Applying a "We're-Just-Not-Buying-It" Standard in False Claims Act Retaliation Cases: Jones-McNamara v. Holzer Health Systems

Dear Readers:

False Claims Act ("FCA") retaliation cases are increasingly common. And, a plaintiff does not have to allege very much to bring a FCA retaliation claim and defeat a motion to dismiss: Rule 9(b)'s requirement that the plaintiff plead fraud with particularity does not apply to retaliation cases, so the bar for a plaintiff to successfully state a FCA retaliation claim is often quite low. The FCA's anti-retaliation provision, 33 USC 3730(h), protects former employees who were discharged "because of lawful acts done . . . in furtherance of an action under [33 USC 3729] or efforts to stop 1 or more violations under this subchapter." Essentially, it protects "all efforts [by an employee] to stop" an FCA violation, including where the employee was simply collecting information about a possible fraud. Jones-McNamara v. Holzer Health Systems, 2015 WL 6685302 *4 (6th Cir. Nov. 2, 2015).

Yet, even with a permissive standard for bringing retaliation claims, the 6th Circuit recently instructed that there is a limit to the deference afforded plaintiffs in retaliation cases. As the Court found in Jones-McNamara, to show that an employer retaliated against an employee, the plaintiff must first "show that allegations of fraud [committed by their employer] grew out of a reasonable belief in such fraud." Translation: the Court isn't just going to allow a plaintiff to cast anything done by the employer as a potential fraud; a plaintiff's belief that his or her employer committed a fraud in violation of the FCA must be objectively reasonable.

In Jones-McNamara, a hospital compliance officer alleged that the hospital violated the Anti-Kickback statute ("AKS") and FCA because a patient transport company with whom the hospital had been dealing had given one of the hospital's emergency room physicians a "jacket valued at $23.50" and had provided "free hotdogs and hamburgers" at the hospital's "employee health and wellness fair" that was held in 2008 and 2009. Applying what appears to be a "we're just not buying it" standard, the 6th Circuit in a 2-1 decision found:  "It cannot plausibly be suggested that one jacket valued at $23.50 and occasional servings of hotdogs and hamburgers could induce a reasonable person to prefer one provider over another. In fact, these items represent such a low monetary value they can only be characterized as 'token' gestures of good will under OIG guidance." Contrasting the plaintiff's complaint with the litany of serious and exorbitant entertainment featured in HHS-OIG reports and reported cases, the Court observed: "[i]t is ludicrous to believe that a person would be tempted to make illegal referrals in exchange for a couple hotdogs once a year."

The Court challenged the plaintiff's attempt to cast these de minimis gifts as giving rise to anti-kickback violations because the plaintiff had not shown any connection between the "gifts" and any alleged referrals by the hospital to the patient transport company. Moreover, the Court complained that the plaintiff had not shown that the employees who ate the hotdogs or the physician who received a jacket were even in a position to make referrals on behalf of the hospital to the patient transport company. While the plaintiff claimed that the physician who received the jacket was in a position to make referrals, the Court observed that the plaintiff provided no evidence that was in fact true --the plaintiff just wanted it to be that way. As the Court observed further, the plaintiff reported that the hospital violated the AKS based on her "unquestioned, unconfirmed, and thus unreasonable assumption that [the doctors] not only had the authority but in fact routinely made the decision to refer business to [the transport company] in knowing and willful return for illegal kickbacks" --an allegation that had no factual basis.

Jones-McNamara is a helpful decision for defending FCA retaliation cases. First, the Court essentially says that isolated de minimis gifts simply will not give rise to an anti-kickback violation and that complaints about such gifts by an employee as being "fraudulent" certainly do not qualify as reasonable evidence that the employer is engaged in fraudulent conduct. Second, and as importantly, the Court further suggests that district courts should closely scrutinize the assumptions made by plaintiffs who allege that their employer committed fraud and determine whether such accusations are reasonable or plausible. Here, the Court simply did not find it reasonable or plausible that eating hotdogs or accepting a single jacket provided by a vendor would lead hospital employees to engage in serious violations of the law. 

