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Law firms respond to ‘white-hot’ practice area

By: DOLAN MEDIA NEWSWIRES//August 26, 2013//

Law firms respond to ‘white-hot’ practice area

By: DOLAN MEDIA NEWSWIRES//August 26, 2013//

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By Brandon Gee
Dolan Media Newswires

Two years after the “bounty” provisions of the Dodd-Frank Act on financial reforms took effect, whistleblower matters remain a sizzling growth area for lawyers in employment or finance and securities practice areas — or, as is increasingly common, on a law firm interdisciplinary team that harnesses expertise from both fields.

Only two payouts under the program have been approved thus far, including the recent announcement that three unnamed whistleblowers will share an award in connection with a Massachusetts case, Securities and Exchange Commission v. Hicks, et al. But the SEC has received thousands of tips and posted hundreds of notices of final judgments and orders with monetary sanctions over $1 million, the qualifier that allows whistleblowers who supply “original information” to submit a claim.

And while there has been much focus on the Dodd-Frank Act’s sweeping and historic reforms in the wake of the Great Recession, it is just one of dozens of federal and state laws with whistleblower provisions. Many of those provisions are being increasingly employed at a time when the public, the plaintiffs’ bar and lawmakers are more cognizant of the ability of individuals outside the bureaucracy to effectively ferret out wrongdoing and wrongdoers — and get paid handsomely in the process.

“Unequivocally, this is a very, very significant growth area,” said Gregory Keating of Boston, co-chair of Littler Mendelson’s whistleblowing and retaliation practice group. “It’s not an exaggeration to say this is the hottest area of employment litigation in the United States. There are four things going on right now, any one of which would cause a spike. Together, it’s a firestorm.”

Teams form

Citing Dodd-Frank, revisions to the Sarbanes-Oxley Act, and a 25 percent increase in the number of whistleblower and retaliation claims the firm had handled between 2009 and 2011, Littler announced the formation of a standalone whistleblowing and retaliation practice group to handle the work in September 2011. There are more than 100 lawyers in the group nationally, and their work has continued to increase by 30 to 50 percent since the 2011 announcement, Keating said.

Meanwhile, WilmerHale, with 14 offices in the U.S., has a Dodd-Frank whistleblower working group consisting of 22 lawyers. And New York City-based Proskauer Rose has 21 attorneys in its whistleblowing and retaliation practice group, which is celebrating its one-year anniversary.

“We’ve seen a dramatic increase,” said group co-head Connie Bertram of Proskauer’s Washington, D.C., office. “I think it’s going to continue. There are a lot of federal [whistleblowing and retaliation] statutes we’re only just now starting to see claims under.”

In November, the group launched a blog to help itself keep up with a flurry of decisions and other whistleblower developments, not only from the courts, but also from executive branch players such as the Department of Labor’s Administrative Review Board and the SEC’s Office of the Whistleblower.

“There are so many decisions, we would be sending out an alert every day,” Bertram said in explaining the decision to post developments on a blog rather than in an emailed client alert. “It’s a little less invasive, but still gives it the breadth of coverage it deserves.”

whistle whistleblowerWhistleblower matters often touch on more than one area of law, and creating a formalized practice group or interdisciplinary team can help a firm effectively defend clients against not only whistleblowers’ allegations of wrongdoing with lawyers who specialize in, for example, securities fraud, but also the retaliation claims that often accompany them and that are the bailiwick of employment law specialists.

Four factors

Keating said the first of the four factors contributing to the “firestorm” of whistleblower matters is the expansion of whistleblower rights and remedies created by new, revised and rediscovered laws, most notably Dodd-Frank and other bounty programs.

“It’s created a bunch of new causes of action,” he said.

The plaintiffs’ bar jokes that it has been successful at getting a new whistleblower and/or anti-retaliation provisions tacked on to just about every new federal statute passed by Congress these days, Bertram said.

“They think it’s quite funny; it’s not,” she said. “The problem is the whistleblower statutes are often used as a means of job protection as opposed to a legitimate means to report fraud within a company. A legitimate vehicle is being used in illegitimate ways, and that’s sadly more often the case than not. People are fighting harder for their jobs, and that tends to lead to more whistleblower and retaliation claims.”

In addition to Dodd-Frank, new whistleblower protections can be found in a variety of statutes including the landmark Affordable Care Act, the Food Safety Modernization Act of 2011, and the Seaman’s Protection Act as amended in 2010.

In addition, Dodd-Frank’s revisions to Sarbanes-Oxley made the law much more employee-friendly by, for example, doubling the statute of limitations for filing a claim from 90 to 180 days, adding a “kickout” provision that allows claimants to file suit in U.S. District Court if the Department of Labor does not issue a final decision within 180 days, and stressing that employees are protected from retaliation not only if they report a bona fide violation, but also if they reasonably believed there was a violation, even if it turns out there was none.

