3rd Cir. Clarifies FCA Retaliation Standard, Widens Door for Plaintiffs, Leaves Loose End
On November 30, 2022, the United States Court of Appeals for the Third Circuit revived a quality control manager’s FCA retaliation claim in United States ex rel. Ascolese v. Shoemaker Constr. Co., — F.4th —, 2022 WL 17335121 (3d Cir. 2022).
The Third Circuit’s precedential opinion addressed for the first time how Congress’s 2009 and 2010 amendments affect the False Claims Act’s retaliation standard.
“[T]o plead retaliation under the FCA, it is no longer solely required that an employer be on notice that a plaintiff is contemplating FCA litigation,” the opinion said. Plaintiffs may instead show that an employer had notice of the plaintiff’s efforts to stop FCA violations.
“Congress expanded the universe of protected conduct to whistleblowers who lawfully try to stop one or more violations of the Act, without regard to whether their conduct advances a qui tam suit under the Act,” the Third Circuit reasoned.
In other words, plaintiffs pursing an FCA retaliation claim under Section 3730(h)’s “other efforts” prong need not satisfy the “distinct possibility” standard—a standard stemming from the statute’s old text.
Before the 2009 and 2010 amendments, Section 3730(h) read:
Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiating of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.
31 U.S.C. § 3730(h) (2008).
Courts interpreted the original text as requiring plaintiffs to show that their employer had notice of the “distinct possibility” that the plaintiff was contemplating an FCA suit. Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 188 (3d Cir. 2001). These courts reasoned that “without knowledge an employee is contemplating a False Claims Act suit, ‘there would be no basis to conclude that the employer harbored [§ 3730(h)’s] prohibited motivation [i.e., retaliation].’” Id. (quoting Mann v. Olsten Certified Healthcare Corp., 49 F. Supp. 2d 1307, 1314 (M.D. Ala. 1999)).
But in 2009 and 2010, Congress added language to protect whistleblowers who try to stop violations of the statute before they occur:
Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent 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 this section or other efforts to stop 1 or more violations of this subchapter.
31 U.S.C. § 3730(h)(1) (emphasis added).
Congress added this second category of protected conduct to “protect not only steps taken in furtherance of a potential or actual qui tam action, but also steps taken to remedy the misconduct . . . whether or not such steps are clearly in furtherance of a potential or actual qui tam action.” 155 Cong. Rec. E1295- 03, E1300 (June 3, 2009) (statement of Rep. Berman). “To put it simply, the focus of the second prong is preventative—stopping ‘violations’—while the first prong is reactive to an (alleged) actual violation of the statute.” Singletary v. Howard Univ., 939 F.3d 287, 296 (D.C. Cir. 2019) (internal citations omitted).
Since 2009, most circuits have held that the “distinct possibility” standard does not apply to the “other efforts” category of protected conduct. These circuits have reasoned that the added text decouples protected activity from the requirement of future FCA litigation. Singletary, 939 F.3d at 296-97; United States ex rel. Grantv. United Airlines Inc., 912 F.3d 190, 201-02 (4th Cir. 2018); see also Hickman v. Spirit of Athens, Alabama, Inc., 985 F.3d 1284, 1288 (11th Cir. 2021); United States ex rel. Reed v. KeyPoint Gov’t Sols., 923 F.3d 729, 765 (10th Cir. 2019); United States ex rel. Chorches for Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 96 (2d Cir. 2017); but see United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 59 n.8 (1st Cir. 2017).
Before Ascolese, it was unclear if the Third Circuit agreed with the majority’s view that the “distinct possibility” standard does not apply to the “other efforts” prong.
Some confusion stemmed from the Third Circuit’s opinion in United States ex rel. Petras v. Simparel, Inc., which referred to the “distinct possibility” standard without distinguishing between Section 3730(h)’s two categories of protected conduct. 857 F.3d 497, 507 (3d Cir. 2017).
After Petras, the District Courts of the Third Circuit applied the “distinct possibility” standard in different ways. For example, some courts applied the “distinct possibility” standard indiscriminately to all FCA retaliation claims, without considering the protected conduct at issue. See, e.g., Ascolese v. Shoemaker Constr. Co., No. 18-cv-1864, 2021 WL 3015410, at *5 (E.D. Pa. June 7, 2021); Perri v. Novartis Pharms. Corp., No. 15-cv-6547 (KM), 2019 WL 6879534, at *2 (D.N.J. Oct. 18, 2019). Other courts were more nuanced, applying the “distinct possibility” standard to the “in furtherance” prong while applying a different standard—the “objectively reasonable” test—to the “other efforts” prong. See, e.g., Heckman v. UPMC Wellsboro, No. 20-cv-1680, 2021 WL 2826716, n.187 (M.D. Pa. July 7, 2021); Durando v. Trustees of Univ. of Pennsylvania, No. 21-cv-756, 2022 WL 2953686, at *8 (E.D. Pa. July 26, 2022).
The Third Circuit has now joined the majority of circuits in holding that plaintiffs who allege retaliation because of efforts to stop an FCA violation need not satisfy the “distinct possibility” standard.
But one loose end remains. The Third Circuit has yet to endorse or reject the so-called “objectively reasonable” test in an FCA case. Cf. Wiest v. Lynch, 710 F.3d 121, 132 (3d Cir. 2013) (applying an objectively reasonable standard to a retaliation claim under the Sarbanes–Oxley Act). Under the test, plaintiffs who rely on Section 3730(h)’s “other efforts” prong must show that their actions were “motivated by an objectively reasonable belief that the employer [was] violating, or soon [would] violate, the FCA.” United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190, 201 (4th Cir. 2018).