New York Proposes Law to Improve Incentives for Financial Industry Whistleblowers
Posted by David Rody and Lauren Treadaway
New York lawmakers have sought to fill a perceived gap in the New York State False Claims Act by providing a bounty and legal protections to whistleblowers who provide information for successful claims involving financial wrongs prohibited by state law. NYS Bill No. 4362, which is modeled in part on the New York State False Claims Act, provides new incentives to employees of financial services providers who report employer violations of New York State’s banking, insurance, and financial services laws. Currently, the New York Financial Services Law does not address monetary rewards or legal protection from employer retaliation for whistleblowers who report employer misconduct. Sponsored by New York State Senators James Seward and Joseph Griffo, S4362 would strengthen the current Financial Services Law in two significant ways: (1) by providing financial rewards for employees who disclose employer violations of New York State’s banking, insurance, and financial services laws to the Department of Financial Services (“DFS”); and (2) by including a provision for legal protection against employer retaliation for employees who report such misconduct.
If enacted, S4362 would allow a whistleblower who reports original information to receive between 10 and 30 percent of the total monetary sanctions received by DFS in a successful action against defendant based on the whistleblower’s information. The bill also creates legal protections for whistleblower employees against employer retaliation that mirror the remedies provided by the New York False Claims Act. According to the bill, a whistleblower employee may seek an injunction, reinstatement, backpay, and/or special damages where an employer retaliates against the employer by demoting, suspending, terminating, or harassing the employee. The full text of S4362 can be found here.
District Court Finds Mere Failure to Comply with All Contractual Conditions for Services Does Not Necessarily Result In a False Claim
Posted by David Rody and Michael Mann
On June 19, 2013, a district court sitting in the Eastern District of Virginia held in United States ex rel. Badr v. Triple Canopy, Inc., No. 1:11-cv-288, Dkt. #55 (GBL), that “[m]ere failure to comply with all contractual conditions does not necessarily render the billing for those services so deficient or inadequate that the invoice constitutes a false claim under the FCA. Nor does it constitute an incorrect description of services provided to constitute a false statement sufficient to impose FCA liability.” Id. at 1-2. In granting the motion to dismiss of defendant Triple Canopy, Inc. (“TCI”), the court also held that a Relator cannot use allegations of a fraudulent scheme at one location to infer a false claim at another.
TCI was awarded government contracts to provide security services to various military installations overseas, including military bases located in Iraq. Given the nature of the assignment, TCI was required to ensure compliance with U.S. Army standard weapons qualification requirements. The government, as Intervenor, alleged that 332 Ugandan TCI guards arrived for duty, and failed to complete basic skills required before even attempting to qualify on a qualification course. Further, TCI allegedly began to falsify scorecards that were placed in the personnel files of the guards in the event of an inspection. The Relator, a former TCI employee, reported the allegedly fraudulent conduct to TCI’s human resources director, vice president, and general counsel. Later, Relator was allegedly instructed to alter TCI’s scorecards to reflect passing scores for all the guards. Although TCI was not awarded a contract renewal, the government alleged TCI continued to perform other government contracts in Iraq, and the Ugandan unqualified guards were allegedly transferred to other installations in Iraq to perform similar services.
In dismissing the claim, U.S. District Judge Gerald Bruce Lee concluded that because the invoices simply identified the quantity of guards, the price for each, the period of service, and the amount for the services, the invoices, without more, “[did] not contain objectively false statements sufficient to render them false claims for purposes of FCA liability.” Id. at 12. The government sought to analogize under-qualified guards to defective products, but the court dispelled the analogy, noting that “defective goods . . . are materially different from a claim for defective services.” Id. at 15 (emphasis in original). There is still some “inherent value retained in a service that is provided by an unqualified employee compared to a complete inability to use a product that is rendered defective.” Id. (citing U.S. ex rel. Sanchez-Smith v. AHS Tulsa Reg. Med. Ctr., LLC, 754 F. Supp. 2d 1270, 1287 (N.D. Okla. 2010) (rejecting a worthless services theory based upon substandard medical care because some care was provided, even if ultimately below expectations).
The “worthless services” theory did not work here because the government failed to allege “that the TCI guards were entirely deficient so as to render their services worthless.” Id. The Ugandan guards provided a service, although perhaps not fully compliant. The court held that the services must be “entirely devoid of value, or the noncompliance must have caused an injury to the Government such that the guards effectively provided no service at all.” Id. (citing In re Genesis Health Care Ventures, Inc., 112 F. App’x 140, 143 (3d Cir. 2001) (“Case law in the area of ‘worthless services’ under the FCA addresses instances in which either services are literally not provided or the service is so substandard as to be tantamount to no service at all.”). While the failure to receive proper qualification may be a breach of contract action, the government never alleged that TCI presented the qualifications in support of a demand for payment.
Judge Lee also held that a Relator cannot use allegations of a fraudulent scheme at one location involving one contract to create an inference of a false claim at other locations, without personal knowledge, as it would fail Fed. R. Civ. P. 9(b)’s requirement of specificity. The court dismissed all the FCA counts, but granted the government leave to re-plead claims of “breach of contract” and “payment by mistake.”
On July 3, 2013, TCI moved to dismiss the remaining contractual claims pursuant to Fed. R. Civ. P. 12(b)(1), contending that the court lacked subject matter jurisdiction over such disputes pursuant to the Contract Disputes Act, 41 U.S.C. §§ 7101 et seq. See Triple Canopy, Inc., No. 1:11-cv-288 (GBL), Dkt. #57 (E.D. Va. July 3, 2013). A hearing on the motion to dismiss is scheduled for July 26.
— Andrew Soler, a summer associate, provided assistance in the preparation of this post.