A. Brian Albritton

November 19, 2015

Whistleblower's False Claims Act Case Does Not Toll Statute of Limitations If Relator Seeks to Later Add a Retaliation Claim

When a relator files a False Claim Act case and seeks to later add a claim that his or her employer retaliated against them, is the three-year statute of limitations for retaliation claims "tolled" during the time the relator's False Claims Act claims are pending? And, if a relator seeks to amend his or her False Claims Act case to add a retaliation claim, does the retaliation claim "relate back" in time to when the relator originally filed their False Claims Act case? In a thoughtful opinion, the Court in Hayes v. Department of Education of the City of New York, __ F.Supp. 2d__, 2014 WL 2048196 (May 16, 2014 S.D.N.Y.) addressed both of these questions and found that a relator's attempt to amend her False Claims Act complaint long after she had filed it in order to add a retaliation claim was futile and barred by the statute of limitations.

In Hayes, the relator's attorney withdrew from relator's False Claims Act case. After several attempts to obtain new counsel, the Court granted the defendant's motion to dismiss the case on the grounds that the relator could not bring the case without an attorney or pro se. Relator sought to amend her False Claims Act complaint to add a claim of retaliation, a claim for which she did not need an attorney to pursue. Relator's proposed retaliation claim was more than three years after the events in question.

The Court considered the question of "when a relator herself tolls the statute of limitations for her own claim." While the relators' filing of the False Claims Act complaint may toll the statute of limitations for claims pled in that complaint, the Court concluded that the statue is not tolled for relator's claims which are not brought in the original complaint. The statute of limitations for a retaliation claim related to an underlying False Claims Act case would continue to run, the Court found, even if the case were under seal for a period.

Finding the relator's claim to be barred by the statute, the Court next considered whether the relator may be permitted to amend her complaint to add a retaliation claim pursuant to Federal Rule of Civil Procedure 15. After undertaking a lengthy analysis, the Court found that "an amended pleading adding a retaliation claim may not relate back to the original complaint filed here: neither Rule 15(c)(1)(A) nor 15(c)(1)(B) permits it."

This decision prevents relators from trying to belatedly salvage their False Claims Act cases by trying to add a retaliation claim more than three years after the events at issue. It is not clear, however, how much effect this case will have: False Claims Act cases by ex-employees almost invariably contain retaliation claims and such claims are frequently the bases for settlements when relators' False Claims Act cases fail.

A. Brian Albritton

June 10,2014

A Corporate Plaintiff May Not Bring Suit for False Claims Act Retaliation

Retaliation claims are increasingly commonplace in False Claims Act cases. The issues as to who may bring a retaliation claim -- an individual or corporate relator -- and whether they may sue just the employer accused of retaliation or also individual co-workers or supervisors as well have not been definitively determined by the courts.

For example, I recently learned that only people -- not corporations --  can bring retaliation claims under the False Claims Act. In US ex rel Fryberger v. Kiewit Pacific Company, 2014 WL 1997151 (N.D. Cal. 5/14/2014), the Court held that the False Claims Act (FCA), 31 USC 3730(h), does not permit a relator or plaintiff that is a corporation to sue for retaliation: only an individual "employee, contractor, or agent" may bring a claim that he or she was "discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts" done by the individual in furtherance of an FCA action or in an "effort to stop one or more violations of" the FCA.

Prohibiting a corporate relator from bringing a retaliation claim appears to be an issue of first impression as the Court observed that "[n]either party cites any case law on this question, and the Court has not located any." In making its ruling, the Court looked to the language of the FCA's anti-retaliation provision and the legislative history which accompanied its amendment in 2009. First, the Court noted that the relief provided by sec. 3730(h) for retaliation such as reinstatement and back pay "are directed to individual plaintiffs, not entities." The Court explained further that the 2009 legislative history which added the "contractor or agent" references to the prohibition against retaliation against an employee was "in response to court decisions limiting retaliation plaintiffs to employees and not independent contractors . . . .  Nothing suggests it was Congress's intent to broaden the retaliation entitlement to entity plaintiffs as well as individual plaintiffs."

The Fryberger Court also joined the increasing number of district courts that have held that a relator/plaintiff may only bring retaliation claims against an "employer or entity with whom the plaintiff has a contractor or agency relationship." Prior to the 2009 amendment to the retaliation provision, sec 3730(h), the retaliation provision was generally interpreted only to apply to employers and the Court found that the 2009 did nothing to change that. The Court cited a recent Arizona decision Wichansky v. Zowine, 2014 WL 289924, at *3-5 (D. Ariz. Jan. 24, 2014) as a thorough and persuasive decision along with a number of other cases. (See also an interesting article which discusses this issue, J. Tyler Robinson and Roger R. Clayton, "Beware the Whistleblower: Whether Congress’s Omission of the Term 'Employer' from Section 3730(h) of the False Claims Act Was Intended to Extend Liability to a Whistleblower’s Individual Supervisors," IDC Quarterly Volume 24, Number 1).

