Employers fight back against whistleblowers

Companies are not without options against employees who make false accusations of wrongdoing

In 2013, the federal government recovered $3.8 billion from settlements and judgments under the False Claims Act (FCA). Whistleblowers—also called “relators”—can recover up to 30 percent of whatever a defendant pays in a suit. And in 2013, whistleblowers earned at least $387 million in these actions. It is clear that disgruntled employees have a huge monetary incentive to file whistleblower suits. Interestingly, more than 846 new FCA cases were filed in 2013, with 757 of those filed by qui tam whistleblowers. In the present FCA environment, employers are in the dangerous position of potentially facing false accusations by employee whistleblowers looking for a huge payday. 

Fortunately, employers are not without options against employees who make false accusations of wrongdoing. Employers may even have options against employees who have been successful in their FCA cases, but who have breached their employment agreements or who have stolen documents. Courts have recently been more willing to permit counterclaims against employee relators. Additionally, there is at least one case in which an employer filed suit against a whistleblower after losing a FCA case. And sometimes, employers can refer whistleblowers to law enforcement authorities for prosecution if the whistleblowers engaged in some criminal activity in obtaining the evidence for the FCA case. 

The case of Cafasso v. General Dynamics C4 Systems, Inc., 2009 WL 1457036 (D. Ariz. 2009) is also instructive. Cafasso, the whistleblower, believed her employer was defrauding the U.S. government. She reported her concerns in vague terms and soon received notice of her termination as the result of what the court found to be a coincidental, non-retaliatory reorganization of her entire work group. Before leaving, Cafasso downloaded more than 10 gigabytes of her employer’s data, including trade secrets belonging to the employer and third parties, propriety research and development information, over 30,000 emails, and one patent application with sensitive national security implications. Cafasso never stopped to review individual files to determine their relevance. 

Cafasso brought a whistleblower action and added a claim for retaliation under the FCA. Her employer counterclaimed for breach of contract in the form of a confidentiality and non-disclosure agreement that Cafasso had signed. The court dismissed Cafasso’s whistleblower claims for failure to state a claim, granted summary judgment to the employer on Cafasso’s retaliation claim, and the court granted the employer’s motion for summary judgment on its claim for breach of contract. The court rejected Cafasso’s argument that the FCA, under the circumstances, protected her gathering of documents in her investigation of a potential qui tam case. The employer later sought sanctions and attorneys’ fees from Cafasso and her counsel and was awarded $300,000 in fees from Cafasso in U.S. ex rel. Cafasso v. General Dynamics C4 Systems, Inc., 2009 WL 3723087 at *1 (D. Ariz. Nov. 3, 2009). 

A recent case is giving employers hope that even after being found liable for damages in a FCA case, an employer can initiate an action against a whistleblower. J-M Manufacturing, after being found liable for damages in a FCA suit initiated by a former employee John Hendrix, filed a complaint in the Superior Court of New Jersey. J-M Manufacturing alleged in its complaint that Hendrix and his counsel, Phillips and Cohen LLC, conspired to misappropriate confidential, proprietary, and trade secret information in furtherance of the qui tam lawsuit. The complaint specifically alleged that Phillips and Cohen repeatedly directed Hendrix to use his employee status to obtain information to support his FCA claims, in violation of his confidentiality agreement with J-M Manufacturing. The complaint further alleges that Phillips and Cohen directed Hendrix to pull evidence from the company’s computers, tape conversations, and remove documents from company files. J-M Manufacturing alleges that Phillips and Cohen used the misappropriated information to develop Hendrix’s own lawsuit and to recruit additional whistleblowers.

However, those cases may not be successful. On June 30, a judge dismissed the case. Phillips and Cohen successfully argued, "Having been caught in a massive fraud, J-M now seeks to retaliate against Mr. Hendrix and P&C by asserting that it has a right to recover unidentified damages for the exposure of its fraud."

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Marissel Descalzo

Marissel Descalzo is a trial lawyer with Carlton Fields Jorden Burt who focuses her practice primarily on complex criminal and civil litigation in both federal and...

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