By Roy Strom
As attorney Michael Kanovitz talks with four other members of Loevy & Loevy's growing whistle-blower practice about what they do and why they do it, he comes to a realization.
Sitting in a first-floor conference room with warehouse windows, exposed brick and a wood-rafter ceiling, Kanovitz — who would likely be sitting in a much different room if not for rejecting a career at a big firm — said he shares a lot in common with the whistle-blowers he represents.
"All of (the whistle-blowers) have stepped out of the mainstream, even though it would have been easy and lucrative to stay in the mainstream, because they wanted to do what they thought was right," he said.
He then points out that the lawyers at this meeting consist of three Sidley Austin alumni and a Harvard Law School graduate. He jokes that his credentials — a Cornell Law School degree — wouldn't gain employment in the group if he didn't help start it.
"They easily could be and were working in big law firms and were the people sitting on the other side of the case," he said. "But they thought that wasn't the right thing to do and now they're not doing it."
Instead, the lawyers work here, in the 300 block of North May Street, listening to the strange-but-sometimes-true stories that whistle-blowers pitch them every day.
Kanovitz said the firm's work on whistle-blower cases begins with rooting out the likelihood that facts lie behind allegations. They must decipher the difference between fanatics and informants and try to fit their case into the strict requirements of the whistle-blower law known as the False Claims Act.
He said the lawyers attempt to answer the same question the whistle-blower must answer for his or herself: Is this worth years of my time and employment for the slim chance of setting right a wrong and getting paid?
Once they decide the possible rewards of a case outweigh its risks, the plaintiffs set off on a legal battle that one attorney characterized as a "David versus Goliath" fight between scrappy plaintiff firms and deep-pocketed corporations.
Plaintiff lawyers typically find themselves outnumbered as the large corporations their clients accuse of fraud respond to these allegations by hiring some of the top defense firms in the country.
And the government's focus on using whistle-blower laws to root out fraud and recover taxpayer money means these battles occur with increasing frequency. Plaintiff firms and defense firms alike responded to that trend by piling into this practice.
For the first time, Chicago Lawyer published a separate chart of the largest class-action and whistle-blower settlements in Illinois, as reported in Jury Verdict Reporter or the Chicago Daily Law Bulletin.
Weighing the risk versus reward
When Mike Fowler and his wife, Peppi, stood up against what they saw as indefensible health-care fraud at their workplace, an industrial-size CVS Caremark Corp. pharmacy in Florida, Mike said their lives changed forever.
Nine years ago, Fowler and his wife first paid the price for "blowing the whistle" when they became outcasts at work, he said. Then, they lost their jobs. Their resumes used to garner job opportunities within days, but they suddenly seemed pockmarked.
"We literally mailed out hundreds of resumes and it took us months to find a position," Mike Fowler said.
He called it an "eye-opening experience."
Their actions cost him friends; put him through "nasty, personal and negative" attacks on his character in depositions; and limited his current employment opportunities to private pharmacies, he said.
But despite that, Fowler said he would file the lawsuit all over again today.
"Because it's the right thing to do," he said. "It wasn't a financial decision. It was something that had to be changed."
And while Fowler said he didn't treat the case as a financial decision, Meckler Bulger Tilson Marick & Pearson Partner Michael Leonard said his law firm certainly did. The firm handled the case on a contingency basis, like many plaintiff firms do with whistle-blower cases.
"Your firm is expending a lot of resources and you don't want to come up with a big zero, because they're putting a lot of confidence in you," he said. "So there's constantly the fear of failure."
The Fowlers' case spanned three states and seven years and eventually garnered about $20 million in total settlements.
The case, which Fowler did not discuss due to a nondisparagement agreement, involved allegations that Caremark resold drugs returned to the stores, Leonard said.
The lawsuit also alleged that Caremark used aggressive marketing tactics to switch prescriptions given under state-run, health-care plans to more expensive drugs without consulting doctors.
The Illinois case, which settled last year for $4 million, is State of Illinois ex rel. Lisa Madigan v. Caremark RX Inc. et al.
Leonard said he and Jon Lichterman, an associate at Meckler Bulger Tilson Marick & Pearson, took the case because of Fowler's firsthand knowledge of what went on — a crucial aspect of the False Claims Act whistle-blower statute.
Under the False Claims Act, a whistle-blower must possess "direct and independent knowledge" of the entire fraud, Leonard said.
"Any normal case, you would hear the allegations and say that's a great case, let's file," he said.
"But in these cases one of the defendants' first attacks is going to be that this person, even though they know some information about the scheme, they don't know enough. They don't have the billing records in hand or they don't have direct knowledge because they heard it from somebody else in the company."
While Loevy & Loevy did not handle the Fowlers' case, it does handle a significant number of whistle-blower cases like this. Five of the firm's 25 lawyers work almost entirely on class-action and whistle-blower cases. And as a one-office law firm of this size, the risk associated with taking on each whistle-blower or class-action case gets magnified even more.
The "evaluation period" for taking on one of these cases can take months, Kanovitz said. But once he decides to take on a whistle-blower claim, he said he always believes he will win.
