LexisNexis will soon be publishing updated Practice Commentaries for the Federal False Claims Act (31 U.S.C.S 3729 et seq). The Practice Commentaries are published as part of a joint project with the National Institute for Trial Advocacy(NITA), and are designed to assist practitioners without prior experience in technical areas of practice.
I know this because I will be writing them myself. As some of you may know, this past summer I completed the Practice Commentaries on the Fair Labor Standards Act (29 U.S.C.S. 201 et seq.) which are now available electronically and in the print versions of the United States Code Service.
Headquartered at the University of Notre Dame, NITA is a leading provider of legal education programs and materials. In partnership with NITA, LexisNexis also delivers more than a dozen other practice-oriented NITA titles, such as “A Practical Guide to Federal Evidence,” “Arbitration Advocacy,” and “The Effective Deposition: Techniques and Strategies That Work.”
Zachary A. Kitts
Cook & Kitts, PLLC
LexisNexis and the National Institute for Trial Advocacy (NITA) to publish new practice commentaries on the Federal False Claims Act
Qui Tam Practice Example: Documentation of a Qui Tam Claim is not to be taken lightly by potential relators
One does not have to in employment law or qui tam practice very long before being confronted with a situation along the following lines:
An employee comes to the lawyer for representation in a whistleblower situation. The employee provides the attorney with documents from the employer that the employee considers to be confidential. The employee had legitimate access to the documents, but had not sought the employer’s permission to remove the documents. The lawyer’s review of the documents establishes that they contain no information protected by the attorney-client privilege or any other privilege recognized in Virginia. The only sense in which the documents are confidential is that the employer does not wish anyone outside the company to know of the contents of the documents. Were litigation pending, the documents would be subject to discovery. However, at this time, neither party has filed a lawsuit.
a. What are the attorney’s obligations regarding the documents: must he notify the employer, must he return the documents, and may he use the information?
The above hypothetical is from Virginia Legal Ethics Opinion 1786, and any lawyer interested in qui tam practice under the Virginia Fraud Against Taxpayers Act or the Federal False Claims Act should pay careful attention both to this opinion and to this area of law.
In formulating its answer, the Committee identified four factors as important ethical considerations: (1) the nature of the documents, (2) the nature of the sources of the information, (3) the method used by the client to gather the information, and (4) whether the attorney directed the client to gather the information.
The first thing the Committee pointed out is that the attorney can only use the information if Virginia Ethics Rules 3.4(a) and 4.4 are not violated. Rule 3.4(a) provides that
A lawyer shall not obstruct another party’s access to evidence or alter, destroy, or conceal a document having evidentiary value for the purpose of obstructing another party’s access to evidence. A lawyer shall not counsel or assist another person to do any such act.
If the potential relator removed the only originals from his or her employer, Virginia lawyers would clearly have a duty to take corrective measures. Just what those corrective measures are would depend on the specifics of each situation. Where the potential client is still employed by the potential defendant, the first and most obvious step is to have them replace the documents.
A much more difficult situation arises where the aspiring plaintiff/relator no longer has access to his or her former place of employment. The deliberations required in each instance for lawyers practicing in this area must focus on discerning when the duty of confidentiality applies and when the attorney is within one of the exceptions outlined in the rule. It is also important to note that Virginia Ethics Rule 8.4(a) prevents a lawyer from using another person as an instrumentality to accomplish something the lawyer herself could not do ethically.
The attorney must consider both confidences (i.e., information protected by the attorney/client privilege) and secrets (i.e., information the client has asked to be kept inviolate or that may embarrass or be detrimental to the client) in deciding whether the situation presents an exception to the duty of confidentiality.
Where the potential privilege is a creature of statute, one should of course look for a statutory exception. For example, HIPAA–which must be the most feared statute in the medical community, as well as the least understood–provides specific exceptions for whistleblowers who clandestinely copy and remove patient files that prove fraud, provided they have a reasonable belief that fraud is occurring and provided they share the records only with professionals for the purposes of learning whether fraud has been committed. See, 45 C.F.R. § 164.502(j).
The Committee also specifically cited the False Claims Act, and the duty it places on the lawyer and the plaintiff to file the original suit under seal, and keep all information pertaining to the suit confidential for a directed period of time. Where a specific whistleblower statute precludes the lawyer from sharing the information the opposing party, Virginia Ethics Rules 3.4(a) and 4.4 would not require the lawyer to breach that legal duty, the Committee found.
