April 17, 2014

Eighth Circuit Takes Broad View of Whistleblower “Finder’s Fee”

whistleblowerBy the C|C Whistleblower Lawyer Team

Under the qui tam provisions of the False Claims Act, a whistleblower who files an action that ultimately leads to a government recovery is entitled to a generous portion of the proceeds — anywhere from 15 to 30 percent.  There is no discretion in making an award.  It is mandated by statute.  It is this unadulterated promise of a significant financial bounty that has been a driving force behind the success of the False Claims Act since it was retooled and revamped almost thirty years ago.  See Whistleblower Incentives Work.  And some whistleblowers have done quite well for themselves over the years, with last year’s collective whistleblower take reaching $345 million.  See Another Record Year for DOJ Whistleblower Recoveries.

The question remains, however, just how far this mainstay of the American whistleblower system extends.  Specifically, whether whistleblowers are still entitled to the statutory award if the complaint they file lacks enough factual specificity or relies on facts or legal theories the government does not ultimately adopt.  According to a decision last week by the Eighth Circuit in Rille v. PricewaterhouseCoopers, these whistleblowers should still be paid their fair share of the pie.  To do otherwise, the Court found, would undermine one of the “primary purposes” of the False Claims Act.  That is, “to encourage whistleblowers to come forward with allegations of the fraud perpetrated upon the government, and to reward them when they do so.”

The whistleblowers in this action filed a qui tam lawsuit against the government contractor, Cisco Systems, for allegedly engaging in an illegal kickback and inflated pricing scheme.  The government intervened, adopting the whistleblowers’ complaint, and Cisco ultimately settled the matter for $48 million.  But when it came time for the whistleblowers to collect their statutory rewards, the government objected.  In its view, the whistleblowers deserved nothing because (i) their complaint did not provide enough factual detail to satisfy Rule 9(b) of the Federal Rules of Civil Procedure, and, in any event (ii) the ultimate settlement concerned fraudulent activity not identified in the complaint.

The district court rejected the government’s assertions and awarded the whistleblowers roughly $8 million of the $48 million recovery.  In a 2-1 decision, the Eighth Circuit affirmed the award.  First, it “squarely rejected” the contention that Rule 9(b) plays any part in determining a whistleblower’s entitlement to a financial reward.  A qui tam complaint “serves its purpose when it provides the government sufficient information to pursue an investigation into the allegedly fraudulent practices.”  That is just what the whistleblowers’ complaint did here, the Court held, regardless of whether it also met the particularity requirements of Rule 9(b).

Second, the Court dismissed just as readily the argument that an award should be withheld if the ultimate liability is based on misconduct that differs from that alleged in the qui tam complaint.  The Court ruled that a “finder’s fee” is appropriate “for doing nothing more than bringing the information regarding the fraud forward and filing the action in federal court.”  In other words, a qualifying whistleblower must merely put the government on notice of potential fraud or serve as the catalyst for government action.  The Court found the whistleblowers certainly did that here even if the government’s ultimate charge differed substantially from that contained in their original complaint.

This decision is no doubt a positive development for whistleblowers and significantly broadens the scope of their entitlement to a financial bounty under the False Claims Act.  It also may serve to chasten the government into being much more selective in their future challenges to any whistleblower recoveries.  Whether this decision will hold up or be widely embraced by other courts remains to be seen.  This is particularly true given the vociferous dissent, arguing the award was inappropriate and unsupported by the statutory scheme.  Whatever ultimately happens, would-be whistleblowers can take some comfort in knowing that at least for now one major court has their back, even if the government does not.

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