December 18, 2014

Whistleblowers Beware Of What Company Documents You Take To Support Your Qui Tam Case.

FilesBy the C|C Whistleblower Lawyer Team

A cautionary note for would-be whistleblowers. When it comes to internal company documents that reveal fraud or misconduct, you may assume you have broad license to take them and use them to support your potential False Claims Act case. You do not. As made clear in last week’s Eastern District of Pennsylvania decision Notorfransesco v. Surgical Monitoring Assoc., it all depends on the surrounding circumstances. And whistleblowers who fall on the wrong side of the equation can end up in just as much hot water as the company about which they are complaining.

Notorfransesco was a billing manager at Surgical Monitoring who at some point during her employment took from the company a variety of materials the company deemed confidential. She ultimately used them to bring a whistleblower action against the company, under the qui tam provisions of the False Claims Act, alleging the company submitted fraudulent claims for Medicare reimbursement. The company counter-sued Notorfransesco claiming her action “placed in the public record confidential and proprietary information including patient records, invoices, billing records, and customer billing rates.”

Notorfransesco moved to dismiss the counterclaim on public policy grounds, among other reasons. She argued that allowing this kind of counter attack in False Claims Act cases would undermine the strong Congressional purpose of encouraging whistleblowers to bring actions under the statute. The court agreed. To a point. It recognized the numerous circumstances under which the taking and use of internal company documents could be justified. But it refused to apply a blanket right to do so.

There were three factors that seemed most important to the court in weighing out when the taking of confidential documents would be proper and when it would not. First, the court looked to whether there was some kind of confidentiality agreement governing the relationship between the whistleblower and its employer and covering the documents at issue. Without some kind of confidential relationship, or if the documents fall outside the prescriptions of any such relationship (because they are publicly available or simply not covered), then the whistleblower should be in the clear. In Notorfransesco’s case, the court found both she and her documents were covered.

Next, the court considered whether this kind of counterclaim would have the effect of indemnification and contribution. In other words, would the success of the counterclaim depend on a finding the defendant was liable under the False Claims Act. The court was clear this kind of counterclaim would be barred against public policy. But again, the court found that under the facts before it, this public policy ground did not apply since Surgical Monitoring’s counterclaim is “for independent damages because its success does not rely on a finding that [it] is liable under the FCA.” In this sense, it is important to note the damages the company claims from the alleged disclosure of confidential information are not related to the False Claims Act litigation but to the “competitive disadvantage” it says it will suffer from the use of the information by competitors.

Finally, and most importantly, the court considered what extenuating circumstances surrounded the whistleblower’s taking of the documents. So, for example, if the whistleblower took the documents because they were “reasonably necessary” to pursuing the False Claims Act case, that might be enough. Indeed, the court went so far as to hold that in such cases, “confidentiality policies must give way to the needs of FCA litigation for the public’s interest.” In a similar vein, other courts have viewed as an analogous type of justification for taking documents the whistleblower’s legitimate concern the company would destroy the subject documents or evidence.

Unfortunately for Notorfransesco, the court was unable to entertain this factual exercise. Given the case is at the pre-discovery motion to dismiss stage, “it is too early” for it to get into the mix of what Notorfransesco actually did and why. Hopefully down the road, she will have plenty to offer to convince the court that her taking and use of the company documents was not only justified but something that should be encouraged for those trying to root out fraud and misconduct in the workplace. Regardless of how this particular case ends up, it offers another powerful lesson of why would-be whistleblowers would be wise to tread carefully when taking company documents to support a potential qui tam case.

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