Retaliatory Discrimination Actions Under the Whistleblower Protection Provision of the Federal False Claims Act, 31 U.S.C. § 3730(H)

TABLE OF CONTENTS

INTRODUCTION

A provision of federal law often overlooked by employment lawyers recently has achieved an important status in litigation between discharged employees and their former employers. This development stems from the fact that the federal civil False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33, now serves as the government's primary enforcement device for attacking fraud in government-funded programs.

One provision of the FCA has become particularly pertinent for employment lawyers, the so called "whistleblower" or qui tam provision of the FCA, 31 U.S.C. 3730(b)-(g). This section allows individuals (designated as "relators') to initiate suit in the name of the United States against individuals and organizations which they believe have defrauded federal government programs. Significant financial rewards can accrue to relators where the allegations are resolved by settlement or litigation.

As a result, qui tam lawsuits have exploded in numbers. In addition to the significant penalties and multiple damages that may result from the underlying allegations of fraud, it is important from the employment law perspective to recognize that the FCA seeks to protect whistleblowers from retaliation by their employers.

Section 3730(h) reads in pertinent part: 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 a [qui tam action], including investigation for, initiation of, testimony for, or assistance in a [qui tam] action filed or to be filed . . . , shall be entitled to all relief necessary to make the employee whole.

Such relief shall include reinstatement ... 2 times the amount of back pay, interest ... compensation for any special damages ... including litigation costs and reasonable attorneys' fees ... An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection. [Emphasis added.]

Since this provision was inserted into the FCA in 1986, well over 100 reported actions have been litigated involving Section 3730(h). As a consequence, when faced with a suspected qui tam situation, counsel must give separate consideration to the client's potential liability under Section 3730(h) as well as developing a defense to the parent FCA action.

This brief paper cannot discuss every important case, or address every dimension of the case law, interpreting and applying Section 3730(h).

Rather, its modest objective is to provide a brief, but relatively comprehensive, introduction to Section 3730(h), and to highlight some important issues that should be considered if a Section 3730(h) situation is encountered. In addition, the footnotes and citations to authority are designed to facilitate research into Section 3730(h) issues by identifying some of the leading cases and important secondary literature that discuss the topic.

A. THE ELEMENTS OF A 3730(H) ACTION

A successful plaintiff under Section 3730(h) must satisfy three elements. First, plaintiff must have been engaged in a protected activity. Next, the employer must have had knowledge of the employee's activity and had either explicit or implicit notice that the activity could result in a FCA complaint being filed.

Finally, the employee must establish that the discrimination that he or she suffered was caused as a result of the protected activity; i.e., the employer action was at least, in part, motivated by the employee engaging in protected activity. Examining each of these three elements is a helpful way initially to approach the provision.

1. Was the Plaintiff Engaged in Protected Activity?

The threshold requirement that any action under Section 3730(h) must satisfy is to demonstrate that the plaintiff's activity was "in furtherance of an action" under Section 3730. Several points need to be noted in this connection. The employee does not need to be familiar with the FCA or even know about the FCA and its provisions; it is enough that the investigation involves matters which are, "or reasonably could be calculated to be," viable actions under the FCA. United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir. 1996), cert. denied, 519 U.S. 1115 (1997); Eberhardt, 167 F.3d at 867.

Usually if FCA litigation was a "distinct possibility" when the plaintiff acted, most courts will consider this element to have been satisfied. Mann, 49 F. Supp. 2d at 1313-14. See also, Robinson v. Jewish Center Towers, Inc., 993 F. Supp. 1475, 1477-78 (M.D. Fla. 1999); Adler v. Continental Insurance. Co., No. 95-2282- EEO, 1996 U.S. Dist. LEXIS 17500 at *12-13 (D. Kan. Nov. 1, 1996), aff'd, 1998 U.S. App. LEXIS 503 (10th Cir. 1998). As long as the activities were directed at exposing fraud against the government, that is usually sufficient. Luckey, 2 F. Supp.2d at1050-52. This element is judged based upon the information known to the plaintiff while engaged in his activities. "Thus, the fact that later investigations may have revealed the absence of any fraud is of no import in this Court's analysis of the reasonableness of [plaintiff's] actions." Field v. F & B Mfg. Co., No. 94 C 5379, 1996 U.S. Dist. LEXIS 6014 (N. D. Ill. May 6, 1996). The employee does not have to file an actual action to be protected. Childree, 92 F.3d at 1146. The protection still becomes operative if the government alone files an action or no action at all is ever filed. Adler, 1996 U.S. Dist. LEXIS 17500 at *10-11.

