Posted by Kristin Graham Koehler and Amy Markopoulos
Relators may be able to recover on claims additional to those they originally brought if the additional claims are closely related and would not otherwise have been discovered. The Eighth Circuit held on March 1, in Rille et al. v. Accenture, LLP et al., No. 11-2054 (8th Cir. 2013), that two whistleblowers were entitled to 15 percent of the federal government’s settlement with Hewlett-Packard Co. (“HP”) even though the claim was not part of the original suit they filed. The relators initially alleged that HP engaged in unlawful kickback and defective pricing schemes in its sale of computer equipment to the federal government. The United States intervened in the action and reached a $55 million settlement with HP, allocating $9 million of the settlement to the kickback scheme and $46 million to the defective pricing scheme. The district court awarded the relators a 21% share of the kickback settlement and a 15% share of the defective pricing settlement.
The government then sued to prevent the two whistleblowers from receiving part of its recovery from the qui tam action. The government claimed, inter alia, (1) that the relators’ defective pricing claim was a different defective pricing claim than the one settled, and (2) that the government learned about the conduct through HP’s voluntary disclosure and not from the relators’ qui tam. The trial court found that the government would have had no knowledge of the defective pricing scheme other than from the whistleblowers’ suit. The Eighth Circuit upheld the trial court’s decision, finding that the whistleblower’s defective pricing claim was sufficiently related to the original action to justify the relators’ share of the settlement. The dissent argued, however, that the False Claims Act allows the relator to “recover only from the proceeds of the settlement of the claim that he brought.”
Although, as here, very similar facts would be required for a whistleblower to recover on a claim different from the one actually brought, this case illustrates an expansion of the statute in favor of relators, which will likely only serve to embolden the whistleblowers’ bar.
Posted by </sup>gt;Kristin Graham Koehler and Amy Markopoulos
The New York Attorney General’s Office and Compass Group USA, a foodservice management company, reached a settlement in which Compass Group will pay New York $18 million for illegally retaining rebates from food vendors rather than passing those credits on to New York schools for more than seven years.
According to Attorney General Eric Schneiderman, the settlement with Compass Group requires that it repay almost $3 million to the schools for vendor discounts that by law should have been passed on. Compass Group will also have to pay $15 million in damages and penalties under New York’s False Claims Act.
Part of an ongoing investigation by the Attorney General’s Taxpayer Protection Bureau of food management companies and food distributors doing business with the state, it follows last year’s $1.6 million settlement with the Whitsons companies. The settlement also follows the 2010 settlement of a qui tam lawsuit against foodservice management company, Sodexo. Like Compass Group, Sodexo was charged with illegally pocketing vendor discounts, and in July 2010, agreed to pay $20 million to settle charges. After the Sodexo settlement, the New York Attorney General’s office launched an investigation into rebate practices by Compass Group and other foodservice companies. The Sodexo settlement remains the largest non-Medicaid settlement under the New York False Claims Act.
The Taxpayer Protection Bureau was established by Schneiderman last year to help with fraud recoveries from contractors, who collect about $13 billion annually from state taxpayers and billions more in local government contracts.
Posted by Kristin Graham Koehler and Amy Markopoulos
On July 28, 2012, McKesson Corporation entered into a national settlement with 29 states and the District of Columbia adding to the growing list of drug companies who have settled with the federal and state governments for allegations of reporting inflated prices to the databases used to set Medicaid and Medicare prices.
In April, the federal government settled the federal portion of this lawsuit for over $187 million. When announcing the federal settlement with McKesson, U.S. Attorney Paul Fishman said that over $2 billion has been recovered by state and federal governments from drug companies that have reported inflated prices to databases.
Under the July 28 settlement, McKesson agreed to pay more than $151 million to the states for violations of the false claims act. The settlements resolve a 2005 whistleblower case that charged McKesson with inflating the average wholesale prices that it reported to First Data Bank, a publisher of drug prices, by as much as 25% between Aug. 1, 2001, and Dec. 31, 2009. Medicaid relied upon First DataBank’s price lists to calculate the reimbursement amounts Medicaid paid pharmacies, physicians and clinics for prescription drugs it covered. As a result, it is alleged that State Medicaid programs had to overpay for a variety of drugs. The settlement covered more than 1,400 brand name prescription drugs, including commonly prescribed medications such as Adderall, Allegra, Ambien, Celexa, Lipitor, Neurontin, Prevacid, Prozac and Ritalin.
Posted by Amy Markopoulos and Kristin Graham Koehler
Companies that enter into FCA settlements may face follow on shareholder liability for breach of fiduciary duty in the settlement process itself.
On March 22, 2012, Shareholder Jordan Weinrib sued Oracle Corporation directors, including Chief Executive Officer Larry Ellison, in Delaware Chancery Court for failing to mitigate damages when the company agreed to a $200 million whistle-blower settlement with the U.S. government.
The Complaint alleges that current and previous directors violated their fiduciary duties by forcing the government into extensive litigation even though the directors knew the government’s allegations were “grounded in fact.” According to the Complaint, “[r]ather than attempt to settle all claims at that time by the institution of appropriate corporate therapeutics and the paying of what would have been a small fine, the board insisted on digging in and litigating the matter extensively.” By litigating the case, the Complaint contends, Oracle drove up the ultimate settlement price, harming taxpayers and shareholders alike.
The underlying settlement, announced in October, resolved a lawsuit brought by a former Oracle employee, claiming Oracle induced the General Services Administration to buy $1.08 billion in software from 1998 to 2006 by falsely promising the same discounts offered to favored commercial customers. The payout was the largest ever obtained by the GSA under the False Claims Act.
Weinrib said in his Complaint that he initially asked the company to investigate his claims in September 2010. However, board members “surreptitiously” abandoned an investigation and instead focused on negotiating a settlement with shareholders who had filed similar complaints in federal court in San Francisco. According to Weinrib, Oracle is attempting to “derail any inquiry into the wrongful acts.” Weinrib is seeking unspecified damages on behalf of the company.
Posted by Amy Markopoulos and Kristin Koehler
A recent ruling in the District of Arizona serves as a reminder to defense counsel that they should be sensitive to the possibility that relators are relying on stolen privileged documents to support their claims. Should a company suspect that a relator’s case is founded on privileged documents, the company should act quickly to move for return of the privileged documents. The consequences for relator or his counsel for failing to appropriately handle privileged documents can be serious.
In Frazier v. IASIS Healthcare Corporation, No. 2:05-cv-00766 (D. Ariz. 2012), IASIS Healthcare and Relator’s counsel had engaged in a 4-year battle regarding the return of certain privileged documents that Relator had stolen when he left IASIS in 2004. The relator, Jerre Frazier, had sent these privileged documents to his lawyers, who kept most of the documents in a sealed box. Despite bearing the title “Legal Memo,” relator’s counsel did not seek the court’s opinion as to whether these documents were privileged, and “appeared to play dumb” and feigned ignorance about the documents’ location when IASIS asked for their return. As a result, IASIS moved for the return of the documents and for sanctions against Relator’s counsel.
Relator’s counsel will pay IASIS $1.4 million, representing the amount of legal fees incurred by litigating this specific issue. Counsel is also barred from representing the Relator or any other plaintiff adverse to IASIS.
Serious issues can arise for counsel when relators steal documents – defense counsel needs to be prepared to file a motion should this occur, and relator’s counsel must be careful to appropriately handle privileged documents if relator turns them over.
IASIS and Frazier settled the case in November, six years after Frazier had initially brought his complaint. The government had declined to intervene in this matter.