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Third Circuit Clarifies FCA Retaliation Standard Under Amended Anti-Retaliation Provision

The False Claims Act (the “FCA” or “Act”) prohibits the knowing presentation of a “false or fraudulent claim for payment or approval” to the federal government.  31 U.S.C. 3729(a)(1)(A).  To assist the government in recovering losses from false claims, a person can bring a qui tam action on the government’s behalf, in exchange for a percentage of the losses recovered.  Thus, it makes sense that the Act includes a provision designed to shield whistleblowers from retaliation “because of” conduct protected by the FCA.  Under the FCA’s anti-retaliation provision, as amended, “[a]ny employee, contractor, or agent shall be entitled to relief necessary to make that [person] whole, if [she] is 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 employee, contractor, agent or associated others in furtherance of an action under th[e] [Act] or other efforts to stop 1 or more violations of th[e] [Act].”  31 U.S.C. 3730(h)(1) (emphasis added).  In light of this language, must a plaintiff allege that she put her employer on notice of the distinct possibility of an FCA action?  Or does the statute also authorize a retaliation claim under circumstances where an employee takes action to prevent FCA violations?  In United States ex rel. Ascolese v. Shoemaker Construction Company, No. 21-2899, slip op. (3d Cir. Nov. 30, 2022), the United States Court of Appeals for the Third Circuit clarified the FCA retaliation standard and answered those questions.

The whistleblower in that case, Don Ascolese, worked as a Quality Assurance / Quality Control Manager for a subcontractor, on a Philadelphia Housing Authority (“PHA”) project. Ascolese, slip op. at 6­. The PHA project, for public housing, was funded by a $30M federal government grant.  Id.  Ascolese allegedly sent repeated e-mails to his employer and the primary construction managers about his concerns relating to compliance with contractual standards.  Id.  In one e-mail, Ascolese “advised . . . that because of dozens of project deficiencies . . . it would be wrongful and fraudulent . . . for [the companies] to be paid government funds and that certifications of their contract compliance to obtain payments would necessarily be false and fraudulent.”  Id. at 6-7.  As well, Ascolese supposedly broke his chain of command, expressly informing PHA about the noted construction deficiencies.  Id. at 7.  When his employer and the primary construction managers caught wind of Ascolese’s action in informing PHA, he was pulled from the field and told to keep quiet about his concerns. Id. Undeterred, Ascolese allegedly “continued to question the safety of the project and note[d] deficiencies.”  Id. After uploading more than 1,000 photographs of the deficiencies into an exchange platform, Ascolese’s employer fired him.  Id.

In the district court, Ascolese filed a qui tam action under the FCA.  Ascolese, slip op. at 8. In addition to alleging FCA violations, Ascolese claimed that his employer “illegally retaliated against him for trying to stop” the FCA violations.  Id. The district court granted the defendants’ motion to dismiss without prejudice.  The district court further denied Ascolese’s motion to file an amended complaint, in which Ascolese proposed to add allegations focusing on his concerns and warnings of fraud against the government.  According to the district court, Ascolese did not sufficiently allege that his employer was on notice that he would file an FCA action or report fraud to the government, or that he acted to stop one or more of his employer’s alleged FCA violations.  Id. at 8-9.

On appeal, the Third Circuit vacated and remanded.  In the course of doing so, the court clarified that the current language of the anti-retaliation provision does not require plaintiffs to allege or prove that their employer had notice of the distinct possibility of an FCA lawsuit.  Ascolese, slip op. at 5.  Rather, consistent with the above-emphasized statutory language and legislative history, the anti-retaliation provision, as amended, protects “lawful” acts “in furtherance of” either “an action” under the FCA (reactive) or “other efforts to stop” FCA violations (preventative).  Id. at 5, 11-12.  Thus, whistleblowers have expanded protection under the FCA in comparison to what they had under prior versions of the same anti-retaliation provision.  An FCA action no longer needs to be contemplated to establish a retaliation claim.  Conversely, employers may be exposed to expanded liability by employees against whom action was taken in connection with their efforts to try preventing or calling out fraud that could constitute FCA violations.

December 23, 2022

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