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Townsend v. Bayer Corp.

United States Court of Appeals, Eighth Circuit

December 17, 2014

Mike Townsend, Plaintiff - Appellee
Bayer Corporation, Defendant Bayer HealthCare Pharmaceuticals Inc., Defendant - Appellant

Submitted September 26, 2014

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Appeal from United States District Court for the Eastern District of Arkansas - Pine Bluff.

For Mike Townsend, Plaintiff - Appellee: Charles A. Banks, BANKS LAW FIRM, Little Rock, AR; Julie DeWoody Greathouse, Kimberly D. Logue, PPGMR LAW, PLLC, Little Rock, AR; Joseph Hamilton Kemp, Brian D. Reddick, REDDICK MOSS PLLC, Little Rock, AR.

For Bayer HealthCare Pharmaceuticals Inc., Michael A. Graziano, Francis Joseph Nealon, ECKERT & SEAMANS, Washington, DC; Edwin L. Lowther, Jr., WRIGHT & LINDSEY, Little Rock, AR; John Jay Myers, ECKERT & SEAMANS, Pittsburgh, PA.

Before RILEY, Chief Judge, BYE and GRUENDER, Circuit Judges.


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BYE, Circuit Judge.

Mike Townsend sued Bayer HealthCare Pharmaceuticals (Bayer) alleging Bayer wrongfully terminated him in violation of the whistleblower protection provisions of the False Claims Act (FCA), 31 U.S.C. § 3730(h). A jury awarded Townsend $321,373 in back pay, doubled to $642,746 pursuant to the FCA, and $568,000 in emotional distress damages for a total recovery of $1,210,746. The district court denied Townsend's request for front pay and ordered Bayer to reinstate Townsend. Bayer appeals challenging the sufficiency of the evidence on a number of grounds. Bayer also contends Townsend's suit was time-barred, the district court committed evidentiary errors, the district court erred in reinstating Townsend, the back pay award was contrary to the evidence, and the emotional distress damages were excessive. We affirm in part, reverse in part, and remand.

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We summarize the evidence presented at trial, viewing it in the light most favorable to Townsend. See Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir. 2005) (setting forth the standard of review for a challenge to the sufficiency of the evidence).

Townsend worked as a pharmaceutical sales representative for Bayer in Arkansas. His primary responsibility involved selling Mirena, a contraceptive device manufactured and sold by Bayer. As a sales representative, Townsend regularly visited a number of physicians, including Dr. Kelly Shrum. Dr. Shrum practiced at the Arkansas Center for Women in Pine Bluff, Arkansas. In January 2008, Townsend learned Dr. Shrum had been importing a version of Mirena from Canada that had not been approved by the Food and Drug Administration (FDA). Dr. Shrum obtained the non-FDA approved version of Mirena at half the cost of the version approved for sale in the United States. Townsend also learned Dr. Shrum had been submitting Medicaid claims to the government for this " gray market Mirena" at the same rate as the version of Mirena approved by the FDA. Dr. Shrum bragged about the $50,000 in profit he had made using the cheaper version of Mirena.

By the time Townsend learned about Dr. Shrum's fraudulent Medicaid claims, physician use of non-FDA approved Mirena was generally well-known by Bayer's sales force. In a November 2007 email chain which included Townsend's superiors, the Mirena sales force discussed importation of the non-FDA approved version of Mirena by physicians and discussed the fact that physicians reimbursed by Medicaid for such contraceptives were committing Medicaid fraud. After learning of Dr. Shrum's conduct, Townsend sought guidance from his superiors about what to do. Townsend asked his manager, Beth Whisenhunt, if he was required to report Dr. Shrum's overbilling to the government. Whisenhunt never responded.

After Townsend did not receive a response from Whisenhunt, he and his fellow sales representatives continued to seek guidance from Bayer on how to deal with physicians submitting Medicaid claims for the price of the FDA approved version of Mirena but actually prescribing the less expensive non-FDA approved version. Bayer reacted by telling Townsend to focus on selling more Mirena, and not to get caught up with issues involving the non-FDA approved version of Mirena.