Look before you leap

Plaintiffs’ lawyers confirmed that they are seeing an increase in whistleblower inquiries from potential clients, but cautioned colleagues against diving into the field as fervently as the major defense firms have.

Given the potential liability, and to the extent they are helping clients take preventative action and enhance compliance, attorney Nancy Shilepsky said she does not believe defense firms are overreacting.

“But I think that people had expected that there would be a lot more of that work, especially the bounty work,” said Shilepsky, a partner at Boston-based Shilepsky, Hartley, Robb, Casey, Michon. “The reality is that just hasn’t turned out to be as lucrative as people hoped it would be.”

Boston attorney Thomas Greene, who established for the first time that off-label promotion of drugs constitutes liability under the False Claims Act in a case involving the medication Neurontin that was resolved for $430 million, said his firm is receiving a surge in whistleblower calls and that he has more FCA cases pending across the country now than ever before.

He cautioned that the cases require a lot of time, investment and work to be successful. The Neurontin case, for example, took eight years to resolve.

“It’s an area that has a lot of pitfalls and obstacles,” Greene said. “You want to be careful if you’re getting into this area for the first time.”

— Brandon Gee

“Now, basically, the question of whether complaints are protected is a question of credibility that requires a trial or hearing,” said Christopher Robertson of Seyfarth Shaw, who learned the lesson the hard way when a client’s victory on summary judgment was flipped. “That means a lot more cases are going to go to trial or a hearing before an administrative law judge. That’s more expensive and takes longer. That’s why our group is now 50-something people.”

The second factor Keating cites is the judicial expansion of whistleblower rights and remedies. He said there has been a “flood” of significant new opinions from the U.S. Supreme Court as well as the DOL’s Administrative Review Board.

“The Obama administration’s Department of Labor is really taking an aggressive approach to expanding the rights and remedies of whistleblowers,” Keating said.

The department, through its Occupational Safety & Health Administration, enforces the whistleblower or anti-retaliation provisions of 22 federal laws. From 2008 to 2011, the number of cases OSHA received under those laws increased 19.3 percent, while its resolution of such cases remained effectively flat with a 0.5 percent increase.

“That means you have more unresolved whistleblower claims out there,” Robertson said.

The administration’s support of whistleblowers is related to the third factor Keating cites: increased government enforcement and funding, enhanced investigations and the revamping of government whistleblower teams.

For example, the Dodd-Frank Act established funding for the whistleblower award program. As of the end of fiscal year 2012, the SEC had more than $450 million at its disposal for awards.

“I think the SEC is under a lot of pressure … to more effectively utilize this program,” Robertson said. “We expect to see an increase in awards.”

The Department of Justice also has increased its use of the False Claims Act, a Civil War-era law that imposes liability on individuals and companies that defraud the government and includes a whistleblower provision that allows people unaffiliated with the government to bring cases on its behalf and share in a percentage of any money recovered.

After hovering between $1.5 billion and $3.3 billion for several years, recoveries under the False Claims Act surged to $9.1 billion in 2012, according to the Taxpayers Against Fraud Education Fund. Last year, the DOJ also created a Whistleblower Ombudsmen Office.

In another example of stepped-up enforcement, the Internal Revenue Service recently recommitted to its own whistleblower program, created by Congress in 2006, which paid just three awards over five years despite receiving 1,300 claims regarding 10,000 companies and individuals alleging tax underpayments of at least $2 million each.

Last year the IRS announced it would conduct a comprehensive review of its whistleblower office and set a 90-day deadline for reviewing claims. Later that year, the IRS announced one of the largest whistleblower awards in history: $104 million to former UBS banker and Massachusetts native Bradley C. Birkenfeld, who revealed schemes the bank used to encourage Americans to dodge taxes through the Swiss banking system and who himself served two and a half years in prison for engaging in such a conspiracy.

The size of such awards has helped fuel the fourth and final factor Keating cites as contributing to the influx of whistleblower matters: dramatically increased public awareness of whistleblowers.

Keating said a new “cottage industry” of plaintiffs’ lawyers has emerged in hopes of earning clients a big award of which they would keep a sizable chunk. Big, headline-grabbing payouts such as the IRS’ award to Birkenfeld, and the $2 billion GlaxoSmithKline agreed last year to pay to resolve civil liabilities under the False Claims Act, are broadening the appeal of whistleblowing.

“You’re seeing more and more of these cases being brought by senior executives,” Keating said. “The stakes are higher because these people know a lot of information about the company and get the attention of the CEO very quickly.”

In the Massachusetts Dodd-Frank payout, the three unnamed whistleblowers were awarded a total of 15 percent of the SEC’s $7.5 million judgment against the defendants, if and when it is collected, and SEC officials have said in recent months that much bigger rewards under the Dodd-Frank program will be made soon.

“There have been more and more attorneys involved with it because it can ultimately be very lucrative if you find the right case,” Holliston lawyer and accountant Kevin Diamond said.

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