Author: Torro

How California Strengthened Whistleblower Protections In 2022

Protections for Whistleblowers Under California Law

Deciding to become a whistleblower in the context of disclosing information relating to wrongdoing within an organization that also employs you is not an easy one. It is natural and prudent to be concerned about what will happen to your employment and future prospects both within and outside of that business should you make the decision to provide information of illegal actions to government agencies, or even just reporting the wrongdoing within the organization itself. 

A common situation where such fears of retaliation against whistleblower employees might arise in the context of pursuing a whistleblower claim for a False Claims Act (“FCA”) violation or securities law violation. While the federal laws governing those areas provide protection against retaliation towards whistleblowers, California state law also provides such protections, and those protections were strengthened in 2022. 

California Labor Code Sections 1102.5 and 1102.6

California Labor Code section 1102.5 – which was originally passed into law in the 1980’s – makes it illegal for an employer or any person acting on behalf of that employer to, among other things:

“[M]ake, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employer’s job duties.”

The California statute goes on to state that any employer or person acting on behalf of the employer “shall not retaliate against an employee for disclosing” such types of information to government agencies or to supervisors.

In short, the statute means that a California employee cannot be retaliated against by an employer for proper whistleblowing of corporate wrongdoing – such as violation of the FCA or state or federal securities law – to the government or internally within the company. Retaliation generally means actions that adversely affect the employment of the whistleblower such as termination, suspension, demotion, or failure to properly promote an employee. 

Lawson v. PPG Architectural Finishes, Inc.

Prior to January 2022, there was confusion in the California state courts about how to apply the burdens of proof with respect to an employee who pursues a retaliation claim against an employer pursuant to Labor Code section 1102.5. In many cases, California courts (and federal courts applying California law) were applying what is called the McDonnell Douglas test to such claims, which requires the following:

• A plaintiff seeking to prove retaliation needed to first show a prima facie case of such retaliation, meaning that the plaintiff would first need to show at least some factual evidence suggesting that he or she was improperly retaliated against;
• If the plaintiff could provide such prima facie evidence, the employer would then have the burden of providing evidence that there was a legitimate reason for taking the adverse employment action, such as poor employee performance; and
• Then the plaintiff would bear the burden of proving that the “legitimate reason” offered by the employer was in fact a pretext for taking the adverse employment action, such that it could be proven that illegal retaliation was the reason for the action.

This McDonnell Douglas test thus could make it difficult for an employee to prove retaliation pursuant to Labor Code section 1102.5, especially where documentary evidence showing the retaliatory action was not available, and/or where there were indeed legitimate reasons for taking an adverse employment action in addition to non-legitimate reasons. 

The California Supreme Court, however, made clear that the McDonnell Douglas test does not apply to such retaliation claims in the case of Lawson v. PPG Architectural Finishes, Inc., decided by the Court in January 2022. In that case, a territory manager for a paint manufacturer whose job responsibilities included stocking and merchandising PPG paint products in Lowe’s home improvement stores in Southern California called the company’s ethics hotline to report that his manager was ordering him to “mistint” the company’s paint products such that the company would not have to buy back excess product from Lowe’s, and he also refused to participate in the practice. While the practice was discontinued, his manager continued to oversee him, and he was fired some months later on the grounds that he failed to meet goals outlined in his performance review plan. 

Thus, the employer was arguing that, while the employee may have properly acted as a whistleblower, there was a legitimate reason to fire him, and, under the McDonnell Douglas test, it was thus proper to fire him. The employee, however, argued that applying that test was improper, and that instead the Court should apply Labor Code section 1102.6 as the proper burden of proof. Under that statute, a Court should apply the following test:

• The employee must prove by a preponderance of the evidence (meaning that it is more likely true than not) that improper retaliation was a “contributing factor” in the adverse employment action against the employee; and
• Then the employer must prove by clear and convincing evidence (which is a higher standard of proof than preponderance of the evidence) that it would have still taken the same action against the employee even if the employee had not engaged in the protected whistleblower activity.

The Court sided with the plaintiff, and now the test pursuant to Labor Code section 1102.6 – and not the McDonnell Douglas test – is the proper test to apply to retaliation claims brought pursuant to Labor Code section 1102.5.

Takeaways From The Case

The California Supreme Court’s decision strengthens protections for whistleblowers because it does away with the concept that an employer need only provide a legitimate reason for taking an adverse employment action against an employee which is not pretextual, or in other words just a cover for retaliation. It recognizes the reality that there may be legitimate reasons to take adverse employment action, but at the same time improper retaliation can be a contributing factor, and the “legitimate reason” does not necessarily absolve the employer of liability for retaliation. 

If you are considering pursuing a whistleblower claim relating to a violation of the FCA or of federal securities laws, contact our office today to schedule a consultation regarding your options. 

When Do White-Collar Crimes Become A Federal Offense?

Business activities – even ones that may seem benign or well within a common industry practice – can lead to both state and/or federal investigations or prosecutions against both individuals and business entities, including those persons who may not be suspected of committing the specific underlying criminal act but rather agreed to a plan to do so or assisted in the act, even without an intent to break the law. While both state and federal criminal investigations can have significant negative consequences for a person or business organization, a federal investigation can often mean more substantial governmental resources which are brought to bear in pursuing a criminal case, and more significant financial penalties and prison sentences. 

Defining White Collar Crime

There is not necessarily a specific definition under the law for what constitutes “white collar crime.” Whether or not an alleged criminal act might be considered a white collar crime, a prosecutor has the power to investigate and bring charges against an individual (or business) with the potential for a criminal record, steep fines, and possible jail or prison time. 

