Whistleblower’s Standing v. Omnicare (Part 2)
Third among the whistleblower issues raised by the Marc Silver v. Omnicare et al
case: Was Silver justified in making his complaint? Did he have the legal standing to complain?
Silver witnessed wrongdoing spread across the
pharmacy/nursing home industry, and the culprits stole money from U.S.
taxpayers. Certainly, expressing his concern
was a socially valuable project.
Every whistleblower discloses what he or she believes is an
affront to social or legal mores and something the accused refuses to correct. Each of my
complaints against HomeFirst alleged a continuing company misdeed that
involved harming homeless individuals or using taxpayer money inappropriately. Like Silver, we all can find social
justification.
Problematic for Silver’s lawsuit against Omnicare et al were
two facts: his suit was very similar to David Gale’s earlier suit, and he might
not have presented sufficient direct, inside knowledge of the misdeeds, particularly
those committed by Pharmerica. As a
consequence, Omnicare’s
settlement agreement provided nothing for Silver although he may eventually
receive portions of settlements under the 27 related state suits.
Silver’s suit against Pharmerica, which was carved out of the
Omnicare settlement agreement, was dismissed
in 2016 based on the court’s conclusion that he lacked standing under the
U.S. False Claims Act. The court decided
that although Pharmerica probably engaged in the alleged illegal activities
Silver had no commercial relationship with the company and he had relied on
publicly available information in filing his suit.
As a whistleblower, Silver achieved the ethical objectives
of outing the wrongdoers and causing Omnicare to pay a penalty that may
encourage it to act better in the future. But, as is true for many other
whistleblowers, the issue of legal standing limited his effectiveness.
When I complained about HomeFirst’s not repaying an advance given
to it by the City of San Jose, my compliant got little traction. In part, the City’s indifference arose from its
close business alignment with HomeFirst, but also I had no legal standing: I
was not a San Jose resident, and I was not harmed by HomeFirst’s inaction. HomeFirst’s failure to repay the $140,000 it overcharged
the County of Santa Clara did not harm me either, even though I was a County
resident, because funding for the grant came from state taxes paid by those who
earn more than $1 million in a year.
Since I was never a homeless person served by HomeFirst, I was not
harmed by the alleged minimum wage, payroll tax, and food handler card violations
either.
I was just a good guy, with no strong legal basis for a
lawsuit that might force HomeFirst to act properly or to suffer a penalty. Many whistleblowers are good guys with little
real basis to sue their employers (other than for the retaliation they suffered), and our
small-time complaints involve too little money to qualify for suit under false
claims acts. As a result, unless we can
interest media in the cases – a risky tactic that exposes us to expensive suits
from the companies – we have little power to effect the changes we envision
when we begin our projects.
Fourth, the scope of wrongdoing involved in Silver’s case is
remarkable. Ruscher,
Gale, and Litwiller
were the tip of Omnicare’s iceberg of insider-witnesses that included their
colleagues, supervisors, managers, sales and legal staff, and executives who
were aware of the company’s tactics.
Many other companies in the institutional pharmacy industry participated
in the scheme and employed hundreds to make it work for them. Then there were all the nursing homes[1]
that knew they were getting a deal too good to be legal.
Silver’s case was not unique in the way knowledge of the
misbehavior was wide-spread. Hundreds,
and maybe thousands, were aware of Wells
Fargo’s bank account fraud.
Thousands were aware of the mortgage frauds allegedly committed by Bank
of America, Morgan
Stanley, Deutsche
Bank, and others during the great recession. Dozens inside and outside HomeFirst were
aware of the misdeeds I alleged.
In each case of an alleged wrongdoing, many witness but
fewer disclose the wrong, and seldom is the accused penalized.
Finally, did Silver’s whistleblowing do any good? Along with Gale, Silver caused Omnicare to agree
to pay $120 million to the U.S. government.
That sounds like a lot, but during the 10 years to
2014 Omnicare paid an average of $80 million every year in
settlement and litigation costs, making the 2014 penalty barely a wrist slap – it
was more a normal cost of doing business – for the company which refused to
admit doing any wrong. And Pharmerica,
whose litigation costs also run more than 1% of revenues a year, was not
penalized at all despite evidence that it had participated in the illegal
kickback schemes.
It is an article of faith that whistleblowing meets a social
need by helping to correct wrongs in a complex society[2]. Stories about
whistleblowers, however, focus most often on the retaliations they suffer
and the complaints they file against their attackers for those retaliations. Too little attention is paid to whether the
world is made better by our disclosures and the wrongdoers are punished for the
acts that we disclose. HomeFirst has not
been penalized for any of the violations that I alleged; it has not been
seriously investigated concerning the allegations; it has not repaid the money
it admitted misusing.
If corporations too
often go unpunished for the wrongs we disclose and we are not
effectively protected from their retaliations, why should we bother to
become whistleblowers?
With little effort, we can construct ethical justifications[3]
for blowing the whistle, but that comes well after the fact.
In my case, identifying issues came naturally as a part of
my job as HomeFirst’s CFO. Avoiding
misbehavior was not just a professional responsibility, after fifteen years as
CFO of different companies it seemed to me a potential legal
responsibility. The failure of the
company’s CEO and its Board to act on my complaints echoed their failure to respond
to the company’s faltering financial position.
They drove me crazy.
When whistleblowers act, we respond to ethical and
professional concerns but also to personal issues, sometimes including greed or
a desire for revenge. That fact – even combined
with the high probability that we will achieve little – does not diminish our
whistleblowing. If anything, it makes
our projects more important, I think.
Our jumble of motivations does not mean that we should not act, but when
we act we should do so intelligently and warily.
[1]
Disclosure: my wife’s ex-husband was executive director of a nursing home involved
in Silver’s suit.
[3] For example, in Hosmer,
Larue Tone. “Trust:
Connecting Link between Organizational Theory and Philosophical Ethics.” The Academy of Management Review 20.2 (April 1995): 379-403
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