Sep 122014

Court Permits Counterclaim Against Relator for Breach of Employment Agreement

Scott D. Stein
, ,

A recent federal court decision from the District of New Jersey confirms that while the FCA protects employees’ right to blow the whistle, it does not give them carte blanche to ignore confidentiality obligations or employment agreements. Two former employees of a medical device manufacturer sued their former employer for allegedly promoting a medical device for off-label and medically unnecessary uses. After its motion to dismiss was denied, the manufacturer answered and filed a counterclaim against the former employees for breach of their employment agreements. The relators then moved to dismiss the counterclaims.

Denying the motion, the court noted that employer had alleged that “[b]oth Relators signed employment agreements, at the beginning of their employment [ ] requiring them to refrain from disclosing or retaining certain [employer] confidential or proprietary information,” and that the relators “‘took, disclosed, and then published’ confidential patient claims data and proprietary business information related to the [device] and customer lists in their First Amended Complaint, thereby breaching their employment contracts.” Notably, the Court rejected the relators’ argument that the claim should be dismissed because “the agreements, essentially restricting the disclosure of documents evidencing false claims against the government, would frustrate the underlying policy considerations of the FCA,” noting that accepting the manufacturer’s allegations as true (as the Court was required to do on defendants’ motion), the counterclaims were not obviously barred.

This is the latest in a series of decisions from various district courts confirming that the ability to file an FCA case is not a license for former employees to violate their confidentiality obligations without consequence. Accordingly, it emphasizes the desirability of requiring employees to sign confidentiality agreements. Although such agreements cannot insulate employers from liability for actual FCA violations, they can discourage employees from filing frivolous qui tam suits, or from making unauthorized disclosures of confidential information that are not reasonably necessary to inform the government of potential fraud.

A copy of the district court’s decision in U.S. ex rel. Bahnsen v. Boston Scientific Neuromodulation Corporation (D.N.J.) can be found here.

Scott D. Stein

Chicago

sstein@sidley.com

You might also like
DC Circuit Clarifies Standard For Determining When A Relator Is Entitled To Recover Under FCA’s “Alternate Remedy” Provision

In an interesting opinion interpreting the FCA’s alternate remedy provision, the D.C. Circuit recently held that a relator who filed a False Claims Act (FCA) case that was ultimately settled was not entitled to a share of the monetary relief that the government obtained through the settlement of a separate Food, Drug, and Cosmetic Act (FDCA) enforcement action against the defendant pharmaceutical manufacturer despite the fact that the enforcement action was based on similar underlying facts.  The court explained that whether a separate government action is an “alternative remedy” in which a relator may share turns not on the commonality of facts between the government’s action and the FCA action, but on the type of claim brought and whether that claim could have been brought by the relator under the FCA.

Supreme Court Appears Poised To Extend FCA Statute of Limitations to 10 Years In Non-Intervened Cases

On March 19, 2019, the Supreme Court heard oral argument in Cochise Consultancy v. United States ex rel. Hunt, a case that appears likely to resolve a circuit split on an issue of critical importance: in non-intervened FCA cases – which comprise the vast majority of FCA cases – are relators entitled to invoke the FCA’s alternative 10 year statute of limitations set forth in 31 U.S.C. § 3731(b)(2)?  That provision provides for a ten year statute of limitations if the action is brought no more than three years after “the official of the United States charged with responsibility to act” knows, or should know, the material facts of the violation.  While an opinion is not expected until later this year, the tenor and content of the Justices’ questions suggest that the Court’s answer to that question is likely to be yes.

District Court Rejects Relators’ Pursuit of Independent Claims After Government Intervention, and Finds Government’s Allegations of Knowledge Insufficient

When a relator brings a civil action for a violation of the FCA, the Government “may elect to intervene and proceed with the action,” and, thereafter, the Government “shall have the primary responsibility for prosecuting the action.”  31 U.S.C. 3730(b)(2), (c)(1).  In United States ex rel. Brooks, et al. v. Stevens-Henager College, Inc., et al., No. 2:15-cv-00199, 2019 WL 186663 (D. Utah Jan. 14, 2019), a judge in the District of Utah addressed the issue of “whether a relator retains an independent right to maintain the non-intervened portion of an action” in which the Government only partially intervened.  The district court held that, under the plain language and legislative history of the statute, the relator has no right to litigate the non-intervened portions of the case.