Eventually, however, Townsend called the Arkansas Attorney General's Medicaid Fraud Hotline to report Dr. Shrum's fraud even though he feared he might lose his job. On April 1, 2009, Townsend spoke with Priscilla Kilgore, a senior investigator in the Attorney General's Medicaid fraud office. Townsend anonymously told Kilgore that Dr. Shrum was overbilling the government for the non-FDA approved version of Mirena. Townsend requested anonymity because he feared losing his job. Townsend also told Kilgore Dr. Shrum had bragged about $50,000 in profit he had made in his scheme to defraud the government. Townsend's call quickly led to an investigation of Dr. Shrum by the FDA, the United States Attorney's Office, and the Arkansas Attorney General's Office. Based on the information Townsend provided, a decision was made to execute a search warrant on the Arkansas Center for Women.

The government raided Dr. Shrum's clinic on June 17, 2009, and found the non-FDA approved version of Mirena. Dr. Shrum was subsequently charged with Medicaid fraud in the United States District Court for the Eastern District of Arkansas, and ultimately convicted of submitting

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false claims to the government. But for Townsend's whistleblowing, Dr. Shrum would likely have continued his scheme. Townsend cooperated fully with the government's investigation and prosecution of Dr. Shrum, which included the disclosure of his identity in the search warrant obtained for Dr. Shrum's clinic. Townsend believed he might face repercussions from Bayer for his role in the Shrum investigation, but nevertheless informed Whisenhunt he had reported Dr. Shrum to the authorities. Trent Erway, another Bayer employee, agreed Townsend should be concerned about his job.

Meanwhile, in 2009 Bayer changed the way it paid for expenses incurred by its sales force. Before the change, sales representatives submitted expenses to Bayer and Bayer would itself pay the representatives' company credit card bills. In February 2009, Bayer entered into an agreement with U.S. Bank to issue credit cards directly to Bayer's sales representatives. Expenses were still submitted to Bayer for approval, but, instead of paying the credit card bills directly, Bayer reimbursed each individual sales representative. The sales representatives then paid their own individual credit card bills using the funds provided by Bayer. Bayer was required to keep close track of these expenses because of the regulations imposed upon the pharmaceutical industry.

Some time after Bayer changed its credit card expense practices, Townsend's wife noticed the reimbursement funds Bayer had deposited into their checking account and, not knowing the funds were earmarked to pay the U.S. Bank credit card, used some of the money to pay other bills instead. Townsend got behind on his U.S. Bank payments as a result, and U.S. Bank closed his account in October 2009. In March 2010, Townsend used a bonus he received from Bayer to pay off the outstanding balance on his credit card account. On April 1, 2010, U.S. Bank reactivated Townsend's account at the request of Lori Kushik, Bayer's Program Administrator for the U.S. Bank credit card program.

Even though Townsend's credit card account had been reactivated, Bayer fired him on May 5, 2010, claiming his closed credit card account did not allow him to perform his job because he could not entertain physicians. Three Bayer representatives met with Townsend -- Blake Mounce, Townsend's supervisor; David Beasley, Bayer's Area Director; and John O'Donnell, a corporate human resources department employee. O'Donnell led the meeting and did most of the talking. He told Townsend he was being terminated because his U.S. Bank credit card had been deactivated, despite the fact that the account had been reactivated at Bayer's request over a month earlier. No one at the meeting asked Townsend about the outstanding balance on his company credit card. Likewise, no one confiscated Townsend's card even though there was a policy requiring them to do so.

On March 7, 2011, Townsend sued Bayer. He claimed Bayer terminated him for reporting Dr. Shrum to the authorities and for cooperating with the government's investigation and prosecution of Dr. Shrum. Townsend claimed his wrongful termination violated the anti-retaliation provisions of the FCA, 31 U.S.C. § 3730(h).[1] After discovery, the case proceeded to trial in October 2012.

