By Jeanne Greeley
Why does Fortune Magazine say certain companies should "fear" Massachusetts U.S. Attorney Michael J. Sullivan?
Because Sullivan is aggressively pursuing fines and settlements for corporate wrongdoing. That means the U.S. attorney will partner with lawyers on potentially lucrative whistleblower cases, making Boston arguably the prime place for lawyers to file such cases.
In fact, 85 percent of the fraud cases handled by the local U.S. Attorney's Office are initiated by individuals who blow the whistle on suspicious or illegal behavior that defrauds the government.
Under the federal False Claims Act, whistleblowers can earn between 15 and 30 percent of any settlement or judgment (which can be in the millions). And experts say the cases are as plentiful as ever with federal spending on things like health care and defense contracts spiking — creating opportunities for money to be skimmed off through fraudulent activity.
Aware of a rise in local whistleblower cases and the state's vigorous pursuit of those, some attorneys are looking to capitalize on this trend by setting up shop and billing themselves as whistleblower attorneys.
"Boston has become the place to file these cases," says Suzanne E. Durrell, the former deputy chief of the Civil Division of the U.S. Attorney's Office, who is now in private practice as a whistleblower attorney at Thomas & Associates in Boston.
According to Durrell's partner, Robert M. Thomas Jr., a former assistant U.S. attorney in Maryland, the three-lawyer firm is swimming in whistleblower cases. With at least 10 ongoing suits, the firm is handling the work of about eight attorneys, Thomas claims.
"When I first started getting into this work, I initially thought that other attorneys would be my competition for business," says Thomas. "My perspective now is that these people are my colleagues because there's more [cases] out there than any of us can do."
Considering many whistleblower cases evolve out of standard wrongful termination or retaliation claims, private attorneys need to decide whether to hand these cases off to a lawyer who specializes in this area, or to dig in their heels and take the case themselves.
But there's a catch. To manage a whistleblower case, private attorneys often need to harness the strength of the U.S. Attorney's Office, which decides whether or not it wants to intervene and take over the investigation. The office only does this in one out of every four cases.
To say whistleblower cases are an uphill battle without the government's assistance is a gross understatement. Most attorneys, in fact, paint the scenario as a David-and-Goliath battle in which a lawyer could find himself exhausting enormous resources to no avail.
Boston attorney Thomas M. Greene knows this situation all too well. Since 1996, he's been in pursuit of Pfizer after Greene's client blew the whistle on the drug company's alleged off-label promotion of Neurontin, a drug approved to treat epilepsy that was prescribed for everything from bipolar disorder to migraines. Eight years later, the government has yet to intervene in the case.
"I didn't want to walk away from it," says Greene. "I thought that there was a wrong, and if the government wasn't going to enter the case and pursue it, I felt obligated to."
The pursuit has come with a price tag of about $200,000, Greene says.
But whistleblower cases also hold the promise of a handsome reward for attorneys willing to take them on.
Consider that most take these cases on a standard contingent fee agreement, and that whistleblowers often walk away with a multi-million-dollar share of the case's settlement. Given all that, the equation looks quite lucrative for lawyers.
But the challenges can be many for attorneys. And most attorneys who have handled whistleblower cases caution that these are time-intensive, intricate cases that can amount to no reward in the end if lawyers don't handle them correctly.
"I really would not want to dabble in this," Thomas admits. "This statute is fascinating but it has many twists to it."
What Is A Qui Tam Suit?
Enacted in 1863 primarily to curb widespread abuses by government contractors during the Civil War, the False Claims Act allowed for any citizen aware of an individual or company that was defrauding the government to file a whistleblower lawsuit on behalf of the United States.
Known as a qui tam lawsuit — meaning one who sues as much for the state as for himself — the provision was seldom used until 1986 when amendments strengthened the law and increased monetary rewards for whistleblowers.
"When [Congress] passed this statute and then amended it in 1986, they wanted to make it attractive for whistleblowers and their lawyers to do this," says Thomas. "This is a huge recovery vehicle for the government."