Rather, the protection exists while the employee is engaged in gathering information about a possible FCA violation and putting the pieces of the puzzle together. Neal v. Honeywell, Inc., 33 F.3d 860, 864 (7th Cir. 1994).8 One indication of protected activity where no FCA action is filed is if the plaintiff has confronted the employer with her concerns as to possible fraudulent activity. Mikes, 889 F. Supp. at 752-53. The employee is not required to have gathered all of the evidence by the point in time when the retaliation occurs. Yeshudin, 153 F.3d at 739-40. Some courts, nonetheless, do require that the plaintiff take some affirmative action to expose the alleged fraud. Hardin v. Scandinavia (ARA-Jet), 731 F. Supp. 1202, 1205 (S.D.N.Y. 1990); Childree, 892 F. Supp. at 1564.

There are significant hurdles that must be cleared to satisfy this first requirement. For example, what is being investigated must constitute a violation of the FCA. Hammack v. Automated Information Management, Inc., 981 F. Supp. 993, 995-96 (N.D. Tex. 1997). That is, the asserted protected activity must have some "nexus" to a viable action under the FCA to qualify. Childree, 892 F. Supp. at 1565-66. For example, mere violation of administrative regulations, standing alone, without any certification of compliance, does not state a viable FCA cause of action. United States ex rel. Mikes v. Straus, No. 92 Civ. 2754 (CM), 1999 U.S. Dist. LEXIS 18261 at *13-29 (S.D.N.Y. Nov. 18, 1999). See also Chua v. St. Paul Federal Bank, No. 95 C 2463, 1996 U.S. Dist. LEXIS 7874 at *22-27 (N.D. Ill. June 6, 1995) (preventing bank from violating Federal Reserve contract does not equate to protected activity).

Alleged violations of the Internal Revenue Code, likewise, will not suffice since such actions are excluded from the FCA in Section 3729(e). United States ex rel. Hancock v. Regan, No. 98- 2754, 1999 U.S. App. LEXIS 18346 at *2-3 (7th Cir. July 20, 1999); Almeida v. United Steelworkers, 50 F. Supp.2d 115, 126-27 (D.R.I. 1999).9 Moreover, in order to assert a cause of action, the plaintiff must be (or have been) an "employee."

The FCA, however, nowhere defines that term. When confronted with the issue of how to determine if the plaintiff is an employee, courts have applied common-law agency doctrine as articulated in Nationwide Ins. Co. v. Darden, 503 U.S. 318, 323-24 (1992) (quoting Community for Creative Non- Violence v. Reid, 490 U.S. 730, 751-52 (1989): In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished.

Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the third party's discretion over when and how long to work; the method of payment; the third party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the third party. See also Mruz v. Caring, Inc., 991 F. Supp. 701, 709 (D.N.J. 1998).

Put differently, the defendant must have been the employer-this excludes supervisors or other "de facto" employers from the scope of the section. United States ex rel. Lamar v. Burke, 894 F. Supp. 1345 (E.D. Mo. 1995); Palladino v. VNA of Southern New Jersey, No. 96- 2252(JBS), 1999 U.S. Dist. LEXIS 15462 at *23-26 (D.N.J. June 30, 1999); Mruz; United States ex rel. Chandler v. Hektoen- Institute for Medical Research, 35 F. Supp. 2d 1078, 1086 (N.D. Ill. 1999). Neither being a subcontractor nor an independent contractor qualifies one to become a plaintiff under the section. Vessell v. DPS Associates of Charleston, Inc., 148 F.3d 407, 411-13 (4th Cir. 1998). Nor can the section be utilized to bring an action against a partner. Hardin v. Dupont Scandinavia, 731 F. Supp. 1202, 1205 (S.D.N. Y. 1990). Public entities, such as school district, may be sued under the section, but not their officers or other employees. Clemes v. Del Norte County, No. C-93- 1912 MHP, 1996 U.S. Dist. LEXIS 21883 at *22, n. 6 (N.D. Cal. May 28, 1996). One Court of Appeals decision suggests that, in any regard, government officials could raise qualified immunity defenses, such as the discretionary function exception. Kaminski v. Teledyne Industries, No. 96-3620, 1997 U.S. App. LEXIS 19192 at *16- 18 (6th Cir. July 21, 1997).