A. Brian Albritton
May 26, 2014

State Courts have Concurrent Jurisdiction Over False Claims Act Retaliation Claims

Perhaps everyone knows this, but I didn't: a relator may bring a False Claims Act (FCA) retaliation claim in state court.  

Recently, in Driscoll v. Superior Court of Madera County, 2014 WL 333411 (January 30, 2014, Cal. App. 5 Dist.), the Court addressed whether state courts have concurrent jurisdiction over FCA retaliation claims, 31 U.S.C. 3730(h), and the Court found that they do. Regardless of whether concurrent jurisdiction exists, you normally would not expect to see FCA retaliation claims in state court because you would expect a defendant to remove a FCA retaliation claim to federal court under federal question jurisdiction, 28 U.S.C 1331. In Driscoll, however, the defendant brought the FCA retaliation claim against the plaintiffs as a cross claim. The plaintiffs moved to dismiss the FCA retaliation claim brought against them on the grounds that the California state court did not have subject matter jurisdiction, and though they won in the trial court, the appellate court found that the state court had jurisdiction and could proceed with the defendant's FCA retaliation claim. In so ruling, the California 5th District Court of Appeals acknowledged that section 3730(h)(2) provides that "an action under this subsection may be brought in the appropriate district court of the United States" and that section 31 U.S.C. 3732(a) provides further that "Any action under section 3730 may be brought in any judicial district . . . " Yet, the Court noted that the FCA does not "contain an explicit statutory directive ousting state court jurisdiction" and the "FCA's jurisdiction provision does not mention state courts or their jurisdiction." Consequently, asserted the Court, "we presume state courts share concurrent jurisdiction over FCA claims." The Court explained further that in retaliation claims the federal government is not a party nor are such claims brought in the name of the United States. Rather, "retaliation claims are personal to the individual."

Another FCA fun fact.

A. Brian Albritton
February 5, 2014

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

Bringing Title VII and False Claims Act Retaliation Claims in Different Cases: the Perils of Duplicative Litigation

It is increasingly common to see plaintiffs bring a traditional employment-law discrimination claim (e.g., Title VII claim) together with a claim, based on the same facts, alleging that their employer retaliated against them for complaining about conduct that violated the False Claims Act. Indeed, I have seen an employment lawyer file a Title VII case on behalf of his client alleging discrimination on the basis of sex in one case, and that same plaintiff with a different lawyer file a False Claims Act ("FCA") retaliation claim based on the same conduct in a separate case while the first case was pending.

In a recent case, the Second Circuit Court of Appeal addressed just this scenario, and in an interesting summary opinion, they affirmed the District Court's dismissal of the second "duplicative" FCA retaliation case. Davis v. Norwalk Economic Opportunity Now, Inc., -- Fed. Appx.--, 2013 WL 4558833 (2nd Cir., August 29, 2013). In Davis, a discharged employee sued her former employer alleging retaliatory harassment and discharge in violation of the FCA's provision prohibiting retaliation, 31 U.S.C. 3730(h), for her reporting food stamp misappropriation by fellow employees. Davis had previously filed a Title VII case that was still pending against the same employer when she filed her second suit alleging FCA retaliation. The District Court dismissed her FCA retaliation claim on the grounds that it was "duplicative" of an already existing case.

The Second Circuit affirmed the dismissal of "duplicative litigation," and explained that a district court had the power to "administer its docket" and could "stay or dismiss a suit that is duplicative of another federal court suit." Though different from claim preclusion, the Court "borrowed" the test for determining claim preclusion and applied it to "assess whether the second suit raises issues that should have been brought in the first." Applying that analysis, the Court found that Davis based her Title VII and FCA claims on nearly "identical" facts. In addition, the Court observed that both actions essentially asked the same question: whether Davis's employer "had a legitimate and lawful reason for taking the adverse employment actions" that plaintiff complained about. The Court found that these two causes of action should have been brought in the same case, even though Davis alleged claims with "different retaliatory motives."

