Whistleblower Litigation: New Developments and Strategies

1. Whistleblower Litigation: New Developments and Strategies William F. Cronin Corr Cronin Michelson Baumagardner & Preece LLP 1001 Fourth Avenue, Suite 3900 Seattle, Washington 98154 www.corrcronin.com

5. FEDERAL LAWS ENCOURAGING WHISTLE BLOW

6. False Claims Act31 U.S.C. § 3729(a)(1) (A-G) Legislative Background: • Enacted 1863 • 1986 Amendments • 2009 Amendments - expands liability provisions and authority for Civil Investigative Demands • 2010 Amendments - weakened the public disclosure bar Triggers: • Knowing presentation of a false record to U.S. material to a claim • Knowing concealment to avoid or decrease an obligation to U.S. Likely Targets: • Health Care Suppliers • Pharmaceutical Companies • Defense Contractors

7. False Claims Act31 U.S.C. § 3729(a)(1) (A-G) (Cont’d) Threshold Issues: • U.S. Intervention • Original source – the relator allegations cannot be based on public disclosures unless relator was original source • Claims smuggling prohibited Relief: • Treble damages, statutory penalties and attorney’s fees Special Bounty: • 15 to 25% of recovery or 25 to 30% if government declines to intervene • Determined by Court or by parties in settlement

8. 2. Sarbanes-Oxley Triggers: • Securities registered under § 12 of Exchange Act or filing reports under § 15(d) of Exchange Act • Retaliating against employee for report to internal personnel (e.g., General Counsel), law enforcement, or SEC about mail fraud, securities fraud or fraud against shareholders Threshold Issue: • Employee who is subject to retaliation must file complaint with OSHA; if OSHA fails to issue final agency order written 180 days may file complaint in U.S.D.C. Relief: • Order for back pay, attorney’s fees, reinstatement, restoration of benefits Bounty: • None

9. 3. American Recovery & Reinvestment Act of 2009 Triggers: Retaliation for whistle blow to specified persons about: • Gross mismanagement of recovery contract; • Gross waste of recovery funds; • Substantial danger to public health or safety from use of government funds; • Abuse of authority related to use of funds; or • Violation of law regarding use of recovery funds Threshold Issues: • Was the complaint a “contributing factor” to adverse action against employee • Employer must prove by “clear and convincing evidence” that complaint was not a “contributing factor” to adverse action Relief: • Compensatory damages, attorney’s fees and reinstatement Bounty: • None

10. 4. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Threshold Issues: Applies to publicly held companies Employs a different original source rule Excludes recovery for persons conducting SEC required audits Relief: Doubles the back pay for an employee discharged for a Sarbanes-Oxley report Bounty: 10 to 30% of award government receives for violation of commodities or securities law Award must exceed $1 million No opportunity for whistleblower to pursue action on behalf of government SEC or CFIC determine amount of award

13. The Expected Lawsuit Surge • In 2010, over 1000 qui tam lawsuits were pending awaiting an intervention decision by DOJ • The financial stakes are often enormous • Glaxo Smith Kline settlement (2010): $750 million • AstraZaneca settlement (2010): $520 million • Goldman Sachs settlement (2010): $550 million • The bounties have incentivized both professional bounty hunters, plaintiff’s law firms, and employees

14. “At the end of a criminal rainbow, there is no pot of gold.” “The hunter when he understands his prey – it’s easier for him to find them.”

15. Recent Whistle Blow Lawsuits Handled by CCMBP • CFO suing biotech company • Engineer at Hanford Nuclear Reservation suing contractor • Airline pilot suing commercial airline • Airline maintenance supervisor suing commercial airline • Public Housing Authority employee suing Public Housing Authority

16. A Recommended Strategy for the Whistle Blow Lawsuit • Do Not Treat As A Typical Employment Lawsuit • Is plaintiff a crusader? • Has plaintiff put career at stake? • Does the whistle blow have merit? • Will this lawsuit morph? • Take The Whistle Blower’s Deposition Early • Line Up Ex-Employees As Witnesses • Scrutinize Whistle Blower’s Working History Prior To Employment With You • Be Cautious About The Undocumented Problem • Find A Champion Within The Company • Who has been hurt? • Who stood up for the workers?

18. AT&T MOBILITY LLCv. CONCEPCION, ET UX.Supreme Court of the United StatesNo. 09-893 William F. Cronin Corr Cronin Michelson Baumagardner & Preece LLP 1001 Fourth Avenue, Suite 3900 Seattle, Washington 98154 www.corrcronin.com

20. KEY FACTS IN CONCEPCION • The Concepcions entered into a wireless services contract with AT&T Mobility for which AT&T advertised a free cell phone. AT&T Mobility in subsequent billings included a sales tax charge for the cell phone. • The Concepcions filed a class action complaint in the U.S.D.C for the Southern District of California alleging AT&T had engaged in false advertising and fraud by charging a sales tax on cell phones advertised as free. • The Concepcions had agreed to arbitrate disputes with AT&T Mobility and to waive rights to class action relief.

21. KEY FACTS IN CONCEPCION(Cont’d) • The arbitration agreement was consumer friendly: “In the event the parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions, that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages. The agreement, moreover, denies AT&T any ability to seek reimbursement of its attorney’s fees, and, in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.” AT&T Mobility LLC v. Concepcion, et ux, 563 U.S. ___, (2011)

22. KEY FACTS IN CONCEPCION(Cont’d) • The U.S.D.C for the Southern District of California and the Ninth Circuit concluded that the arbitration agreement and class action waiver were unenforceable under California’s Discover Bank rule. In Discover Bank, the California Supreme Court had declared that agreements to arbitrate in which consumers waive class action relief are unconscionable and unenforceable under California law.

23. WHAT THE SUPREME COURT DECIDED IN CONCEPCION • States cannot condition enforcement of arbitration agreements on availability of class action relief. • Class action waivers in agreements to arbitrate are enforceable, and any contrary state law or policy is pre-empted by the Federal Arbitration Act.

24. FUTURE QUESTIONS • Will businesses increase their use of arbitration agreements with consumers? • Does rationale apply to employment agreements? • Must arbitration clauses be as consumer-friendly as AT&T Mobility's? • What will Congress do?