Protecting Whistleblowing (and Not Just Whistleblowers)

Michigan Law Review Volume 116 Issue 3 Article 3 2017 Protecting Whistleblowing (and Not Just Whistleblowers) Evan J. Ballan University of Michigan Law School Follow this and additional works at: https://repository.law.umich.edu/mlr Part of the Administrative Law Commons, Government Contracts Commons, Legislation Commons, and the Securities Law Commons Recommended Citation Evan J. Ballan, Protecting Whistleblowing (and Not Just Whistleblowers), 116 MICH. L. REV. 475 (2017). Available at: https://repository.law.umich.edu/mlr/vol116/iss3/3 This Note is brought to you for free and open access by the Michigan Law Review at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in Michigan Law Review by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact . NOTE Protecting Whistleblowing (and Not Just Whistleblowers) Evan J. Ballan* When the government contracts with private parties, the risk of fraud runs high. Fraud against the government hurts everyone: taxpayer money is wasted on inferior or nonexistent products and services, and the public bears the burdens attendant to those inadequate goods. To combat fraud, Congress has developed several statutory frameworks to encourage whistleblowers to come forward and report wrongdoing in exchange for a monetary reward. The federal False Claims Act allows whistleblowers to file an action in federal court on behalf of the United States, and to share in any recovery. Under the DoddFrank Act, the SEC Office of the Whistleblower investigates tips provided by whistleblowers and, in the event of a successful prosecution, pays an award to the tipster. The False Claims Act and SEC program both protect whistleblowers from retaliatory action from their employer. But the SEC program goes a step further: SEC Rule 21F-17 also prevents an employer from taking any action to interfere with the reporting of fraud. In this way, the SEC program protects not only whistleblowers, but also whistleblowing itself. It’s time for the False Claims Act to catch up. Congress should look to SEC Rule 21F-17 as a model for how it could amend the False Claims to establish a cause of action against contractors who take steps to chill or restrict their employees from bringing forward claims of fraud. In doing so, it will vindicate the original intent and purpose of the False Claims Act and encourage whistleblowers to come forward and put an end to corporate wrongdoing. Protecting whistleblowing benefits the government, taxpayers, and whistleblowers—and ensures that the False Claims Act remains an effective instrument in the fight against fraud. Table of Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 I. Fighting Fraud: A Tale of Two Whistleblower Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478 A. The False Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478 B. The SEC Whistleblower Program. . . . . . . . . . . . . . . . . . . . . . . . . . 483 C. Rule 21F-17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484 II. Protecting Whistleblowers: Retaliation Under the False Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 * J.D., May 2017, University of Michigan Law School. Many thanks to Professor William Novak for thoughtful feedback and guidance throughout the research and writing process. Thanks also to Nicole Cleminshaw, Adele Daniel, and Evan Lum for helpful comments on previous drafts. 475 476 Michigan Law Review [Vol. 116:475 A. The Need to Protect Whistleblowers . . . . . . . . . . . . . . . . . . . . . . . 488 B. The Goals of Antiretaliation Legislation . . . . . . . . . . . . . . . . . . . 489 1. Chilling Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 2. Restrictive Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 III. Protecting Whistleblowing: Rule 21F-17 as a Model for Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499 Introduction When the government contracts with private parties, the specter of fraud always looms. The massive amounts of money at stake in government contracts, combined with an often-overburdened infrastructure with limited oversight, make federal contracting a field particularly ripe for abuse. As government activity increases, so too does the use of third parties to provide procurement and contracting services. But with increased reliance on thirdparty contractors comes a heightened risk that those services are tainted by fraud. Fraud against the government hurts everyone. Taxpayer money is wasted on inferior or nonexistent products and services, and the public bears the burdens attendant to those inadequate goods. The costs of fraud include not only direct financial loss, but also potential endangerment of public health and national security: major fraud prosecutions have involved the sale of adulterated or misbranded drugs to Medicare and Medicaid patients,1 or the provision of defective supplies to the military.2 To combat such wrongdoing, the government has developed an arsenal of legislative and administrative tools designed to detect fraud against the government and punish those who perpetrate it. Perhaps the most potent of these tools is the federal False Claims Act. The False Claims Act (“FCA”) has been described as “the government’s most effective civil tool to ferret out fraud and return billions to taxpayer-funded programs.”3 Congress implemented the FCA during the Civil War in the face of widespread fraud against the government. Its unique qui tam provisions allow an individual whistleblower to initiate a claim against a wrongdoer on behalf of the government, and to share in a portion of any ultimate recovery. In this way, the FCA provides a compelling incentive for those with knowledge of fraud to 1. E.g., Press Release, U.S. Dep’t of Justice, Abbott Labs to Pay $1.5 Billion to Resolve Criminal & Civil Investigations of Off-Label Promotion of Depakote (May 7, 2012), https:// www.justice.gov/opa/pr/abbott-labs-pay-15-billion-resolve-criminal-civil-investigations-labelpromotion-depakote [https://perma.cc/UR6S-2ZXW]. 2. E.g., Press Release, U.S. Dep’t of Justice, ATK Launch Systems Inc. Settles False Claims Product Substitution Case for Nearly $37 Million (Apr. 23, 2012), https:// www.justice.gov/opa/pr/atk-launch-systems-inc-settles-false-claims-product-substitution-casenearly-37-million [https://perma.cc/8SUQ-D63G]. 3. Press Release, U.S. Dep’t of Justice, Justice Department Recovers over $3.5 Billion from False Claims Act Cases in Fiscal Year 2015 (Dec. 3, 2015 (...truncated)