District Court Examines ‘Strong Public Policy’ Against Counterclaims in False Claims Act Cases

The False Claims Act was originally designed to protect the government and, ultimately, U.S. taxpayers from the abuses perpetrated by unprincipled and fraudulent government contractors. The statute provides a unique remedy for the individual, known as the relator, willing to come forward with the details of fraud and provides up to 30 percent of the ultimate recovery as a reward for the whistleblower. False Claims Act cases typically involve allegations of widespread fraud costing the government tens of millions of dollars – sometimes more. For these reasons, federal courts have created strong precedent, based on strong public policy, against the filing of any counterclaims by a defendant in a False Claims Act lawsuit, unless the counterclaim meets certain criteria as explained further below.

Court explains ‘loophole’ in counterclaim rule

Earlier this month, a Pennsylvania District Court denied a whistleblower’s request to dismiss a counterclaim against him filed by the defendant in a False Claims Act lawsuit. Specifically, relator Patrick Walsh filed his whistleblower lawsuit against his former employer Amerisource and two subsidiaries in March, 2012. His complaint alleged that Amerisource, a pharmaceutical distribution company, violated several provisions of federal and state False Claims Acts and provided a wealth of documentary evidence to support his contention. While more specific details of the case between Walsh and Amerisource are not readily available at this time, details of a counterclaim against the relator reveal several surprising and unexpected allegations.

Amerisource filed its counterclaim against the relator alleging breach of contract, breach of fiduciary duty, breach of an implied contract, and a complex legal concept known as promissory estoppel. The relator immediately filed a motion to dismiss the counterclaim under the strong precedent against a defendant in a False Claims Act case receiving money damages for harms incurred pursuant to activity that would be considered unlawful in the first place. However, the court drew a distinction between that type of counterclaim and the claims raised by Amerisource in this case.

The crux of Amerisource’s complaint is its assertion that, by filing the whistleblower complaint which was later unsealed and available for public review, Walsh violated the terms of a confidentiality agreement existing between him and Amerisource. It further alleges that Walsh violated certain confidentiality requirements with regard to the public revelation of proprietary information (trade secrets).

In a lengthy decision by Eastern District of Pennsylvania Judge Surrick, the Court explains that, unlike the typical counterclaim in a False Claims Act case, this counterclaim does not seek to recover monies lost during or pursuant to the alleged fraudulent scheme itself. Rather, the alleged damages stem from the possible revelation of secret information during the realtor’s discussions with his attorney and subsequently filing a qui tam action in federal court. In other words, whether the alleged fraud is true is inconsequential to the damages Amerisource has incurred as a result of the relator leaking secret information.

Avoid Unnecessary Conflict – Contact a Whistleblower Lawyer Today

As the Court pointed out in its holding, it is “well-settled” that defendants cannot file counterclaims against relators if the success of the counterclaim depends upon the success of the relator’s qui tam action. If you are considering a False Claims Act case, you should take heed that this type of procedural maneuvering is not typical of most cases and, by working with an experienced qui tam attorney, you can avoid much of the hassle that befalls plaintiffs who leave their case in the wrong hands.

For more information about qui tam lawsuits or how to file a claim under the False Claims Act, contact Berger Montague today.