Financial Rewards for Whistleblowing Lawyers

Abstract

The federal government increasingly relies on whistleblowers to ferret out fraud, awarding over $4 billion to whistleblowers under the False Claims Act (“FCA”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). May lawyers ethically seek these whistleblower rewards? Several lawyers have tried unsuccessfully to serve as FCA whistleblowers. Additional lawyers may be seeking whistleblower rewards under Dodd-Frank, but the secrecy of the award process prevents us from knowing whether they have sought or received awards. This is the first Article to analyze in-depth the key questions for determining whether a lawyer may seek a federal whistleblower award: (1) When may a lawyer disclose a client’s confidential information? (2) When does a lawyer’s obligation of loyalty preclude seeking a personal benefit by disclosing a crime or fraud? (3) Do federal whistleblower laws preempt state ethics standards? (4) Which state’s ethics law applies when several states have significant contacts with the matter? These questions are enormously complex. Confidentiality exceptions differ widely among states. Lawyers are bound not just by conflict of interest rules, but also by the common-law duty not to profit from a client’s confidential information. While several federal courts have summarily rejected FCA preemption of state ethics standards, none of them confronted the fact that the FCA preempts state law fiduciary and contractual duties that would prevent nonlawyer insiders from serving as whistleblowers.