From fiscal 1987 to 2002, the number of qui tam cases filed increased from 33 to 320 — a staggering 870 percent. And whistleblowers, who are also known as "relators," have reaped $987.8 million to date as their statutory share of any settlements or judgments, according to Taxpayers Against Fraud.
Recently released FY03 statistics from the Department of Justice reveal that a record $2.1 billion was recovered through suits and investigations of fraud against the United States. Of that amount, $1.48 billion was from suits initiated by whistleblowers under the qui tam provisions of the False Claims Act.
While the whistleblowers in cases involving private companies like Enron or Putnam Investments have made headlines, attorneys say those cases are less frequent than cases involving fraud against the government because they don't offer the whistleblower the financial incentive to come forward.
Though there is a False Claims Act in Massachusetts, which was passed in 2000 largely in response to cost overruns in the Big Dig, attorneys will want to file their qui tam suits in federal court because there are usually both state and federal dollars involved.
For suits involving Medicaid, for example, any recoveries get divided between the state and federal government. The standard procedure is to file a suit under seal in the federal court, attaching any state claims as "pendent claims," meaning that the state claims would not survive alone in federal court, but since they are closely related to the federal case, they can be included with it, Thomas explains.
Cases involving only state dollars, such as a state-funded construction project, would be filed in state court under the state False Claims Act.
"Even if you had a case that was, say, 75 percent state and 25 percent federal, you wouldn't want to lose your right to recapture the 25 percent federal, so you'd still file that in federal [court] with the state claim pendent to the federal claim," Thomas says.
According to the False Claims Act, the case remains sealed for 60 days, but realistically the courts will often extend that for up to two years at the request of the U.S. Attorney's Office, lawyers say. During this time, it's up to the U.S. Attorney's Office to evaluate the case and decide whether or not it wants to intervene and take over the investigation.
"You have no guarantee the government's going to like your case ... or that it will ever be successful," cautions Durrell. "You could put in a lot of time and a lot of energy and at the end of the day walk away with nothing."
However, if the government does intervene in the case — at which time it is unsealed and the defendant is served with a copy of the suit — potential judgments or settlements can be enormous.
The False Claims Act stipulates that a liable defendant pay three times the government's losses, plus $5,000 to $10,000 for each false claim. In settling a case, the government will often agree to forego any civil penalties awarded, accepting instead two to three times the amount of damages suffered by the government.
The statute also contains an anti-retaliation provision for employees who file suit against their current or former employers.
"The anti-retaliation provisions have real teeth," claims Thomas. "And people who try to punish an employee because they think they've filed a whistleblower suit are really asking for it."
Preparing Your Case For The Government
Attorneys face several hurdles in getting the government to take over the investigation of their whistleblower case.
First, it is statutorily required that the whistleblower be the first to file the case against the defendant in federal court. This is sticky territory, lawyers say, since the secretive nature of these cases could mean that an attorney is working on a case that the government already knows about but has under wraps. Or, another attorney may be representing a client from the same company, who is preparing to file a suit alleging the same fraud as the client you are representing.
"That's one of the risks in this," says Thomas. "You can have a wonderful case and you can be second to file by a day, and you've got a problem. And you just don't know that for quite a long time."
Consequently, attorneys need to walk a fine line between rushing to beat their opponents to the punch and preparing an airtight case that the government will find attractive.
Boston lawyer Donald K. Stern, who served as U.S. attorney from 1993 to 2000, encourages lawyers to informally contact the office to discuss the merits of their case, and warns that a haphazardly prepared case could hurt the attorney's credibility.
"Obviously, there's a premium on wanting to get your oar in the water," he notes. "But, on the other hand, you really have to do your homework."
In preparing their cases to present to the government, attorneys should also intensely screen their whistleblower clients, Thomas suggests, adding that any weak claims that might reek of opportunism could mean a loss of credibility for the attorney.