Finally, Davis complained that her FCA claim should not have been dismissed because she was not permitted to amend her Title VII claim in the other case since the deadline for adding claims had passed and she did not discover her employer's FCA violation until after that deadline. The Court rebuffed that argument as well, finding that plaintiff had "ample time" to bring her FCA retaliation claim.

According to the Second Circuit's rules, this case has no precedential effect. Nevertheless, the decision demonstrates that not all claims are fungible and that a relator splits his or her claims at their peril.

A. Brian Albritton
October 7, 2013

Recents Blog Posts and Articles of Interests

I have recently come across of a number of blog posts and articles which I commend to you:

• Seventh Circuit Rejects Constructive Knowing As Basis for Retaliation Claim

Scott Stein at Sidley Austin's Original Source blog writes about the case Halasa v. ITT Educational Services, Inc., 8/14/12, wherein the Seventh Circuit recently dismissed a False Claims Act retaliation claim and rejected the plaintiff's claim that "constructive knowledge" on the part of those who discharged him was sufficient to prove retaliation. The Court found that without actual knowledge of plaintiff's protected activities, plaintiff had not established a "causal link" between the plaintiff's reports of irregularities and his termination. 

• DOJ Brings Suit Against Gallup Organization

 Under the column of interesting qui tams, the Department of Justice recently announced it had intervened in a qui tam suit filed against none other than the polling organization, Gallup.  "According to the whistleblower’s complaint, Gallup violated the False Claims Act by giving the government inflated estimates of the number of hours that it would take to perform its services, even though it had separate and lower internal estimates of the number of hours that would be required.   The complaint further alleges that the government paid Gallup based on the inflated estimates, rather than Gallup’s lower internal estimates."

• Qui Tam Relator Not Original Source; U.S. ex rel. Repko v. Guthrie Clinic

Ellyn Sternfield at MintzLevin's Health Law & Policy Matters blog writes about the Repko case, wherein the Third Circuit dismissed the qui tam brought against Guthrie Healthcare System by its former general counsel and executive VP, Rodney Repko, on the grounds that Repko was not an original source such that he could avoid the public disclosure bar of the False Claims Act.  Repko had been charged with trying to steal two million dollars from Guthrie after he left the company and had pled guilty.  As part of his plea agreement, he was required to provide the government with "information concerning the unlawful activities of others."  As the article points out, the Third Circuit "was persuaded by the fact Repko had initially disclosed the challenged arrangements to the government under his plea agreement; the disclosure was bargained-for consideration which enabled Repko to obtain a lower sentence on his bank fraud charges.  While never mentioning the word 'voluntarily,' the court found that since the plea agreement compelled his disclosures to the government, Repko was essentially estopped from invoking the original source exception."

•  District Court Rules That Wartime Suspension of Limitations Act Suspends False Claims Act's Six-Year Statute of Limitations

Douglas Baruch and John Boese of Fried Frank recently wrote a "FraudMail Alert®" on the case of United States v. BNP Paribas SA, No. H-11-3718, 2012 WL 3234233 (S.D. Tex. Aug. 6, 2012), wherein a federal court in Texas applied the Wartime Suspension of Limitations Act, 18 U.S.C. § 3287 (2008) (“WSLA”) and held that the statute of limitations in a False Claims Act case had been suspended  due to the Iraq and Afghanistan conflicts. In addition, Baruch and Boese write "the district court’s ruling makes clear that the WSLA’s suspension is not limited to FCA cases arising out of wartime contracting or even Defense Department contracting in general, meaning that the FCA’s statute of limitations would be rendered ineffective in all sorts of cases, including those involving allegations arising out of the financial and healthcare industries."  Finding the case to run "counter to the plain meaning of the WSLA as well as the clear intent of Congress," they analyze the case in detail and declare it to be just plain "wrong."

A. Brian Albritton
August 30, 2012









 

Middle District of Florida Permits Arbitration of FCA Retaliation Claim

Middle District of Florida U.S. District Judge John Antoon II recently held that both False Claims Act ("FCA") retaliation claims, 18 USC 3730(h), and claims brought pursuant to the Florida Whistleblower Act are subject to arbitration where the parties have previously agreed.  In United States ex rel Hepburn v. Northrop Grumman Systems Corp., (May 8, 2012) 2012 W: 1631682 (M.D. Fla.), the Court granted a motion to compel arbitration of the FCA and Florida Whistleblower Act claims pursuant to an "arbitration policy" that was contained in the relator's employment agreement.

