In Carlson v. DynCorp, the United States Court of Appeals for the Fourth Circuit addressed 2009 and 2010 amendments to the False Claims Act (“FCA”) that broadened the scope of its anti-retaliation protection for whistleblowing employees. As discussed more fully below, according to the Fourth Circuit, a whistleblowing employee can sue if his or her employer retaliates against him or her for making efforts to stop FCA violations, even if an FCA action against the employer was not a distinct possibility. Notwithstanding this broader protection, however, the court affirmed the dismissal of the Carlson case because the whistleblowing plaintiff did not have a reasonable belief that his employer’s actions violated the FCA.
The FCA shields employees who engage in “protected activity” from retaliation by their employers. Prior to 2009, the FCA defined “protected activity” solely as employee conduct ‘in furtherance of an action under this section, including investigation for, initiation of, testimony for or assistance in an action filed or to be filed under this section.’” In interpreting the pre-2009 version of the law, the Fourth Circuit (among others) adopted a “distinct possibility” standard – i.e., an employee engaged in protected activity when litigation under the FCA was a “distinct possibility.” In 2009 and 2010, the FCA was amended to also protect employees who lawfully act in furtherance of an action under the FCA or engage in “other efforts to stop 1 or more violations” of the FAC. 31 U.S.C. § 3730(h)(1).
Congress clearly intended the 2009 and 2010 amendments to the FCA to broaden the scope of what constitutes “protected activity” by employees, but the meaning of “other efforts” to stop violations is not entirely clear. Even if an employee engages in “other efforts” to stop a violation, was he or she only protected against retaliation if an FCA action was a “distinct possibility”?
The Carlson case put that issue front and center. Plaintiff Scott Carlson, an ex-employee of defendant company DynCorp International, claimed that DynCorp engaged in irregular accounting practices in an attempt to obtain at least one government contract. According to Carlson, DynCorp’s practice of “under billing” amounted to violations of Cost Accounting Standards (“CAS”) and Financial Acquisition Regulations (“FAR”)—when DynCorp allegedly used these accounting methods to underpin its bid for a contract with USAID and then terminated his employment, Carlson claimed that DynCorp had retaliated against him for raising concerns about the accounting methods in violation of the FCA. But the District Court dismissed Carlson’s claim, relying on the “distinct possibility” standard to hold that Carlson had not engaged in protected activity.
Carlson appealed to the Fourth Circuit, arguing that the 2009 and 2010 amendments had the effect of creating two separate prongs to the anti-retaliation provision of the FCA: the first prong covers acts in furtherance of an action under the FCA, and the second prong covers “other efforts” to stop an FCA violation. Carlson further argued that the “distinct possibility” test only applied to the first prong, and that the second “other efforts” prong necessarily broadened the protection of the FCA.
The Fourth Circuit agreed with Carlson and held that the “distinct possibility” standard cannot apply to the “other efforts” prong. The Court reasoned that “[i]t would be nonsensical to say that these efforts only become protected activity if a lawsuit under the FCA becomes a distinct possibility—the second prong is explicitly untethered from any such action” and that applying this standard to the second prong would render the latter a “nullity.” Rather, the second prong protects activity where those “other efforts” are motivated by an objectively reasonable belief that the employee’s employer is violating, or soon will violate, the FCA.
Even though the Fourth Circuit agreed with Carlson’s interpretation of the law, however, the Court held that the District Court had correctly dismissed Carlson’s case. The Court reasoned that Carlson did not show that his belief that DynCorp was violating the FCA was “objectively reasonable.” In particular, Carlson did not point to any FCA provision or case that would make “under-billing” an FCA violation, even if the accounting methods used did not comport with FAR and CAS. Further, Carlson did not sufficiently plead that this activity was fraudulent, because his theory that the “hidden” costs would be passed on to the government was just speculation. Because Carlson had not even raised a plausible case that what he observed was part of a possible FCA violation, his belief that DynCorp was violating the FCA was unreasonable.
The Fourth Circuit’s decision is here.
