Whistleblower News & information

By Dietrich Knauth

This article was published in Law360 on April 12, 2013.

With the rise in whistleblower cases under the False Claims Act, the U.S. Department of Justice is under pressure to unseal cases in which it hasn’t made a definitive decision whether or not to intervene, forcing whistleblowers to litigate more fraud cases on their own.

Congress and the courts have relaxed the standards for whistleblower eligibility under the FCA, and the lowered standards, along with the increased publicity of high-dollar settlements, has caused the ranks of potential relators to swell. The DOJ reported in December that a record 647 qui tam suits had been filed in 2012, after hovering in the 300s and low 400s for much of the previous decade.

But more whistleblower suits means more work for the DOJ. While whistleblower complaints remain under seal for at least 60 days before the government decides whether or not to intervene, the DOJ has told Congress that cases typically remain under seal for far longer — about 18 months on average, and sometimes cases remain secret for years. That has created pushback from Congress and the courts, who have pressured DOJ to decide more quickly and let the cases be litigated even if it hasn’t quite made up its mind, attorneys say.

“There’s going to be a sea change in terms of how these cases are litigated,” said Reuben Guttman, of Guttman, Buschner & Brooks PLLC. “The message is that more cases are going to be unsealed without a decision on intervention. We have to all assume that we’re going to litigate the case.”

Congress has noticed the backlog, and Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa, have introduced legislation, the Fighting Fraud to Protect Taxpayers Act, that would speed up the DOJ’s investigation of sealed FCA complaints by reinvesting some fraud recovery funds into increased investigations.

But the more immediate impact will come from federal courts, which are growing less receptive to the DOJ’s requests for more time to decide whether it will intervene. In response, the DOJ has begun allowing cases to be unsealed with a notice that it will not intervene “at this time,” attorneys say.

“Judges are becoming more demanding as to having the government explain why it needs more time to investigate and make a decision for intervention,” said Ginny Gibson, a Hogan Lovells partner and former federal prosecutor.

In the past, whistleblowers pinned more of their hopes on attracting the DOJ’s intervention, and if the DOJ stayed out, they often dropped cases rather than going ahead at their own expense. But that calculus may have changed, and more experienced whistleblower attorneys are likely to pursue a good case even if the DOJ doesn’t intervene, Gibson said.

“The whistleblowers are stepping up and taking more cases further down the litigation path,” she said. “This is in part because the whistleblower bar has become more sophisticated and better funded.”

In addition to more tenacious whistleblowers, companies will have to fend off suits from unexpected areas, according to Andy Liu, co-chair of the False Claims Act practice at Crowell & Moring LLP. He pointed out that external sources had filed whistleblower complaints against companies that held General Services Administration schedule contracts, premising the suits on alleged violations of the most-favored-pricing clauses in the GSA contracts and the Trade Agreements Act.

“Increasingly, you’re seeing whistleblowers who are not your traditional corporate insiders,” Liu said. “You’re seeing more competitors filing whistleblower suits.”

Adding to the pressure on companies, some courts have also allowed federal government employees to serve as whistleblowers, according to David Nadler, a partner in Dickstein Shapiro LLP’s government contracts group. In Little v. Shell Exploration & Production Co., the Fifth Circuit held that auditors for the U.S. Department of the Interior could sue Shell for undercalculating its royalty payments by $19 million through unauthorized deductions, a ruling that could encourage more government investigators to bring private suits.

For defense attorneys, it’s all part of a trend of widening liability and more aggressive litigation by the DOJ and private relators who are more willing than ever to pick up the slack when DOJ can’t take the lead.

“You don’t want to detract from the DOJ’s own prosecutorial agenda, and they want to save resources for those home-grown cases,” Guttman said.

Whistleblower attorneys are well aware that the DOJ has limited resources and is more than happy to let private relators do the heavy lifting in litigation while it focuses its attention on its own civil and criminal cases, Guttman said. After all, the U.S. government gets paid either way if a FCA suit settles or ends in a monetary judgment.

–Editing by Elizabeth Bowen and Chris Yates.