[cross-posted and slightly adapted from Cato at Liberty]
I’ve got a guest post up at Reason on how bounty-seeking informants are bypassing the Internal Revenue Service tipster-reward program in favor of selected state False Claims Acts, such as New York’s, which enable richer recoveries for disloyal employees and others who charge defendants with underpaying taxes. Excerpt:
Will the spread of a culture of informants sow distrust and disloyalty in the workplace, while encouraging dissident executives and their lawyers to shake settlements out of risk- and publicity-averse targets by seizing on doubtful, gray-area legal theories? That’s part of the game too. Lately hedge funds and litigation finance firms have moved in to bankroll the filing of likely “whistleblower” cases. …
…by getting pro-plaintiff laws through the legislature in just a few states—New York liberalized its law four years ago—advocates can set the stage for a nationwide informant push.
In Illinois, a single Chicago lawyer was reported in 2012 to have used that state’s whistleblower law to file at least 238 lawsuits against retailers, pocketing millions in settlements, over alleged failure to charge sales tax on shipping-and-handling.
Whole thing here.
P.S. More recent coverage of the runaway False Claims Act train: “Repeat whistleblowers reap millions of dollars in false-claims suits” [ABA Journal] David Ogden testifies for the U.S. Chamber on what needs to happen with the federal FCA [House Judiciary] “UK Commission Takes A Pass On U.S.-Style Whistleblower Bounties” [Daniel Fisher, Forbes]
The Chamber has been tracking this major engine of contingency-fee litigation as it jumps from federal practice to the realm of similar state laws vigorously lobbied for by the plaintiff’s bar. I have an opinion piece in the Baltimore Business Journal on the Maryland version, which 1) nearly passed this year, 2) would go further than the federal law in some vital respects, and 3) has become an issue in a closely watched primary contest.
Daniel Fisher at Forbes gives the manufacturer’s side of the story behind a massive whistleblower suit seeking billions from J.M. Eagle over its supply of plastic pipe to public water and utility systems. Qui tam lawyers Phillips & Cohen give their side of the story here. Here’s Fisher on the law firm’s success:
The firm was founded by John Phillips, who as a congressional staffer helped draft a 1986 law that made it easier to pursue whistleblower cases. He subsequently earned enough to become a major Democratic Party donor and now serves as the U.S. Ambassador to Italy.
Update: Phillips & Cohen writes to say that the above quotation “contains an error: John Phillips was never a congressional staffer.”
Following its loss in a California trial, J.M. Eagle, a large manufacturer of industrial pipe, is pushing back hard against its qui tam legal adversaries. [Daniel Fisher/Forbes, Plastics News] Earlier on the False Claims Act here and here.
The docket keeps expanding and Legal NewsLine is out with a story quoting me and others:
…“In recent years, you’ve seen some pushback from the business community, but given the record of congressional expansion, they’ll be doing pretty well if they can just keep Congress from expanding it further,” said Olson, who also founded and still runs the popular blog Overlawyered.com. …
The Department of Justice announced in December that it secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government in 2013. According to the office, the amount represents the second largest annual recovery of its type in history and brings total recoveries under the False Claims Act to $17 billion since January 2009….
Olson explains that the business community’s growing discontent over the False Claims Act includes concerns over incentives for whistleblowers. In many cases, the whistleblower either participated in the misconduct, or knew about the misconduct but failed to inform their company.
He adds that in worse cases, whistleblowers intentionally ignored misconduct so damages would pile up and result in a “better bounty.”
“These are all incentives that are at odds with the wish that employees be ethical and loyal to their employers, and are also sometimes at odds with the object of minimizing fraud,” Olson said.
Much more, including more quotes from me, at the link; related Peter Hutt interview piece.
Much more rewarding to act as a government informant than to help the employer address the problem: “Allegations of wrongdoing within a company often surface in the compliance department, which often is involved in internal investigations and receives employee complaints. Like other employees, compliance staff can under various statutes submit information on potential wrongdoing for whistleblower awards or claim retaliation for raising concerns about alleged wrongdoing.” [WSJ via CompliancEX]
If you’re the federal government, one thing it’s good for is to turn a losing claim — losing because filed too late — into a possible winner. It works through something called the Wartime Suspension of Limitations Act (WSLA), enacted by Congress in 1942 as the U.S. entered World War Two, and I explain it in this guest column for Jurist.
The WSJ editors wonder to what extent the feds, who have been pursuing a campaign lately to bring the colleges to heel, are coordinating with the private False Claims Act bar. Meanwhile, Rogier at Nobody’s Business spots some ironies in the Justice Department’s suit against Education Management Corp.: “pushing low- to medium-value degrees is something that law schools — including some of the best in the country — do habitually, every day. All of higher education does, with no exceptions I’m aware of.”