That said, “white collar” tends to suggest a criminal act carried out by a person in a business and/or financial environment, and generally the term refers to a non-violent crime involving attempted financial gain to an alleged perpetrator and financial damage to alleged victims. The white-collar crime program of the Federal Bureau of Investigation (FBI) – the chief federal law enforcement investigation organization – focuses on white collar criminal acts such as corporate fraud (including falsification of financial information, insider trading, kickbacks and tax violations), money laundering, securities and commodities fraud, mortgage and financial institution fraud, and intellectual property theft and piracy. 

These are only broad examples, and there are an expansive amount of activities – again even ones that may seem like normal industry practice – that might fall within the umbrella of alleged white collar criminal activity. 

When Does It Qualify As a Federal Crime?

All 50 states have their own distinct codes of criminal law which set forth acts that are defined as criminal within that state, as well as potential criminal penalties in the event of a successful conviction. State and local prosecutors are tasked with prosecuting violations of such state laws, with local and state police and agencies often leading the investigations that form the basis for such prosecutions. 

Likewise, the federal government enacts the laws that form the basis of federal criminal prosecutions, with federal agencies investigating such acts, and the Department of Justice – including United States Attorney offices in each state – prosecuting the individuals and businesses that are alleged to have violated federal criminal laws. Based on constitutional mandates limiting the purview and reach of federal laws, federal criminal laws generally involve activity that reaches beyond an individual state and/or affects interstate commerce such as mail fraud and wire fraud. Because crimes involving financial transactions typically involve use of interstate communications and/or financial systems, they can often come within the jurisdictional reach of federal law enforcement. 

Who Investigates White-Collar Crimes?

Again, prosecutions for white collar crimes are conducted by the Department of Justice either through its main Washington, D.C. headquarters (“Main Justice”) or U.S. Attorney’s Offices in each state. The FBI often pursues white collar criminal investigations in addition to federal prosecutors, but other federal agencies often pursue federal criminal and civil  investigations as well, including the Drug Enforcement Administration (DEA), the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Environmental Protection Agency (EPA), the U.S. Postal Inspection Service, and the Treasury Department’s Financial Crimes Enforcement Network. 

Penalties

The penalties for a federal crime are set forth by the individual statutes defining and prohibiting criminal behavior. With white collar crimes, there is often a significant financial penalty associated with a criminal conviction – which can include both criminal fines as well as sanctions, such as the disgorgement of profits – in addition to potential jail or prison time. The financial penalty is often tied to the amount of alleged ill-gotten gains associated with the criminal act. For example, a conviction for violation of federal money laundering laws can result in a prison sentence of up to 20 years, and a financial penalty of $500,000 or twice the value of the funds involved in the transactions at issue, whichever is greater. 

Working With Outside White Collar Defense Counsel

The time to seek experienced counsel from a skilled white collar defense attorney is at the first signs of a potential government investigation, enforcement action or prosecution. Often, the first steps in responding to a potential government proceeding into alleged white collar criminal activity are the most critical in setting the course for an ultimate outcome that defends one’s interests, reputation, and, in some cases, freedom. Contact our office to speak with an experienced white collar defense attorney regarding your situation today. 

How To Respond To A Data Breach 

The theft of business information by a party seeking to obtain an unfair competitive advantage or simply plunder assets has likely been with us since the dawn of human business activities themselves. In recent years, however, the risks posed to businesses of all sizes have become greater than ever in a world of previously unimagined interconnectivity and ever-increasing amounts of customer and client data stored in business files. 

In 2021 alone, 50 million Americans had their private health data accessed in security breaches, a threefold increase since 2018, according to data provided by the HHS. According to the Identity Theft Resource Center’s 2021 Data Breach report, there were 1,862 recorded data breaches in 2021, a 68% increase over the previous year. 

Whether the source of a company’s  data breach is phishing, ransomware, or employee theft, there is no indication that such data breach numbers will fall anytime soon. While businesses should do everything reasonably possible to prevent data breaches, what they do to respond to a data breach when it does occur has enormous implications for not just their reputation going forward, but in what consequences a business might face in subsequent civil lawsuits and government investigations and proceedings related to the breach. A few basic steps to such an approach are outlined below, but in all cases businesses are strongly encouraged to work with experienced legal counsel in addressing security breaches. 

Stopping A Breach & Assessing The Damage

Obviously, the most important step in most security breach situations is to take prompt action to stop the breach in order to limit the damage. This starts with having proper notifications in place to let you know when a breach is occuring. You should immediately mobilize all internal and external technical support personnel who can assist in stopping the breach, and may mean swiftly retaining outside technical consultants skilled in responding to and terminating the breach. Even if the efforts are not immediately successful, it may be important to later be able to demonstrate that all such actions were taken as quickly as possible to protect internal, client, and consumer data. 

It is then important to fully assess the damage that was done as the result of the data breach, e.g., the full scope of the specific data that was potentially exposed and to whom it may have been exposed. It may be possible to do this with purely internal resources, but hiring an independent forensic investigation team to properly document/capture the breach while instilling remediation steps may well be helpful in both assessing the damage and, again, making it clear that your business is doing everything it can to effectively respond to the breach. At this point it is again important to engage with experienced data breach legal counsel if that has not already been done. 

Notifying Those Affected

Notifying the persons and entities affected by the data breach as quickly as possible is an important and critical step in your data breach response. Such persons and entities may include not just those who had their information breached – such as employees and customers – but also investors and business partners. 

Although making this notification promptly is important, it is also critical to include the relevant details and make accurate claims. This is a key area where working with outside counsel to appropriately craft such communications is important, both reputationally and with respect to legal obligations and ramifications. In so doing, an affected business needs to balance the necessity of providing sufficient information to affected parties to protect themselves with not sharing information that could further exacerbate the damage or which is unnecessary and/or unproductive in addressing the breach. 

Moving Into The Recovery Phase

Moving forward from the breach, your outside counsel and technical consultants will work with you to set in place to limit the negative consequences of the breach, as well as to prevent future breaches and restore consumer and investor confidence. 

