Massachusetts High Court Bars Companies as Whistleblowers Under State False Claims Act

In a decision handed down Tuesday, the Massachusetts Supreme Judicial Court ruled that only individuals, not companies, have standing to bring a whistleblower action under the State’s False Claims Act. The decision in Phone Recovery Services, LLC. v. Verizon of New England, Inc. is groundbreaking in its limitation of who qualifies as a whistleblower. At the same time, it likely is quite limited in its reach as it is premised entirely on a statutory aberration unique to the Massachusetts Act.

The Relator in the case, Phone Recovery Services (PRS), brought the qui tam action on behalf of the Commonwealth against Verizon of New England and several other communications service providers. PRS claimed the service providers failed to collect from their customers and remit to the State a surcharge for 911 emergency telephone calls as required by statute. In doing so, the defendants allegedly provided false information to the Commonwealth to avoid this financial obligation.

The Superior Court dismissed the case, finding the 911 surcharge is a tax and thus not covered by the Massachusetts False Claims Act. PRS appealed the decision but the High Court took the case on its own initiative ruling the Relator, as a company, did not have standing and remanding the matter to the lower court for a judgment dismissing the case for lack of subject matter jurisdiction.

The Supreme Court’s decision was based on the plain language of the statute which specifically defines “Relator” as an individual. The Court contrasted this limited definition to the broader use of the term “Person” used throughout the rest of the statute, including in defining who can be found liable under the law. That term explicitly includes corporations and other business entities. The Court reasoned that the Legislature’s use of both terms signaled a clear intent to limit who qualifies as a whistleblower under the Act: “If the Legislature had intended the [broader whistleblower definition], it could have defined ‘Relator’ as a ‘person,’ not an ‘individual.'”

While the decision might otherwise sound alarm bells for those corporations seeking to serve as whistleblowers, the Supreme Court left a sturdy lifeline, significantly limiting the import of the ruling. First, it made a point of distinguishing the Massachusetts statute with the Federal Act on which it is modeled and which explicitly allows for “persons” to serve as whistleblowers. This broader definition can also be found in the state False Claims Act statutes outside Massachusetts. Thus, the reach of this decision will likely begin and end in Massachusetts.

Second, even in Massachusetts, all hope for corporate whistleblowers may not be lost. That is because the Court strongly suggested that the standing issue could be cured by filing a new complaint and naming an individual as the plaintiff, such as a principal of the corporate relator. The Court found “skeptical” any “first to file” challenge to such a switch noting that without standing, the original corporate relator would not be a proper relator necessary to maintain such a challenge.

It remains to be seen whether Massachusetts will make a legislative fix to this statutory anomaly. Whatever happens though, the impact of this decision is unlikely to have any real effect in restricting whistleblower actions within Massachusetts or beyond.

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