by Brian Mahany
The grand daddy of federal false claims act cases (whistleblower law) is HUD’s $2.4 billion case brought against Allied Home Mortgage. That is music to our ears since our firm represents the whistleblower in that case. Although we are aware of other billion dollar cases right now, very few are brought in local state courts. That may be changing.
Last week we wrote about New York’s landmark case against Sprint Nextel seeking $300 million for unpaid taxes and damages. Since then we have received several calls wanting to know more about state false claims laws.
Many states have their own whistleblower statutes and some are quite generous. Currently 29 states have false claims laws. Several cities have them too including Chicago and New York City. This means if you know of fraud affecting state or municipal taxpayers in those places you can also bring an action. State cases often involve padded expenses or substandard work charged at premium prices on road and public improvement projects.
One of the states with a generous whistleblower law is New York. Acting on a complaint filed by a whistleblower, New York’s attorney general filed an action against Sprint Nextel last month accusing the telcom giant of defrauding the state of $100 million in taxes. Under N.Y. law, those damages could be trebled meaning the state could collect $300 million.
N.Y.’s law allows the whistleblower to receive up to 25% of the amount recovered meaning the whistleblower could walk away with a check for $75,000,000.00 (less taxes of course)!
New York’s Attorney General Eric Schneiderman called the case a “first of its kind.” By that he means that this is the first case filed under N.Y.’s whistleblower law for unpaid taxes. (The federal false claims act does not apply to taxes, however the IRS has its own cash award program.) The whistleblower laws in many other states also extend to unpaid taxes.
New York has accused Sprint of not collecting taxes of flat rate telephone access plans. Instead of separating out interstate and in state calls, the phone company lumped the charges together and did not charge customers the proper tax amount. Sprint denies the charges.
New York’s law, and that of most other states, is modeled after the federal law which was originally passed just after the Civil War. A person who has inside knowledge of fraud can file a lawsuit in state court. The case is filed under seal meaning it is secret. Once filed, the whistleblower must immediately notify the state attorney general and turn over all the information in her possession to document the fraud. The attorney general’s office then has 60 days to investigate and decide whether or not to intervene in the case and adopt it. If necessary, the state can seek more time from the court to investigate.
Under most state programs, the state has several options. It can simply take over the case, intervene and work with the whistleblower or simply refuse to become involved. If the latter happens, the whistleblower can proceed alone but often the case is simply dismissed at that point. If the whistleblower does proceed alone, any recovery goes to the state and the court determines how much the whistleblower should receive in compensation.
By allowing whistleblowers to file their own suits against tax cheats, New York’s law, and that of many other states, is more powerful than the federal law.
As more and more people get fed up with high taxes, fraud and corruption, more and more whistleblowers are coming forward. Ripping off the government is not a victimless crime. Fraud against the government often means fewer services are available for the truly needy and almost always means higher taxes. In the case of health care fraud, it often means unnecessary medical procedures for patients. With contracting fraud, it could mean substandard equipment for our military or unsafe roads and buildings.
Although doing the right thing is what motivates most whistleblowers, getting a big chunk of what the state of federal government collects is certainly a nice incentive too. In most instances, the whistleblower is an employee of the company committing the fraud but not always. Employees that do come forward are usually protected by both state and federal law against retaliation.
If you have knowledge of fraud involving government contracts, federally insured mortgages or Medicare reimbursements, give us a call. All communications are protected by the attorney client privilege and kept in strict confidence. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at .
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Legal services available in many jurisdictions.