June 27, 2022

US Supreme Court May Take Aim At Whistleblower Protection Law

Photo from Ted Eytan


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The False Claims Act in the United States allows individuals with evidence of fraud against government agencies to bring lawsuits as qui tam whistleblowers. They can bring a case even if the US Justice Department has no interest in fighting the alleged corruption.

But on June 21, Courthouse News reported that the US Supreme Court will determine whether the government has the authority to dismiss a whistleblower lawsuit brought under the False Claims Act when the government has declined to intervene in the case.

In other words, the Supreme Court could help corporations shut down independent whistleblower lawsuits that the Justice Department does not want to pursue.

Health care and pharmaceutical corporations, along with their lobbying networks, have ramped up pressure in recent years to stifle the effectiveness of the False Claims Act in holding their industry accountable and prevent the law’s expansion.

Under President Donald Trump, the National Whistleblower Center reported in 2018 that US government recoveries under the law hit a “ten-year low.” Nearly $2.9 billion was recovered, but only $767 million of that money was a result of lawsuits by the government. Whistleblower lawsuits, however, yielded over $2.1 billion.

A network of dark money has transformed the Supreme Court into an illegitimate and partisan institution. The same court that overturned Roe v. Wade—ending nearly 50 years of abortion rights—could gut one of the few laws available to private citizens to challenge corporate corruption.

Pushing Complicit Government Agencies To Act

President Abraham Lincoln signed the first False Claims Act in 1863 during the US Civil War. It became known as the “Lincoln law."

According to Tom Mueller, author of Crisis of Conscience: Whistleblowing In An Age of Fraud, the law was intended to “stop army and navy contractors from stealing taxpayer dollars but also to push complacent or complicit government agencies to act.”

The US did not have a Justice Department, Mueller noted. What the “Lincoln law” did was empower individuals to “prosecute fraud with or without the government’s participation.” Offending contractors could be fined $2,000 for each misrepresentation or false claims they made when requesting payment from the government.

The law was gutted by Congress in 1943 because the Justice Department claimed it did not need the assistance of whistleblowers when prosecutors already knew about the fraud. As Republican Senator Chuck Grassley recalled, this led to “absurd results that only hurt the taxpayer.”

Grassley, an advocate for the law, said it “basically meant that all whistleblower cases were blocked, even cases where the government only knew about the fraud because of the whistleblower.”

In 1986, Grassley helped to ensure that amendments to the False Claims Act were passed to restore power to private citizens to bring whistleblower lawsuits. It ensured that whistleblowers would receive a reward in return for risking their career or legal jeopardy. However, in order to convince President Ronald Reagan to sign the amendments into law, Grassley and other senators had to overcome institutional opposition within the Justice Department.

Jay Stephens and Stuart Schiffer, two senior DOJ officials, opposed restoring the False Claims Act. Stephens contended the Justice Department was doing a good enough job against defense contractor fraud and a stronger law would hamper their work, according to Mueller.

“The law,” Stephens said, “was an anachronism from a time when the United States had no central investigative force; now that the DOJ and the FBI existed, most qui tam whistleblowers were parasitic ‘bounty hunters’ who interfered with legitimate law enforcers and ultimately provided little useful evidence of wrongdoing.”

The counter to Justice Department officials was that the restoration of the False Claims Act was necessary to protect whistleblowers from retaliation. The amendments were needed to prevent a complacent and complicit Justice Department from entering into “sweetheart deals with powerful contractors.”

'Devastating Threat To The Executive's Constitutional Authority'

Justice Department officials remained opposed, even though Reagan declined to veto the amendments. In 1989, they argued to the US Supreme Court that the law was unconstitutional.

Bill Barr, who later became attorney general under Trump, was the assistant attorney general. He contended the False Claims Act represented a “devastating threat to the executive’s constitutional authority and to the doctrine of separation of powers.” He objected to how Congress empowered citizens to help stimulate government action against fraud.

