A whistleblower or Qui Tam action is one filed by a person with information that a corporation or individual has committed fraud against a government entity. These laws are designed to help discover and penalize such fraud. They encourage people who know about such fraud to report it, and the whistleblower statutes offer significant rewards, to maximize reporting of fraud.

There are federal and state whistleblower laws. The federal whistleblower statutes, known as the federal False Claims Act, are codified at 31 U.S.C. §3729 et. seq. Many, but not all, states have their whistleblower or “qui tam” laws. Often, the federal government and state governments work together in investigating whistleblower claims.

Whistleblower Procedures

Qui tam is Latin for “who as well.” Whistleblower statutes allow private citizens to bring a lawsuit, on their behalf and behalf of a government, against persons or companies believed to be committing fraud against the government entity.

The federal false claims procedures are outlined in 31 U.S.C. § 3731. The first step is the filing of the Qui Tam complaint. All False Claims Act complaints are filed under seal. 31 U.S.C. § 3732(c). This protects the identity of the whistleblower and minimizes the chances the company or person suspected of committing fraud will learn of the pending action and any possible investigation.

The plaintiff in a whistleblower case is called the “Relator.” Along with filing his or her civil complaint, the Relator prepares the “relator’s disclosure statement,” setting forth the legal and factual basis for the claim. This disclosure statement should and must be detailed as possible. Both the complaint and “relator’s disclosure statement” are then served in the United States. The rules for serving the United States are outlined in Rule 5, F.R.Civ.P.

If the government is interested in the whistleblower’s claim, it will commence its investigation, with the possibility it will later intervene or join the case. In these cases, intervention on behalf of the government is essential. If and when the government decides to step in, the chances of a favorable resolution increase substantially. Many times, the government will neither intervene nor even commence an investigation.

If the government does not intervene, the individual whistleblower may still proceed on his or her own, and the government may later decide to intervene. It is much harder to prevail, however, if the government doesn’t intervene.

A federal False Claims Act complaint can be filed in any federal district where “any one defendant can be found, resides, transacts business, or in which any act proscribed by section 3729 occurred.” This is a relatively broad provision, and those wishing to file federal whistleblower complaints will have different venues (i.e., federal districts) in which they can file.

Who is the Relator?

Typically, the Relator (the client) is an employee or former employee of a company that is committing fraud against the government. Often, the Relator will first try to remedy the misconduct through internal company channels. When that fails, the whistleblower sometimes decides to pursue legal action. A whistleblower or Relator might bring a case even if they had involvement in the wrongdoing. And, the False Claims Act protects those who file qui tam complaints from retaliation (although under Garcetti v. Ceballos (2006), government employee whistleblowers may not be protected for disclosures made within the scope of the employee’s duties).

Other whistleblowers include those doing business with or business against the company in question. Contractors or subcontractors who learned of the fraud may report it. Or, someone may discover fraud committed by a competitor. Ultimately, anyone who has reliable non-public information about this type of fraud can be a whistleblower.

File First

The first plaintiff to file has priority over others, meaning there is a race to the courthouse:

If more than one whistleblower complaint is filed regarding the same misconduct, the first will take priority.

It’s, therefore, crucial if you are approached by a whistleblower whom you believe has a meritorious claim, to get it filed as quickly as you can. Because qui tam actions are filed under seal, you will have no way of knowing whether other suits have already been filed.

How Much Do Relators Get?

As mentioned above, the potential recovery for a whistleblower can be significant. Under the False Claims Act, the Relator will receive a reward of 15% to 25% of any recovery obtained against the defendant, in cases where the Government has intervened. If the Government intervenes, there is a very high likelihood that the matter will settle out of court. The Relator’s share is slightly higher if the Government does not intervene and the case proceeds.

Even though filing first is paramount, there are often multiple whistleblowers who participate in awards against a single defendant. As an example, in April 2010, the pharmaceutical giant AstraZeneca paid $520 million to settle allegations that they illegally promoted a medication “off-label.” Two Relators shared $45,286,051.

Whistleblower cases – examples

Whistleblower cases come in many forms.

There has been extensive recent whistleblower litigation against pharmaceutical companies, based on illegal “off-label” promotion of medications, usually patented drugs.

The United States Food and Drug Administration (the “FDA”) protects the public health by assuring the “safety, efficacy and security of human and veterinary drugs …” (http://www.fda.gov/AboutFDA/WhatWeDo/default.htm). Before drug companies can market and sell drugs in the United States, they must obtain FDA approval. To do that, there’s an extensive application and approval process. If the FDA approves a patented medication, it is usually for particular and limited purposes.

