The False Claims Act provides that a claim under the act cannot be brought: 1) more than six years after the date of the violation, or 2) more than three years after the date when facts underlying the violation are known or reasonably should have been known by the relevant government official, but in no event beyond 10 years from the date of the violation. But a little known statute called the Wartime Suspension of Limitations Act (WSLA), 18 U.S.C. § 3287, provides that the running of any statute of limitations for an offense involving fraud against the United States is suspended when the United States is “at war” and remains suspended until five years after the termination of hostilities.

It has not been clear, however, whether the WSLA applies to relator actions under the act, with a district court holding that it did not. But the U.S. Court of Appeals for the Fourth Circuit recently issued a decision rejecting that holding and unequivocally finding that the WSLA did apply to actions brought by relators under the False Claims Act.

In United States ex rel. Carter v. Halliburton, 2013 U.S. App. LEXIS 5309 (4th Cir. March 18, 2013), the relator claimed that a government contractor falsely billed the United States for water purification services in Iraq. The district court held that the claims were time-barred under the act, and the relator argued that the Iraq conflict triggered the WSLA’s “at war” status. The Fourth Circuit agreed, finding that the United States was at war in Iraq from the date that Congress authorized the president to use military force in Iraq in 2002. Moreover, because neither Congress nor the president has terminated the conflict within the meaning of the WSLA, the United States continues to be at war for purposes of the complaint.

Then the court addressed the district court’s holding that the WSLA was inapplicable to relator actions brought under the act because, according to the district court, if the WSLA did apply in such circumstances, the statute would allow fraud claims to extend indefinitely. The Fourth Circuit rejected this holding as “misguided,” noting that the “WSLA tolls the applicable period for a specified and bounded time while the country is at war,” and that, “[b]y offering this rationale, it appears the [district] court was critiquing the purpose of the WSLA itself and not providing a valid basis for excluding relator-initiated claims from the WSLA.”

As a result of this decision, courts will likely be seeing older fraud claims brought under the act. Relators who have these types of claims should determine whether the WSLA might apply to make their claims actionable.

The settlement resolves qui tam lawsuits that had been filed under the whistleblower provisions of the False Claims Act. As part of this resolution, the relators who brought these cases will receive $4.4 million.

According to the government’s press release, Par had been charged with misbranding Megace ES in violation of the Federal Food, Drug and Cosmetic Act. Specifically, Megace ES “was approved by the FDA to treat anorexia, cachexia, or other significant weight loss suffered by patients with AIDS. The Megace ES distributed nationwide by Par was criminally misbranded because its FDA-approved labeling lacked adequate directions for use in the treatment of non-AIDS-related geriatric wasting, a use that was intended by Par but never approved by the FDA. The FDCA requires companies such as Par to specify the intended uses of a product in its new drug application to the FDA. Once approved, a drug may not be distributed in interstate commerce for unapproved or ‘off-label’ uses until the company receives FDA approval for the new intended uses.”

The civil settlement resolves allegations that “Par, by promoting the sale and use of Megace ES for uses that were not FDA-approved and not covered by federal health care programs, caused false claims to be submitted to these programs.” The United States also alleged that Par “deliberately and improperly targeted sales to elderly nursing home residents with weight loss, whether or not such patients suffered from AIDS, and launched a long-term care sales force to market to this population. During this marketing campaign, Par was allegedly aware of adverse side effects associated with the use of megestrol acetate in elderly patients, including an increased risk of deep vein thrombosis, toxic reactions in elderly patients with impaired renal function, and mortality.”

The government also alleged that Par made “unsubstantiated and misleading representations about the superiority of Megace ES over generic megestrol acetate for elderly patients to encourage providers to switch patients from generic megestrol acetate to Megace ES, despite having conducted no well-controlled studies to support a claim of greater efficacy for Megace ES.”

The Justice Department press release reminds that, except as admitted in the plea agreement, “the claims settled by the civil settlement agreement are allegations only, and there has been no determination of liability as to those claims.”