“There has been a massive upsurge in qui tam actions—over 150 suits have been filed,” Barr cried. “These actions have disrupted the civil and criminal enforcement activities of the Department.”

“They have also undermined the executive’s ability to administer complex procurement contracts and, in some cases, have caused serious national security concerns. The 1986 Amendments have also spawned the formation of full-time ‘bounty hunting’ groups—ersatz departments of justice—that go about prosecuting civil fraud actions in the name of the United States.”

Barr was worried about groups representing whistleblowers, who could collect up to thirty percent of any recovery, because their effectiveness put the Justice Department to shame. He was ultimately unsuccessful in persuading the Supreme Court to neuter the False Claims Act.

However, three decades later, Barr was at it again in his position as Trump’s attorney general. The Justice Department dismissed an increased number of false claims cases for reasons that Grassley believed had nothing to do with the merits of the cases. It seemed prosecutors were intent to discourage whistleblowers and undermine efforts to root out serious fraud.  

Bloomberg Law reported that the Justice Department moved to dismiss “at least 14 cases involving pharmaceuticals.” Eleven of the cases were brought by the National HealthCare Analysis Group, which alleged “violations of anti-kickback laws that prohibit improper marketing of drugs to medical professionals.” They were viewed as a “bounty hunting” group.

The National Whistleblower Center called attention to the fact that the Justice Department was attempting to dismiss a case against the pharmaceutical corporation known as Gilead Sciences. A whistleblower accused the corporation of “manufacturing drugs with contaminated ingredients from China” and unusually the Justice Department maintained it would be too costly to pursue the lawsuit.

Grassley and a bipartisan group of senators tried in 2021 to correct the issue of dismissals by the Justice Department by creating a test. Prosecutors would be required to “identify a valid government purpose and a rational relation between dismissal and accomplishment of that purpose.”

A whistleblower would then have the ability to challenge dismissal by “demonstrating that the dismissal is fraudulent, arbitrary and capricious, or illegal." But Big Pharma succeeded in blocking the amendments from inclusion in the 2021 infrastructure bill that passed. It was a major loss for whistleblowers.

“By raising false flags about these amendments and locking progress through complex and endless court cases,” the National Whistleblower Center warned, an “anti-whistleblower victory—which could open the floodgates for future attacks on these highly successful whistleblower protections”—was secured by lobbyists.

Record Settlements And Rewards Under The False Claims Act

During the past five years, lawsuits against the False Claims Act that are backed by corporate interests have sought to amplify uncertainty around the Supreme Court and lower courts’ interpretation of provisions in the law. Each million spent on these efforts is intended to stall the progress of whistleblowers courageous enough to take a stand against corporate influence and power.

GlaxoSmithKline, a major pharmaceutical corporation, was hit with a record $3 billion fine in 2012 after marketing their drugs for “unauthorized uses” and cheating the US government’s Medicaid program. The result was a whistleblower reward of $250 million, which four individuals split.

Faced with “allegations it sold toxic mortgage-backed securities and other financial products” in the run-up to the 2008 economic crash, Bank of America agreed to a record settlement with the US government of $16.65 billion in 2014. Three whistleblowers and one firm shared a $170 million reward.

Pharmaceutical corporation Johnson & Johnson entered into a $2.2 billion settlement with the US government in 2012 to end a lawsuit involving allegations related to fraud and kickback schemes perpetrated to sell three drugs: Risperdal, Natrecor, and Invega. A whistleblower received a $167 million reward.

These are just three examples of how private individuals with evidence and knowledge of fraud can pursue a modest level of accountability against corporations, whether Justice Department officials have the political appetite for such action or not.

The Justice Department's history of opposition to the False Claims Act does not exactly inspire confidence that the corporate-captured Supreme Court will leave the law alone. If the Supreme Court yet again prioritizes corporations and upends a settled law, their ruling may greatly diminish a tool that whistleblowers have wielded for decades.