The cause of action under the section lies only against the employer even if there are additional FCA defendants. Riley v. St. Luke's Episcopal Hospital, 196 F.3d 514, 541 (5th Cir. 1999) (concurring opinion). The purported protected activities must not have been undertaken for the sole purpose of fulfilling employment obligations. United States ex rel. Dihu v. IIT Research Institute, No. 97 C 5695, 1998 U.S. Dist. LEXIS 8360 at *17-18 (N.D. Ill. May 20, 1998). However, some courts have held that even if the employee's responsibilities include overseeing compliance with federal laws and regulations, the section is nonetheless satisfied if the employee states her suspicion about possible fraud to her superiors. United States ex rel. Young v. Gateway 2000, Inc., No. 87- 2150-LFO, 1999 U.S. Dist. LEXIS 11637 at *13-14 (D.D.C. June 18, 1999).

Other courts have taken a more stringent position, holding that even if the plaintiff mentioned the possibility of FCA and qui tam lawsuits, when trying to encourage compliance, this still does not qualify as protected activity. X Corp. v. Doe, 816 F. Supp. 1086, 1096 (E.D. Va. 1993). But a Section 3730(h) claim can withstand a motion to dismiss even if the "protected activities are also within the scope of the employee's job duties." Wilkins ex rel. United States v. State of Ohio, 885 F. Supp. 1055, 1066-67 (S.D. Ohio 1995). It is important to recognize, however, as well, that any employees who "assist" the plaintiff with protected activity themselves are encompassed within the provision. United States ex rel. Kent v. Aiello, 836 F. Supp. 720, 723-24 (E.D. Cal. 1993), aff'd, 1996 U.S. App. LEXIS 13106 (9th Cir. 1996); Hopkins v. Actions, Inc., 985 F. Supp. 706, 709 (S.D.Tex. 1997).

2. Was The Employer Aware of the Protected Activity?

Once protected activity is established, the plaintiff must demonstrate that the employer had either explicit or implicit notice of his activities. This is because, in the language of one court, the employer must have "retaliatory intent." Anton, 91 F.3d at 1269. The employer must not only know about the employee's activity, but must recognize that it is protected activity. The difficult issue in this connection is what constitutes sufficient implicit notice to the employer. Much of the litigation has focused on this issue.

Implicit notice can arise from employee remarks about the FCA or suggestions that he is assisting the government in uncovering fraud. United States ex rel. McKenzie v. Bellsouth Tel., 123 F.3d 935 (11th Cir. 1996), cert. denied, 522 U.S. 1077 (1998). Mere suggestion for improvement in procedures, however, is not sufficient. Luckey and United States ex rel. Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 733 (7th Cir. 1999), cert. denied, 120 S. Ct. 562 (1999). If the employee's job responsibilities include advising the employer as to possible liability, doing so may not be sufficient to provide notice. United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1523 (10th Cir. 1996); Robertson v. Bell Helicopter Textron, Inc., 32 F.3d at 951-52; Zahodnick v. IBM, 135 F.3d 911, 914 (4th Cir. 1997); Moor- Jankowski v. New York University, No. 96 Civ. 5997 (JFK), 1998 U.S. Dist. LEXIS 12305 at *36-39 (S.D.N.Y. August 10, 1998).

By contrast, other courts taken a much more flexible position. For example, under one approach, the plaintiff need not have made a declaration to the employer that he suspected illegal activity and might file a qui tam action. Mikes v. Strauss, 889 F. Supp. 746, 753-752-54 (S.D.N.Y. 1995); Rehman v. ECC International Corp., No. 90-425-Civ-Ori-22, 1993 U.S. Dist. LEXIS 20765 at *6-7 (M.D. Fla. March 4, 1993) (protection extends "regardless of the informality or nascent status of the proceeding").

