Whistleblowers risk their careers, livelihoods, and in some instances their own safety, to expose fraud on the Government. Coming forward with information that one’s current or former employer (or anyone else) may be defrauding the Government is a serious and difficult task—not only because it requires courage and conviction, but also because just getting the information to the Government the right way to take advantage of the benefits and protections of the False Claims Act can be a challenge. A whistleblower must first hire an attorney with False Claims Act experience to work-up the case and present it to the Government in a compelling manner that encourages the Government to intervene. The whistleblower will, at a minimum, be interviewed by numerous government officials about the allegations in his or her case. The Government will then conduct its own investigation which can last years.
The Government only intervenes in a relatively small number of cases. But if the Government does intervene, and takes over the case and ultimately settles it, then under the False Claims Act, the whistleblower is entitled to between 15% – 25% of the proceeds for bringing the fraud to the Government’s attention. At least that’s how it should work. Yet things have turned out quite differently for the whistleblowers in U.S. ex rel Rille v. Pricewaterhousecoopers LLP. The circumstances of this case should trouble all whistleblowers.
In Rille, the whistleblowers filed several complaints alleging that computer equipment and software manufacturers engaged in fraud in connection with government contracts by paying kickbacks to systems integration consultants (SICs)—who provide advice on integrating IT software and hardware into an information system—in exchange for the SICs recommending the manufacturers’ products to the Government. In addition, the whistleblowers alleged that the manufacturers engaged in another fraudulent scheme by failing to reveal to the government the best prices provided to non-government purchasers, which caused the Government contracts to be defectively priced.
The whistleblowers filed an amended complaint to add Cisco Systems as a defendant. The Government initially declined to intervene in the case against Cisco. The whistleblowers conducted an extensive investigation of Cisco and its distributor Comstor, even though Comstor was not named as a defendant. Hundreds of thousands of documents were produced to the Government by the whistleblowers. Flagged for the Government’s attention were documents showing that Comstor passed on discounts to Cisco’s vendors without disclosing the discounts to the Government.
The Government eventually changed its mind and decided to intervene and adopted the whistleblowers’ complaint. It then settled the action against both defendants for $48 million. But the whistleblowers were not made parties to the settlement agreement, even though the settlement was conditioned on dismissal of their action. After they found out about the settlement, the whistleblowers filed a motion to recover their statutory share as provided in the False Claims Act. The Government opposed, arguing that the whistleblowers’ claims were based primarily on the unlawful kickback scheme, which the Government said lacked merit and was not the focus of the settlement. It also contended that it discovered the Comstor/Cisco fraud during a routine audit and not as a result information provided by the whistleblowers. Finally, the Government asserted that the whistleblowers were not entitled to any share of the settlement with Comstor because Comstor was not named as a defendant in the case. In addition to opposing the whistleblower’s motion, the Government also moved to have the whistleblowers’ complaint dismissed.
The trial court rejected the Government’s arguments and held that the whistleblowers were entitled to a 17% share of the settlement, which was approximately $8 million. The Government appealed the case to the U.S. Court of Appeals for the Eighth Circuit and the appellate court affirmed the trial court’s ruling.
The Government then petitioned for rehearing and en banc review by the entire Eighth Circuit. The Government’s petition was granted and oral argument is now scheduled for the second week of January 2015.
In the grand scheme of things, the $8 million share that the trial court ruled the whistleblowers were entitled to means next to nothing to the Government from a financial perspective. Indeed, setting aside the whistleblower share, the Government will receive at least $40 million from the settlement. It arguably would not have recovered anything at all if the case had not been brought in the first place. So the Government has clearly made a policy decision to push back against expansion of whistleblower rights to a settlement share beyond what the Government believes is permissible.
But Rille hardly seems like the right case for the Government to make its stand. After all, the Government intervened, adopted the whistleblowers’ complaint and ended up recovering a substantial settlement in exchange for the case being dismissed.
In its petition, the Government argues that the Eighth Circuit’s opinion “threatens significant harm to the federal government by encouraging opportunistic behavior on the part of future relators with vague, or no, information about a particular fraud.” But the Government’s stance is likely to encourage exactly the type of behavior it argues it is trying to prevent. If whistleblower shares are going to be limited based on very narrow readings of the allegations in the complaint, then whistleblowers will have an incentive to throw every conceivable fraud allegation into the complaint to prevent the Government from later denying them a reward because the complaint was narrowly focused.
The Government also claims that the ruling “risks the loss of millions of dollars in False Claims Act recoveries.” But as was the case in Rille, the only reason the Government recovered any money is because the whistleblowers brought a case in the first place which ultimately resulted in a favorable settlement for the Government. And the “millions” of dollars in False Claims Act recoveries that the Government says it will lose pales in comparison to the billions of dollars it recovers annually from cases filed by qui tam whistleblowers under the False Claims Act.
It’s hard enough to be a whistleblower without the Government mounting a challenge to the whistleblower’s share once a case has been resolved successfully. If the Eighth Circuit’s panel decision in Rille is affirmed, that will hopefully prompt the Government to retune its policy on the scope of a whisteblower’s share to be more in line with one of the goals of the False Claims Act: fostering a public-private partnership to root-out fraud on the public fisc.