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Climate Considerations

Certain aspects of the recession make companies especially vulnerable to False Claims Act (FCA) litigation. (Read about the potential FCA litigation increase in "Perfect Storm.")

"Invariably, these suits are brought by former employees," says Andrew Tulumello, a partner at Gibson, Dunn & Crutcher. "In this climate where there are reductions in force and layoffs and very broad amendments, you can see the makings of a perfect storm."

In Custer Battles, for instance, the case was brought by a disgruntled employee-turned-relator who was demoted for performance issues, says Robert Rhoad, the Crowell & Moring partner who defended the case.

To avoid such battles, Tulumello advises handling the separation process with care. In some situations it may be appropriate to come to a formal understanding with the departing employee that he or she has informed the company of any known compliance failures or illegal activity.

On the other hand, one TARP provision could actually reduce potential FCA litigation. As a result of outrage over executive pay in the financial industry, Congress required TARP institutions to certify executive salaries.

"Whenever you have a company affirmatively certifying compliance, it makes it more difficult for them to engage in fraud," says Michael Behn, who represents plaintiffs in FCA actions.

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