"These people come with the full range of profiles in terms of credibility, clarity, command of details, knowledge of the situation," Thomas says of whistleblowers. "They're really all over the map."
Attorneys also need to assess how culpable their client could be if the investigation of fraud leads to criminal charges, because a wrong move could inadvertently land your client in jail.
A provision of the False Claims Act does allow for the government to reduce the whistleblower's award to 10 percent if it is found that he played a significant role in inventing or perpetuating the fraud. Attorneys who feel that whistleblowers should not be allowed to profit from potentially criminal behavior lament that this provision is rarely used.
For these reasons, Durrell and Thomas say it is important for attorneys taking on these cases to have some prosecutorial background or experience handling cases involving white-collar crime.
"If you want to walk in as a whistleblower and tell the government everything, and you're involved and you have no immunity from the government, you can be prosecuted," warns Durrell. "You have just walked your client right into a buzz saw. You think they had trouble before?"
However, she adds that "the government's obviously very interested in whistleblowers coming forward, so they don't have a great incentive to start prosecuting people who are coming to tell them the bad news. They don't have a lot of incentive to kill the messenger."
Also, lawyers need to ensure that the claim of fraud is explained with specificity in the complaint. This is necessary because under the Rules of Civil Procedure, the defense is supposed to have adequate notice of the charges so they can defend against them.
Typically, says Durrell, once a qui tam case is unsealed, the defense tactic is to file a motion to dismiss the complaint on the grounds that it doesn't adequately specify the charges of fraud.
"Think of it as a who, what, when, where," Durrell says of the complaint, adding that supplying names of patients who were affected by a fraudulent drug company scheme is one example of specificity.
Preparing the documents that detail the fraud can be the most intensive part of the investigation for an attorney, especially if a whistleblower client no longer works for the defendant company and, in turn, has limited access to information.
If that is the case, private lawyers better prepare their client for an intense series of interviews by the U.S. Attorney's Office.
However, many employees or former employees will have access to evidence like e-mails, voice-mails, marketing materials, company memos or test results that show how a product failed, all of which should be organized and presented to the government in the attorney's disclosure statement.
Also important in the disclosure statement is a description of any precedent-setting cases in this area of the law, a description of what the company does, what the product does that's alleged to be false or fraudulent, and any correspondence that show the whistleblower trying to alert people to something wrong. This last bit of information can also serve to support any retaliation or wrongful termination claims in the case.
Attorneys also have to gauge whether or not the government is aware that the fraudulent activity is taking place — "the government knowledge issue," as Thomas calls it. For example, he says, the government may be aware that it has been buying a defective product, but it doesn't think that it has caused any physical or financial harm, and the problem can be easily corrected.
"Have they reacted with shock and outrage, or have they yawned?" Thomas asks. "Because it's important in these cases that if you're alleging fraud that the victim actually believe that it's a victim."
Two Very Different Tales
Once you've prepared your case for the government, the crucial factor in your client's success could be the government's decision to intervene or pass on the case.
Some attorneys refer to handling a whistleblower case without the government's assistance as a "David-and-Goliath battle," while others say it is outright "impossible."
After all, along with the government comes subpoena power, the possibility of a grand jury investigation and even the ability to use wiretaps during the investigation, not to mention far greater resources than the average private attorney has. And some attorneys note that once the government steps in, it takes on about 85 percent of the work, if not more, until the case is resolved.
Such was the case for Lawrence attorney Vincent G. Campanella Jr., who took on a wrongful termination case for his client, Lawrence Saklad, and soon found himself uncovering a fraudulent scheme being perpetrated by the Brookline-based Vantage Group against the U.S. Postal Service.
Considering Campanella's client was a "pack rat," the attorney was able to amass documents showing that the company was perpetrating a scheme to defraud the U.S. Postal Service by using its clients' non-profit mailings rates.
"I think they were impressed with the amount of documents we provided them," Campanella says of the U.S. Attorney's Office, which intervened in the case when the lawyer filed it in federal court in 1997.
