“Unclean Hands”? Whistleblowers Who Are Caught In the Thick of the Fraud

Potential whistleblowers are sometimes afraid that if they bring their employer’s fraudulent scheme to light, the government will come after them for being involved in the fraud. While certainly possible, it is exceptionally rare. After all, the vast majority of money recovered by the federal government in False Claims Act cases comes from cases initiated by whistleblowers; scaring off whistleblowers would not be good business for the Department of Justice.

The California False Claims Act (like the federal FCA) does, however, allow courts in rare circumstances to reduce a whistleblower’s reward (called the relator’s share) when he or she was instrumental in the fraudulent conduct. Specifically, the California False Claims Act, Cal. Gov Code § 12652(g)(5), allows the court to reduce a qui tam plaintiff’s share of proceeds below the normal 15% minimum if that person “planned and initiated the violation.”         

This rule appears to be invoked sparingly. In 1992, four years after the reduction clause was added to the federal FCA, the government stated that it had only used the reduction clause on one prior occasion to request a lower share. United States ex rel. Barajas v. Northrop Corp., 1992 U.S. Dist. LEXIS 22817, 17 (C.D.Cal. 1992). 

In the Barajas case, the qui tam plaintiff sued his employer for falsifying various performance tests on cruise missiles built to deliver nuclear warheads. The qui tam plaintiff was the principal tester for the Flight Data Transmitters (“FDT”) and testified that he falsified test results for 4 years. He was specifically instructed to falsify one category of tests. However, he initiated falsification on his own for two other tests. 

As a result of the qui tam plaintiff’s active participation in the fraud, the court reduced his award to 10.8%, significantly below the 15% to 33% range that is the norm. 

In another case, United States ex rel. Marchese v. Cell Therapeutics Inc., 2008 U.S. Dist. LEXIS 97163 (W.D. Wash., Nov. 18, 2008), the qui tam plaintiff was directly involved in a scheme that fraudulently assured physicians that their medications were approved for various off-label applications and Medicare reimbursement. Although the qui tam plaintiff was involved in the fraud, the court determined that he was not an “initiator” or “planner” of the fraudulent scheme, and therefore did not reduce his share below the 15% statutory minimum.    

In our experience, at worst, whistleblowers are unwitting participants in fraudulent schemes, and put their jobs and careers on the line to attempt to stop egregious conduct. The False Claims Act recognizes this reality by only punishing whistleblowers in the rarest of circumstances, where they “planned and initiated” the conduct.