simply whether the defendant, in submitting a claim for reimbursement, knowingly misrepresented compliance with a material precondition of payment.”

Eleventh Circuit Adopts False Certification Theory of FCA Claims

April 16, 2015

On March 11, 2015, the U.S. Court of Appeals for the Eleventh Circuit adopted the Ninth Circuit’s plaintiff-friendly approach to false certifications under the False Claims Act, preserving a former employee’s claim against a company that received funds under Title IV of the Higher Education Act.

Plaintiff Carlos Urquilla-Diaz alleged that Kaplan University, a for-profit education company, paid student recruiters based on the number of students they signed up. Urquilla-Diaz alleged that Kaplan falsely claimed to comply with the Higher Education Act, which forbids volume-based compensation of the sort it allegedly paid to recruiters. Urquilla-Diaz and co-plaintiff Jude Gillespie also named Kaplan Higher Education Corp. and Kaplan Inc. as co-defendants in the suit.

The district court dismissed all of the plaintiffs’ claims. On appeal, the Eleventh Circuit upheld the bulk of the district court ruling, including the dismissal of all of Gillespie’s claims on the grounds that he failed to establish the elements of an FCA claim. The three-judge panel also upheld the dismissal of all but one of Urquilla-Diaz’s claims for failure to plead with sufficient particularity The case is Urquilla-Diaz v. Kaplan University, case number 13-13672.

A typical FCA claim involves an entity submitting to the government a claim for payment that is false on its face. For instance, if an education company billed the government for teaching students who did not actually exist, its invoices would be false claims under the act.

But many U.S. Courts of Appeals, to varying degrees, have recognized a less direct theory of liability based on false certifications. Under this theory, a defendant can be liable for claims submitted to the government for work that was actually done, but which was performed in violation of some statutory, regulatory, or contractual provision. Under this theory, the claims are “false” because the company has falsely certified its compliance with all applicable provisions and the government would not have paid for the services without the false certification.

Urquilla-Diaz alleges that Kaplan violated the program participation agreement that it signed with the Department of Education to be eligible to receive Title IV funds. In conjunction with the agreement, Kaplan promised to abide by all statutes and regulations related to Title IV of the Higher Education Act. One such provision prohibits participants from paying recruiters “any commission, bonus, or other inventive payment based directly or indirectly on success in securing enrollments.”

Urquilla-Diaz’s false certification claim rests on the idea that the government would not have paid Title IV funds to Kaplan had it known that the company was violating its program participation agreement. Specifically, Diaz alleged that Kaplan increased and decreased recruiters’ salaries based on the number of students they signed up. The Eleventh Circuit determined that Urquilla-Diaz had plausibly stated a claim under the FCA, in part because he included specifics about former Kaplan employees whose salaries were modified based on their recruiting success.

The Eleventh Circuit’s embrace of the Ninth Circuit’s false certification standard will make it easier for relators to bring similar cases in the future.

Appeals Court Rules that First Amendment Protects NYPD Officer from Retaliation for Opposing Stop-and-Frisk Quotas

April 07, 2015

In Matthews v. City of New York, the Second Circuit Court of Appeals overturned a holding by the U.S. District Court for the Southern District of New York (SDNY) that retaliation for a police officer’s concerns about stop-and-frisk policy was not barred because the officer had expressed his concerns in his role as a public employee. The Second Circuit held that the officer’s public role was to execute the policy, but he had expressed his concerns about the legality of the policy in the role of a private citizen.

The officer, Craig Matthews, alleged that his supervisors in the 42nd precinct developed an illegal quota system and that any officers failing to meet the quotas were identified and subject to retaliation. After Officer Matthews began reporting the allegedly illegal nature of the quota system, the NYPD retaliated against him by giving him punitive assignments and poor performance evaluations, denying him overtime and leave, separating him from his longtime partner, and subjecting him to constant harassment and threats.

Matthews asked the SDNY to find that the NYPD’s retaliatory actions violated his free speech rights under both the First Amendment and the New York State Constitution. But the Southern District granted the City’s Motion for Summary Judgment, finding that Matthews made his complaints as a public employee, and not as a private citizen.