From there, it was smooth sailing, Campanella adds. Aside from having to study the False Claims Act, which made the attorney feel like he was in law school again, Campanella says his qui tam case wasn't rocket science. And he can't see why any attorney wouldn't be able to handle one of these cases with the government's help.
"There really wasn't much for me to do," says the attorney. "The government was carrying the fight ... For the most part they were the ones in the trenches."
Campanella's case recently settled for $4.5 million, with his whistleblower client reaping $990,000, or 22 percent of the settlement, and the attorney getting his share of an undisclosed contingent-fee agreement.
Greene, who is still battling Pfizer after eight years, has a much different perspective on qui tam cases. With enough documents to fill a garage from floor to ceiling with boxes, Greene describes every step of his case — from discovery to depositions — as grueling.
Greene's whistleblower client, David Franklin, has had his face everywhere from the pages of the New York Times to "Dateline," revealing the intricate details of how he served as a "medical liaison" who duped doctors into prescribing the drug Neurontin for a litany of off-label uses that weren't approved by the FDA but were paid for through Medicaid.
Greene admits that the theory of fraud in his case is a novel one with no precedent to support it, but he can't seem to explain why the government has yet to intervene in what he sees as an airtight case.
"I think they would say that they were still conducting their investigation and they had asked for additional time and the court didn't give it to them," Greene says of the lack of intervention by the government. U.S. District Court Judge Patti B. Saris in December 1999 rejected the U.S. Attorney's Office's request for an additional extension to keep the case sealed.
Samantha Martin, a spokeswoman for the U.S. Attorney's Office, said the office would not comment on the Pfizer case, nor could anyone provide information to attorneys about preparing their whistleblower cases for the office.
Greene worries that not having the government involved in a qui tam case can send the wrong message to the defendant.
"If it's Greene & Hoffman [instead of the United States], that's sending the wrong message to Pfizer," he laments. "They have to wonder, 'Does the government believe in the case? Why didn't the government enter the case?'"
Fortunately, says Greene, his case has survived a motion to dismiss and a motion for summary judgment. Published reports have indicated that the case is in the process of settling, but Greene would not comment on those developments.
According to both defense and plaintiffs' attorneys who have handled whistleblower cases, many of these cases tend to result in settlements. The perspective from some defense attorneys, however, is that the government gets companies to settle by threatening to "debar" them from federal programs like Medicaid.
"If the government did not have the debarment authority that it has, more companies would be willing to challenge a False Claims Act allegation," says defense attorney Nicholas C. Theodorou of Boston. "Debarment is a powerful tool for the government and it does not necessarily create a level playing field."
The U.S. Attorney's Office would not respond to questions about its use of debarment in negotiating settlements.
Though Greene's firm has devoted three attorneys and a paralegal nearly full time to this case, amounting to more than 6,000 hours, there's a potential silver lining.
According to the statute, the whistleblower can earn up to 30 percent of any settlement or judgment that might result from a case in which the government doesn't intervene — a dramatic increase from the average 16 percent that is awarded when the government does intervene. (When the government intervenes, the whistleblower is only entitled to between 15 and 25 percent of the money.)
Greene's message to fellow attorneys considering taking on qui tam cases is this: "Professionally, it can bring a private attorney great professional satisfaction to prosecute a defendant for fraud perpetrated on the government and to make a recovery for the government, which is ultimately for the people. But it is a great burden to undertake a case like this, especially when the government doesn't intervene."
That said, Greene claims he'd still take on the right qui tam case if it presented itself in the future.
"I've been reviewing False Claims Act cases and I'm happy to take the right case on," he says.
With billions of federal dollars continuing to pour into homeland security, defense contracts and health care, the prospect of more whistleblower suits on the horizon is a very real one, according to attorneys.
"The amount of money being spent is really stunning, and I have to believe that a certain amount of it will be siphoned off to fraudulent conduct," says Durrell. "And I would hope that citizens would be willing to come forward. But who knows?"
December 1, 2003
