A claim too far for a whistleblower

by Ben Vernia | March 18th, 2011

On February 17, a whistleblower in North Carolina lost her argument that she should be discharged in bankruptcy from her former employer’s claim for attorney’s fees in a failed wrongful termination action.

The whistleblower, a former hospital employee in Michigan, won her qui tam suit against the hospital, receiving an 18% whistleblower share – totaling over $1.2 million. She also sued the hospital under the False Claims Act’s antiretaliation provision, 31 U.S.C. 3730(h), but lost her case on summary judgment when the district court in that matter concluded that she had committed misconduct as an employee, including the alteration of minutes of a meeting and failing to return tapes of it until discovery. The district court awarded over $1.6 million in attorney’s fees against the whistleblower as a sanction for bringing the wrongful termination case, along with nearly $19,000 in costs. The whistleblower then filed a voluntary petition for Chapter 7 bankruptcy.

The bankruptcy court held that the district court’s judgment was for a “willful and malicious” injury for which discharge was unavailable, and that the whistleblower was collaterally estopped from challenging the district court’s finding in the bankruptcy case.

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