68.5 Million Reasons Why West Virginia Should Have Enacted a False Claims Act

Last summer a heavy lobby from business groups halted a bill that would have created a False Claims Act in West Virginia. Critics claimed the Act would “encourage ‘sue-and-settle’ litigation that benefitted only plaintiff’s lawyers and the whistleblowers they would represent.”

California begs to differ.

Today California announced that it is recovering $68.5 million from Office Depot, which stands accused of overcharging taxpayers in cities, counties, school districts and the state as a whole. The dollars are being returned to state coffers thanks to a whistleblower who filed suit under California’s FCA.

That’s 68.5 million reasons why West Virginia taxpayers ought to be asking why their legislature couldn’t muster the gumption to protect their wallets from people who rip off their state. The federal government has a False Claims Act that protects federal taxpayers against fraud, and so do 60% of the states. But in West Virginia and other states without a statute, taxpayers need to hope the fraud is against the federal government and not against state or local governments or school systems.

Whistleblower David Sherwin was a former Office Depot employee. In his FCA lawsuit, he alleged that Office Depot was charging some California governments – including Los Angeles and Santa Clara – more than it had agreed to charge for office supplies.

The overcharged California government entities were members of the US Communities purchasing program. Under the program, governments across the country band together to negotiate favorable rates with vendors. In this case, Office Depot won the national bid, which meant that governmental entities across the country were buying office and classroom supplies from Office Depot. In exchange for the enormous and lucrative deal, the office supply company agreed to offer the government agencies a discount on their purchases. Under the contract, Office Depot had to give every government customer the lowest price that it gave any other government customer.

It was giving those entities a smaller discount than it had agreed to give them, and than it was giving other governments. California said that Los Angeles, Santa Clara and some other state entities were being charged more than they should have for their purchases.

On a very tragic note, whistleblower David Sherwin spent years working on the case, but died from cancer just last year, before he could have the satisfaction of witnessing taxpayers reaping the fruits of his labor. The month before he died, he was deposed so that he could give his testimony in the case. His lawyers, my good friends and colleagues at the law firms of Phillips & Cohen and Sanford Heisler Kimpel LLP, carried on the fight after his death. Under the California FCA, a whistleblower is entitled to receive a percentage of what the Government reclaims. Here, Sherwin’s $23 million relator’s share will go to his estate. (“Relator” is the legal term for a whistleblower under the False Claims statute.)

West Virginia is not the only state that does not have a False Claims Act statute. Every state that does not yet have an FCA should be looking at California’s recovery and asking why — WHY — would we NOT have a statute that would allow our state to recover money taken from taxpayers through fraud? Is it worth paying a whistleblower to come forward?

California school districts, local governments, and taxpayers will answer that question with a resounding “yes!”

Are districts in other states being given smaller discounts and charged too much? If so, let’s hope the districts are in states with an FCA statute, like Texas, New York or Florida. And not in West Virginia.