This is the second case I've featured in the blog on arbitrating such claims:  see Court Finds FCA Retaliation Claim Subject to Arbitration.  The Court in Hepburn did not cite any FCA specific authority in making its ruling, nor did the prior case, James v. Conceptus, Inc. (S.D. Tex. 2012).  A review of the Defendant's Motion to Dismiss and to Compel Arbitration in Hepburn, however, cites several cases that find that arbitration is appropriate for FCA claims, and readers might find those cites to be helpful.

A. Brian Albritton
May 20, 2012

DOJ Cannot Summarily Dismiss a Relator's Claim if the Relator Objects to Settlement: D.C. Circuit Determines U.S. ex rel Schweizer

In my post of February 7, 2012, I discussed a District of Columbia's District Court's opinion in U.S. ex rel Schweizer v. OCE N.V., wherein the District Court found that the Department of Justice ("DOJ") can dismiss a relator's claim pursuant to 31. U.S.C. 3730(c)(2)(A) if the relator refuses the DOJ's settlement with the defendant of the relator's qui tam claims.  Section 3730(c)(2)(A) provides that the "Government may dismiss [a qui tam] action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion  and the court has provided the person with an opportunity for a hearing on the motion."  This provision has been cited as providing the Government with an "unfettered right to dismiss" qui tam cases. Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003)

In an important ruling  on April 20, 2012that favors relators, the D.C. Circuit ruled  in U.S. ex rel Schweizer v. OCE N.V., 2012 WL 1372219 (C.A.D.C.) and reversed the District Court, holding (1) that the Government does not have an unfettered right to dismiss a relator's qui tam where there is a settlement pending between the Government and the Defendant as the settlement requires the Court's approval to be finalized if a relator objects; (2) if the relator objects, the Government cannot settle a qui tam with a Defendant unless the Court first determines, in compliance with 31 U.S.C. 3730(c)(2)(B),  "after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances."  Additionally, the Court reversed the District Court's order granting summary judgment in favor of the Defendant on the relator's retaliation claim, holding that although the relator's job was to ensure compliance with government contracts, summary judgment was precluded because the relator acted outside her normal job activities and notified corporate personnel outside her usual chain of command of her protected conduct.

In this case, the relator was a "GSA contracts manager" who was hired to monitor the Defendant's supply contracts to provide copying and printing products to the Government.  These contracts provided that the Goverment was to enjoy the same discounted pricing as the Defendant offered to other private sector purchasers.  Additionally, the contracts required the Defendant to only sell goods made in the United States or in countries designated under the Trade Agreements Act.  The relator discovered that the Defendant was not providing the Government with the agreed discounts and that it was selling the Government products that were not made by countries with the scope of the Trade Agreements Act.  The relator took her concerns that the company was violating the False Claims Act to her immediate supervisor, and after he forbid her from investigating the matter and attempted to obstruct her, to other executives and company counsel.  The company discharged the relator not long after.  The relator sued the Defendant under the False Claims Act, conspiracy to violate the False Claims Act, and for retaliation under 31 U.S.C. 3730(h).

The Government did not intervene, but it eventually "settled" the relator's qui tam case with the Defendant for $ 1.2 million and to set aside 19% of the recovery for the two relators. In turn, the Government's settlement promised to dismiss the two False Claims Act counts and to provide the Defendant with a partial release of liability.  The Government then sought to dismiss the case, which the relator opposed, and for the reasons outlined in my February 27, 2012 blog post, the Court dismissed the case over the relator's objections, pursuant to Section 3730(c)(2)(A) and without a "fairness" hearing as required by Section 3730(c)(2)(B) of the False Claims Act.

In overturning the District Court, the D.C. Circuit observed:  "We reject the government's argument. Section 3730(c)(2)(B) contains no opt-out clause for rare cases or unusual circumstances. It does not permit the Attorney General to decide when there shall be a hearing on the settlement: the statute says that the government 'may' settle a matter over a relator's objection 'if the court" holds a hearing and finds the' proposed settlement" reasonable. The meaning is clear. The government may not settle a case when the relator objects unless the court approves the settlement."