According to the release, American Sleep “owns and operates 19 diagnostic sleep testing centers throughout the United States, including in Alabama, California, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Missouri, New Jersey, Tennessee, Texas and Virginia.” Its primary business “is to provide testing for patients suffering from sleep disorders such as obstructive sleep apnea. The test results are used by doctors to determine the most appropriate course of treatment for patients. The most common tool used to diagnose sleep disorders, particularly sleep apnea, is a procedure called polysomnographic diagnostic sleep testing.” But the federal government’s requirements for reimbursement for this require that initial sleep studies be conducted by licensed technicians or technicians certified by a state or national credentialing body. According to the allegations, brought by a qui tam relator—or whistleblower—the government was improperly billed because diagnostic testing services were performed by technicians who lacked the required credentials or certifications, when American Sleep knew this violated the law.

As a result of this FCA settlement, the relator will receive his bounty of more than $2.6 million. Also as part of the deal, American Sleep entered into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services, which requires “enhanced accountability and wide-ranging monitoring activities conducted by both internal and independent external reviewers.”

Government intervention can be the turning point in a False Claims Act case. Specifically, the Department of Justice statistics show that, for cases filed in fiscal year 2012, settlements and judgments in qui tam (or relator-initiated) cases where the government intervened amounted to approximately $670 million dollars. By contrast, for qui tam cases where the government did not intervene, settlements and judgments amounted to only approximately $6 million in the same time period.

Government intervention, therefore, is extremely helpful to the success of a False Claims Act case. In a recent case, United States v. Aseracare, Inc., 2012 WL 5289475 (N.D. Ala. Oct. 24, 2012), the court widely construed the government’s ability to intervene in a case under the act, even where there were problems with the relator’s initial suit and where the government initially declined intervention. In Aseracare, the government initially declined to intervene and then later asked the court to allow it to do so because of new evidence it discovered. Defendants, however, argued that the lawsuit itself failed because it was not the first-filed suit under the act and thus the government could not properly intervene. Defendants also argued that the government did not show “good cause” for its intervention request after its initial declination.

For the “first-to-file” argument, the court noted that while the statute does not explicitly say so, a relator cannot bring a False Claims Act case based on facts underlying an already-existing proceeding under the act. But, the court held that even though a relator’s claims may be barred by the first-to-file rule, the government can still intervene in the case. In other words, the underlying action itself can be defective, but the government can still intervene.

With respect to the “good cause” argument, the court held that good cause exists where the “government realized the magnitude of the alleged fraud was much larger than it had originally anticipated; where the government received additional and new evidence about the case; and where intervention would protect the interests of the relators.” The government in this case argued that it received new information showing that defendants knew of the allegedly wrongful conduct much earlier than it had previously believed, and the court agreed that the new information supplied a sufficient basis to allow intervention.

This decision is good news for the government and for whistleblowers in terms of enhancing their False Claims Act case and possibly recovering significantly more money from defendants.

The recoveries spanned several sectors of the economy. In the health care arena, the Justice Department reports that, “[e]nforcement actions involving the pharmaceutical and medical device industry were the source of some of the largest recoveries this year.” The department recovered nearly $2 billion in cases alleging false claims for drugs and medical devices under federally insured health programs and, in addition, returned $745 million to state Medicaid programs.” The recoveries from major pharmaceutical companies addressed several drugs allegedly marketed for off-label use. They also addressed cases involving the alleged payment of kickbacks to physicians to prescribe certain drugs. Some of the cases addressed alleged false and misleading statements concerning drug safety and the alleged underpayment of rebates owed under the Medicaid Drug Rebate Program, and they include cases alleging inaccurate, unsupported, or misleading statements about drug safety to increase sales.

The Justice Department also reported successes in its “aggressive pursuit of financial fraud, including fraud in the housing and mortgage industries that came to light in the wake of the financial crisis.”

With respect to procurement fraud, “the department recovered $427 million in false claims for goods and services purchased by the government.” Noteworthy is its recovery from a software manufacturer that allegedly overcharged the government “by failing to disclose substantially lower prices offered to its commercial customers.”

Fiscal 2012 was also a very good year for whistleblowers. Of the $4.9 billion in recoveries this year, “a record $3.3 billion was recovered in whistleblower suits,” and the department reported “$439 million in [whistleblower] awards in fiscal year 2012.”

