According to the IRS Oversight Board’s recent report to Congress, the IRS paid $53 million last year to 122 whistleblowers. This is an average of nearly $435,000 per whistleblower. The whistleblower awards last year average 14.6 percent of the amounts collected by the IRS. As noted in the report, the law requires the IRS to pay awards if the information provided “substantially contributes to the collection of tax, penalties, interest, and other amounts when the amounts in dispute are more than $2,000,000.” The award ranges are based on “percentages of the collected proceeds.” The law is designed to encourage people “with knowledge of significant tax noncompliance to provide that information to the IRS.” According to the report, the IRS “continues to receive submissions from whistleblowers, many of whom claim to have inside knowledge of the transactions they are reporting. They often provide extensive documentation to support their claims.”
New York Attorney General Eric Schneiderman announced on March 14, 2014, the successful conclusion of a tax whistleblower case brought under the historic 2010 amendments to the State False Claims Act. Those amendments authorized whistleblowers to earn huge rewards by bringing cases on behalf of the state against those who have engaged in significant violations of the tax law. We have written previously about the 2010 amendments and other New York tax whistleblower developments including the attorney general’s major whistleblower suit against Sprint/Nextel.
In this newly announced case, the attorney general’s press release disclosed that a “tax services provider” became aware of the tax violations and blew the whistle on a medical imaging company, Lantheus Medical Imaging, and its parent company, Bristol-Myers Squibb, for failing to pay more than $2.2 million in New York State franchise taxes, New York City corporation taxes, and MTA surcharges for the period 2002 to 2006.
Because the False Claims Act empowers the state to recover treble damages, the suit was settled with the payment of $6.2 million (which appears to be only a minor compromise by the state), of which $1,137,814 was earmarked for the whistleblower.
The settlement is good news for tax whistleblowers. Continue Reading
JPMorgan Chase recently agreed to pay over $600 million in its settlement of a case brought by the federal government, including HUD, FHA, and the VA, according to a February 2014 stipulation and order of settlement and dismissal entered by the Southern District of New York. The case, originally brought by a qui tam whistleblower, alleged that JPMorgan Chase Bank, N.A. engaged in misconduct as to mortgage loans with a connection to HUD, FHA, or VA programs. In particular, the government alleged that JPMorgan Chase Bank approved improper loans, submitted false certifications, entered information into its automated system that lacked integrity, and approved ineligible loans, and, as a result of these items, the government paid claims related to defaulted loans. Among other things, the settlement requires defendants to pay the government $614 million. Defendants obtained a False Claims Act release in the settlement agreement, and the agreement recognized that a relator’s share of the government’s recovery would be forthcoming.
The Second Circuit Court of Appeals today allowed a False Claims Act case brought by two whistleblower relators, represented by a team of Hodgson Russ attorneys led by me and my colleague Daniel C. Oliverio, and including Reetuparna Dutta, to proceed against DHL. In this case, the relators allege that DHL violated the FCA by improperly applying jet fuel surcharges to government shipments that it transported solely by ground. DHL’s motion to dismiss had been granted by the trial court on the basis of a 180-day “contest” provision in the transportation law. In vacating that dismissal, the Second Circuit ruled that the False Claims Act’s seal requirements and statute of limitations trump the contest provision, stating that “the 180-day rule cannot apply to a qui tam action under the FCA.” The action, United States ex rel. Grupp and Moll v. DHL Express (USA), Inc., will proceed in the Western District of New York.
My colleagues and I look forward to engaging in discovery to quantify DHL’s false claims and the resulting damages.
According to a press release from the Department of Justice, in fiscal year 2013, the government recovered $3.8 billion in settlements and judgments involving the False Claims Act. This is the second-largest annual recovery in history and brings total recoveries under the False Claims Act since January 2009 (when the act was significantly amended) to $17 billion.
Additionally, the number of qui tam (or whistleblower) cases increased to 752 in 2013, which was 100 more than in fiscal year 2012. Recoveries in qui tam cases this year totaled $2.9 billion, with whistleblowers recovering $345 million. Continue Reading
In the article “How Risperdal Whistle-Blowers Made Millions From J&J,” Bloomberg News profiles a few of the whistleblowers involved in the government’s investigation of claims that pharmaceutical giant Johnson & Johnson illegally marketed the drug Risperdal for off-label uses. In November, the Justice Department announced that Johnson & Johnson settled the investigation for $2 billion, a portion of which went to the whistleblowers profiled. Dan Oliverio, who contributes to this blog and is quoted in the Bloomberg article, leads a team of Hodgson Russ attorneys that represents two of those whistleblowers.