Rather, since most of these cases turn on motions to dismiss or for summary judgment, the issue is whether a "reasonable jury" could determine in each particular factual setting whether the defendant had "reason to believe that plaintiff was investigating their alleged fraudulent ... practices in contemplation of a possible qui tam action." Mikes v. Straus, 889 F. Supp. at 753. See also Young, 1999 U.S. Dist. LEXIS 11637 at *14-15; Robinson, 993 F. Supp. at 1478. The critical thing is whether the employer realizes that the employee's activity could lead to a FCA claim. Eberhardt, 167 F.3d at 869. The employee does not have to state explicitly that she plans to file an action. Yesudian at 742-43.

In short, if the employee in his interactions with management is talking about fraud, or even "illegalities," that probably is sufficient to put the employer on notice and satisfy this component. Id.; see also United States ex rel. Dorsey v. Dr. Warren E. Smith Commuinity Mental Health/Mental Retardation and Substance Abuse Centers, No. 95-7446, 1997 U.S. Dist. LEXIS 9424 at *21-22 (E.D. Pa. June 25, 1997); Salcido at 275, n. 35.

3. Was the Discrimination Due to the Protected Activity?

In order to complete the cause of action, the employee must establish that there is a "causal connection": i.e. the employer's allegedly retaliatory action was, at least in part, motivated by employee having engaged in protected activity. Young, 1999 U.S. Dist. LEXIS 11636 at *12-13. Failure to establish this "causal relationship" is "fatal" to the cause of action. X Corp. v. Doe, 816 F. Supp. at 1096.

It is important to remember that Section 3730(h) is not limited merely to retaliatory discharge, but applies where the employee is "discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment." One pro-relator commentator has suggested that the provision encompasses "constructive discharge" as well. See Helmer at 427.

While the plaintiff is only required to prove this casual link between protected activity and the adverse action by a preponderance, such evidence can be either direct or indirect-inferential. Once this requisite has been satisfied, the burden shifts to the defendant employer to prove that the same decision would have been made even if the employee had not engaged in the protected activity. Mikes v Strauss, 889 F. Supp. at 754; Mann v. Olsten Certified Healthcare Corp., 49 F. Supp.2d at 1316.

At this point, the burden shifts once again to employee to prove by preponderance that employer's justification is merely a pretext (e.g., in order to survive summary judgment). Obviously, this part of the process is heavily factdependent.

B. PROCEDURAL ISSUES

1. Statute of Limitations Considerations

Section 3730(h) contains no separate provision governing the statute of limitations. There is a definite split on this issue.

One position maintains that the state statute of limitations on similar actions controls actions pursued under Section 3730(h). United States ex rel. Lujan v. Hughes Aircraft Co., 162 F.3d 1027, 1034-35 (9th Cir. 1998). See also United States ex rel. Truong v. Northrop Corp., No. CV88-967 MRP (C.D. Cal. Nov. 26, 1991); Boese at 4-193-196; Salcido at 278-79. The opposing and probably more correct viewpoint is that the six-year statute of limitations provision governing Section 3730 qui tam actions, as specified in 31 U.S.C. § 3731(b), controls. Neal v. Honeywell, 191 F.3d 827, 829- 30 (7th Cir. 1999); Grand ex rel. United States v. Northrop Corp., 811 F. Supp. 333, 336-37 (S.D. Ohio 1992). See also Helmer at 436-37.

It is important, however, to bear in mind that some courts-quite correctly-have held that the second prong of the FCA statute of limitations provision, three years from discovery, is not applicable in qui tam actions. United States ex rel. Amin v. George Washington University, 26 F. Supp.2d 162, 170-72 (D.D.C. 1998).

2. Rule 9(b) is Applicable

The only case that has considered this issue held that the specific pleading requirement of Rule 9(b), Federal Rules of Civil Procedure, is applicable in Section 3730(h) actions. Born v. Iannacone, No. 97-5607, 1999 U.S. Dist. LEXIS 8245 at *7-8 (E.D. Pa. 1999, June 3, 1999).

