Will the Supreme Court silence whistleblowers?

OCTOBER 2017 TERM

Often hailed as heroes, whistleblowers are vital to combating fraud and corruption within corporations, healthcare organizations and government entities. These people bravely put their careers and personal lives on the line to expose illegal or fraudulent activities committed by their employers or co-workers. Tips by whistleblowers provide valuable information credited with rooting out corporate wrongdoing. These insiders deliver invaluable protected disclosures that can result in government penalties in the billions of dollars and criminal punishments for the swindlers. Yet it appears the highest court in the land is poised to silence these individuals who value integrity over greed.

U.S. Supreme Court justices appear ready to narrow an anti-retaliation provision in the 2010 Dodd-Frank financial law, which is aimed at cracking down on Wall Street fraud. The case under consideration involves Paul Somers, a former employee of San Francisco-based Digital Realty Trust Inc., a real-estate investment company that owns data centers worldwide. Somers worked as a top executive in the company's Singapore office when he witnessed his boss engage in fraudulent behavior, which included hiding millions of dollars in cost overruns, making payments to friends and granting no-bid contracts. After reporting the accusations in 2014 to senior managers, they fired Somers, who later sued the company, claiming the retaliation violated the Dodd-Frank Act. Somers also alleged he was discriminated against for being gay.

During oral arguments, justices from both sides of the ideological spectrum expressed support for Digital Realty Trust Inc., which argued the ex-employee's claim has no merit because he reported the corporate wrongdoing internally and didn't file a complaint with the Securities and Exchange Commission. The company contends the Dodd-Frank Act's definition of "whistleblower" requires reporting misdeeds to the SEC. Somers claims that definition doesn't apply to the anti-retaliation part of the law. Federal appeals courts in the 9th, 5th and 2nd Circuits are split on the question and the high court is expected to make its decision in the case Digital Realty v. Somers sometime this month.

If the Supreme Court sides with big business, this ruling could have a chilling effect on other corporate whistleblower lawsuits. The verdict would result in a major setback for supporters of the Dodd-Frank law, which passed after the 2008 financial crisis, and the Sarbanes-Oxley law of 2002, which was enacted in the wake of the Enron scandal. These laws, along with the False Claim's Act's anti-retaliation provision, are intended to protect employees who report corporate wrongdoing from wrongful termination, retaliation or other forms of discrimination.

The concept of protecting an informant that leaks misconduct about a company or person is deep-rooted in our nation's history. The False Claims Act dates back to the 1860s and includes a 13th century legal concept borrowed from England known as the "qui tam" provision which allows an individual to sue on behalf of the government.

As a way to encourage whistleblowers to come forward, the False Claims Act offers the protection of anonymity and a financial incentive between 15 and 30 percent of the money recovered by the federal government.

Some recent high-profile cases involving whistleblowers exposed defective consumer products, financial schemes within the pharmaceutical industry and mortgage fraud in the financial sector. As the current White House works to dismantle consumer protection agencies tasked with regulation oversight, individuals who speak out about misconduct within corporate America are one of the last defenses we have to rein in fraud and corruption.

The power of whistleblowing has netted some of the largest recoveries in U.S. history. In 2009, Quest Diagnosis paid a record-setting $302 million global settlement with the United States in a qui tam case filed under the False Claims Act by a California biochemist who blew the whistle on the sale of a faulty blood test kit. That same year, Pfizer Inc. pleaded guilty and paid $2.3 billion in fines to the government for fraudulent marketing practices involving its anti-inflammatory drug Bextra. A sale representative brought a qui tam suit against the pharmaceutical giant, alleging Pfizer systematically violated the federal Anti-Kickback statute by paying doctors kickbacks to prescribe the drug for "off-label" uses.

GlaxoSmithKline paid $3 billion in 2012 in what's considered the biggest healthcare fraud settlement in our country's history for misconduct in the sale of the drugs Paxil, Wellbutrin and Avandia. A whistleblower's tips revealed how the company went to extreme lengths to market its drugs to minors when it was approved for adults only and provided doctors with illegal kickbacks for prescribing the medication for off-label purposes. Five whistleblower cases were combined into a mammoth $25 billion mortgage settlement reached in February 2012 with Bank of America and four other lenders accused of appraisal and mortgage fraud.

If the Supreme Court sides with Digital Realty, the outcome may have unintended consequences. A ruling in favor of the defense will put the burden on the employee/whistleblower to go outside the company to report misdeeds. Instead of dealing with the issue through the proper channels, such as the company's Human Resources Department, the employee will be forced to go directly to law enforcement or federal regulators, making the whistleblower's tough job even tougher.

Until corporations and individual officers are held accountable, companies will continue to turn a blind eye to misconduct. We must continue to stand up and protect the rights of whistleblowers who are willing to take on personal and professional risks to ensure these "lighthouse keepers" continue to shine a light on the murky dangers that could ultimately cause our ship to sink.