A federal appeals court seems poised to uphold a decision that snuffed out a whistleblower complaint filed by New York-based litigation heavyweight Kasowitz Benson Torres, which could have netted the firm billions if successful.
The firm in 2016 filed a qui tam complaint against four of the country’s largest chemical companies. claiming they failed to hand over information to the U.S. Environmental Protection Agency about the substantial risk of injuries posed by isocyanate, a common chemical used in a variety of consumer products. While representing coal miners in a prior lawsuit, Kasowitz lawyers uncovered company documents that showed that just touching or inhaling a small amount of isocyanate could cause permanent pulmonary injury in humans.
The firm sued the companies—The Dow Chemical Co., Bayer MaterialScience, BASF Corp. and Huntsman International—claiming that the government was due $90 billion in fines and penalties which were never collected because of the companies’ lack of candor. As the whistleblower, or relator in the parlance of the False Claims Act, the firm stood to get 30 percent of the recovery, or up to $27 billion dollars.
Senior Judge Rosemary Collyer of the U.S. District Court for the District of Columbia dismissed Kasowitz’s complaint in 2017. finding that. since the EPA had not handed out any penalties, the companies did not have an “obligation” to pay the government.
“An unassessed, contingent penalty is not an FCA ‘obligation’ subject to suit under the reverse false claims provision,” Collyer wrote in her opinion.
But on Monday, Kasowitz partner Andrew A. Davenport asked the U.S. Court of Appeals for the D.C. Circuit to revive the case, claiming that Collyer committed a “clear error.” The companies, he contended, had an obligation under the Toxic Substances Control Act to hand over any “substantial risk information” about the chemical as soon as it was available. Davenport argued that the government had a property interest in that information and that the companies violated the False Claims Act by failing to hand it over.
But Davenport got pushback from two members of the three-judge panel.
“It might be confidential information, but what seems to be the challenge for you is, does the [False Claims Act] impose an obligation to transfer the property to the government?” D.C. Circuit Judge P. Srikanth Srinivasan asked Davenport. “I’m not sure that the information becomes property that the government can then do with it what it wants.”
Judge Cornelia Pillard, likewise, sounded skeptical of the firm’s theory, pointing out that the Toxic Substances Control Act, which Kasowitz accused the companies of violating, doesn’t allow individual plaintiffs to sue for damages. She also suggested that the firm’s lawsuit would fail altogether, if the court didn’t buy its argument that information takes on a property interest.
Arguing on behalf of the defendants, Gregory Garre of Latham & Watkins said that adopting Kasowitz’s argument would wipe away the discretion that federal agencies have when deciding when to levy fines and penalties for regulatory violations. The EPA, he said, has been in possession the information the Kasowitz lawyers have said was withheld and have yet to take regulatory action. Garre further argued that the Toxic Substances Control Act “is a reporting statute it’s not a property conveyance statute.” The law, Garre contended, allows companies to warn the government of potential dangers created by certain substances, without forcing the companies to hand over proprietary information such as chemical formulas.
“It’s simply not the government’s property,” Garre said.