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Whistleblower Litigation: New Developments and

Strategies

William F. CroninCorr Cronin Michelson Baumagardner & Preece LLP

1001 Fourth Avenue, Suite 3900Seattle, Washington 98154

www.corrcronin.com

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FEDERAL LAWS ENCOURAGING WHISTLE

BLOW

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1. False Claims Act31 U.S.C. § 3729(a)(1) (A-G)

Legislative Background:Enacted 18631986 Amendments2009 Amendments - expands liability provisions and authority for

Civil Investigative Demands2010 Amendments - weakened the public disclosure bar

Triggers:Knowing presentation of a false record to U.S. material to a

claimKnowing concealment to avoid or decrease an obligation to U.S.

Likely Targets:Health Care SuppliersPharmaceutical CompaniesDefense Contractors

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False Claims Act31 U.S.C. § 3729(a)(1) (A-G) (Cont’d)Threshold Issues:

U.S. InterventionOriginal source – the relator allegations cannot be based

on public disclosures unless relator was original sourceClaims smuggling prohibited

Relief:Treble damages, statutory penalties and attorney’s fees

Special Bounty:15 to 25% of recovery or 25 to 30% if government

declines to interveneDetermined by Court or by parties in settlement

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2. Sarbanes-OxleyTriggers:

Securities registered under § 12 of Exchange Act or filing reports under § 15(d) of Exchange Act

Retaliating against employee for report to internal personnel (e.g., General Counsel), law enforcement, or SEC about mail fraud, securities fraud or fraud against shareholders

Threshold Issue: Employee who is subject to retaliation must file complaint with OSHA; if

OSHA fails to issue final agency order written 180 days may file complaint in U.S.D.C.

Relief: Order for back pay, attorney’s fees, reinstatement, restoration of

benefits

Bounty: None

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3. American Recovery & Reinvestment Act of 2009Triggers:

Retaliation for whistle blow to specified persons about:1. Gross mismanagement of recovery contract;2. Gross waste of recovery funds;3. Substantial danger to public health or safety from use of

government funds;4. Abuse of authority related to use of funds; or5. Violation of law regarding use of recovery funds

Threshold Issues: Was the complaint a “contributing factor” to adverse action

against employee Employer must prove by “clear and convincing evidence” that

complaint was not a “contributing factor” to adverse actionRelief:

Compensatory damages, attorney’s fees and reinstatementBounty:

None

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4. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010Threshold Issues:

Applies to publicly held companiesEmploys a different original source ruleExcludes recovery for persons conducting SEC required audits

Relief:Doubles the back pay for an employee discharged for a

Sarbanes-Oxley reportBounty:

10 to 30% of award government receives for violation of commodities or securities law

Award must exceed $1 millionNo opportunity for whistleblower to pursue action on behalf of

governmentSEC or CFIC determine amount of award

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The Expected Lawsuit Surge In 2010, over 1000 qui tam lawsuits were pending

awaiting an intervention decision by DOJ

The financial stakes are often enormous• Glaxo Smith Kline settlement (2010): $750 million• AstraZaneca settlement (2010): $520 million• Goldman Sachs settlement (2010): $550 million

The bounties have incentivized both professional bounty hunters, plaintiff’s law firms, and employees

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“The hunter when he understands his prey – it’s easier for him to find them.”

“At the end of a criminal rainbow, there is no pot of gold.”

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Recent Whistle Blow Lawsuits Handled by CCMBP

CFO suing biotech companyEngineer at Hanford Nuclear Reservation

suing contractorAirline pilot suing commercial airlineAirline maintenance supervisor suing

commercial airlinePublic Housing Authority employee suing

Public Housing Authority

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A Recommended Strategy for the Whistle Blow Lawsuit

1. Do Not Treat As A Typical Employment Lawsuit Is plaintiff a crusader? Has plaintiff put career at stake? Does the whistle blow have merit? Will this lawsuit morph?

2. Take The Whistle Blower’s Deposition Early

3. Line Up Ex-Employees As Witnesses

4. Scrutinize Whistle Blower’s Working History Prior To Employment With You

5. Be Cautious About The Undocumented Problem

6. Find A Champion Within The Company Who has been hurt? Who stood up for the workers?

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AT&T MOBILITY LLC v.

CONCEPCION, ET UX.

Supreme Court of the United StatesNo. 09-893

William F. CroninCorr Cronin Michelson Baumagardner & Preece LLP

1001 Fourth Avenue, Suite 3900Seattle, Washington 98154

www.corrcronin.com

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KEY FACTS IN CONCEPCION1. The Concepcions entered into a wireless services

contract with AT&T Mobility for which AT&T advertised a free cell phone. AT&T Mobility in subsequent billings included a sales tax charge for the cell phone.

2. The Concepcions filed a class action complaint in the U.S.D.C for the Southern District of California alleging AT&T had engaged in false advertising and fraud by charging a sales tax on cell phones advertised as free.

3. The Concepcions had agreed to arbitrate disputes with AT&T Mobility and to waive rights to class action relief.

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KEY FACTS IN CONCEPCION(Cont’d)

4. The arbitration agreement was consumer friendly:

“In the event the parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions, that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages. The agreement, moreover, denies AT&T any ability to seek reimbursement of its attorney’s fees, and, in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.” AT&T Mobility LLC v. Concepcion, et ux,

563 U.S. ___, (2011)

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KEY FACTS IN CONCEPCION (Cont’d)

5. The U.S.D.C for the Southern District of California and the Ninth Circuit concluded that the arbitration agreement and class action waiver were unenforceable under California’s Discover Bank rule. In Discover Bank, the California Supreme Court had declared that agreements to arbitrate in which consumers waive class action relief are unconscionable and unenforceable under California law.

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WHAT THE SUPREME COURT DECIDED IN CONCEPCION

1. States cannot condition enforcement of arbitration agreements on availability of class action relief.

2. Class action waivers in agreements to arbitrate are enforceable, and any contrary state law or policy is pre-empted by the Federal Arbitration Act.

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FUTURE QUESTIONS

1. Will businesses increase their use of arbitration agreements with consumers?

2. Does rationale apply to employment agreements?

3. Must arbitration clauses be as consumer-friendly as AT&T Mobility's?

4. What will Congress do?