Monday, August 15, 2011

New Wrinkle in Consideration of Whether Severance Agreement Bars Qui Tam Suit

Back in May, I wrote about whether a general release in a severance agreement waived a potential whistleblower’s ability to bring a False Claims Act suit. An opinion out of the U.S. district court in Boston adds a new wrinkle to the analysis.

In general, courts have held that a general release in a severance agreement would not bar a whistleblower from bringing a qui tam suit if the release was signed prior to the whistleblower filing suit. Courts reasoned that in such circumstances it would violate public policy to bar the suit because they did not want to allow companies committing fraud to prevent the government from learning of their fraud by having employees sign severance agreements. Under the same reasoning, if the release were signed after a whistleblower brought suit, and therefore the government already had been notified of the fraud, those public policy issues were no longer a concern, and the release would bar the whistleblower’s claims.

In U.S. ex rel. Nowak v. Medtronic, Inc., the whistleblower had signed the severance agreement prior to bringing suit, but the court nevertheless held that his claims were barred. Why? The Nowak court found that many of the allegations brought by the whistleblower had been publicly disclosed—in news articles, to the FDA, and in other sources. The court thus found that since the government would have been aware of the fraud from the public disclosures prior to the whistleblower bringing suit, there was no public policy reason to prevent the release in the severance agreement from barring the whistleblower’s suit.

Thus, it is no longer generally the case that a release in a severance agreement signed prior to a whistleblower bringing a qui tam suit will not bar the suit. If information relating to the whistleblower’s allegations is in the public domain such that the government would be aware of the possible fraud, the release could bar the whistleblower from bringing suit.


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Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.

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