A. Brian Albritton
April 23, 2012

Court Finds FCA Retaliation Claims Subject to Arbitration

A U.S. District Court in Texas recently held that a False Claims Act  ("FCA") retaliation claim brought pursuant to 31 U.S.C. 3730(h) by a sales representative against his employer was subject to the arbitration clause of his Employment Agreement and dismissed the sales representative's case in favor of arbitration.  James v. Conceptus, Inc., 2012 WL 845122 (March 12, 2012, S.D. Tex).

In that case, the plaintiff, a sales representative for a medical device firm alleged that his employer, Conceptus, Inc., retaliated against by discharging him when he questioned the legality of how a sales representative marketed his employer's medical devices and how physicians billed Medicaid for such devices.  The plaintiff brought a "whistleblower-retaliation action under the False Claims Act, 31 U.S.C. 3730(h), in the Southern District of Texas.  His employer moved to compel arbitration under the plaintiff's employment agreement and to dismiss the suit in favor of arbitration.  The employment agreement specified the application of California law as well as a California forum, and the Court spent much of its opinion evaluating whether California law permitted the arbitration of such claims, finding in the end that such claims may be subject to arbitration.

The Plaintiff also claimed that arbitration provision of his employment agreement did not apply to his FCA retaliation claim on the grounds that the Dodd-Frank Act made such arbitration clauses for whistleblower claims unenforceable.  The Court observed that the Dodd-Frank Act, 7 USC 26(n) and 18 USC 1514A(e) amended the "whistleblower provisions of the Commodity Exchange Act and the Sarbanes-Oxley Act to make unenforceable any predispute arbitration clause of disputes arsing under those whistleblower sections as well as the Dodd-Frank Act itself, 12 USC 5567(d).  The Court, however, found that Dodd-Frank did not apply to the False Claims Act and 31 USC 3730(h) contains no similar provision.  Beyond its discussion of California law, the Court did not cite any other federal law or cases in making its determination that that the antiretaliation provisions of the False Claims Act would be made subject to arbitration.

Section 26(n) of Title 7 also provides that the "rights and remedies provided for" under the Commodities and Exchange Act qui tam provisions may not be waived.  Section 1514A(e) of Title 18 provides for a similar provision as the Sarbanes-Oxley Act.

FCA Retaliation Case: First Circuit Adopts Burden Shifting Framework of McDonnell Douglas v. Greene

This week the First Circuit Court of Appeal addressed the issue of the nature and order of proof in a case involving the False Claims Act's anti-retaliation provision, 31 U.S.C. § 3730(h)(1).  That section provides:

Any employee . . . shall be entitled to all relief necessary to make [him] . . . whole, if that employee . . . is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against . . . because of lawful acts done by the employee . . . in furtherance of an action under this section.

In Harrington v. Aggregate Industries Northeast Region Inc., (1st Cir. 2/7/12), the First Circuit overturned a summary judgment granted into favor of an employer against a employee who had been a qui tam relator in a False Claims Act suit against a concrete supplier to the “Big Dig” in Boston.  Though the parties had signed a settlement, the employer dismissed the employee days afterward on the grounds that he refused to take a random drug trust. The employee claimed he was retaliated against given the suspicious timing of the drug test –days after the settlement—and that it did not appear “random” as the employee claimed he was singled out for the test.  Additionally, there appears to have been some question as to whether the employer had followed its own procedures in handling the sample.  In overturning the lower court’s summary judgment and finding that the matter should be subject to a jury trial, the First Circuit observed: 

this is a close case. When looking to the record as a whole, however, we deem summary judgment improvident. [Employer's] adamant insistence on subjecting the appellant to drug testing is pockmarked by irregularities. When this behavior is combined with the appellant's termination immediately following his signing of the settlement agreement, it creates a sufficient foundation for a reasonable inference that the appellant was terminated for retaliatory reasons.

