The Texas Comptroller of Public Accounts and the New York Courts have treated a former in-house attorney turned whistleblower very differently—Texas made a substantial payment to the individual, and New York kicked him to the proverbial curb.
The Texas Comptroller of Public Accounts paid $117,000 to David Danon, a former in-house tax attorney at Vanguard Group Inc. for his role as a confidential informant in a tax audit of the company.
Pursuant to federal and state False Claims Acts, whistleblowers may be entitled to a share of any damages sustained as a result of a defendant’s false claims to the government. Danon’s allegations were first made public in a New York State False Claims Act suit in which he claimed Vanguard operated as an illegal tax shelter and evaded billions in taxes by avoiding payroll withholding obligations and charging artificially low prices to its related funds for investment management and administrative services. According to Danon’s attorney, Stephen Sorensen, more payments could be coming Danon’s way because whistleblower investigations are underway in California, at the Internal Revenue Service, and at the Securities and Exchange Commission.
In sharp contrast to the result in Texas, the New York courts frowned upon Danon’s actions, given that his access to confidential information was granted while he had ethical obligations to keep the information confidential. In a recent decision of the New York Supreme Court (a trial level court in New York), Danon’s qui tam action against Vanguard was dismissed due to Danon’s violations of attorney ethics rules. The trial court did not reach the merits of the case, but relying on analogous federal law found that Danon, as a former in-house attorney, “may not proceed with, nor profit from, any disclosures of confidential information . . . in violation of New York State attorney ethics rules.” The court rejected Danon’s argument that the disclosures of confidential client information were permitted in order to avoid a crime. State of New York ex rel David Danon v. Vanguard Group, Inc., Index No. 100711/13 (N.Y. Sup. Ct., Nov. 13, 2015).