In an unusual and eye-catching case, a hospital facing a whistleblower lawsuit from a former senior executive under the False Claims Act (“FCA”) has brought suit against that individual, alleging he breached his fiduciary duty by failing to report the unlawful conduct internally and instead using that information as the basis for a whistleblower claim.  Wheeling Hospital, Inc. v. Louis Longo, No. 19-cv-000032 (N.D. W. Va. Mar.13, 2019).

The Whistleblower’s Complaint

Longo, an accountant and former senior executive at Wheeling Hospital (the “Hospital”), was discharged in August 2015.  In December 2017, he brought a complaint in the U.S. District Court for the Western District of Pennsylvania under the qui tam provisions of the FCA (the “FCA Lawsuit”).  He alleged the Hospital and its CEO defrauded Medicare and Medicaid through a scheme of inflated payments to physicians with high patient volumes in return for referrals to the Hospital, in violation of the Stark Law and the Anti-Kickback Statute.  The United States intervened in the FCA Lawsuit in December 2018 and filed its Complaint in Intervention on March 25, 2019.

The Hospital’s Complaint

On March 13, 2019, the Hospital filed suit against Longo in the U.S. District Court for the Northern District of West Virginia, alleging he breached his fiduciary duty and abused the legal process.  The Hospital’s breach of fiduciary duty claim asserts Longo had a fiduciary duty to report internally any illegal conduct, and that he instead capitalized on his alleged knowledge of the conduct to “extort a settlement” through a “false and frivolous” whistleblower action.  It further alleged that Longo misleadingly failed to disclose in the FCA Lawsuit that the IRS had previously audited the compensation paid to the same physicians named in his complaint.  According to the Hospital, “Longo’s threats and the legal action he filed [under the FCA] are consistent with a concerted effort to contort the legal process to his own personal advantage and wealth.”    In support of its abuse of process claim, the Hospital asserts that Longo “willfully and maliciously misused and misapplied a legal process … to obtain a pecuniary award and to inflict harm” on the Hospital.

Implications

The Hospital’s lawsuit is a novel reaction to a whistleblower complaint, and the court’s ruling could have significant implications, particularly in instances where an individual does not report unlawful conduct despite a duty to do so, and brings a whistleblower action premised on that information.  We will be monitoring this case and will report on future developments.