When Inside Knowledge Is a Handicap to a Whistleblower

Here’s a riddle: The whistleblower is a former employee of the defendant, with inside knowledge of the operations at the heart of his qui tam suit.  How can that inside knowledge be a handicap in pressing his claim?  A June 21 decision by a Massachusetts federal court provides an answer and an example.

William Verrinder filed a qui tam action against Wal-Mart, Kmart, and Rite Aid, alleging that all three submitted false claims to Medicare and Medicaid: claims for drugs that would expire before the date on the label or before the buyer would use them, and claims for dispensing fees that inflated the number of unexpired doses that were dispensed.  He also alleged that Kmart submitted claims for brand-name drugs when generic drugs were dispensed.

William had an advantage over many whistleblowers: he is a pharmacist, and he had worked at the pharmacies of all three defendants.  But that didn’t help him in fighting their motions to dismiss.  In fact, it apparently hurt him.

All three defendants denied all allegations of wrongdoing and provided evidence backing up their positions.  They also moved to dismiss the complaint for failure to meet the Federal Rule 9(b) requirement that allegations of fraud be pleaded with “particularity.”   The court granted their motions as to the expiration-date and dispensing-fee allegations, noting that despite generalized allegations of wrongdoing, the complaint failed “to identify a single false claim” and “offers no specifics about a single false claim.”

This is where the answer to the riddle comes in.  In dismissing William’s expiration-date allegations, the court observed that “because he was a pharmacist at each of these pharmacies, this knowledge [i.e., details of the allegedly false claims] was not peculiarly within the alleged perpetrators’ knowledge.”  So he had no excuse for failing to identify at least one false claim.

As to the generic-drug allegations against Kmart, the court gave William 30 days to amend his complaint to comply with Rule 9(b), cautioning him that  “to satisfy Rule 9(b), the relator—who worked at Kmart as a pharmacist for nearly one year—must plead the allegations with particularity….”  Otherwise, the allegations will be dismissed.

The case is U.S. ex rel. Verrinder v. Wal-Mart Corp., No. 13-11147-PBS (D. Mass. Jun. 21, 2016).

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