Part of this process will likely involve a security audit – which in many cases would be done by an outside consultant for purposes of objectivity and expertise both in addressing legal and consumer issues following a breach and in improving processes going forward – which will be a comprehensive analysis of what exactly went wrong in leading to the breach and fixes that might be available to prevent future attacks. 

The security audit is often just one part of a business’ recovery plan to anticipate and avoid future attacks. Unfortunately, if your business has been successfully attacked as part of a data breach, this may give the signal and know-how to the same hackers or to others aware of the breach that your business is a susceptible target going forward. Thus, it is critical to work in tandem with your in-house staff, outside technical consultants, and experienced data breach counsel to develop more secure systems and optimized procedures to help avoid future breaches and to respond as effectively and efficiently as possible in the event one occurs again. 

Working With Outside Counsel 

Cybersecurity and data privacy legal challenges require thoughtful and experienced guidance to help individuals and businesses navigate complex issues to limit legal liability and collateral consequences to their financial and reputational interests. A key aspect of responding to a data breach is working with outside counsel experienced in proactively and effectively addressing the challenges that such an event engenders. The attorneys of Zweiback, Fiset & Zalduendo have decades of experience in litigating and advising on complex cybersecurity and data privacy issues to put in service of whatever legal challenge you are facing. Our attorneys creatively and efficiently strategize towards positive resolutions of cybersecurity and data privacy legal challenges that serve our client’s comprehensive, long-term goals.

If you or your business are seeking to create policies and infrastructure to comply with regulatory requirements relating to a data breach, or have recently experienced a data breach or other potential legal challenge in the area of cybersecurity and data privacy, contact our office to speak with an experienced attorney regarding your situation today.

How Is Title IX Enforced?

“Title IX” – referring to a specific section of the Education Amendments of 1972 which applies to any school or education program that receives federal funds – is an often misunderstood and somewhat complex area of law, and the shorthand of “Title IX” has come to refer to a number of related but often distinct legal concepts and processes. 

Title IX may be most known in the public consciousness for the requirement that colleges and universities receiving federal funds provide equality in men and women’s athletic programs, but it also prohibits educational institutions from discriminating against students and employees on the basis of sex, which includes a requirement that educational institutions effectively address allegations of sexual assault, e.g., that such schools effectively investigate and discipline students or faculty members accused of sexually assaulting or harassing others.

Because Title IX requires educational institutions to take investigative and disciplinary measures, and the federal government itself (via the OCR) may investigate and penalize an educational institution for failing to fulfill its obligations pursuant to Title IX, the term Title IX proceeding or action might be used to describe either a proceeding by the school itself or by the federal government. In either case, defendants facing such proceedings are advised to work with experienced outside counsel in addressing such challenges. 

Schools Have Mandated Obligations Under Title IX

Again, any school or other educational institution receiving federal funds (which is defined broadly) has mandatory obligations pursuant to Title IX to implement procedures to address discrimination and harassment, and to properly investigate and respond to complaints of alleged violative action, whether the source of that action is school administrators, faculty members or the students themselves.  

Such mandatory obligations pursuant to the requirements of Title IX include:

• A school must promptly and effectively respond to reports of sexual harassment or violence, and thus take immediate action to eliminate the sexual harassment or violence, prevent it from occuring again, and address its effects. This is true even if an alleged victim does not file a complaint, but the school has reason to know of the underlying facts. Furthermore, a criminal investigation into the same behavior does not relieve a school of these obligations.
• A school must publish and make widely available policies regarding Title IX policies.
• A school must designate a “Title IX Coordinator” whose obligation is to coordinate the school’s compliance with Title IX requirements, and notify all students and employees of that person’s contact information. 
• A school must adopt and publish grievance procedures for students to file complaints of sex discrimination, including sexual harassment and violence, and all such procedures must provide for prompt and equitable resolution of complaints. 
• A school must provide a complainant with specific procedural rights, including the ability to present evidence of their complaints, and to receive notification of the school’s investigations into their complaints. 

What Is The Office For Civil Rights (OCR)?

The U.S. Department of Education’s Office for Civil Rights (OCR) has the responsibility for enforcing the requirements of Title IX that schools receiving federal funding not engage in discriminatory practices on the basis of sex. Again, this includes, among other things, the requirements that such educational institutions provide gender fairness in athletics, not discriminate on the basis of gender in hiring and admissions policies and practices, and effectively respond to complaints of sexual harassment, discrimination, and sexual violence. 

Examples of recent enforcement actions pursued by the OCR against educational institutions include:

• Harvard University: The OCR determined that Harvard Law School’s “current and prior sexual harassment policies and procedures failed to comply with Title IX’s requirements for prompt and equitable response to complaints of sexual harassment and sexual assault; the Law School did not ensure that individuals implementing the policies and procedures were adequately trained; and the Law School improperly used a ‘clear and convincing’ evidence standard of proof in its Title IX grievance procedures in violation of Title IX.” A a result of the investigation, OCR reached an agreement with Harvard to, among other things, revise its sexual harassment policies, including notifying complainants of their right to file a Title IX complaint with the law school, and reviewing any complaints within previous years to determine whether remedies were necessary for the complainants. 
• Chicago Public Schools: The OCR determined that the Chicago public school system did not “effectively accommodate the interests and abilities of members of both sexes to the extent necessary to provide equal athletic opportunity.” To resolve the issue, the OCR entered into an agreement with the school system to, among other things, provide more participation opportunities for female students, including adding new sports and levels of competition, and implementing processes in the school system to reduce discrimination.    

Title IX Enforcement by Schools

Because the federal government not only requires compliance with Title IX but also investigates alleged failures to comply, educational institutions are under intense pressure to conduct Title IX investigations and enforcement proceedings of their own when allegations of discrimination and/or sexual harassment and violence arise. Additionally, school administrators can often face significant political and cultural pressure from within their own school to aggressively pursue allegations regarding discrimination, harassment and violence. For example, students and faculty members often will pressure administrators to take swift action against alleged perpetrators of such acts when allegations arise, regardless of the sufficiency of the underlying evidence supporting such claims and the procedural safeguards in place regarding fairness towards those accused. 

