By Alan J. Bozer, Joanna J. Chen, originally published in The Daily Record on Friday, December 7, 2018.
White Collar Corner: When the Whistle Blows
Imagine the scenario: You are in-house counsel for an organization, and you receive reports that government agents have contacted multiple employees at their personal residences. The U.S. Department of Justice then issues a subpoena to investigate potential False Claims Act (FCA) claims. You have good reason to suspect the claims have been brought forward by a suspected whistleblower in your organization. How do you respond?
The federal FCA is the U.S. government’s “primary litigative tool for combatting fraud.” S. Rep. No. 99-345, at 2 (1986). Broadly, the FCA permits any private citizen acting as a private attorney general to bring a civil action against any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the federal government. 31 U.S.C. § 3729(a)(1)(A). New York State also has its own FCA, which mirrors the federal FCA.
Generally, when a whistleblower or qui tam complaint is filed, the complaint remains under seal while the government investigates the alleged claims. The government may seek interviews with employees and document discovery, all without disclosing the nature of the alleged claims or the identity of the whistleblower. After completion of the investigation — a process that may take years — the government will decide whether to prosecute the whistleblower complaint.
Broad federal protections against whistleblower retaliation
Organizations naturally and frequently react to an investigation into potential FCA claims by trying to identify the whistleblower and taking steps to limit the whistleblower’s access to information. However, both the federal and the state FCA provide broad protections for whistleblowers. Actions taken against whistleblowers may generate additional potential liability arising out of alleged retaliation against whistleblower conduct.
Under the federal FCA, whistleblowers are protected by 31 U.S.C. § 3730(h) (1), which provides: [a]ny employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section.
Whistleblowers can sustain a claim for retaliation by proving that they engaged in conduct protected under the statute, that their employers were aware of the conduct, and that they were terminated in retaliation for their whistleblowing. United States ex rel. Sasaki v. N.Y. Univ. Med. Ctr., No. 05 Civ. 6163, 2012 WL 220219, at *11 (S.D.N.Y. Jan. 25, 2012), aff’d sub nom. ABC v. NYU Hosps. Ctr., 629 F. App’x 46 (2d Cir. 2015).
Broad protections apply to a wide variety of whistleblowing conduct. For example, protections kick in if “it is sufficient that a plaintiff be investigating matters that ‘reasonably could lead’ to a viable False Claims Act case.” Hoyte v. Am. Nat’l Red Cross, 518 F.3d 61, 66-67 (D.C. Cir. 2008) (internal quotation marks and citation omitted). In Hoyte, the whistleblower alleged that her former employer, the American National Red Cross (ANRC), had failed to make certain reports to the Federal Drug Administration regarding the handling of blood supplies. Id. at 63. The whistleblower further alleged that ANRC had wrongfully discharged her in retaliation for engaging in protected activity, namely investigating and complaining about ANRC’s handling of blood supplies. Id. at 66.
The D.C. Court of Appeals upheld the dismissal of the retaliation claim because the statute that the whistleblower alleged ANRC violated did not oblige payment to the government, and therefore, the whistleblower’s investigation could not have reasonably led to a viable FCA claim. Id. at 67-68. Justice Tatel’s opinion in Hoyte, which concurred in part and dissented in part, emphasized that 31 U.S.C. § 3730(h) only requires that an employee engage in activity “in furtherance of an action under this section,” and “‘not an action that is reasonably likely to succeed,’ or even ‘a non-frivolous action.’” Id. at 72 (citing 31 U.S.C. § 3730(h)(1)).
A whistleblower’s activities may be protected even if the whistleblower has not yet filed an FCA complaint, and a whistleblower’s conduct is protected if the whistleblower believes he or she is averting an FCA violation. United States v. N. Adult Daily Health Care Ctr., 205 F. Supp. 3d 276, 298 (E.D.N.Y. 2016); Faldetta v. Lockheed Martin Corp., 2000 WL 1682759, No. 98 Civ. 2614, at *12 (S.D.N.Y. Nov. 9, 2000).