In appreciation of whistleblowers’ assistance, Principal Deputy Assistant Attorney General noted, “[t]he whistleblowers who bring wrongdoing to the government’s attention are instrumental in preserving the integrity of government programs and protecting taxpayers from the costs of fraud. We are extremely grateful for the sacrifices they make to do the right thing.”

It has been about one year since the SEC established its Office of the Whistleblower, and according to Sean X. McKessy, the chief of that office, the SEC has received almost 3,000 securities law violation tips, or about eight tips per day. .

But the most hotly litigated issue with Dodd-Frank whistleblowers isn’t the bounty they receive or the tips they provide, but the scope of protection they have against retaliation. Specifically, the Dodd-Frank Act defines a whistleblower as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC]. . . .” [15 U.S.C. § 78u-6(a)(6)]. But the anti-retaliation provision prohibits adverse action against a whistleblower arising out of disclosures protected under Sarbanes-Oxley; the Securities Exchange Act of 1934; and any other law, rule, or regulation subject to the jurisdiction of the SEC. Id. at § 78u-6(h)(1)(A).

There is therefore a tension between these provisions. Specifically, the statute defines whistleblowers as those who report violations to the SEC, while the anti-retaliation section protects whistleblowers against retaliation for much broader conduct, including internal reporting.

In one recent decision, Kramer v. Trans-Lux Corp., the court resolved this tension in favor of the employee. Kramer, the plaintiff in that case, was the vice president of human resources and administration, and he claimed that he was fired after telling his company’s board of directors and the SEC that his supervisors were violating the company’s pension plan requirements.

Specifically, Kramer was supervised by the company’s CFO and CEO and, according to him, he repeatedly advised them that the pension plan committee did not have the required number of members. He also advised the CFO that her position on the pension plan committee while acting as trustee of the pension plan presented a conflict of interest, particularly in light of the fact that she had inside knowledge of the company’s financial situation and continued to hold company bonds as a pension investment even though the bonds had lost their value. Kramer also alleged that the company amended its pension plan, but did not present the amendments to the board of directors and failed to file the amendments with the SEC as he believed was required.

Kramer claimed that he sent an email to the CEO and CFO expressing all of his concerns, but they took no action.

Kramer then sent a letter to the SEC about the company’s failure to submit the pension plan amendments to the board or the SEC. Soon afterwards, the defendants allegedly began retaliating against him. The CEO allegedly began reprimanding Kramer and instructed in-house counsel to launch an investigation into whether he failed to report issues regarding payroll problems to senior management. The CEO also started stripping him of his responsibilities and ultimately fired him. Kramer then brought a claim for retaliation under the Dodd-Frank Act.

The defendant company argued that the retaliation provision in the Dodd-Frank Act did not apply to Kramer because he did not provide information to the SEC in the manner required by the SEC – the letter he sent by regular mail was not one of the permissible methods for reporting violations. The court, however, held that this interpretation would “dramatically narrow the available protections available to potential whistleblowers,” and instead found that the definition of whistleblower is broader with respect to the anti-retaliation section than it is for the rest of the statute. In other words, the broader protection in the anti-retaliation provision is an exception to the definition of “whistleblower” as one who reports to the SEC.

The implications of this decision could be important, and terminated employees should consider bringing claims for retaliation in cases where they internally reported wrongful conduct, even if they did not become technical whistleblowers by going directly to the SEC.

• As my colleague John Sinatra reported, the IRS recently awarded a whopping $104 million to imprisoned UBS whistleblower Bradley Birkenfeld, the first award under the 2006 program
• Just last month, the IRS awarded $38 million to another whistleblower

Can it be, as Forbes recently reported, that “the days ahead look bright for whistleblowers and the IRS whistleblower program”? With a backlog of significant whistleblower cases filed after 2006 slowly churning through the IRS process, it is a safe bet that more cases are edging closer to completion and that the slow trickle of announcements from whistleblower attorneys about awards will begin to pick up. As more awards are announced, more whistleblowers will come forward.