On appeal, the Second Circuit disagreed with the SDNY, and remanded the case for further proceedings. The Second Circuit reasoned that Matthews’ opinions about the quota system and any corresponding complaints were not related to his actual or functional job responsibilities. Therefore, Matthews made these complaints in his capacity as a private citizen. The Second Circuit reasoned that, if a public employee’s job responsibilities do not entail creating, implementing, or providing feedback on a policy, any complaints made by the employee about the policy are made as a private citizen and are protected speech.

This decision further chips away at the United States Supreme Court decision in Lane v. Franks, which held that the First Amendment can protect government workers from punishment if they are testifying under oath about job-related matters.

Federal Court in New York Rules that SOX Protects Post-Employment Disclosures and Prevents Post-Employment Retaliation

April 07, 2015

In Kshetrapal v. Dish Network, the U.S. District Court for the Southern District of New York ruled that an employee stated a valid claim under the anti-retaliation provisions of the Sarbanes-Oxley Act for alleged retaliation for a disclosure he made after his employer terminated him.

Plaintiff Tarun Kshetrapal sued his former employer Dish Network LLC, for, among other things, retaliation in violation of SOX section 806. He alleged both pre- and post-termination protected activities, and pre- and post-termination retaliation for his disclosures. Under SOX, an employer may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act” that an employee performs in blowing the whistle on certain types of fraud.

After Dish terminated Kshetrapal, he testified in a deposition, in a separate litigation, about his internal complaints to Dish about fraudulent invoices. In its ruling, the Court rejected Dish’s argument that Kshetrapal’s SOX claim was limited to pre-termination protected activities. The Court examined the purpose of SOX, which is to “combat what Congress identified as a corporate culture, supported by law, that discourages employees from reporting fraudulent behavior not only to the proper authorities . . . but even internally.” The Court reasoned that given the purpose and language of the statute, its scope should not be interpreted narrowly and, as properly interpreted, SOX protects post-employment disclosures and prevents post-employment retaliation.

Obesity Qualifies as a Disability under the ADA

April 02, 2015

A consensus has developed in the federal courts that obesity qualifies as a “disability” under the Americans with Disabilities Act (ADA), even in the absence of an underlying physical impairment. While the ADA does not explicitly say whether obesity is a disability, Congress broadened the definition of “disability” in the 2009 amendments to the ADA. Several jurisdictions interpret the language in the amendments to mean that severe obesity is a protected “disability,” so that employers may not take adverse actions against an employee based on the employee’s actual or perceived obesity, and are required to offer reasonable accommodations, if needed, to the disabled employee.

Discrimination based on an employee’s weight can come in subtle forms. For example, a supervisor may tease the employee in front of his or her coworkers or require an employee to take medical leave because of the employee’s weight, which may interfere with the employee’s performance of his or her job duties. In addition, an employer may terminate an overweight employee because his or her medical expenses are financially burdensome to the employee health insurance plan.

This trend in recognizing obesity as a legally protected disability enjoys international support. In a recent decision, the Court of Justice of the European Union, the EU’s top human rights court, ruled that obese workers can be considered disabled under European anti-discrimination laws if an employee’s obesity hinders “full and effective participation of that person in professional life on an equal basis with other workers.”

Meanwhile, some state legislatures in the United States—where almost 1 in 3 adults is obese, according to the World Health Organization—have enacted laws that explicitly prohibit discrimination based on a person’s weight. More states may soon follow, given that the American Medical Association recently for the first time recognized obesity (at any level of severity) as a disease. At the same time, a new study found that almost 75% of people support adding body weight as a protected characteristic under anti-discrimination laws.

MetLife Home Loans to Pay $123.5 Million to Settle Allegations of Mortgage Lending Fraud

April 02, 2015

On February 25, 2015, MetLife Home Loans LLC agreed to pay the U.S. Government $123.5 million to settle claims alleging that the company originated and underwrote loans insured by the Federal Housing Administration (FHA) to unqualified borrowers.

