Articles Posted in Employer Retaliation

Shipping-ContainersTwo whistleblowers brought fraud allegations against shippers of military freight and helped the U.S. Government recover $13 million in a False Claims Act settlement announced this month. The case involved a nationwide contract described by Transport Topics Newspaper as “the largest logistics outsourcing in history.”

Richard Ricks, 58, and Marcelo Cuellar, 30, filed a complaint under the federal False Claims Act, alleging that contractors under the Defense Transportation Coordination Initiative (“DTCI”) knowingly inflated charges to the Government for shipping military freight throughout the United States.

The Defense Transportation Coordination Initiative was a massive initiative by the U.S. Department of Defense (“DoD”) to manage distribution of military freight in the continental United States. The purpose of the DTCI was to “increase the operational effectiveness of the U.S. Military and at the same time, obtain efficiencies. The premise is that DoD will increase operational effectiveness… [and] also obtain efficiencies through best business practices such as increased consolidations and mode conversions.” In effect, the DTCI was an attempt to outsource and reduce transportation costs—a fact lost on the fraudulent contractors. In 2015, the program was abandoned because of rampant fraud.

Hedge-Fund-Office-Building-150x150The Second Circuit Court of Appeals recently limited the enforceability of employment separation agreements that seek to ban would-be whistleblowers from filing claims against their former employers. In U.S. ex rel. Ladas v. Exelis, Inc, et al., the Court held that broad lawsuit release provisions in employment separation agreements, which are increasingly common in the corporate sphere, cut against public policy by discouraging the filing of qui tam suits to uncover fraud against the government.

False Claims Act (“FCA”) Whistleblower Michael Ladas was the Director of Quality at Power Solutions. In 2005, Power Solutions entered into a contract with the U.S. Government to provide power supply devices. During this time, as Director of Quality, Ladas was responsible for ensuring production compliance with government contracts, product testing, and documenting and reporting manufacturing defects in Power Solutions’ products.

During Ladas’ employment as Director of Quality, Power Solutions entered into a subcontract with Innovative Mold Solutions (“IMS”), where IMS manufactured casing components for Power Solutions’ products. In November 2007, without alerting Power Solutions or the government, IMS made substantial changes in the manufacturing of its power supply case components, using a significantly less expensive adhesive material and considerably changing the process it used to apply that material. An engineering professor employed by Power Solutions alerted Ladas that a change in application method would require significant additional testing to ensure the casing’s reliability and durability; but neither IMS nor Power Solutions put the casing through additional testing, and the changes were not submitted to the government for approval.

Court ReportersOn June 22nd, the United States Court of Appeals for the Sixth Circuit affirmed the decision of a federal district court to deny motions to direct a verdict or, alternatively, order a new trial. The trial court awarded damages for a retaliation claim filed under the False Claims Act (“FCA”).

In November of 2004, Mark Thompson, a former CEO at Monroe County Medical Center (MCMC), a health care facility managed by Quorum Health Resources, LLC, filed a lawsuit in which he alleged that Quorum had defrauded the federal government’s Medicare program by unnecessarily driving up costs by improperly selecting hospital vendors and group purchasing organizations (GPOs). According to Thompson, about a month after learning of the FCA complaint, Quorum terminated Thompson’s employment. Thompson then amended his initial complaint to allege retaliation. Quorum’s stated reason for firing Thompson was failure to comply with the company’s code of conduct by reporting the concerns of fraud when they initially arose. Thompson argued, meanwhile, that Quorum’s stated reason for the termination was mere pretext for an improper retaliation on the basis of protected conduct, namely, filing a claim under the FCA. After a jury verdict in Thompson’s favor on the count of retaliation, the court awarded damages of nearly $1 million. Quorum made a motion for a judgment as a matter of law  and, alternatively, for a new trial. Both motions were denied.

On appeal, Quorum argued that the district court erred by admitting testimony about the allegations of fraud contained in Thompson’s initial complaint but disallowing testimony that the government failed to intervene. The Sixth Circuit held, in an unpublished opinion, that the testimony concerning the fraud was relevant because Thompson needed to show that Quorum was committing such fraud and failed to conduct a sufficiently thorough investigation. Such evidence was relevant to rebut Quorum’s assertion that Thompson failed to comply with the company’s code of conduct. The Cincinnati-based federal appeals court thus affirmed the district court’s denial of the motions.

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