Monday, December 16, 2013

Employment Arbitration Rulings, Qui Tam Retaliation Claims, and Collateral Estoppel

I recently came across an interesting case that further illustrates the perils to False Claim Act relators who split their employment and FCA retaliation claims. In the unpublished case of Kalyanaram v. New York Institute of Technology, 2013 WL 6482578 (2nd Cir., December 11, 2013), the Court dismissed the relator's retaliation claim against his employer on the grounds that it was barred by the doctrine of collateral estoppel. Collateral estoppel is the common law rule that prevents a party from re-litigating an issue or fact that has previously been decided, even if that issue or fact was decided in a different case, as long as there was "full and fair opportunity" to litigate the issue in the prior proceeding.  

In Kalyanaram, the relator's employer, a technical school, fired the relator, a teacher, on the grounds that he was engaging in professional misconduct. The relator contested his firing in an arbitration proceeding pursuant to a collective bargaining agreement. While that case was pending, the relator also filed a qui tam against his employer alleging that the school submitted false financial aid information so that its students would get federal and state financial aid and that the school retaliated against him for complaining about it.

The relator argued in his employment arbitration that the school retaliated against him for his complaints about the school's alleged deceptive and fraudulent practices. The relator, however, did not allege in the arbitration that the school retaliated against him because he had been either a qui tam whistleblower or had filed a False Claims Act suit. The arbitrator rejected his retaliation claims, such as they were, and found that the relator had engaged in professional misconduct by authoring pseudonymous emails "in order to convey unsubstantiated and potentially scurrilous innuendos and accusations to the detriment" of his employer. When the federal court that was hearing the relator's qui tam heard about the relator's adverse arbitration decision, the Court on its own motion ordered briefing on whether the relator's retaliation claim was barred by collateral estoppel and ultimately dismissed the retaliation claim on that ground.

The Second Circuit upheld the District Court's dismissal of the relator's retaliation claim. The Court observed that "collateral estoppel turns not on whether a prior adjudication found that an employer had a reasonable basis to discipline an employee, but on whether an employee raised a claim that behind the veil of reasonableness lay an impermissible motivating factor." Though the relator did not ever raise that he had filed a qui tam suit in the arbitration, given the relator's complaints about retaliation in that forum, the Court found that the arbitrator "actually and necessarily decided . . . that [the school] had not disciplined [the relator] in retaliation for his critiques of the school's fraudulent practices." Stated more simply, once the arbitrator found that there was a legitimate basis for discharging the relator and that the employer's reason for firing the relator was not a pretext for some other impermissible reason, that arbitration decision served to estopp and prevent the relator from claiming in the qui tam proceeding that he had been retaliated against by his employer for a different reason.

The relator complained in his appeal that he "never had a full and fair opportunity to present a compete picture of his whistleblower activities," but the Court found "he had only himself to blame." Essentially, the relator chose not to tell his arbitrator about the qui tam, even though the federal court permitted him to reveal it to the arbitrator and to "respond to any questions" about in it in that proceeding.

Of course, this case also appears as an application of that sometime informal rule of procedure known as the "bad man rule." That informal rule of procedure is normally found only in criminal cases, and frequently appears as the "real reason" for many otherwise unexplained court rulings. Though it did not explicitly reference the bad man rule, the Second Circuit did observe that the relator "repeatedly lied under oath," "presented an elaborate, fabricated defense," and "clung to this strategy through almost a year." In short, he was a "very bad man" who lied to the arbitrator and the Court and got what he deserved.

A. Brian Albritton
December 16, 2013

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