An important point to note, and a key source of controversy in recent years, is that a school pursuing a Title IX proceeding against a student or faculty member is not required to provide the same level of due process and protections that a person would necessarily receive in the criminal justice system. For example, an accused student does not necessarily have the right to an attorney, is not protected by the same rules regarding what types of evidence might be used against them, may not be able to appeal an adverse disciplinary proceeding as they would in the court system, and may not be sufficiently informed of the evidence and allegations made against them. 

And while a school does not have similar powers to a criminal court in, for example, sentencing a student or faculty member to a jail or prison sentence, the consequences of an adverse Title IX proceeding by a school may nonetheless be significantly damaging to the student or faculty member. For example, a student may face expulsion, loss of fees and tuition, inability to transfer to a new school, long-term financial and reputational losses, and the possibility of a civil suit based on the adverse Title IX outcome. Thus, students and faculty members facing Title IX proceedings by a school are encouraged to work with experienced outside counsel to defend their rights in such proceedings. 

Addressing Title IX Investigations By an Educational Institution or the OCR

If you or a member of your family is facing or may potentially be facing the prospect of a Title IX disciplinary proceeding based on allegations of sexual misconduct, professional misconduct, academic misconduct, code of conduct violations related to drug or alcohol use, discrimination, or other violations, it is important to take decisive action to protect your interests. Furthemore, an educational institution facing the possibility of a Title IX enforcement proceeding by the OCR is strongly advised to retain the best possible counsel to proactively address such proceedings and mitigate negative legal and reputational consequences that may follow.

The attorneys of ZFZ Law understand the stress, anxiety, and fear that comes with a Title IX disciplinary proceeding – or even the threat of such a hearing – and we provide zealous counsel and representation to help our clients avoid negative outcomes and move on with their lives. If you or a family member are facing an academic disciplinary proceeding, or if your educational institution is facing the possibility of an OCR enforcement proceeding, contact our office to speak with an experienced defense attorney regarding your situation today.

What Are Qui Tam Lawsuits?

The phrase “qui tam” – like many legal terms that still exist in American usage today – derives from Latin. It is shorthand for the longer phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur.” For those rusty on their Latin phraseology, this is translated in English as: “He who sues in this matter for the king as well as himself.” Throughout history and various forms of government, a qui tam lawsuit is one in which a private person brings a lawsuit on behalf of the government.

While America famously did away with the concept of kings from the beginning, qui tam lawsuits are very much an ongoing part of our civil litigation system, and private plaintiffs who become aware of certain types of illegal actions that serve to defraud the federal government or state governments can pursue qui tam lawsuits and potentially obtain significant financial rewards for themselves while doing their part to hold accountable those individuals and entities who defraud the government.    

What is Qui Tam?

While “qui tam” in a sense is a general term for private plaintiffs who pursue lawsuits on behalf of the government while seeking their own financial reward, in the United States, qui tam lawsuits are most associated with the False Claims Act, a federal anti-fraud law, as well as similar false claims statutes enacted by many state legislatures to prevent and disincentivize fraud carried out against state governments. 

The federal False Claims Act – or FCA as it is commonly known – is set forth at 31 USC sections 3729 – 3733. The FCA, among other things, makes it illegal to knowingly present (or caused to be presented) a false or fraudulent claim for payment or approval to the federal government, as well as to knowingly make a false record or statement material to a false or fraudulent statement in connection with a claim for payment to the federal government. Additionally, it is a violation of the FCA to have possession or custody of government property and fail to deliver that property as required to the government. As with many federal statutes, a person can be liable for an FCA violation by conspiring to commit a violation of the FCA, meaning that a person can be liable for merely entering into such an agreement to violate the FCA, even if the underlying violation did not occur. 

The FCA was originally enacted during the Civil War to hold accountable unscrupulous suppliers who provided unacceptable provisions to the federal government pursuant to government contracts (including ill mules and rancid food rations), leading to the FCA also being known as the “Lincoln Law.” Over time, and currently today, the focus of FCA lawsuits still includes defense and military suppliers but also defendants in the pharmaceutical and healthcare industries who provide medications, medical services and medical supplies pursuant to Medicare and Medicaid government contracts. 

How Are Qui Tam Lawsuits Different Than Most Other Civil Cases?

In a typical civil lawsuit, a private party brings a claim against another private party for damages and/or other remedies, and the courts adjudicate the dispute. In a federal qui tam lawsuit brought pursuant to the FCA, the process is somewhat different and can be more extended and complicated. 

Because a private plaintiff who pursues a qui tam FCA lawsuit is doing so on behalf of the federal government, which is the true “victim” of underlying violations of the FCA, the federal government has the option of joining with the private plaintiff in pursuing the FCA lawsuit, and this fact should guide the process for a potential qui tam plaintiff from the start.

The general process for pursuing a qui tam FCA lawsuit as a relator is as follows:

• A private individual (or group of individuals) with knowledge of a potential FCA violation – such as Medicare fraud in the form of upcoding or in submitting reimbursement claims to the federal government for services that either were not performed or were not necessary – works with an FCA plaintiff’s attorney in assembling and analyzing the evidence to substantiate the FCA claim. Although it is not absolutely necessary to work with an attorney, generally plaintiffs do so in order to manage the complexities of federal FCA litigation and maximize their chances for financial recovery.
• The plaintiff then files a complaint with the relevant U.S. District Court. The complaint remains under seal for at least 60 days, and all information contained therein is kept confidential, even from the defendant. The plaintiff also serves a copy of the complaint on the federal government.
• During this 60-day or longer period of time (typically this period is lengthened), the federal government investigates the plaintiff’s allegations in the complaint in order to determine whether the federal government itself should intervene in the lawsuit. If the government does intervene, it will assume primary responsibility for pursuing the claim while working with the plaintiff and their attorneys. Government intervention is generally a good sign for a plaintiff, as it indicates that the government has enough confidence in the allegations and the possibility of a successful lawsuit to devote its resources to pursuing it. But even if the government does not intervene, the private plaintiff can still pursue the FCA claim on their own through their own private counsel. 
• The FCA case then proceeds against the defendant in federal court, either pursued by the private plaintiff along with the government, or by the private plaintiff and their counsel. If the defendants are found liable, then civil and criminal penalties may be imposed, and a private plaintiff has the ability to receive a significant portion of the financial penalties imposed on the defendant(s).  

