Last month, the Sixth Circuit affirmed sanctions imposed by a district court against a relator and his counsel for bringing a frivolous False Claims Act (FCA) action. The ruling in United States ex rel. Jacobs v. Lambda Research, Inc., No. 14-3705, 2015 WL 1948247 (6th Cir. May 1, 2015) is a positive development for companies that have faced an increase in FCA actions in recent years. It also illustrates the use of a sanctions provision that is specific to FCA claims.

Lambda Research is a small business that contracts with the United States Navy to strengthen the metal components of warplanes. Terry Jacobs, the individual who brought the FCA case, worked for Lambda for two years before he left the company to become vice president of a competitor business, Ecoroll Corporation.

Lambda thereafter sued Jacobs in state court, alleging that Jacobs stole Lambda’s trade secrets and gave them to Ecoroll. A jury found Jacobs liable and awarded Lambda $8 million in damages. Additionally, the state court found that Jacobs misappropriated trade secrets willfully, and ordered him to pay Lambda $1.4 million in attorney’s fees.

Continue Reading Relators Beware – Sanctions Upheld for “Vexatious” False Claims Act Suit

Employee severance packages and settlement agreements often include a broad waiver of any claims, known or an unknown, which an employee may have against the company.  Although such broad pre-filing releases are highly recommended, companies doing business with the government should be cautioned that these waivers do not always protect against False Claims Act (“FCA”) litigation.  A line of federal cases has established that these so-called “pre-filing releases” are sometimes unenforceable against suits filed by whistleblowers, or qui tam actions, for public policy reasons.

Pre-filing releases bar qui tam actions only if the government was already aware of the fraudulent conduct that forms the basis for the employee’s allegations.  The Ninth Circuit in an early case held that enforcing such a waiver where the government was not aware of the fraud until the filing of a qui tam complaint would be against public policy.  U.S. ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995).  The court noted that the FCA’s qui tam provisions are meant to incentivize whistleblowers to come forward with information that the government would not otherwise be able to obtain.  Thus, when the government first learns about alleged fraud from a whistleblower complaint, the pre-filing release will not be enforced.  This view is shared by the Fourth and Tenth Circuits.  See U.S. ex rel. Radcliffe v. Perdue Pharma, L.P., 600 F.3d 319 (4th Cir. 2010); U.S. ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009).

Continue Reading Enforceability of Employee Releases on Qui Tam Actions

On April 6, 2015, the Sixth Circuit delivered a costly blow to the United States government to the tune of $657 million when it issued its opinion in United States v. United Technologies Corporation and remanded the case back to the district court to review the damages award, yet again.

This was the second time that the Sixth Circuit heard arguments deriving from the United States False Claims Act case against Pratt & Whitney (“Pratt”), now owned by United Technologies, for false statements the company made when competing against GE Aircraft for contracts to build F-15 and F-16 jet engines. In 1983, in an attempt to outbid GE Aircraft and make it hard for the government to issue a split-award contract, Pratt misstated its projected costs and certified that the company’s bid included its “best estimates and/or actual costs.” After uncovering Pratt’s overstated costs projections, the government filed both an administrative action against the company in the Armed Services Board of Contract Appeals (“ASBCA”) under the Truth in Negotiations Act and a lawsuit in district court alleging violations of the False Claims Act.

Continue Reading United Technologies is Saved from $657 million False Claims Act Verdict by the Sixth Circuit