"My money's on us," he said. "I usually feel like we are more able in the long run, better prepared and just smart about how we do it, and I have faith that we're going to win.
"And you can justify as many hours as you have to, because if it's a big case and you win, you will be well compensated for that time. And even if it's a small case, there's a fee-shifting provision, which means that if you win you can get paid back your hours from the defendant. So I like the idea that I can put in as much time as I need to win."
Taking on the company
The statistics on whistle-blower cases show that plaintiffs face a long-shot battle.
Whistle-blowers typically win or reach settlement only in the cases where government attorneys step in to assist the whistle-blowers' lawyers, which happens in about 20 percent of False Claims Act cases, the U.S. Department of Justice reported.
The other 80 percent of cases where the government decides not to intervene get dismissed at an 85 percent clip.
The False Claims Act, which allows whistle-blowers to receive 15 to 30 percent of any recovered fraud, requires all cases to be filed under seal with the government. The government can evaluate the case for six months to four years before making its decision to pursue a case or not.
Leonard's case against CVS bucked that trend. The government declined to intervene, but Leonard eventually led the case to settlement in all three states and earned a total of about $20 million.
"It was kind of David versus Goliath, because within our firm it was one or two people against 15 or 20 lawyers" on the defense, Leonard said.
"But we've come to the realization that it's extremely unlikely that the government's going to intervene. The answer is usually no. So you have to choose cases that are good, knowing that most likely you're going to litigate it."
Once that litigation begins, plaintiffs typically face a vast resource disparity, said David Chizewer, a partner at Goldberg Kohn who litigated a whistle-blower case all the way to trial after the government initially declined to intervene.
That case, United States of America ex. rel. Cleveland A. Tyson, et al. v. Amerigroup Corporation, et al., earned a $334 million judgment after a three-week trial in the U.S. District Court for the Northern District of Illinois in 2006, which Chizewer said represents the largest False Claims Act judgement in history at the time.
Cleveland Tyson alleged his employer, Amerigroup Corp., a health insurance company that brought in $6 billion in revenue last year, systematically refused to insure pregnant women that Medicaid paid it to insure.
When Goldberg Kohn got the case, Chizewer said he saw how the defense's resources allowed them to successfully stonewall the solo attorney handling the case up to that point.
With two days left until the court needed the plaintiff's response to summary judgment, Chizewer said the plaintiff attained zero e-mails from the defense and it lacked a deposition from a key witness.
After the court refused an extension request, Chizewer said his partner immediately flew to California to depose a witness. That testimony allowed them to meet the summary judgment deadline, he said.
"Often, (whistle-blower) claims have very large dollar values attached and they're against large and well-resourced companies with very large armies of lawyers," Chizewer said.
"In order to go up against one of those firms and litigate a case, you have to be prepared to combat them."
In the Amerigroup case, combatting the typical "deny, deny, deny" strategy of large corporations cost Goldberg Kohn 25,000 hours of time valued at about $8 million and another $2 million to fund litigation costs like experts, deposition transcripts and travel costs, Chizewer said.
Class-action cases, while much different than whistle-blower cases from a legal perspective, often involve the same type of dynamic: A plaintiff firm facing off against a large, multinational corporation.
For instance, Jim Barz and Tor Gronborg, partners at Robbins Geller Rudman & Dowd, said they faced a legal fight similar in its intensity to the litigation bouts that whistle-blower attorneys face in Eric Silverman, on Behalf of Himself and All Others Similarly Situated v. Motorola Inc., et al., which eventually settled in February for $200 million.
The case alleged securities fraud against Motorola Inc.
"When you file a case against a (company like) Motorola, you know they're not going to roll over," Gronborg said.
"Motorola has prided itself on fighting litigation tooth and nail. And you know they're going to hire some of the best law firms they can find. … But being out-lawyered is not our concern."
Robbins Geller employs 180 lawyers — "exceedingly large" for a plaintiff firm, Gronborg said.
And in addition to the lawyers, it keeps on staff an in-house team of forensic accountants, former FBI investigators, financial analysts and economists. They comb through financial filings to find signs of securities fraud, Gronborg said.
"Within the firm, really, it is a detective agency," Gronborg said.
The ability to piece together a fraud proves important in class-action cases, considering no whistle-blower tips them off to a case, Gronborg said.
"In a securities fraud case like this, the plaintiffs are at a real informational disparity," he said.
"The plaintiffs know the allegations — they've lost money. But otherwise they don't know what's going on inside the company. Sometimes you get the benefit of a whistle-blower, but often not, so the discovery process is trying to reduce that informational disparity and put us on some even footing going into trial."
Without the risk
With the Department of Justice saying that whistle-blower case filings set records the past two years, not just plaintiff firms want to get in on the action.
Defense firms — what Leonard may call the "Goliaths" in these fights — see these cases as a growth area that carries much less risk under a billable-hour model.
Proskauer Rose, for instance, recently created its whistle-blowing and retaliation practice group.