The Justice Department recently announced a False Claims Act settlement with Houston-based food distribution company FreshPoint Inc. FreshPoint has agreed to pay $4.2 million “to resolve allegations that it overcharged the Department of Defense for fresh fruit and vegetables purchased under 15 separate contracts.” The settlement resolves allegations that FreshPoint “overcharged the government on hundreds of sales of fresh fruit and vegetables by improperly inflating its prices to the government to reflect FreshPoint’s view of the prevailing market price of the goods at the time of sale.” The government alleged that, in this way, FreshPoint violated its contracts with the government that required it to provide produce at cost, plus a set mark-up, but did not allow it to make additional price adjustments “based upon perceived changes in market prices.” The FCA case arose from a lawsuit filed by a whistleblower, a former FreshPoint employee, who will receive a $798,000 relator’s share, according to the government’s press release.
The Justice Department announced last week that Johnson & Johnson will pay $1.273 billion to the federal government and most states to settle a civil False Claims Act investigation into its off-label marketing of its antipsychotic drug Risperdal. J&J will settle a criminal investigation into the matter for an additional $800 million.
Hodgson Russ is proud to represent two of the plaintiffs who blew the whistle on J&J. The team is led by Daniel C. Oliverio, and other team members were Joseph V. Sedita and Robert J. Fluskey, Jr.
After the local case against J&J was filed in Western New York in 2004 for its off-label marketing of Risperdal, the federal government consolidated this case in Philadelphia with four other similar cases related to Ripserdal marketing. In False Claims Act cases like this one, whistleblowers are entitled to a share of the proceeds; the two whistleblowers represented by Hodgson Russ will share in 15 percent of the settlement awards.
Mr. Oliverio said, “As one of only a few major law firms to represent both selected whistleblowers as well as selected companies accused by whistleblowers of wrongdoing, we feel we were exceptionally well positioned to represent our remarkable clients in this case.”
Mr. Oliverio continued, “This settlement, which is the largest FCA relator share settlement in history, follows on the heels of another whistleblower suit, in which we served as lead counsel, that resulted in the largest FCA settlement in Western New York history. I am incredibly proud of the work our team is doing to support these whistleblowers as they go up against powerful corporations that choose to defraud the government—and the taxpayers.”
Risperdal, once J&J’s best-selling drug, was approved by the FDA in 1993 for psychiatric disorders including schizophrenia. According to documents filed with the court, the company also sought to sell Risperdal for unapproved uses that included bi-polar disorder, dementia, and mood and anxiety disorders, among others.
The New York False Claims Act (NY FCA) was amended in August 2010 to expressly apply to knowing violations of the New York State Tax Law. As reported in a previous blog entry, a whistleblower filed an action against Sprint Nextel Corporation alleging that it failed to collect or pay New York State sales taxes on receipts from the sale of certain wireless telephone services. After an investigation, the attorney general for the State of New York, Eric T. Schneiderman, intervened and filed a superseding complaint adopting the FCA claims and alleging additional claims against the mobile telecommunications service provider. Among those claims were claims premised on conduct predating 2010, when the NY FCA was amended to include tax violations. In response, Sprint argued that claims based on pre-2010 conduct violate the ex post facto clause of the U.S. Constitution. The ex post facto clause prohibits Congress and the states from enacting any law that, among other things, retroactively imposes a punishment for an act that was not punishable when it was committed. After a lengthy analysis, the court concluded that “[The statute], like its federal counterpart, is not sufficiently punitive in nature and effect as to warrant preclusive application of the ex post facto clause prior to Aug. 10, 2010, when the act was amended to expressly apply to knowing violations of the tax law.” Although the decision is likely to be appealed, for now, the ruling opens the door to FCA cases with allegations that predate the 2010 amendments.
According to a recent Justice Department press release, a D.C. federal court entered a $17 million False Claims Act judgment against Dr. Ishtiaq Malik and his two companies, Ishtiaq Malik M.D., P.C. and Advanced Nuclear Diagnostics, for submitting “false nuclear cardiology claims to federal and state health care programs.”
According to the Justice Department, the FCA case was based on allegations that Dr. Malik submitted “inappropriate claims for myocardial perfusion studies,” which are commonly called nuclear stress tests. These tests are usually performed in two separate phases – stress and rest – and they must be coded and submitted as one test. The government alleged that Dr. Malik and his companies violated these requirements and “double-billed for multiday nuclear stress test studies.” In addition, the government alleged that Dr. Malik and his companies “billed under codes that did not apply to the nuclear stress test studies he administered and billed for services already included in the payment for nuclear stress test codes, such as intravenous injections, drug infusions, 3D rendering, and drug administration.”
According to the release, the case covers Medicare, District of Columbia Medicaid, Maryland Medicaid, TRICARE, and the Federal Employees Health Benefits Plan. The State of Maryland and the District of Columbia had joined the lawsuit under their respective state False Claims Acts.