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During trial, Townsend testified Bayer had an unwritten rule that its sales force should not report crimes of Bayer's physician customers to law enforcement. Indeed, when Whisenhunt was asked whether she would have reported Dr. Shrum's fraud like Townsend had, she said she would not have. When asked why not, she responded " I wouldn't, not unless the company told me to. . . . Even if I thought they were breaking [the law] -- again, I follow rules. I'm not a rule breaker. I don't like to put myself in jeopardy, so I would not have turned anybody in." Jt. App. at 978.

Townsend's claim that Bayer had an unwritten rule not to report the illegal activities of its physician customers was also supported by the fact that two other sales representatives knew about Dr. Shrum's fraud, but did not report his crime. In addition, Tommy Gibbs, who supervised Townsend before Whisenhunt, admitted at trial that Bayer sales representatives were trained to report illegal activities to Bayer, not to authorities outside Bayer.

The district court also permitted Townsend to present evidence that Amber Jordan, an allegedly similarly-situated Bayer employee, had not been fired even though her credit card account had been deactivated but later reinstated like Townsend's. The district court refused, however, to allow Bayer to present evidence regarding Amy Kern, an employee Bayer claimed to be similarly situated to Townsend because she was fired for having a closed credit card account. The district court determined O'Donnell had failed to identify Kern as a comparator during his Rule 26 pre-trial deposition. Townsend also contends Kern was not similarly situated because her credit card account had been closed and remained closed, while his account had been reactivated at Bayer's request prior to his termination.

Also during trial, the jury heard O'Donnell had consulted Bayer's in-house counsel prior to meeting with Townsend to terminate him. The substance of the meeting was not disclosed, however, with Bayer citing attorney-client privilege. Bayer asked the district court to instruct the jury not to draw an adverse inference from Bayer's assertion of the attorney-client privilege. The district court refused to so instruct the jury, instead advising Bayer's counsel he could cover the topic in closing argument.

Following the trial, the jury reached a verdict in favor of Townsend. The jury rejected Bayer's claim that Townsend had been legitimately fired over the credit card issue, and instead found Bayer had unlawfully fired Townsend for engaging in a protected activity by reporting Dr. Shrum's fraud and by cooperating with the government's investigation and prosecution. The jury awarded $321,373 in back pay (which was doubled to $642,746 pursuant to the FCA), and $568,000 for emotional distress damages, for a total recovery of $1.21 million. Bayer filed post-trial motions for judgment as a matter of law (JAML) on a number of grounds, as well as a motion for a new trial. Bayer also sought a remittitur of the emotional distress damage award contending the jury's award was excessive. The district court denied all of Bayer's post-trial motions. Townsend, in turn, filed post-trial motions for an award of front pay, attorney's fees

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and costs. The district court granted the request for attorney's fees and costs, but denied the request for an award of front pay and instead determined Townsend should be reinstated to his former job.

Bayer filed a timely appeal raising the following issues: (1) whether Townsend's suit is barred by the Arkansas statute of limitations applicable to public employee whistleblowers; (2) whether the evidence was insufficient to prove a causal connection between Townsend's termination and his report of Dr. Shrum's fraud, or to show Townsend engaged in a protected activity because his knowledge of fraud was stale by the time he reported it, or to show the decision-makers who terminated Townsend knew he engaged in a protected activity; (3) whether the FCA requires an employee to prove his employer was working in concert with a fraudulent actor to state a retaliation claim; (4) whether Bayer was unfairly prejudiced by the district court's evidentiary rulings regarding Bayer employees Jordan and Kern; (5) whether the district court abused its discretion when it failed to give a " privileged communication" instruction to the jury; (6) whether the district court abused its discretion in ordering Bayer to reinstate Townsend; (7) ...

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