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Court Considers Public Policy Implications of Qui Tam Defendant’s Counterclaim Against Whistleblower

files-313733_640.jpgIn order to bring a whistleblower claim under the False Claims Act (FCA), someone has to take the risk of reporting information they have obtained from their employer regarding fraud. The law protects people from various forms of retaliation for making a report, but it is still a difficult process that takes courage and resolve. In many cases, the act of reporting may put a whistleblower at risk of a counterclaim by a qui tam defendant for breaching a confidentiality agreement or violating their trade secret rights. Businesses need the ability to maintain some amount of confidentiality and protect their trade secrets, but what happens when that interest conflicts with an FCA claim? A Pennsylvania federal court recently considered a qui tam plaintiff’s argument that counterclaims against her went against public policy. United States, ex rel. Notofransesco v. Surgical Monitoring Assoc. Inc., et al, No. 09-1703, memorandum (E.D. Pa., Dec. 12, 2014). The court discussed the limits on a qui tam defendant’s ability to counterclaim against a whistleblower, but it found that it was too early in this particular proceeding to make a ruling on the issue.

The plaintiff worked for the defendant, a healthcare services company, from 2006 to 2008, first as a Billing and Collections Specialist and later as a Billing Manager. In June 2008, she signed a written confidentiality agreement that described a wide range of materials deemed confidential. The defendant claimed that the plaintiff removed confidential information from its premises, in violation of the confidentiality agreement, at some point during the time it employed her.

In April 2009, the plaintiff filed a qui tam complaint, under seal, alleging that the defendant had submitted false claims for federal healthcare reimbursements. The federal government declined to intervene in March 2014, almost five years after the plaintiff filed the lawsuit. She filed an amended complaint the following month, which was no longer under seal. The defendant filed an amended answer in October, along with counterclaims for breach of contract, breach of implied contract, and promissory estoppel. It argued that the plaintiff violated the confidentiality agreement by filing the amended complaint and placing confidential information into the public record.

The plaintiff moved to dismiss the defendant’s counterclaim for failing to state a claim on which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure. She raised three arguments: (1) that the materials she used to prepare her FCA claim were not confidential; (2) that the defendant did not adequately plead damages; and (3) that the counterclaim undermines the purpose of the FCA and therefore is void as against public policy. The court denied the motion as to all three arguments, but its discussion of the third argument merits some discussion.

No court has made a definitive ruling on whether a counterclaim against a whistleblower violates public policy, but numerous courts have identified situations in which this is the case. The court in Notofransesco cited cases holding that a qui tam defendant may not use a counterclaim for “indemnification” to offset its losses from the FCA claim, since this would tend to discourage FCA claims in the first place. The court also cited cases, however, that allowed counterclaims for damages that were not directly related to the FCA proceeding. Ultimately, the court opined in Notofransesco that the defendant’s counterclaim, and its demand for the return of materials taken by the plaintiff, may prove to be improper as compared to the goals of the FCA, but that it was too early in the proceeding to tell.

Stone & Magnanini has participated in many of the largest healthcare fraud cases in the past decade. We are committed to protecting the rights of whistleblowers while helping them assert their claims. To learn more about reporting healthcare fraud, or to schedule a free and confidential consultation with our healthcare fraud team, contact us today online or at (973) 218-1111.

More Blog Posts:

The First-to-File Fight, Whistleblower Legal Update Blog, January 23, 2015
Better Know a Fraud: DaVita Healthcare Partners, Inc. Kickbacks, Whistleblower Legal Update Blog, January 20, 2015
The False Claims Act in 2014: A Year in Review, Whistleblower Legal Update Blog, January 15, 2015
Photo credit: PublicDomainPictures [Public domain, CC0 1.0], via Pixabay.