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Whistleblower Law

Below is a clip from Bloomberg Law, full article here:

A $255 million Medicare fraud award will stand after the Eleventh Circuit refused Thursday to reconsider a panel’s decision greenlighting a successful whistleblower’s outside funding agreement.

The U.S. Court of Appeals for the Eleventh Circuit wasn’t swayed by the skilled nursing facility defendants’ assertion in a petition for rehearing that the False Claims Act expressly disallows third parties from receiving assigned fraud claims pursued in the U.S. government’s name.

The panel’s June 25 decision is the “first and only” by a federal court to give a whistleblower “the unlimited right to secretly reassign the government’s claims to any third-party speculator gambling with the government’s money,” the nursing facilities said in their petition challenging standing.

The panel’s decision was right because the whistleblower, who sold a 4% share in any recovery she received, still maintained sufficient control and interest in the litigation, said H. Vincent McKnight, Jr., of Sanford Heisler Sharp LLP in Washington.

Had the Eleventh Circuit agreed with the nursing facilities, whistleblowers not only wouldn’t be allowed to enter into such agreements, they also couldn’t, for example, use a line of credit with a bank to finance an FCA case, McKnight said.

U.S. Examining Outside Funded Suits

The appeals court’s decision comes at a time when the Justice Department, which has the power to stop FCA cases it doesn’t support, has voiced concerns about not knowing when third parties are funding cases it is investigating and litigating.

Stephen Cox, deputy associate for Attorney General William Barr, said early this year the agency was weighing what interest the U.S. has in funding agreements, and if it should require disclosures in some instances.

More recently, Justice attorneys have been told to engage in a “purely information-gathering exercise” to ascertain when third party funders are working with whistleblowers, and how much control they have over the cases, Ethan P. Davis, deputy assistant to the attorney general, told the Chamber of Commerce’s legal arm June 26.

Counsel for whistleblowers, however, have expressed worry over such governmental inquiries.

“The DOJ’s interest in learning whether a whistleblower has an agreement with a third party funder is cause for concern because that information could lead to DOJ using that information to dismiss otherwise meritorious cases,” said Mike Bothwell of Bothwell Law Group PC in Roswell, Ga.

“Animus” toward a limited liability company whistleblower was one reason why an Illinois federal court rejected a DOJ motion to dismiss a false claims case alleging kickbacks by drug makers last year.

The Justice Department maintained that disapproval of professional whistleblowers—the suit was one of nearly a dozen filed on behalf of the National Health Care Analysis Group—is a valid governmental reason for stopping a suit from going forward, said Judge Staci M. Yandle of the U.S. District Court for the Southern District of Illinois.

But the U.S. Court of Appeals for the Seventh Circuit reversed Yandle Aug. 17, ruling that the motion to dismiss should be granted and that it didn’t violate due process law.

An attorney who represents false claims defendants, including pharmaceutical companies, says DOJ’s inquiries could help the U.S. reasonably conclude that a case should be dismissed, or help explain why a settlement is being held up.

When the DOJ assesses fraud claims, it looks at whether whistleblowers have useful information from being insiders, or if they are just being opportunistic, said Scott D. Stein of Sidley Austin LLP in Chicago.

“Knowing who is behind a whistleblower’s suit can have a significant impact on the DOJ’s ability to settle with a defendant,” he said.

“If a whistleblower has a secret third party agreement that requires handing over a large cash payment, the whistleblower could hold up a resolution by pushing for more money, and the DOJ won’t know why,” said Stein.


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