It appears, however, that only those elements of the complaint relating to the underlying fraud itself are subject to the particularity requirements of Rule 9(b).

3. Only the Employee Can Release a § 3730(h) Claim, not the Government

It is well established that the Section 3730(h) cause of action belongs to the employee and it is within his exclusive discretion whether to initiate or settle an action. A release of FCA liability by the government does not release any retaliatory claims employees may have. United States ex rel. Smith v. First American Health Care of Georgia, Inc., No. I:97-CV-780, 1999 U.S. Dist. LEXIS 6181 at *19, n. 4 (W.D. Mich. April 26, 1999). Nor can the government utilize its authority under Section 3730(b)10 to block a proposed settlement of a Section 3730(h) action. This is because it is "a private right of action." United States ex rel Summit v. Baker Corp., 40 F. Supp. 2d 772, 775-76 (E.D. Va. 1999). As such, the 3730(h) plaintiff does not require government approval to settle as long as the agreement and release relate exclusively to that cause of action. However, a Section 3730(h) settlement cannot be used as an artifice to deprive the government of its statutory share of any FCA recovery. Id.

4. Dismissal of the Qui Tam Complaint does not Terminate a Section 3730 (h) Action

An action under the statute lies even if no FCA complaint is ever filed by the plaintiff or the government. If a FCA action is filed, and dismissed or terminated by summary judgment, an action under Section 3730(h) can still be pursued. This is so even if the underlying qui tam action is dismissed, for example, because the relator is not an original source as specified in Section 3730(e)(4). McKenzie, 123 F.3d at 933-34; Ramseyer, 90 F.3d at 1522; Wilkins, 885 F. Supp. at 1066.

5. Res Judicata Issues

The timing of filing the Section 3730(h) action can be highly significant. Several courts have held that unless the retaliation claim is filed as part of the original qui tam complaint, it will be foreclosed later by virtue of the res judicata doctrine. The argument underlying this approach is that the goals of avoiding piecemeal litigation and maximizing judicial economy mandate that all claims arising out of a common nucleus of operative fact should be tried together. Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235 (11th Cir. 1999). Similarly, if the plaintiff has already asserted his claim in a state wrongful discharge action, he is foreclosed from later filing a Section 3730(h) action asserting the same allegations. United States ex rel. Chen v. Zygo Corp., No. 3:95-879(DJS), 1997 U.S. Dist. LEXIS 19708 at *19-20 (D. Conn. March 27, 1997); United States ex rel. Hindo v. University of Chicago Medical School, No. 91 C 1432, 1993 U.S. Dist. LEXIS 17306 (N.D. Ill. Dec. 8, 1993), aff'd, 65 F.3d 608 (7th Cir. 1995), cert. denied , 516 U.S. 1114 (1996).

6. The Parameters of Damages

Although few in number, some very helpful decisions have been handed down interpreting the damages provisions of Section 3730(h). See particularly in this regard, United States ex rel. Falus v. Interamerican College of Physicians and Surgeons, No. 97 Civ. 1371 (RMB)(THK), 1999 U.S. Dist. LEXIS 15746, (S.D.N.Y. Oct. 12, 1999); Neal v. Honeywell, Inc., 995 F. Supp. 889 (N.D. Ill. 1998), aff'd, 191 F.3d 827 (7th Cir. 1999); Hammond v. Northland Counseling Center, Inc., Civ. No. 5-96-353, 1998 U.S. Dist. LEXIS 9133 (D. Minn. Feb. 27, 1998); Godwin v. Visiting Nurse Ass'n, 831 F. Supp. 449, 454 (E.D. Pa. 1993), aff'd, 39 F.3d 1173 (3d Cir. 1994). See also Salcido at 276-78; Boese at 4-211-15. The statute does not incorporate the ability to recover for punitive damages. Rather, the provision for double back pay and interest on back pay are designed to make a plaintiff whole. Compounded interest is to be calculated before the back pay award is doubled. The principle of mitigation of damages is fully applicable. The category of "special damages" is somewhat less clear. It does encompass emotional distress. It may include such items as reimbursement to the the plaintiff for expenses resulting from his whistleblowing activities, such as moving expenses. Special damages are not, however, doubled. Plaintiff is also entitled to compensation for "litigation costs and reasonable attorneys' fees." In the only opinion to examine this provision in depth, the Seventh Circuit construed it to entitle the plaintiff to more than the actual amount she was required to pay her lawyers (designated as "the actual cost method'). Rather, the court applied what it termed the "lodestar method": "the number of hours of legal services reasonably applied to the client's case, times the market rate for each hour." The plaintiff is also entitled to "litigation costs," which the court defined as "ordinary costs" as spelled out in 28 U.S.C. § 1920. Neal, 191 F.3d at 832-34.