What Incentives are Provided to Whistleblowers by the FCA?

Plaintiffs who pursue FCA qui tam lawsuits (referred to as “relators”) have a strong financial incentive to successfully pursue such claims. Under federal law, a private qui tam plaintiff can recover between 15% to 30% of the financial penalties levied against an offending entity in an FCA suit. 

Because some FCA claims have resulted in penalties amounting to hundreds of millions of dollars, this translates into hugely significant rewards for plaintiffs and thus incentive to work with experienced FCA counsel through the often long and complex process of pursuing a claim.

Are Whistleblowers Protected Even Without a Successful Qui Tam Lawsuit?

Protecting qui tam “whistleblowers” who pursue FCA lawsuits as private citizens is a key aspect of federal FCA legislation. Because of the nature of FCA allegations, the plaintiffs who bring such claims are often current or former employees of an organization alleged to have committed wrongdoing (and this can range from roles such as nurses or mid-level office employees to CEOs and other corporate executives). 

The FCA includes specific retaliation provisions designed to prevent such plaintiffs. Separate and distinct from the primary provisions of the FCA prohibiting the submission of false claims, a plaintiff can also pursue an action against a company or individual that retaliates against a person who brings a qui tam claim on the basis of their having done so (regardless of whether the qui tam action itself is successful). A person who proves a retaliation claim can obtain relief such as reinstatement, double any back pay they might have lost, attorney’s fees, and special damages sustained as a result of the discrimination.

For both whistleblower plaintiffs and defendants alike, the process of litigating an FCA claim is often long (many such lawsuits average 3-5 years in length) and filled with risk. It is important to work with experienced FCA counsel from the earliest stages of either asserting or responding to a FCA claim to protect your interests, avoid retaliation, and maximize your chances of a positive outcome. Our attorneys have combined decades of experience in both the federal government and in the highest levels of private practice, and are ready to work with you to counsel you and/or your business on any FCA issues you may be facing.

How Do RICO Charges Work in California?

The Racketeer Influenced and Corrupt Organization Act – or RICO as it is more commonly referred to – was enacted by the federal government in 1970 to combat and indeed eradicate Mafia-style organized crime in the United States. While the federal RICO law may bring to mind images of John Gotti and The Sopranos, it is a statute that has been used to pursue legal actions against individuals and entities such as healthcare companies, police departments, and even sports leagues. Following the passage of the federal RICO law, a number of states have passed their own RICO statutes. One of the most prominent state RICO statutes is that of California, which passed its own RICO statute entitled the California Control of Profits of Organized Crime Act. Accordingly, federal prosecutors pursue charges against individuals and business pursuant to the federal RICO statute and California state prosecutors pursue charges pursuant to the California Control of Profits of Organized Crime Act. Both the federal and California RICO statutes work in similar ways: prosecutors can pursue charges of racketeering against those involved in a pattern of criminal behavior – with the racketeering or “criminal profiteering activity” charges being in addition to any charges for underlying criminal activities – and the government can require that defendants forfeit assets to the government prior to a finding of guilt. Private plaintiffs can also pursue civil RICO claims against defendants they allege to be involved in a pattern of criminal activity, and, like in criminal lawsuits, can pursue treble damages and other penalties against defendants.

Contact our office today to speak with an attorney.

Racketeering & The RICO Act

Again, the federal RICO act was originally developed to eradicate Mafia-type organized crime by targeting any member of an enterprise engaged in a pattern of criminal activities, and to target the ill-gotten gains of such a criminal enterprise. In subsequent years, the spectrum of defendants facing civil and criminal RICO lawsuits has grown dramatically, and while gangs and Mafia-style organizations are still targeted by RICO proceedings, many individuals and businesses in what otherwise may appear to be legitimate business pursuits may find themselves subject to RICO claims (often predicated on such claims of criminal activity such as wire fraud or mail fraud), with the possibility of the forfeiture of assets and other steep civil and criminal penalties. In a federal RICO claim, the prosecutor or plaintiff must show a pattern of racketeering activity including at least two racketeering acts within a ten-year period. Such acts could include:

• Embezzlement
• Bribery
• Illegal gambling
• Bankruptcy fraud
• Securities fraud
• Money laundering
• Obstruction of justice
• Counterfeiting or illegal copyright infringement
• Mail or wire fraud
• Illegal interference with commerce

Again, defendants in a RICO case can face criminal penalties for the RICO violation in addition to criminal penalties for the underlying criminal activity, and defendants may also be required to forfeit assets prior to a finding of guilt and to pay treble damages for any ill-gotten gains.

