This Empire Strikes Back - The Counterattack on Whistleblowers

Warning! Companies that commit fraud—and their attorneys—are now fighting back against whistleblowers with more frequency and aggression. While laws against retaliation and frivolous defenses are in place to protect whistleblowers and have been for a long time, our legal team has recently seen more tricks that fraudsters and their legal teams will throw at a whistleblower to deter and punish reporting of fraud.

When the empire strikes back, it can be daunting, even when the whistleblower force is strong and the whistleblower’s allegations are well-founded. But having experienced whistleblower counsel will help protect you against these surprise attacks of retaliation and other inventive schemes the dark side defense team can muster.

In the realm of whistleblower law, these corporate attacks are meant to deter whistleblower complaints by putting economic pressure on individual and corporate whistleblowers and their legal counsel. Fortunately, the whistleblower lawyers at Hagens Berman know these defenses and how to counter them. Because economic and other pressures can be costly and scary, it is necessary to use an experienced, well-resourced firm to lead the counter-counterattack.

Retaliation Against Whistleblowers and the Ways to Fight Back

When your whistleblower claim and your reputation are on the line, you need to know that your legal team will withstand the obstacles to protect your interest. What should you expect? In addition to firing, demoting, humiliating, threatening, blackmailing and otherwise retaliating against whistleblower employees, contractors and others, corporations also use a variety of legal tools to challenge whistleblowers in litigation.

Hagens Berman’s whistleblower team presents here some of the common moves by the dark side:

1. Counterclaims Against False Claims Act Whistleblowers

When companies sued for fraud are up against a wall, and whistleblower claims have them shaking, defendants will often bring counterclaims against whistleblowers pursuant to Federal Rule of Civil Procedure 13(a) (compulsory counterclaims) or 13(b) (permissive counterclaims).

Rule 13(a) is a compulsory rule that requires a defendant to bring a counterclaim for any matter that “arises out of the transaction or occurrence that is the subject matter of the opposing party’s (i.e., the whistleblower's) claim.” Rule 13(b) allows counterclaims for any claim that is not compulsory.

While a counterclaim can be frightening, it has to be timely and has to have merit to survive. Counterclaims that fail to meet this standard should be challenged by whistleblower counsel and stricken by the court. A knowledgeable whistleblower attorney should argue early and often that the corporate defendant is attempting to punish the whistleblower without merit.

Common counterclaims include breach of contract or violation of the Stored Communications Act, the Uniform Trade Secrets Act, the Computer Fraud and Abuse Act or state computer protection laws. Defense counsel may also assert a breach of fiduciary duty, conversion, breach of loyalty duty or such similar claims.

One response to these counterattacks against whistleblowers is to argue that the frivolous claims are brought solely to put undue pressure on the whistleblower and in themselves constitute retaliation.

The False Claims Act allows relators to bring employment retaliation claims when actions are taken against employees for attempting to stop violations of the statute. Other laws that authorize retaliation lawsuits include Dodd-Frank and Sarbanes Oxley. Some courts have recognized retaliation claims premised upon unwarranted legal claims.

If warranted, whistleblower counsel can move the court for Rule 11 sanctions if the company brings frivolous claims against a whistleblower for the obvious purpose of harassment.

Sometimes a defense counterclaim can work to the whistleblower’s advantage by opening the door to additional discovery in the whistleblower's claim. A counterclaim can also double-down on reasons to suspect bad corporate behavior more generally.

It is critically important to remember that corporations will rarely be able to articulate damages resulting from whistleblower activity – save for damages associated with the underlying fraudulent behavior which cannot be recovered.

1. Counterclaims against False Claims Act Entity Whistleblowers

In addition to trying to use the defenses that apply to individual whistleblowers, corporations and their defense lawyers also assert counterclaims against entity whistleblowers. These counterclaims include charges that the corporate whistleblower violated RICO laws that govern unfair or deceptive trade practices and tortious interference with business relations.

Such arguments are largely misplaced and are prone to obvious abuse. Experienced whistleblower attorneys will defend against these counterclaims and attack them.

1. Sanctions and Fee-Shifting

These motions are typically brought after the close of the case (though their “spectre” can be raised much earlier by eager defense counsel) and assert that the whistleblower or the whistleblower’s counsel acted improperly in bringing or litigating the fraud case. But the corporation attempting to do this must meet a high bar.

These motions are almost always baseless and demand the company show that the whistleblower brought a clearly frivolous case brought to harass or otherwise demonstrate bad faith on the part of the whistleblower or his or her attorney. Experienced whistleblower counsel will not file and litigate a claim subject to any such meritorious motion so with the right counsel there is no reason for concern.

1. Theft and Misappropriation

A corporate defendant will increasingly assert that the whistleblower acquired and put to use company documents in violation of laws, including state or federal statutes, an employment or non-disclosure agreement, HIPAA (Health Insurance Portability and Accountability Act) or other laws. Experienced whistleblower counsel need to robustly defend against these claims, pointing among other things to the HIPPA protections for reporting fraud.

1. Procedural Violations

There's an old adage that when you can't win on the facts or the law, pound the table. In defense terms, this means arguing that the whistleblower failed to comply with the array of technical requirements under the False Claims Act or other whistleblower law provisions. Of course, experienced counsel will help keep a whistleblower from making any such mistakes in the first place. But when a technical violation is of no moment – or negligible – the court must be shown that there is no articulable harm resulting.

1. Other Defense Motions

Some defense lawyers may directly ask that the Department of Justice dismiss a False Claims Act whistleblower case, suggesting the claim is frivolous at the start or frivolous during any phase of the case – such as the discovery phase. At times, corporate defendants will seek early discovery against the whistleblower or argue for an immediate injunction on one ground or another. Whistleblower counsel needs to be prepared for anything thrown at their client.

Hagens Berman’s whistleblower legal team reviews each case to make sure the facts justify the claim. When defense motions are in themselves frivolous, we ask the court to hold the defense lawyers and defendant accountable.