John Walsh, the U.S. Attorney for the District of Colorado, brought a False Claims Act action against Met Life Bank N.A., which merged into MetLife Home Loans LLC in June 2013. MetLife Home Loans is a wholly owned subsidiary of MetLife Inc., as was MetLife Bank before the merger.

The U.S. Government alleged that from September 2008 through March 2012, MetLife Bank knowingly submitted for FHA insurance numerous mortgage loans that did not meet Department of Housing and Urban Development (HUD) underwriting requirements. When FHA-insured loans default, the financial institution that originated the loans can submit insurance claims to the U.S. government. Therefore, when FHA-insured loans originated by MetLife Bank defaulted, U.S. taxpayers got stuck with the bill.

During the relevant period, MetLife Bank was as an FHA-approved Direct Endorsement Lender. Such lenders are authorized to originate, underwrite, and certify mortgages for FHA insurance. The FHA relies on Direct Endorsement Lenders to ensure that only loans that comply with HUD regulations are submitted for FHA insurance.

MetLife Bank’s internal findings showed that senior executives, including the CEO and the bank’s directors, had information showing that a substantial percentage of the loans were not eligible for FHA insurance. MetLife Bank’s records show that, between January 2009 and August 2010, between 25 percent and 60 percent of MetLife Bank’s FHA-insured loans had compliance deficiencies labeled “material/significant.” Despite these deficiencies, MetLife Bank moved many loans out of this category to the more favorable category of “moderate.” As one employee put it in an e-mail, “Why say significant when it feels so good to say moderate.”

Between January 2009 and December 2011, MetLife Bank self-reported only 321 FHA insured mortgages to HUD as materially violating HUD regulations, despite having internally identified 1,097 loans that it should have reported.

Although the government brought the FCA charges against MetLife Bank on its own, the False Claims Act allows private citizens (called “relators”) to file suits on behalf of the government for similar violations, such claims are known as a qui tam claims. On March 19, 2014, Keith Edwards, a former executive at JP Morgan, received a $69.3 million reward for blowing the whistle and disclosing allegations that JP Morgan violated the FCA by submitting toxic mortgages to the government for insurance.

In 2014, the U.S. government recovered nearly $6 billion through the False Claims Act.

Dow Chemical and CEO Settle SOX Whistleblower’s Retaliation Suit

April 02, 2015

Dow Chemical Company, a multinational corporation headquartered in Midland, Michigan, settled a case with a former employee, Kimberly Wood, who alleged that Dow terminated her in retaliation for blowing the whistle on it and its CEO Andrew Liveris’s improper spending and other financial wrongdoing.

Wood, a fraud investigator at Dow, alleged that Dow and Liveris violated Securities and Exchange Commission rules by exceeding the budget for a project by $13 million; paying for numerous unreported personal expenses for Liveris (including family trips to the Super Bowl, World Cup, and Masters Tournament); making payments, at the direction of Liveris, to certain charities, including Liveris’s own charity; excessive use of a corporate jet; improperly hiding cost overruns; and engaging in financial statement fraud.

On October 9, 2013, Wood reported an instance of financial statement fraud. The very next day, Dow notified Wood that it would terminate her employment by the end of the month. Wood sued Dow, alleging that it retaliated against her because of her protected activity in violation of the anti-retaliation provisions of the Sarbanes-Oxley Act of 2002 (SOX), 18 U.S.C. § 1514A. Under SOX, employers are prohibited from retaliating against employees who report certain illegal or unethical conduct. Employees are also protected when making disclosures about shareholder fraud or violations of any SEC rules and regulations.

In December 2014, the United States District Court for the Eastern District of Michigan denied Dow’s motion to dismiss Wood’s complaint. In its ruling, the Court held that SOX plaintiffs need not allege actual management knowledge of protected activity—it’s enough to allege sufficient facts from which such knowledge may be reasonably inferred. At that time the court denied its motion to dismiss, Dow said that it would defend its case “vigorously.” But just two months later, in February 2015, the parties announced that they reached an amicable settlement. The terms of the settlement are confidential.