How Does a RICO charge work

To pursue a successful federal RICO claim, the government (or a private plaintiff) must prove that:

• An “enterprise” existed
• The enterprise affected interstate commerce
• That the defendant was associated with or employed by the enterprise
• That the defendant engaged in a pattern of racketeering activity posing a threat of continued criminal activity, and
• That the defendant conducted or participated in the conduct of the enterprise through that pattern of racketeering activity through the commission of at least two acts of racketeering activity

“Enterprise” is defined in an expansive manner for purposes of RICO claims. It can include any partnership, corporation, association, union, other legal entity, or any group of individuals associated with one another. Again, as stated above, racketeering activity can include a long list of state and federal crimes, which include violent crimes such as murder but also non-violent crimes such as mail fraud or wire fraud. The racketeering activities must be related to one another, such that they “amount to or pose a threat of continued criminal activity.” This might include the acts having similar purposes, results, participants, victims, or methods of commission. In proving that the racketeering acts were continuous, those pursuing RICO claims must show that the acts are part of a long-term association that exists for criminal purposes, that they are a regular way of conducting the defendant’s ongoing legitimate business, or that they are a regular way of conducting or participating in an ongoing and legitimate enterprise. To be charged with a RICO claim, a defendant need not necessarily have known about every aspect of the enterprise-wide conspiracy. Instead, all that must be shown is that: 1) the defendant agreed to participate in two racketeering acts, 2) he knew the general status of the conspiracy, and 3) he knew the conspiracy extended beyond his individual role.

Contact an Experienced White Collar Defense Attorney

The time to seek experienced counsel from a skilled white collar defense attorney is at the first signs of a potential government investigation, enforcement action or prosecution. Often, the first steps in responding to a potential government proceeding are the most critical in setting the course for an ultimate outcome that defends one’s interests, reputation, and, in some cases, freedom. If you have reason to believe that you or your business may face a potential RICO investigation, criminal charge, and/or enforcement action or civil action related to racketeering – or if you or your business are seeking to implement and/or improve compliance procedures to avoid the potential of a racketeering action – contact our office to speak with an experienced white collar defense attorney regarding your situation today.

What Is The Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act – or FCPA as it is often referred to – is an unusual yet powerful federal law in that it specifically targets activities by individuals and businesses that occur outside of the United States. While federal criminal laws typically do not provide for jurisdiction over events occurring in foreign countries, the specific intent of the FCPA is to prevent corruption in other countries by American entities and even those non-American entities that have some connection to the United States. 

The primary purpose of the FCPA is to prevent corruption of foreign officials – e.g. providing money or gifts to a foreign official to induce that official to purchase goods or services from a provider – and to impose civil and criminal liability on those that do. Individuals and businesses who have been found guilty of FCPA violations or entered into agreements relating to civil and criminal liability for alleged FCPA violations are found across a wide spectrum of industries – from healthcare providers to film festival promoters. 

FCPA enforcement actions are pursued by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). While the FCPA was originally enacted in 1977 following high-profile foreign corruption scandals involving companies such as Lockheed and Chiquita, government enforcement of the FCPA grew exponentially in the early 2000s, as did the amounts of the financial penalties involved. The total amount of sanctions imposed on entities pursuant to the FCPA was approximately $5.8 billion, or around $447 million per enforcement action.

The Elements of a Foreign Corrupt Practices Act Claim

The anti-bribery provisions of the FCPA makes it a civil and potential criminal violation of federal law to willfully use “the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure nay improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.” 

In more colloquial terms, the FCPA makes it illegal for any entity covered by the FCPA to offer anything of value “directly or indirectly” to a foreign official to induce that foreign official to act in their benefit. Most commonly, this involves the payment of money or providing some other benefit to an official to induce that official to select a particular entity for a government contract or other benefit. The “directly or indirectly” clause is extremely significant, as FCPA violations often involve a payment from a business to an intermediary (who may bill themselves as some sort of legitimate facilitator of government action in line with local custom) who then passes on some or all of the payment to the government official. 

Additionally, the FCPA includes a “books and records” provision that requires covered entities to maintain sufficient records of transactions so as to avoid a situation where illegal transactions are concealed from both discovery. Violations of the books and records provision of the FCPA can also result in a government enforcement action.  

Persons Subject to FCPA Violations

Many individuals and entities who find themselves the subject of a potential FCPA enforcement action may be both surprised to know, first of all, the provisions of the FCPA exist, and, secondly, that the FCPA applies to their actions. 

The FCPA applies to: 1) any citizen, national, or resident of the United States; 2) any business organized under the laws of the United States or any individual state, or which has its principal place of business in the United States; and 3) any domestic or foreign corporation that its securities registered in the United States or that is required to file reports under the Securities and Exchange Act of 1934. Thus, it is possible that a European country that pays bribes to a foreign official in Asia can face civil and criminal liability in the United States.

While businesses may have entity-wide practices found to violate the FCPA, in many cases FCPA liability can arise from the actions of individual salespersons acting on their own accord, believing they are simply following accepted local custom. Thus it is important for businesses to have robust anti-bribery training and compliance frameworks. 

Contact ZFZ Law Today

The time to seek experienced counsel from a skilled white collar defense attorney is at the first signs of a potential government investigation, enforcement action or prosecution. Furthermore, businesses who become aware of potential FCPA violations within their own companies are advised to work with outside counsel to conduct an internal investigation and proceed accordingly to reduce civil and criminal exposure. 

Often, the first steps in responding to a potential government proceeding are the most critical in setting the course for an ultimate outcome that defends one’s interests, reputation, and, in some cases, freedom. If you have reason to believe that you or your business may face a potential investigation, criminal charge, and/or enforcement action related to an alleged FCPA violation or other alleged bribery or corruption  – or if you or your business are seeking to implement and/or improve compliance procedures to avoid the potential of a FCPA and/or bribery or corruption action – contact our office to speak with an experienced white collar defense attorney regarding your situation today.

What Are The Elements of a False Claims Act Claim?

Defendants in a False Claims Act claim (also referred to as an FCA claim or “qui tam” claim when pursued by a private plaintiff) who are accused of submitting a false claim to a state or federal government – for example where an entity or individual charges the government for services that were never provided, or inflating the costs of goods or services that were provided in the context of healthcare or defense procurement – face the possibility of steep financial penalties, reputational risk, criminal liability, and the inability to contract with the government going forward.