LEO 1786 simply deals with the lawyer’s duties and risks–what risks are there for the clients and potential whistleblowers?
Lest any potential qui tam relator think there is little to no risk to blowing the whistle, he or she should read the recent Virginia case of JDS Uniphase v. Jennings, 473 F.Supp.2d 697 (E.D.Va. 2007). JDSU filed suit against its former employee for breach of contract, breach of fiduciary duty, conversion, and violation of the Virginia Uniform Trade Secrets Act. Jennings had copied documents during his employment in order to provide support, he claimed, for a potential whistleblower claim under Sarbanes-Oxley.
In ruling against Jennings and granting summary judgment to JDSU, the Court’s analysis seemed to focus on the fact that it was a Sarbanes-Oxley-style claim and as a result, the documents could easily be subpoenaed or obtained via a document request once the matter was in litigation. Moreover, Sarbanes-Oxley exists, in large part, to prevent companies from destroying documentation of wrongdoing.
It seems likely that the Court might not make the same ruling in a False Claims Act action. The sorts of materials a whistleblower might want to document and copy in a False Claims case might not be subject to statutory protection like the materials Jennings copied in JDS Uniphase.
Finally, it is quite important to note that Judge Ellis concludes his opinion with the following:
Although summary judgment on JDSU’s breach of contract claim must be granted as to liability, the extent of the breach and the appropriate remedy remains to be determined. In particular, it remains to be determined (i) which, if not all, of the documents Jennings removed are proprietary within the meaning of the PIA, (ii) whether any remedy besides return of the documents to JDSU is appropriate, and (iii) whether JDSU intends to pursue its other causes of action in this matter.
Thus, defendants must still show damages as a result of the breach.
The simple fact is that, in the absence of specific statutory protections such as those provided for in HIPPA, the merits of the underlying claim factor into the level of risk that a potential whislteblower faces for copying and collecting documents during his or her employment.
This writer has yet to see a published opinion in which an employer had a viable counterclaim against a whistleblower who copied and documented actual fraud in the workplace. In other words, employers who have violated the False Claims Act, or the Virginia Fraud Against Taxpayers Act and are sued by an employee armed with enough evidence to support the claim, have bigger fish to fry. Such employers tend to spend little time worrying about the copying of documents.
Despite cases such as JDS Uniphase, employees who feel threatened by the fraudulent activity of their employer are going to continue to take steps to protect themselves and their interests. The fact that there are risks–potentially even severe ones–is not likely to serve as a deterrent, because they understand that they face severe risks either way.
Cook & Kitts, PLLC
The Pew Center on the States announced this week that Virginia received an A-rating overall for the performance of our state government. See, http://www.pewcenteronthestates.org/
Virginia is one of only three states to receive an A- rating, with the other two being Utah and Washington. The national average is B-.
Interesting, and perhaps most relevant to readers of this blog, is that Virginia receive an A- rating because, according to the Pew Center, Virginia lags in management of expenditures of state funds, particularly in construction projects.
To date, the Commonwealth has never used to Virginia Fraud Against Taxpayers Act to hold construction companies accountable when they mismanage funds or fail to deliver promised results.
Anyone who doubts the potential efficacy of the Virginia Fraud Against Taxpayers Act to keep construction companies honest needs only to look at the Federal False Claims Act to see the possibilities.
The Project on Government Oversight http://www.pogo.org maintains an excellent on-line database at http://www.contractormisconduct.org which lists companies responsible for misconduct on federal contracts. Some might find it incredible that the feds do not maintain a centralized federal database of contractor misconduct; the POGO database is an effort to meet the definite need for centralized, publicly available information on how hundreds of billions of dollars of taxpayer money is spent.
The database also includes contractors responsible for misconduct in state and local contracts, but there do not seem to be any entries under this heading. I am frankly a little surprised that California, with its long history of qui tam prosecutions, does not have a single entry here. Any thoughts?
When will Virginia’s counties and cities learn about the Virginia Fraud Against Taxpayers Act?
Fairfax County is now proposing to use millions of dollars in “new money” (i.e., money raised with the power granted to Northern Virginia localities last year to increase certain taxes and fees to pay for back-logged road construction and maintenance) to pay for old problems.
