In 2013, the federal government recovered $3.8 billion from settlements and judgments under the False Claims Act (FCA). Whistleblowers—also called “relators”—can recover up to 30 percent of whatever a defendant pays in a suit. And in 2013, whistleblowers earned at least $387 million in these actions. It is clear that disgruntled employees have a huge monetary incentive to file whistleblower suits. Interestingly, more than 846 new FCA cases were filed in 2013, with 757 of those filed by qui tam whistleblowers. In the present FCA environment, employers are in the dangerous position of potentially facing false accusations by employee whistleblowers looking for a huge payday.
Fortunately, employers are not without options against employees who make false accusations of wrongdoing. Employers may even have options against employees who have been successful in their FCA cases, but who have breached their employment agreements or who have stolen documents. Courts have recently been more willing to permit counterclaims against employee relators. Additionally, there is at least one case in which an employer filed suit against a whistleblower after losing a FCA case. And sometimes, employers can refer whistleblowers to law enforcement authorities for prosecution if the whistleblowers engaged in some criminal activity in obtaining the evidence for the FCA case.
United States ex rel. Madden v. General Dynamics, 4 F.3d 827 (9th Cir. 1993) made it possible for employers to file counterclaims in False Claims Act cases. Specifically in Madden, the court upheld counterclaims for, among other causes of action, breach of duty of loyalty, breach of fiduciary duty, libel, and misappropriation of trade secrets. The key factor justifying the counterclaim was that they were “not dependent on a qui tam defendant’s liability.”
The Madden court further stated, “We believe that some mechanism must be permitted to insure that relators do not engage in wrongful conduct in order to create the circumstances for qui tam suits and to discourage relators from bringing frivolous actions. Counterclaims for independent damages serve this purpose.”