And there is little doubt whistleblowers will be emboldened by the $38 million dollar awarded in October. The whistleblower’s attorney said that his client exposed a corporate tax avoidance scheme involving “aggressive tax planning” by one of the nation’s largest corporations. Based on the size of the award, it is conservatively estimated that the IRS collected more than $126 million in federal corporate taxes from the company. Significantly, the whistleblower’s identity was never revealed nor was the identity of the public corporation. In fact, the target corporation did not even know that the IRS’s interest in its “aggressive” position was sparked by a tip from a whistleblower.

As corporate insiders realize that they can report their employer’s unpaid tax obligations and reap the rewards of the IRS whistleblower program without fear of disclosure, it is a sure bet that others with good information will come forward.

Can a company that has taken an “aggressive” federal tax position face penalties under the current New York tax whistleblower program as well? Maybe, but two key features of the New York system diminish the appeal that such cases might have for potential whistleblowers. First, the New York statute limits False Claims Act cases to those where the whistleblower can prove that the corporate taxpayer knew that its returns were false or where the taxpayer acted with reckless disregard or deliberate ignorance of the truth of those returns. In sharp contrast, the IRS program applies to all underpayments that meet the financial thresholds, including those that are the result of mistakes. An aggressive corporate tax position that turns out to be wrong but that was held in good faith can still result in an IRS award, as last month’s case demonstrates. That same case would only qualify in New York if the whistleblower can prove that the corporate taxpayer knew the return was wrong, or recklessly disregarded or deliberately ignored the truth of the return.

Second, a whistleblower in New York must be prepared for the likelihood that his or her identity will not be protected and that the target of their tip will learn who they are. Even with New York’s strong statutory whistleblower protections, many potential whistleblowers are reluctant to proceed with cases when their identities will likely become known.

Thus, in New York, tax whistleblowers have a higher burden of proof and they face greater risks than whistleblowers under the IRS program. Since taxpayers face much greater penalties under the New York whistleblower statute than under the IRS program, the higher burdens and risks that whistleblowers face under New York’s false claims statute make some sense. The New York false claims act penalties, equal to three times the taxes evaded, are so severe that it is understandable that the Legislature reserved these penalties for cases where the taxpayer engaged in knowing or reckless misconduct.

That said, some whistleblower attorneys have complained to me that New York is losing out by not having a program like the federal program that both rewards whistleblowers who report significant underpayments that are not based on knowing misconduct (but that are owed nonetheless) and that promises and delivers the ultimate protection to whistleblowers—anonymity. These attorneys have suggested that New York should once again take the national lead by expanding its tax whistleblower program to allow whistleblowers to choose whether to file a claim with the Tax Department under a program modeled on the IRS program or, if the facts establish a knowing violation of the tax law, to file a qui tam suit under the False Claims Act. Such a change would provide a mechanism for reporting liabilities that are not based on knowing misconduct while giving whistleblowers a choice to file a claim while preserving their anonymity. The end result would be that New York would have a dual statutory framework, which would cast the broadest possible net to encourage all whistleblowers with knowledge of substantial tax liabilities to come forward.

Does the idea have potential? It is hard to say. But given New York’s continuing financial problems, I don’t think that anyone should be too surprised if the folks in the Tax Department and the Legislature started to give serious thought to doing something like this to expand the reach of its whistleblower laws, especially if the IRS program continues to produce major recoveries.

In particular, according to the U.S. attorney’s press release, the United States has intervened in Ohlmeyer ex rel. United States of America v. City of New York, where the United States alleges that “the City of New York Department of Education (DOE) submitted false claims to Medicaid for psychological counseling services to special education students in the New York City public schools.” According to the release, “Medicaid pays DOE a flat fee of $223 for each student to whom DOE provides at least two psychological counseling sessions in a month. Medicaid pays nothing if an individual student receives fewer than two counseling sessions in a month.” Thus, the government alleges that, “between 2001 and 2004, DOE knowingly billed Medicaid for counseling services to students even though it provided fewer than two counseling sessions per month to individual students.”

Of course, these are just allegations at this stage, and the city can be expected to defend itself. This case is noteworthy, however, because it highlights that long-quiet qui tam cases sometimes take many years to mature into a government intervention decision. The lesson here is that a relator and relator’s counsel must be patient and plan for an initial time horizon of a few years to as many as five or six years.