Plaintiffs who pursue FCA claims (referred to as “relators”), on the other hand, may be able to win a financial reward for being a successful whistleblower in exposing fraud, which can include 15% to 30% of the financial penalties levied against an offending entity in an FCA suit. Such whistleblower rewards often amount to millions of dollars awarded to a plaintiff for successfully pursuing an FCA claim.

Notably, many states have their own state FCA statutory regimes as well. While this article focuses on the federal FCA framework, many state FCA statutory regimes share similarities with federal FCA law.

Understanding The False Claims Act and Its Purpose

While the False Claims Act may be unfamiliar to many (including those who learn about its existence after a lawsuit has been initiated against them or their company), it is actually a federal statute with a long history, dating back to the Civil War. In response to concern that privately-owned suppliers of goods to the Union Army were defrauding the US government, Congress passed the False Claims Act in 1863, which provided for specific penalties to be imposed on suppliers of goods and services that knowingly defrauded the federal government.

Over the 150+ years that the FCA has been in existence, it has been amended several times, and its reach has grown as the federal government itself has become more involved in the lives of Americans, e.g. in providing healthcare and other services to citizens.

The size of the penalties imposed upon those who are found to violate the FCA has also grown: currently, an offender faces penalties of $5,500 to $11,000 for each false claim submitted to the federal government as well as three times the damages (“treble damages”) incurred by the government due to the false claims. In some cases, these penalties can be enormous: for example, in 2012 GlaxoSmithKline paid $3 billion in penalties to resolve its criminal and civil liability related to illegal marketing practices involving its drugs Paxil, Wellbutrin, and Avandia, among others. That same year, Johnson & Johnson paid $2.2 billion as part of an FCA settlement related to its actions related to certain drugs.

Notably, both those cases were pursued by private whistleblower plaintiffs who were able to obtain enormous financial rewards for their efforts: an estimated $250 million in the case of GlaxoSmithKline and $167 million in the case of Johnson & Johnson.

The Elements of an FCA Claim

To bring a successful FCA claim, in most cases a whistleblower plaintiff will prove that a person or entity:

• Knowingly presented (or caused to be presented) a false or fraudulent claim for payment or approval; OR
• Knowingly made, used, or caused to be made or used, a false record a statement material to a false or fraudulent claim; OR
• Conspired with another to do one or both of the above (conspiracy means to make an agreement to commit a violation, even if the violation did not necessarily occur); OR
• Had possession, custody, or control of property or money used or to be used by the government but failed to deliver all of that money or property to the government; OR
• Provided documentation to the government of the receipt of property that is untrue with the intent to deceive the government; OR
• Knowingly bought or received a pledge of property from a government employee or official who was not authorized to sell or pledge property; OR
• Knowingly made a false record or statement relating to an obligation to transit money or property to the government, or knowingly concealed or improperly avoided or decreased an obligation to pay or transmit money to the government.

In practice, FCA claims are often brought against defendants in the pharmaceutical industry, healthcare industry, and defense procurement industry for actions such as:

• “Off label” marketing of drugs for uses other than their approved uses
• Billing for medical services that were either never provided or which were unnecessary
• Overbilling for medical services that were provided, e.g. “upcoding” of medical services
• Use of kickbacks to promote the selection of goods or services
• Overbilling for services or goods provided in the defense and military context
• Use of government resources for non-compliant financial products

Where a private plaintiff brings an FCA claim, the government will have the option of joining the private party in pursuing the claim. But even if the government does not join the private whistleblower in pursuing the claim, the private plaintiff may still pursue the claim and may even be eligible to receive a higher percentage of any penalties imposed as a result.
Requirements of the Plaintiff
A plaintiff seeking to bring a FCA claim is not required to have worked in the entity that committed the violation, although many do (frequent plaintiffs in FCA claims include doctors, nurses, and healthcare executives, for example). A plaintiff simply needs to have some knowledge of the violations in order to provide the initial evidentiary showing to pursue such an FCA claim. Typically, a whistleblower plaintiff with some knowledge of violations will work with an experienced FCA attorney in a completely confidential manner, and the attorney will work with the plaintiff to collect and assess the evidence, while protecting the plaintiff from retaliation and other negative collateral consequences.

In some cases, a whistleblower plaintiff may be a person who was involved in at least some part of the wrongdoing. In such cases, a plaintiff may get a reduced award, but they may still pursue the lawsuit in many cases assuming they were not convicted of conduct relating to the FCA violation.

Importantly, if another party has already initiated a qui tam lawsuit relating to the alleged FCA violations, or the government is already a party to a case involving such conduct, it may be impossible to bring a case. Thus, it is in the interest of a potential whistleblower to move quickly in working with an experienced FCA attorney in order to avoid being unable to pursue a claim.

Contact an Experienced False Claims Attorney
For both whistleblower plaintiffs and defendants alike, the process of litigating an FCA claim is often long (many such lawsuits average 3-5 years in length) and filled with risk. It is important to work with experienced FCA counsel from the earliest stages of either asserting or responding to a FCA claim to protect your interests and maximize your chances of a positive outcome. Our attorneys have combined decades of experience in both the federal government and in the highest levels of private practice, and are ready to work with you to counsel you and/or your business on any FCA issues you may be facing.

Physician Liability Under Stark Laws and the Anti-Kickback Statute 

Physicians and other health care providers can face significant financial and reputational consequences for alleged violations of the federal Stark Law and Anti-Kickback Statute, and, with respect to the latter, a physician may face up to ten years in prison and felony conviction. Both the Stark Law and the Anti-Kickback Statute apply to physicians and others who submit claims for reimbursement to federal health care programs including Medicare and Medicaid for the provision of medical services and items. Specifically, the purpose of both the Stark Law and the Anti-Kickback Statute is to prevent referrals for services and medical items reimbursed by the federal government for which the individual providing the referral receives a financial benefit, either directly or indirectly. 

