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Proskauer Whistleblower Defense

SEC Denies Whistleblower Award Claim for Harbinger-Falcone Recovery

Posted in SEC

As recently reported by Ed Benson of Law 360, on July 4th, 2014, the United States Securities and Exchange Commission (the “SEC” or “Commission”) issued a final order that denied a whistleblower award claim on the $18 million that the SEC recovered in a settlement agreement with Harbinger Capital Partners LLC (“Harbinger”) and the company’s chief executive Philip Falcone (“Falcone”). Continue Reading

Watchdogs Petition SEC to Strengthen Prohibitions Against Impeding Complaints to SEC

Posted in Best Practices, Dodd Frank, SEC

On July 18, 2014, a coalition of plaintiff-side lawyers and government watchdog groups proposed ways to strengthen the SEC whistleblower program in two petitions filed with the SEC.  The groups urged the SEC to update Rule 21F-17, which prohibits any action that would “impede” an individual from communicating with the SEC about securities law violations, by expanding its rules governing the use of nondisclosure agreements and increasing the scope of protections for whistleblowers. Continue Reading

Texas Federal Court Dismisses FCA Claims As Insufficiently Pled

Posted in False Claims Act

In U.S. ex rel. Williams v. McKesson Corp., No. 3:12-CV-0371-B (N.D. Tex. July 9, 2014), a Texas federal court recently dismissed a qui tam whistleblower suit by a former employee of McKesson, a Texas-based entity that provides billing-related services to the health care industry, holding that the former employee failed to establish “the existence of a false or fraudulent claim submitted to the government for payment.” Continue Reading

Fifth Circuit: FCA Inapplicable to Claims Involving Private Funds Administered by Government-Created Programs

Posted in False Claims Act

In United States of America ex rel Rene Shupe v. Cisco Systems, Inc. and Avnet, Inc., No. 13-40807 (5th Cir. July 7, 2014), the Fifth Circuit reversed a district court’s order denying a motion to dismiss a qui tam whistleblower suit, holding that the False Claims Act does not apply to submissions by telecommunications companies to a federal service providing a program when the program was not funded by government money. Continue Reading

Eleventh Circuit Sustains Award To Employer In Whistleblower Case

Posted in SOX Whistleblower Decisions

In a warning to plaintiffs’ counsel who seek emotional distress damages for alleged whistleblower retaliation under Florida law, the Eleventh Circuit in Smith v. Psychiatric Solutions, Inc., 750 F.3d 1253 (11th Cir. May 6, 2014) has created a Hobson’s choice: forcing plaintiff-employees either to forego potential emotional distress damages available under state law or risk paying prevailing party attorneys’ fees and costs to the defendant. Continue Reading

DC Circuit Rejects Narrow View Of Attorney-Client Privilege In Internal Company Investigations

Posted in False Claims Act

On June 27, 2014, the D.C. Circuit granted Kellogg Brown & Root’s (“KBR’s”) petition for a writ of mandamus and vacated a federal district court order requiring KBR to produce 89 documents related to an internal investigation.  Relying on Upjohn Co. v. United States, 449 U.S. 383 (1981), the D.C. Circuit ruled that the documents were protected by the attorney-client privilege because the company conducted its internal investigation for the “significant purpose” of obtaining legal advice.  The decision provides more clarity to employers about the circumstances in which the attorney-client privilege applies to internal investigations, particularly in situations where mandatory disclosure obligations are potentially implicated.


In 2005, a KBR employee filed a False Claims Act suit against the company.  The employee alleged that KBR and its subcontractors had defrauded the federal government by inflating bills and accepting kickbacks in connection with Iraq War military contracts.  In discovery, the employee sought KBR documents created in connection with KBR’s internal investigation of the employee’s allegations.  KBR asserted that the attorney-client privilege protected the documents.

The District Court reviewed the documents in camera to assess whether the documents were created for the “primary purpose” of obtaining legal advice.  Relying on a “but for” formulation of the “primary purpose test,” the court held that KBR could not assert the attorney-client privilege because the company failed to demonstrate the only purpose for the investigation was to seek legal advice.  The court reasoned that KBR conducted the internal investigation in the ordinary course of business to comply with Department of Defense mandatory disclosure obligations and corporate policy.

The D.C. Circuit’s Decision

KBR filed a writ of mandamus in the D.C. Circuit, arguing that the District Court applied an incorrect legal standard.  The D.C. Circuit agreed, concluding that the “but for” formulation of the “primary purpose test” was too stringent.  The Court ruled that so long as “a significant purpose” of the investigation was to assist in the formulation of attorney advice to the company, the privilege could apply.  The D.C. Circuit, relying on Upjohn, determined that the fact that the investigation was required by government mandatory disclosure regulations and the company’s internal policies was not sufficient to preclude the application of the attorney-client privilege.

In its ruling issuing the writ, the D.C. Circuit focused on the potential destabilizing effect of the District Court’s broad interpretation of the “primary purpose test.”  The Court emphasized that the “but for” test adopted by the District Court may have prevented any contractor subject to mandatory disclosure obligations and similar regulatory obligations from ever invoking the attorney-client privilege.


The D.C. Circuit’s decision provides additional clarity to the scope of the attorney-client privilege afforded to employers conducting internal investigations.  Employers should continue to exercise caution and consult in-house and/or outside counsel before undertaking any such investigations.  In addition, while the D.C. Circuit’s decision adopted the “significant purpose” standard for asserting the attorney-client privilege, employers should undertake the steps that enhance the application of the privilege.  Employers should document when an investigation is being conducted to obtain legal advice and/or in anticipation of potential litigation, including entering into a retainer agreement with outside counsel specifically requesting advice in connection with the investigation.  Employers should also advise employees who are interviewed or otherwise involved that the investigation is privileged and confidential.  Also, legal advice provided during the course of the investigation should only be disclosed to those corporate officers and officials involved in the resolution of the issues raised by the investigation.  Finally, employers should understand that the privilege does not shield the entire investigation from discovery.  Plaintiffs may still be entitled to disclosure of the underlying “facts” uncovered as part of the investigation.

SEC Brings First Dodd-Frank Anti-Retaliation Case

Posted in Dodd Frank

The SEC recently issued an Order against Paradigm Capital Management, Inc. (Paradigm), a registered investment adviser, and its principal for allegedly engaging in principal trades without effective client disclosure and consent, and for retaliating against an employee who reported such activity to the SEC.  According to the SEC, this is the first enforcement action it has taken for violations of the Dodd-Frank anti-retaliation provisions. Continue Reading

E.D. Pennsylvania Limits Supreme Court’s SOX Whistleblower Decision

Posted in SOX Whistleblower Decisions

In a case of first impression, the U.S. District Court for the Eastern District of Pennsylvania ruled that the U.S. Supreme Court’s holding in Lawson v. FMR LLC, 134 S. Ct. 1158 (2014)—that the whistleblower protection provision in Section 806 of SOX protects employees of a private contractor to a publicly-traded company—does not cover an employee of a private contractor who claimed he was discharged for reporting that his employer committed fraud against a public company but did not allege that fraud was committed by the public company.  Gibney v. Evolution Marketing Research LLC, No. 14-1913, 2014 U.S. Dist. LEXIS 79369 (E.D. Pa. June 11, 2014). Continue Reading