Steve Pearlman co-heads that group, which defends companies from whistle-blower employment retaliation and fraud investigations.
He said one benefit whistle-blower cases provide for defense firms comes from the wide range of practice groups the work involves.
For instance, many whistle-blower claims start in the employment law practice, defending against claims of retaliation, Pearlman said. But the cases also require lawyers with knowledge in the specific area of fraud that the whistle-blower reports, like securities or environmental law.
Pearlman's role entails managing a team of lawyers on any particular case as they defend against the whistle-blowers' allegations .
"You need a quarterback who's involved in all facets of the whistle-blower process," Pearlman said.
"You're conquering a hill here, and this is a very complex hill with a lot of different moles and mountains along the way."
He also said he disagreed with objections from plaintiff lawyers that defense firms use aggressive "stonewalling" tactics in whistle-blowing cases and plaintiff claims that the litigation represents a "David versus Goliath" matchup.
"Those arguments, theoretically at first blush, could catch your attention," he said.
"But after a while the burdens (put on the defense) outweigh the benefits (for a plaintiff). Because if a plaintiff's attorney can continually rely on that theory and push for more and more documents … the discovery costs can eclipse the settlement value of the case."
Pearlman said the battles over discovery that often occur in whistle-blower and class-action cases come as a result of the "tremendous risks" companies face from those lawsuits.
Those risks can include a threat to goodwill, potentially huge settlements and a chance that the case will lead to piggyback allegations of fraud.
"They're tough cases," Pearlman said. "And these guys are no slouches. You deal with some very sophisticated plaintiff counsel in this space and they cannot be underestimated."
James L. Curtis, a partner at Seyfarth Shaw, said his firm typically focuses on the employment law aspects of whistle-blower cases. In that practice, they saw a trend that he predicts will cause more work in the area.
The increasing number of employment retaliation whistle-blower cases handled by the Occupational Safety and Health Administration slows down its ability to resolve those claims, Curtis said.
Based on Seyfarth Shaw's research on this topic, the firm found that the number of cases overall grew by about 19 percent between 2008 and 2011, while the number of completed cases increased just .5 percent.
"So, there's this ever-growing divide between the number of cases received and completed that creates this delta of whistle-blowers that are still walking around and employed at workplaces," he said.
Under that scenario, employers must resist the "knee-jerk" reaction to try and root out the whistle-blower and punish them for their actions — which, while illegal, can prove difficult to resist, Curtis said.
"In-house counsel need to spend time planning for this and making sure that they've got their policies and procedures in place, that they're dealing with it on the front end. Because they can get really expensive."
More battles ahead
The U.S. government's history promoting whistle-blower claims stretches back to 1863, when Abraham Lincoln enacted the False Claims Act to stop military contractors from leeching the Union Army's resources.
The act did that by rewarding the tipsters who reported fraud. Or, as the senator who introduced the bill said, "Setting a rogue to catch a rogue."
Since then, use of the False Claims Act fluctuated as Congress amended the bill.
In 1986, an amendment bolstered whistle-blowing and the act got strengthened in the whistle-blower's favor again in February 2009, a Congressional Research Service report says.
That amendment seems effective.
In 2009, the government recouped $2.5 billion, a 2011 Department of Justice report says. In 2010 and 2011, the government reaped about $3 billion, an amount only reached one other year, 2006.
And last year, whistle-blowers took home $532 million, a record, and 36 percent more than the second most ever handed out in one year, $390 million in 2010.
And while the False Claims Act used to represent the only federal program rewarding whistle-blowers, the Securities and Exchange Commission now runs a similar bounty program, created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Anand Swaminathan, a Loevy & Loevy attorney, said he currently represents a SEC whistle-blower and expects to see a lot more financial professionals come forward following the financial crisis.
"There's a recognition that (finance) is not just some esoteric thing that exists in the ether; that it has real impact on real people," he said.
"We saw the way it impacted real people over the last four or five years. And I think some people at the margins recognize that and had their conscience affected by that and they're deciding to come forward."
The jury remains out on that program's impact; it distributed its first award of about $50,000 in August to an unnamed whistle-blower.
But plaintiff firms and defense firms respond to the longer-term trend.
Chizewer's firm, Goldberg Kohn, never represented a plaintiff before its record-setting case in 2006. Today, he said about 10 lawyers at the firm represent about 12 whistle-blowers and he spends 60 to 80 percent of his time on it.
"The firm saw the potential in the practice, and given that the firm does well in many other areas, it had the ability to support this kind of contingency practice that we've been able to develop as a result of the huge success" in the Amerigroup case, Chizewer said.
Despite the growth in the practice area, Loevy & Loevy's Kanovitz said he represents whistle-blowers not just because of the hot market.
He said he often bucks the odds and represents whistle-blowers others may not want to represent — a strategy he said might not prove to be the most lucrative model, but one that seems to mesh with a whistle-blower's own intentions.
"For the cases that we're doing, if we weren't doing them, I don't believe that they would be done," he said.
"So I feel like that means I'm making good use of my time and making a difference."