7. Federal Employees Cannot Institute § 3730(h) Actions

Federal employees cannot initiate Section 3730(h) actions against the federal government. The Civil Service Reform Act of 1978, Pub. L. 95-454, 92 Stat. 1111 et seq. (provisions codified throughout Title 5 of the U.S. Code) establishes the exclusive method for federal employees to institute employment claims against the government. In addition, there is no waiver of sovereign immunity contained in Section 3730(h), which further forecloses such actions by federal employees. Daly v. Department of Energy, 741 F. Supp. 202 (D. Colo. 1990). Nor does jurisdiction lie in the Court of Federal Claims for a Section 3730(h) action, since the language of the provision itself only makes reference to United States District Courts. Therefore, no presumption of waiver of sovereign immunity can apply. LeBlanc v. United States, 50 F.3d 1025, 1030 (Fed. Cir. 1995).

8. Plaintiffs May Not Use Section 3730(h) to Sue a State

Section 3730(h) does not allow a plaintiff to make an end run around the 11th Amendment ban on suing states in federal court. The Fifth Circuit explicitly has rejected the contention that the Amendment is not applicable because the United States, and not the plaintiff, is the real party in interest. United States ex rel. Foulds v. Texas Tech University, 171 F.3d 279, 294 (5th Cir. 1999); see also Miller v. Bunce, 60 F. Supp. 2d 620 (S.D. Tex. 1999); United States ex rel. Moore v. University of Michigan, 860 F. Supp. 400 (E.D. Mich. 1994); Wilkins, 885 F. Supp. at 1066-67; Boese at 2-193-195.

9. The Standard of Proof

The standard of proof a plaintiff must satisfy under Section 3730(h) is the normal civil one of preponderance of the evidence. McKenzie, 123 F.3d at 944; Robertson, 32 F.3d at 951.

10. The FCA Preempts State Wrongful Discharge Actions

In Hoefer v. Fluor Daniel, Inc., 50 F. Supp. 2d 975 (C.D. Cal. 1999), the district court announced two holdings relating to the effect of state law provisions which could be utilized to protect federal whistleblowers. First, the district court held that California's state whistleblower protection act, which is a provision of the state's False Claims Act, Cal. Govt. Code § 12653, could not be invoked to protect a federal whistleblower. That provision, it was held, only applies to state whistleblowers acting under provisions of the state act.

Second, and of more interest, the court also held that any state tort action for wrongful discharge by a whistleblower was pre-empted by Section 3730(h). Noted the district court: The False Claims Act created a comprehensive scheme designed to protect federal whistleblowers while discouraging frivolous suits by limited available remedies. See 31 U.S.C. 3730(h). California's wrongful discharge tort is inconsistent with this latter objective because it allows recovery of punitive damages. Id. at 979. To buttress its analysis, the court referred to other situations where federal statutes referenced in Section 3730(h)'s legislative history have been held to preempt state tort remedies for wrongful discharge.

For contrasting viewpoints on this issue, see Helmer at 432-433 and Boese at 4-207-11.

11. Section 3730(h) Actions are Not Covered by Section 3730(b)(2)

Actions under Section 3730(h) are not subject to the filing and service procedural requirements specified in Section 3730(b)(2). United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 1000 (9th Cir. 1995). Therefore, unlike that portion of the FCA complaint which asserts the underlying allegations of fraud, a count predicated upon Section 3730(h) cannot be dismissed for failing to comply with this provision. Id.