The case is significant because it purports to be the first circuit court to adopt the McDonnell Douglas burden-shifting framework applied in discrimination cases where there is “no direct evidence of retaliation.”  McDonnell Douglas Corp. v. Greene, 411 U.S. 792, 802–05 (1973).  Observing that there “are no published decisions on this point at the federal appellate level,” the Court stated:

In a case such as this, the McDonnell Douglas framework provides a principled mode for analyzing retaliatory intent. . . . . We hold, therefore, that the FCA's anti-retaliation provision is amenable to the use of the McDonnell Douglas framework. . . . . Adapting McDonnell Douglas to the FCA's anti-retaliation provision, a plaintiff first must set forth a prima facie case of retaliation. Once this is accomplished, the burden then shifts to the defendant to articulate a legitimate, nonretaliatory reason for the adverse employment action. This imposes merely a burden of production, not one of proof. . . . . Thus, if the employer produces evidence of a legitimate nonretaliatory reason, the plaintiff must assume the further burden of showing that the proffered reason is a pretext calculated to mask retaliation. (citations omitted)

The Court noted that “[t]his burden-shifting framework is a useful screening device in the summary judgment milieu,” but once a plaintiff reaches the “third step” and shows some evidence of pretext to mask retaliation, then “courts typically put it aside.  “In such circumstances,” the Court explained, “an inquiring court looks to the record as a whole to determine whether there is sufficient evidence of  ‘pretext and retaliatory animus’ to make out a jury question. . . . . This means that to succeed here the appellant must have adduced sufficient evidence to create a genuine issue as to whether retaliation was the real motive underlying his dismissal.” (citations omitted).  As noted above, the Court overturned the lower court’s grant of summary judgment in favor of the employer, explaining:

In retaliation cases, the whole is sometimes greater than the sum of the parts. Here, for example, the bits and pieces of evidence recounted above, taken collectively, have significant probative value. After all, irregularities in an employer's dealings with an employee who has fallen out of favor can support a reasonable inference of pretext.

7th Circuit Ruling Permits Whistleblower to Bring Civil RICO Against Employer for Retaliation

Called a “landmark” ruling by Whistleblowers Protection Blog, a recent 7th Circuit case appears to have substantially expanded the rights of whistleblowers to sue their employers.  In DeGuelle v. Camilli, et al., (7th Cir. Dec. 15, 2011), the 7th Circuit held that a former employee could bring a Civil RICO action against his former employer and several of its managers who he alleged had engaged in tax fraud on behalf of the employer, S.C. Johnson & Son, Inc., for losses he had suffered as result of their alleged retaliatory conduct against him. To bring a Civil RICO claim pursuant to 18 U.S.C. § 1964(c), the plaintiff must suffer an injury in his “business or property” as a result of the “pattern of racketeering activity.”  The former employee, a whistleblower, alleged that he was injured in his business or property by the defendants “retaliatory actions,” in terminating him from his employment, being sued by his employer, and defamed in the media.  These retaliatory actions, he claimed, constituted a violation of the Sarbanes Oxley Act which made it a crime to intend to retaliate and “take any action harmful to any person” for “providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense.” 18 U.S.C. § 1513(e)(part of the statute prohibiting retaliation against witness, victim or informant).

The District Court had dismissed the former employee’s Civil RICO complaint on the grounds that the alleged retaliation against him an unrelated separate scheme from the tax fraud scheme which purportedly gave rise to the Civil RICO.  The District Court appeared to be following other courts who found that retaliation could not give rise to Civil RICO.  See, e.g., Hoatson v. N.Y. Archdiocese, No. 05 Civ. 10467, 2007 WL 431098, at *6 (S.D.N.Y. Feb. 8, 2007) (“Retaliatory firing is clearly not a listed predicate act or ‘racketeering activity.’ ”), aff’d, 280 F. App’x 88 (2d Cir. 2008); Herrick v. South Bay Labor Council, No. C-04-02673, 2004 WL 2645980, at *3 (N.D. Cal. Nov. 19, 2004) (whistleblower terminated in retaliation for reporting her concerns could not bring RICO claim because her injuries stemmed from wrongful discharge, not alleged racketeering activity).

The 7^th Circuit overturned the District Court, declaring “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower.”  The Court observed  that the predicate acts of the tax scheme were related to the retaliation scheme, and it noted one link between the two schemes in that the three of the managers who allegedly had sought to “corruptly persuade” the employee from disclosing the company’s alleged wrongdoing by offering “an increase in salary and payment of attorney’s fees if he agreed to sign an confidentiality agreement and release all claims” were the same “three actors responsible for [the employee’s] termination.”  A so called “second act of tampering” occurred when one of the managers offered the employee “the opportunity to resign with pay and benefits if he signed a confidentiality agreement and release of claims.”