Health care organizations may be surprised to learn that whistleblowers may disclose otherwise private health information protected under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA contains an express exception that allows a whistleblower to disclose protected health information to a health oversight agency or an attorney where the whistleblower “believes in good faith that the covered entity [employer] has engaged in conduct that is unlawful or otherwise violates professional or clinical standards, or that the care, services, or conditions provided by the covered entity potentially endangers one or more patients, workers, or the public.” 45 C.F.R. 164.502(j)(1)(i).
For example, in one of the few decisions addressing the whistleblower exception under HIPAA, a federal district court held that two employees who were terminated from a hospital rightfully retained “a large amount of personal health information” regarding hospital patients after they were terminated, where the employees alleged that the hospital had illegally billed the federal government. Howard ex rel. United States v. Ark. Children’s Hosp., No. 4:13cv00310, 2015 WL 4042170, at *1 (E.D. Ark. July 1, 2015). Thus, an employer should use caution when investigating an employee’s taking of protected HIPAA information in violation of the employer’s rules before taking disciplinary action.
New York State protections for whistleblowers
The New York FCA, similar to the federal FCA, provides protection to whistleblowers who are engaged in “lawful acts.” State Fin. Law § 191(1). “Lawful acts” protected under the state FCA include “obtaining or transmitting” information “even though such act may violate a contract, employment term, or duty owed to the employer or contractor, so long as the possession and transmission of such documents are for the sole purpose of further efforts to stop one or more violations of this article.” State Fin. Law § 191(2).
In August of this year, the First Department, Appellate Division held that a previous settlement regarding tax liability between New York State and the alleged defendant did not bar a whistleblower’s claims, inter alia, because the FCA claims did not fall within the scope of the release. Anonymous v. Anonymous, 165 A.D.3d 19, 30 (1st Dep’t 2018). In addition to facing tax evasion claims that it thought it had avoided, the employer in that case also faced retaliation claims because the whistleblower alleged he was disciplined for his “observations, investigations, and confrontations [that] demonstrate[d] his protected conduct and defendants’ awareness of the same.” Id. at 26.
Limits to whistleblower protection
Of course, whistleblower protection is not limitless. “[A]n employee’s investigation of nothing more than his employer’s non-compliance with federal or state regulations” does not constitute protected whistleblower conduct. Hoyte, 518 F.3d at 67 (quoting United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 740 (D.C. Cir. 1998)). Similarly, an employee who merely reported to his supervisor alleged errors in charges to the federal government, without initiating, testifying or assisting in the filing of a whistleblower complaint, was not protected from being discharged from his employer. Zahodnick v. Int’l Bus. Machs. Corp., 135 F.3d 911, 914 (4th Cir. 1997).
Where a whistleblower seeks to disclose information protected by a confidentiality agreement, the disclosure may not be “overbroad and unreasonable.” Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1062 (9th Cir. 2011). A disclosure is “overbroad and unreasonable” when the relator takes “vast and indiscriminate” amounts of employer confidential information. In Cafasso, the Ninth Circuit held that the whistleblower’s possession of “tens of thousands of [confidential] documents” could not be supported. It also granted summary judgment to the whistleblower’s former employer upon its counterclaim against the whistleblower for violating her confidentiality agreement by taking confidential information in an “unselective manner.” Id. at 1062.
Ultimately, organizations and counsel who represent them should be cognizant of the broad protections provided to whistleblowers in their midst — and should ensure that any adverse employment actions taken against a whistleblower are not based upon protected whistleblower conduct.
Alan J. Bozer is a partner with Phillips Lytle LLP in its Buffalo and New York City offices. Mr. Bozer is leader of the firm’s White Collar Criminal Defense & Government Investigations Practice Team. He is active in trying criminal and civil cases, as well as handling appellate and arbitration work. He can be reached at email@example.com or (716) 504-5700.
Joanna J. Chen is a senior associate with Phillips Lytle LLP, where she concentrates her practice in the areas of class action and complex commercial disputes, including theft of trade secrets, breach of contract and business torts. She can be reached at jchen@ phillipslytle.com or (716) 847-5433.