On September 7, 2016, a Texas appellate court in MJS and Associates, LLC v. Master et al., No. 12-15-00219-CV (Tex. Ct. App. 2016) affirmed a ruling in favor of a False Claims Act whistleblower who was sued by her former employer MJS and Associates, LLC (MJS) for bringing a False Claims Act (FCA) suit.  MJS alleged that Master used confidential information in breach of her employment agreement to bring the FCA suit, which caused MJS’ business to suffer.  On summary judgment, the court held that there was no evidence that Master’s participation in the FCA suit caused MJS to lose business.

Background

In March 2007, Master began working for MJS, a health care consulting firm that audits home health care companies for compliance with Medicare requirements.  As a health care consultant, Master was required to sign a confidentiality agreement and an employment agreement preventing her from disclosing information or documents about the audits.  She worked exclusively on audits for a company named LHC Group Inc. (LHC).

In July 2011, Master discovered that LHC was not in compliance with federal laws and resigned from MJS.  One month later, Master filed a FCA suit against LHC with information she obtained while acting as its auditor.   Master’s suit alleged that LHC wrongfully obtained substantial funds from government healthcare programs, through false claims made in connection with its home health care service facilities.

In September 2011, LHC settled the FCA suit for $65 million, and Master’s received over $12 million for exposing the company’s  fraudulent activity.  Two years after the FCA suit was filed, LHC terminated its contract with MJS.  In addition, industry periodicals reported on the FCA suit, which identified Master as the whistleblower.

Upon discovering that Master had brought the FCA suit, MJS sued Master for breach of contract, violation of the Texas Trade Secrets Act, breach of fiduciary duty, conversion, tortious interference with a contract, conspiracy, and fraud based on Master’s pursuit of the qui tam suit against LHC.  Specifically, MJS asserted that its business declined as a result of the negative publicity stemming from the FCA suit.

Ruling

In granting Master’s motion for summary judgment, the court recognized that “even if the decline in business could be attributed to the [negative publicity], it would not follow that Master’s acts of collecting and providing the information upon which the qui tam suit was based caused the article’s author to write the article, which merely reported on a federal lawsuit relevant to the publication’s subject matter.”  Accordingly, the court found that Master’s acts were not a substantial factor in MJS’s declining business and granted summary judgment in favor of Master.

Implications for Whistleblowers

This decision demonstrates that retaliatory lawsuits against whistleblower rarely succeed and indeed often backfire.  For example, litigating this claim appears to have just created more negative publicity for MJS. While whistleblowers should exercise caution in making disclosures to the media, disclosing fraud through legal process, such as bringing a False Claims Act lawsuit, is typically protected by the judicial privilege.  In addition, federal whistleblower protection laws protect whistleblowers for participating in an investigation, testifying in proceedings, or otherwise providing information to the government.