In what will likely be another adverse legal decision for Boston Scientific Corporation’s Neuromodulation subsidiary (“BSNC”) in its ongoing battle with two former billing services employees-turned whistleblowers, the medical device manufacturer’s latest attempt to derail a qui tam suit involves charges that the whistleblowers stole BSNC trade secrets, thus violating the terms of their employment agreements.  Although there might one day be a case that truly tests the limits on how far an employee can go in taking her employer’s proprietary data to win the qui tam lottery, the current suit involving BSNC is probably not that case.

Background

Wendy Bahsen and Carolina Fuentes (the “Relators”) worked in BSNC’s billing services department in 2009 and were terminated in October, 2009 and June, 2010, respectively.  In March, 2011, the pair filed a federal qui tam suit under seal in New Jersey, alleging that BSNC violated the False Claims Act (“FCA”) by filing claims with Medicare and Medicaid for reimbursement of BSNC’s Precision Plus™ Spinal Cord Stimulation System (the “System”), which the FDA approved in 2004  for the treatment of intractable back pain, including failed back surgery syndrome, intractable low back pain, and leg pain.  In March, 2011, the suit was unsealed when the Feds decided not to intervene.  In April, 2011, the 27 States identified in the original complaint also decided not to intervene and one month later, the suit on behalf of the State of Maryland was dismissed with prejudice.  Undeterred, the Relators proceeded without government intervention and filed an amended complaint in September, 2012.  According to the allegations in the revised complaint, BSNC violated the FCA by, inter alia, (1) submitting claims without a determination of “medical necessity” by a physician; (2) falsifying diagnosis codes on reimbursement forms and falsely certifying the truthfulness of the forms; (3) promoting the System for off-label uses, including for urinary incontinence and phantom limb pain; (4) providing free reimbursement services and other “inducements” and “kickbacks” to physicians; and (5) concealing defective equipment and withholding adverse event information from the FDA.

BSNC filed a motion to dismiss the complaint for failure to state a claim, to strike portions of the complaint related to specific claim information on the grounds it violated HIPAA and to disqualify the Relators’ counsel as a necessary fact witness.  BSNC’s motions were denied.  The district court found, in particular, that the prohibition against disclosing protected identifiable health information under HIPAA does not apply to whistleblowers.  See 45 C.F.R. § 164.502(j)(1).  BSNC then filed an answer asserting several affirmative defenses and tacked on a counterclaim charging that the Relators violated the terms of their employment agreement by misappropriating proprietary information they obtained while working in the billing department, failing to return the information following the end of their employment with BSNC and using it to file their amended complaint.  According to BSNC, the whistleblower exception to the HIPAA privacy rule that sank their previous motion to strike did not prohibit their request for relief, including an injunction against the Relators from using the information in their qui tam suit, because the Relators used the information well after the end of their employment with BSNC.

Not surprisingly, in their Consolidated Memorandum of Law in Support of their Motion to Dismiss Defendant’s Counterclaims and their Motion to Strike Affirmative Defenses, the Relators cite United States ex rel. Head v. Kane Co., 668 F. Supp. 2d 146, 152 (D.D.C. 2009) and multiple other decisions in arguing that it would be contrary to public policy to permit private employment agreements to supersede the FCA’s purpose in uncovering fraud upon the Government.

Observations

While BSNC may have a point that employees shouldn’t use their jobs and access to proprietary information to plot against their companies for personal gain, and while it is true that the Relators’ case wasn’t enticing enough to persuade the Government to intervene, it isn’t too hard to predict how far BSNC’s counterclaim is likely to go, at least with respect to getting injunctive relief . . . not far at all.  Weaknesses aside, the Relators’ amended complaint survived BSNC’s initial motion to dismiss and raised enough serious allegations of misconduct that it would be difficult to imagine a federal judge not invoking a FCA public policy exception to the general rule against trade secret and proprietary information misappropriation.  For example, according to the Relators, off-label uses for the System were promoted in annual marketing meetings attended by senior BSNC executives from 2005 to 2008; kickbacks and other inducements were offered to doctors in exchange for System treatment prescriptions; and consumer complaints of product failures or patient injury during use were routinely downplayed to avoid FDA detection.  Add the hefty price tag for System treatment and it isn’t too difficult to imagine the magnitude of the alleged fraud on the Government that an injunction would make harder to expose.  Finally, while BSNC may have had good reasons to terminate the Relators’ employment, at this stage of the litigation the Court must accept the Relators’ allegations that, while employed at BSNC, both were expressed concerns internally that falsified, fraudulent claims were being submitted to (and paid for by) the Government; and that they met with a corporate compliance officer and outside counsel to discuss their concerns, but that the allegedly fraudulent billing procedures did not change.  From the Relators’ perspective, they were eventually terminated following, and on account of, their whistleblowing activities.

If the Relators succeed in getting BSNC’s counterclaim dismissed, they will press on in their quest for a qui tam “bounty,” job reinstatement at a comparable seniority level, double back-pay, interest, attorneys’ fees, and litigation costs.  And what does BSNC get if the counterclaim gets bounced, but the company ultimately convinces a judge and/or jury that the Relators’ allegations are exaggerated, lack merit or are even untrue (as the Government’s inaction might suggest)?  Not much insofar as protecting its proprietary information is concerned.

So what can a company like BSNC do in a case like this?  While getting an injunction on a trade secret theft counterclaim isn’t likely to be successful, a company could seek damages on the theory that the relators were not acting in good faith at the time they misappropriated the company’s proprietary information.  Although some might argue that the threat of damages for misappropriating trade secrets could “chill” whistleblowers from reporting fraud under the FCA and that public policy should bar such relief altogether, I would argue that imposing a good faith requirement on using an employer’s trade secrets for personal gain, even in the FCA context of “exposing fraud”, chills nothing except bad faith qui tam suits.

The case is United States of America ex rel. et al v. Boston Scientific Neuromodulation Corporation, Case 2:11-cv-01210, filed in the U.S. District Court for the District of New Jersey.