For those of you that missed it, as part of last years landmark compromise, Virginia’s General Assembly agreed to allow certain localities throughout the Commonwealth to raise taxes and fees to pay for transportation initiatives.
Now, instead of using this found money for the purposes contemplated by the General Assembly (i.e., new transportation initiatives to alleviate our region’s congestion), Fairfax County has proposed to use at least $30 million of this found wealth to pay for the county’s existing transportation infrastructure.
An excellent Washington Post article by Amy Gardner and Bill Turque in today’s Metro section covers the issue in detail.
No one is suggesting, of course, that Anthony Griffin and others in county government wanted this outcome. These steps were necessary because of the general decline in county tax revenues, which in turn was a result of the downturn in the housing market. Fairfax County, along with every other county in Virginia, is in a tight spot budget-wise, and in such times tough decisions have to be made.
Regular readers of this blog will pretty much be able to anticipate what I have to say next. Fairfax County Executive Anthony Griffin and others did the same thing government leaders typically do–they looked for new money, instead of looking for ways to either collect old money or to make sure the old money was spent wisely.
A classic example of this was illuminated by Bill Turque’s Washington Post article of January 27, 2008 about the county debacle known as the Herndon-Monroe park-and-ride garage. More than $20 million dollars was spent on this garage, which opened in 1999. As early as 1997, however, the county was aware of problems with the pre-cast concrete used to build the floors and ceilings of the garage.
This was just the first of several problems, however. Another problem centers on the lack of steel diaphragms within the concrete itself. According to a study commissioned by the County, diaphragm action is so essential to the design element of the garage, “[w]e find it difficult to believe that such an important issue was not considered.”
The article includes an assertion by officials that they have little recourse at this point. While the assertion may be true, the reasons given by the county–namely, because one of the companies that could be liable has gone out of business, and the other filed for bankruptcy protection in 2002–are not the reasons why there is no recourse.
What our county leaders miss is the potential utility of the Virginia Fraud Against Taxpayers Act (Virginia Code 8.01-216.1 et seq.) to stop such waste in the future. The VFATA creates a cause of action providing for civil penalties, treble damages, and attorney’s fees against “any person” who submits false claims for payment to the Commonwealth.
“Any person” as defined by the statute includes corporate entities, associations, organizations, and trusts as well as the individuals responsible. Thus, in theory, the fact that a corporate entity had filed for bankruptcy would not preclude a cause of action against the individual operatives responsible for the false claims, and the fact that a business entity had gone out of business would not preclude a cause of action against whatever individuals had submitted false claims for payment in the past.
Under the Virginia Constitution, counties are “political subdivisions” of the Commonwealth, and there would appear to be little room for argument that a false claim submitted to a county would count as a false claim submitted to the Commonwealth under the statute.
While there is no case law under the VFATA to date, there is an enormous body of well-developed case law under the Federal False Claims Act, on which the VFATA is modeled. In litigation under the Federal False Claims Act, construction contracts are a frequent hot-spot for litigation, and there is no reason to think that the same shenanigans attempted by construction companies on contracts with the federal government are not being attempted on state and local governments across the Commonwealth.
The opinion of this writer is that county governments are too quick to throw up their hands when counties do not receive the goods or services for which they paid. The result is that counties are in a constant state of crises for funds.
If the Commonwealth of Virginia recovered more than $117 million dollars last year using the Virginia Fraud Against Taxpayers Act. If Fairfax County used the VFATA to sue individuals and companies that fail to live up to their end of the bargain in a contract with the County, perhaps the new money from the increased fees and taxes we are paying could be used for its intended purpose.
Is there any reason why counties have not stepped up to the plate and started pursuing treble damages, civil penalties, and attorney’s fees for debacles involving county funds?
The article can be found at: http://www.typepad.com/t/trackback/895477/26549968
Why is Allison Engine a pivotal case? A fundamental element of a false claims act case is a false claim, also known as a “call on the public fisc.” In other words, someone needs to have made a claim to the United States somewhere along the line.
The issue in Allison Engine is whether a false bill presented to someone other than the government constitutes a call on the public fisc if that false bill or false claim will ultimately be submitted to the United States. This is common in the world of construction and defense contracting, where numerous subcontractors submit their claims not to the United States but rather to a higher-tier contractor.
While a detailed discussion of this particular area of qui tam litigation is beyond the scope of today’s post, look for more important news on this in the future.