Unfortunately, many physicians and other health care providers may not be aware of the civil and criminal liability they face when making referrals for services or receiving referrals from others, and even an unintentional violation of such laws – which may even seem like standard operating procedure or local custom for those involved – can result in jail time, a criminal record, steep financial penalties, an inability to participate in Medicare and Medicaid programs, and possible disciplinary action by professional oversight boards. 

The Anti-Kickback Statute Explained

The Anti-Kickback Statute – or AKS – is a federal criminal law found at 42 U.S.C. § 1320a-7b(b), which prohibits the knowing and willful payment or receipt of any “remuneration” (including any kickback, bribe, or rebate) in return for either:

• Referring an individual to a person for any item or service for which payment may be made in whole or in part under a federal health care program, or
• Purchasing, leasing, ordering, or arranging for any good, facility, service, or item for which payment may be made in whole or in part under a federal health care program (or simply for recommending the purchase, leasing, or ordering of any such good, facility, service or item)

Thus, at its simplest level, the Anti-Kickback statute makes it a crime to have any paid referral arrangement (whether in cash, property, or in-kind arrangement) for any health care services or goods for which payment is made under federal health care programs such as Medicare or Medicaid, subject to certain exceptions.

While it may be customary in other industries to have such referral arrangements, doing so in the health care industry can expose individuals and organizations to criminal charges and penalties which can include fines, jail terms, and exclusion from participation in federal health care programs. The Anti-Kickback Statute targets both those who make payments for referrals and those who receive them, and violation of the statute is a felony. An individual found guilty of violating the Anti-Kickback Statute faces up to ten years in prison and a $100,000 fine, in addition to being excluded from federal health care programs. 

There are a number of “safe harbor” provisions pursuant to the Anti-Kickback Statute which protect from prosecution those individuals and entities that have referral systems that operate within federal guidelines. Those that receive payment from federal health care programs are strongly encouraged to work with compliance counsel to ensure that any referral programs and practices are squarely within these safe harbors. 

The Stark Law Explained

The “Stark Law” is a common title for the federal Physician Self-Referral Law found at 42 U.S.C. § 1395nn. Similar to the Anti-Kickback Statute, the Stark Law prohibits certain types of referrals for health services for which payments are submitted for reimbursement under federal health care programs including Medicaid and Medicare. 

In brief, the federal Stark Law prohibits a physician from making referrals for designated health services to entities in which that physician or an immediate family member of the physician has a financial interest. A financial interest in another entity can include either an ownership or investment interest of the referring physician (or family member) in the entity, or a compensation arrangement between the referring physician (or family member) in the entity. A compensation arrangement is any financial arrangement involving remuneration – whether overtly or covertly, directly or indirectly, or in cash or in kind. 

Designated health services for which referral thereto might trigger an investigation or enforcement action pursuant to the Stark Law include:

• Clinical laboratory services
• Physical therapy services
• Occupational therapy services
• Radiology services (including magnetic resonance imaging, computerized axial tomography scans, and ultrasound devices
• Radiation therapy services and supplies
• Durable medical equipment and supplies
• Parenteral and enteral nutrients, equipment, and supplies
• Prosthetics, orthotics, and prosthetic devices and supplies
• Home health services
• Outpatient prescription drugs
• Inpatient and outpatient hospital services
• Outpatient speech-language pathology services

Physicians found to violate the Stark Law can face exclusion from participating in Medicare and Medicaid, denial of payment, and civil penalties of up to $15,000 per submitted claim and $100,000 for the existence of each arrangement or scheme. 

As with the Anti-Kickback Statute, there are numerous exceptions to the Stark Law for certain arrangements and payments such as for physician recruitment, certain personal service arrangements that meet specified requirements (including being set out in writing, having a term of at least one year, and involving fair market value compensation), and certain group practice arrangements. Again, physicians and health care providers are strongly advised to work with experienced health care compliance counsel to ensure any referral arrangements comply with federal law.  

Examples of Unlawful Kickbacks & Financial Arrangements

Examples of practices and arrangements that may trigger an investigation or enforcement action by federal regulators and/or prosecutors related to the Stark Law and/or Anti-Kickback Statute include the following:

• A radiology lab paying a percentage of revenues for tests and other work done to a physician who refers patients to the lab
• A physician referring patients to a physical therapy provider partially owned by the physician’s husband
• A clinic entering into a financial contract with a dentist that requires the clinic to refer new patients to the dentist in exchange for the dentist providing the clinic free rental space in his building
• A pharmacy owner advancing funds to a doctor to help him open his up medical practice in exchange for a promise on the part of the doctor to refer patients to the pharmacy
• A medical center paying employees at a homeless shelter to refer and transport residents to the medical center
• A hospital paying bonuses to a specialist to perform procedures at that specific hospital
• A hospital providing special access to hospital facilities to surgeons who exclusively refer patients to that specific hospital
• A pharmaceutical company providing free meals, travel expenses, or event tickets to doctors who consistently write prescriptions for the company’s medications
• A medical supply company paying above-market “speaking fees” to doctors who consistently write prescriptions for the company’s products

Contacting ZFZ Law

Healthcare providers and professionals face unique and complex legal risks, and our attorneys have the legal experience and industry knowledge to counsel and protect clients in all aspects of the industry. It is important to respond properly to legal risks as soon as they arise.  Our attorneys are here to provide counsel and representation to mitigate risk at the earliest possible moment. 

 If you have reason to believe that you or your business may face a potential investigation, criminal charge, and/or enforcement action related to an alleged violation of the Stark Law or the Anti-Kickback Statute – or if you or your business are seeking to implement and/or improve compliance procedures to avoid the potential of a Stark Law or Anti-kickback Statute enforcement action – contact our office to speak with an experienced healthcare defense attorney regarding your situation today.