False Claims Act Defendants May Have Possible Counterclaims Against Whistleblowers

Although whistleblowers benefit from strong public policies protecting the means by which they assert and support their False Claims Act (FCA) allegations, a recent decision highlights a possible counterclaim theory that empowers defendants to assert claims against the whistleblower.  In U.S. ex rel. Notorfransesco v. Surgical Monitoring Association, Inc. et al., (E.D. Pa.),  the whistleblower was a former employee of the defendant, and the defendant asserted a counterclaim based on the former employee’s taking and disseminating confidential information from the former employer, including using that information in the qui tam complaint.  The counterclaim asserted breach of contract, implied contract and promissory estoppel theories.

The district court denied the whistleblower’s motion to dismiss the counterclaim, holding that the counterclaim raised claims that were independent of the FCA allegations and therefore were not against public policy.  The court also held that the defendant had plausibly asserted that it could be entitled to  injunctive relief and damages.

Claims by FCA defendants that are essentially claims for indemnification and contribution based on potential liability under the FCA are not allowed.  In other words, courts will not permit a defendant to assert that the whistleblower is responsible for the submission of false claims and therefore should contribute to, rather than benefit from, any damages owed resulting from the FCA lawsuit.  Public policy plainly precludes assertion of such a theory.

But counterclaims are permissible where the FCA defendant’s counterclaim against the whistleblower does not require an initial finding that the defendant is liable in the FCA case, including where the counterclaim is for breach of a confidentiality agreement.  Courts  will permit such a counterclaim, provided that it does not interfere with the whistleblower’s ability to state or prove the asserted FCA claim.  In Notorfransesco, the court held that the defendant “would have viable claims … regardless of the outcome of the FCA action” and therefore could proceed on those claims.

The court cautioned that the defendant’s requested injunctive relief demanding return of their materials would not be proper if such materials are “reasonably necessary” to pursuing the FCA claim.

This opinion, and others like it, emphasize that FCA defendants’ independent claims are not precluded simply because of pending FCA allegations.  In the right situation, therefore, the FCA defendant is not defenseless and may assert its own claims for relief.



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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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