Last week, we wrote about two federal appellate court decisions regarding qui tam suits under the False Claims Act (FCA). Those decisions 1) opened qui tam suits to government officials—even those tasked with investigating fraud, and 2) deemed underbidding on government contracts an actionable “false claim.” Today, we focus on two other FCA/qui tam appellate court rulings, both of which concerned employee suits against former employers. In both cases, the Third and Seventh Circuits rejected the would-be relator’s qui tam claims. The outcomes are small victories for those who believe that the FCA has been expanded beyond its original purpose.
In U.S. ex rel. Repko v. Guthrie Clinic et al., the Third Circuit held that an individual who discloses FCA allegations to the government pursuant to a plea agreement cannot be said to have “voluntarily” disclosed those contentions. Four years after leaving employment, Repko, a former employee of Guthrie, stole $2 million by forging the names of Guthrie employees on loan documents. As part of his plea agreement with the government, Repko agreed to give the government information relating to the “unlawful activities of others.” After providing the government with various allegations, Repko tried to bring a qui tam action based on that same information.
Because similar allegations had previously been disclosed on websites and in prior litigation, Repko could only bring a qui tam action if he was an “original source” of the information. To be an original source, an individual must voluntarily disclose their information to the government. Repko’s disclosure was far from voluntary: he provided the information “only after he pleaded guilty to bank fraud, faced a substantial sentence, and bargained for a lower sentence.” Thus, he did not qualify as an original source and his claims were dismissed. Continue reading
Cross-posted by Forbes.com at “On the Docket”
The National Law Journal reported online yesterday that Wham-O, creator of such iconic toys as the Frisbee® and the Hula-Hoop,® has alerted the U.S. Court of Appeals for the Third Circuit that it will challenge the constitutionality of 35 U.S.C. § 292, the section of the federal patent law which empowers any person to sue any entity which marks their products with a false (i.e. expired) patent number. What is particularly interesting about the challenge is that Wham-O succeeded in getting the bounty hunter’s claim thrown out at the federal trial court on the grounds that the complaint alleged no concrete injury. In the aggressive and innovative spirit of Wham-O’s founders, rather than simply argue that the district court’s reasoning was correct, Wham-O’s lawyer is taking a “best defense is a good offense” approach. Whether the Third Circuit will rule on an argument not addressed by the lower court is uncertain.
As The Legal Pulse related this past September, the bounty hunter patent law provision has been challenged on constitutional grounds previously. Pioneer Hi-Bred International advanced that argument, in addition to others, seeking dismissal of a patent marking suit in North Carolina. The court dismissed the claim, but declined to address the constitutional challenge, ruling instead that the complaint “fails to state with particularity the circumstances constituting fraud.” Continue reading
In an opinion released on October 20, the U.S. Court of Appeals for the First Circuit reduced two lawyers’ contingency fee from $292,000 to $50,000 — a positive, and rather ironic, message against excessive attorneys’ fees.
The ruling (U.S. v. Hawthorn) emanates from a whistleblower case in which four employees of the Overseas Shipholding Group, Inc. (“OSG”) reported incidents of the company’s pollution violations to the United States Cost Guard. When discovered that the employees could potentially receive whistleblowing payments, two of them — Benedict Barroso and John Altura — contracted attorney Zack Hawthorn for representation. Barroso and Altura agreed to pay Hawthorn the standard 33 percent contingency fee if successful in the suit.
Barroso and Altura won their whistleblowing claim and reward. The U.S. government filed a motion with the district court judge for a reduction in Hawthorn’s attorney fee, arguing it was unethically excessive. The district court agreed with the government, and instead of being rewarded $292,000, Hawthorn could only collect $25,000 from Barroso and nothing from Altura. The court reasoned that the full 33 percent fee was excessive considering the limited effort and risk involved in the case. Furthermore, the court found Hawthorn’s fee so significantly reduced the payment to the whistleblowers that it would erode the financial incentive Congress enacted to encourage whistleblowing. Continue reading
Cross-posted at Forbes.com’s “On the Docket”
Emerging from its summer recess and Monday’s “Long Conference,” the U.S. Supreme Court granted review to 14 cases this morning. Eight of them involve business litigants or implicate issues that affect our free enterprise system. The Court accepted cases featuring one law on which it has ruled very frequently of late — the False Claims Act – and another law — the Freedom of Information Act — on which it rarely comments. One case explores a first-year law school civil procedure issue, while another gets deeply into the weeds of bankruptcy jurisprudence, thanks to a three-decade estate battle involving the late Anna Nicole Smith. Some details:
1. Astra USA Inc et al. v. Santa Clara County et al. Astra USA, along with numerous big pharmaceutical companies, were sued by public hospitals and private clinics for allegedly overcharging for outpatient drugs. The critical issue here, which certainly transcends Big Pharma, is whether under federal common law, third-party beneficiaries can sue government contractors to enforce the statutory requirements with which those businesses contractually pledged to comply. The plaintiffs and the U.S. Court of Appeals for the Ninth Circuit (from which the Court granted cert) had to rely on federal common law because no statute specifically granted third parties the right to sue on the government’s behalf. Six courts of appeal have ruled that a private right of action exists, while three have ruled such a right cannot be found in common law. Continue reading
The Legal Pulse last week assessed a U.S. Court of Appeals for the Federal Circuit ruling in a case involving a Brooks Brothers bow tie marked with a number for an expired patent. We noted how the court, in ruling for the plaintiff, acknowledged but refused to address a constitutional issue raised by an amicus brief. The brief, filed by CIBA Vision Corp. supporting Brooks Brothers, argued that Congress cannot delegate Article II, Section 3′s power that the Executive Branch “take Care that the Laws be faithfully executed” to private citizens without retaining ultimate control over the litigation. Our post expressed hope that future litigants would bring the constitutional issue squarely before a court.
A Legal Pulse reader this week was kind enough to let us know that we had overlooked a live, pending constitutional challenge to 35 U.S.C. § 292, which permits private parties to sue alleged patent mismarking offenders on the government’s behalf. Continue reading
Cross-posted at Forbes.com’s “On The Docket”
The bounty hunting lawsuit crusade known as “patent marking litigation” was relatively obscure when Washington Legal Foundation featured a short video on the subject in late June on its Legally Brief website, and then published a short paper on it by three Arnold & Porter attorneys early last month. Now, thanks to an August 31 U.S. Court of Appeals for the Federal Circuit ruling in Stauffer v. Brooks Brothers Inc., the issue has leapt onto the front pages of The Wall Street Journal (subscription-required link here; WSJ Law Blog here) which noted how scores of product manufacturers are rushing to confirm the validity of the patents marked on their packaging.
Mr. Stauffer, a self-described “sharp-dressed man” according to the Journal, who just happens to be a patent lawyer, somehow noticed Brooks Brothers’ bow ties were marked with expired patents. Determined, as he noted to the Journal, to “do a service to the United States” (and of course make some money in the process), Stauffer sued Brooks Brothers under the federal patent law’s “qui tam” or private attorney general provision, putting the venerable clothier at risk of up to $500 in damages for each mismarked bow tie. A federal trial judge dismissed his suit, ruling Stauffer had proven no injury in fact to himself or the U.S. government and thus had no standing to sue under the Constitution’s Article III. Stauffer appealed with the help of the U.S. government, which filed an amicus brief on his side. Continue reading
Matthew Bathon, the commentator in this video, along with Arnold & Porter LLP colleagues Monty Agarwal and James Blackburn, have prepared a Legal Opinion Letter which WLF will publish on August 6.
A transcript of Mr. Bathon’s commentary is available here.