Under the Federal Food, Drug and Cosmetic Act (FDCA), 21 U.S.C. §301 et. seq., it is illegal for drug companies to market/promote their drugs for “off-label uses,” that is, non-FDA approved uses. This is known as “off-label” marketing.

The harm to the government is that Medicare and State Medicaid agencies end up covering, that is, paying for, many illegal prescriptions (ones generated from off-label marketing). The harm to the public can be even more significant because medications end up being prescribed in patient settings that have not been studied to determine safety and efficacy.

As an example, the package insert for Seroquel (a second-generation or “atypical” antipsychotic belonging to AstraZeneca) warns of a condition known as “Tardive dyskinesia.” This is a neurologic side effect that can, in some cases, be very severe. The FDA maintains the “Adverse Event Reporting System” (AERS), part of its post-marketing safety surveillance program for all approved drugs and products. The FDA uses AERS to monitor for new adverse events with marketed products.

Over 90% of AERs are submitted by drug companies, as required by federal law. Through a Freedom of Information Act request, I obtained all AERs related to the medication Seroquel. There were 970 involving patients who developed Tardive dyskinesia attributed to Seroquel. “According to FDA estimates, more than 90 percent of adverse events go unreported.” Bartlett v. Mutual Pharmaceutical Company, Inc., 760 F. Supp.2d 220, 234 (N.H. 2011).

Thus, based on 970 reported incidents of Tardive dyskinesia associated with Seroquel, and based on FDA’s recognition that this number represents only 10% of the actual events, there have probably been close to 10,000 cases of Tardive dyskinesia tied to Seroquel. And, this is just for the side effect of Tardive dyskinesia. Seroquel has been linked to other significant side effects, including diabetes.

Though prohibited, off-label marketing commonly occurs because the profits pharmaceutical companies make from medications (and particularly, patented drugs) are, to quote Buddy the Elf, “ginormous.”

As an example, in the AstraZeneca settlement, the company’s gross revenues for Seroquel were $2.76 billion in 2005 (AstraZeneca’s Annual Report and Form 20F for 2005). And, according to court documents, sales in 2006 increased by nearly 30%, in large part due to illegal “off-label” promotion. As mentioned above, AstraZeneca agreed to pay $520 million to resolve allegations of illegal off-label marketing.

Other companies have paid far more. In September 2009 Eli Lilly and Company pled guilty to criminal charges and agreed to pay $1.415 billion for promoting its drug Zyprexa for uses not approved by the FDA. In November 2013, Johnson & Johnson agreed to pay $1.391 billion to resolve false claims resulting from its off-label promotion of Risperdal, Invega, Natrecor. In August 2009, Pfizer agreed to pay over $2 billion to settle whistleblower claims involving several medications. In January 2011, GlaxoSmithKline (“GSK”) agreed to pay $3.55 billion. There are numerous others.

In the non-pharmaceutical setting, in 2014, Bank of America settled a mortgage fraud whistleblower case for $350 million. A former company executive alleged that the bank defrauded the United States and its government-backed mortgage finance companies (Fannie Mae and Freddie Mac) by selling them loans that weren’t as good as the company said they were.

In 2014, a Tucson health network settled a whistleblower case which alleged doctors were ordering unnecessary tests and billing Medicare for it.

In 2014, a California cell phone company that had provided cellular service to the United States government settled a whistleblower case. There, the DOJ alleges CA Technologies overcharged agencies by at least $100 million by failing to offer discounts on software licenses and maintenance that were given to other customers.

Any time the government is being systematically cheated out of funds, a whistleblower action may be appropriate.

Parallel state court actions

As mentioned above, many states have their whistleblower/qui tam statutes.

After AstraZeneca had paid $520 million to the federal government, it paid out another $68.5 million to 37 individual states. The following states have their own whistleblower statutes: California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Mexico, New York, Oklahoma, Tennessee, Texas, Virginia, Connecticut, Iowa, Colorado, Maryland, Minnesota, North Carolina, New Jersey, Rhode Island, Washington, and Wisconsin. The District of Columbia also has whistleblower/qui tam statutes.

In some instances, state court Qui Tam counts can be included in or added to a federal False Claims Act complaint.

Conclusion

Whistleblower cases play a crucial societal role. They help root out institutional fraud against the government and taxpayers. Additionally, and perhaps more importantly, they help curb unethical corporate practices that, in addition to taking money from taxpayers, substantially harm the public.

If you are approached by a potential whistleblower, take it seriously, because the monetary and societal stakes can be enormous. Get the complaint filed as quickly as you can because filing first is essential. You will then need to serve the complaint and a detailed “Relator’s Disclosure Statement” on the United States. You should consider including state court qui tam counts in your complaint. If the government investigates your claim, and if it decides to intervene in your case, the chances of a successful outcome are good.