12. Section 11 U.S.C. 502(b)(7)'s Limitation on Claims Under Employment Contracts in Bankruptcy Proceedings Does not Supersede Section 3730(h)

One case has addressed this issue. In re Visiting Nurses Association, 176 B.R. 748 (E.D. Pa. 1995). That Court held that it would be inconsistent with legislative intent to allow Section 502(b)(7) to foreclose claims for damages secured through actions under Section 3730(h) that exceed the bankruptcy code's one-year provision.

13. The Availability of Injunctive Relief

A pro-relator commentator has argued that injunctive relief exists under Section 3730(h) to protect relators who have initiated action under the FCA. However, only one court is identified by the commentator as having, thus far, employed preliminary injunctive relief in this situation: Garibaldi v. Orleans Parish School Board, No. 96-0464 SECTION "K," 1998 U.S. Dist. LEXIS 3344 (E.D. La. March 12, 1998). For a discussion of this contention, see Helmer at 434-35.

14. What if the Qui Tam Provision is Declared Unconstitutional?

Given that the constitutionality of the qui tam provision, 31 U.S.C. § 3730(b)-(g), currently is before the Supreme Court,13 an important issue to consider is whether Section 3730(h) actions would survive should the Court declare a portion of Section 3730 unconstitutional. It is important to bear in mind that even if the Court were to hold the qui tam provision in violation of the Constitution, this holding most likely would only apply to cases in which the United States had declined to participate pursuant to Section 3730(b)(4)(B). Consequently, in cases where the United States chose to participate, there would be no constitutional infirmity, and Section 3730(h) would still be applicable. This would most likely be the tack the Court would employ, since the central arguments against the constitutionality of the provision relate to the absence of DOJ control over relators pursuing actions on their own. Under this approach, a Section 3730(h) action could not emerge out of protected activity unless the United States took over the case, unless it was held that a "distinct possibility" the government might ultimately institute an action in response to the relator's complaint would be sufficient.

Since in most cases this determination would not be known until somewhat after the period of purported "protected activity," to be prudent, employers would have to act in such a way as to foreclose such an action even though in the long run the threat might evaporate with the government's declination. In any regard, it is a virtual certainty, should the Court so rule, the relators' bar would assert that whistleblowers would maintain the present full range of protection, arguing that because potential Section 3730 (h) plaintiff's would not know at the point of their investigations if the government ultimately would assume control of any ultimate case, the policy of the section would be frustrated if it did not apply to any investigations of purported fraud. Consequently, it seems likely that little practical change would result should the Court declare some provisions of Section 3730 unconstitutional.

C. SOME STRATEGIC CONSIDERATIONS

Given the rather broad interpretation that most courts have accorded Section 3730 (h), coupled with the substantial damages that can be awarded under the provision, employment lawyers whose clients are confronted with a possible whistleblower situation must proceed carefully and in a fully informed fashion. Surprisingly, despite the large number of cases in which the provision has been applied, it is generally not particularly familiar to either lawyers whose practices involve defending against qui tam and government FCA actions, or their colleagues who concentrate upon employment law practices.

Lack of attention to this section, and the unpleasant consequences that can stem from acting in contravention of its provisions, can prove potentially disastrous to clients. Several guidelines should be followed to avert this disagreeable situation. First, employment law practitioners should make sure that their partners and associates who represent and counsel clients who may be the subject of whistleblower actions under the FCA are aware of this statute and its general provisions. Many counsel who specialize in this area and defend against FCA actions, whether initiated by the government or by relators, are unfamiliar with this provision of the Act. Consequently, an immediate wake-up call from their employment colleagues is certainly in order.

In turn, any clients who act as contractors or providers of services to the government or its beneficiaries need to be educated about the existence and potential reach of Section 3730(h) as a matter of course. Second, anytime a client has suspicions of a qui tam having been filed, or that an employee is engaged in an investigation that may lead to the filing of such an action, immediate counseling as to the reach and potential impact of Section 3730 (h) is immediately in order. Often, when confronted with irrefutable evidence that an employee may have filed such an action, the employer's immediate reaction is to isolate, terminate, or in some other manner take action which impacts upon the suspected employee. Given that Section 3730(h) employs exceedingly broad language (e.g.,"...or in any other manner discriminated against"), taking any measures before fully assessing the possible Section 3730(h) ramifications can be catastrophic.

Finally, clients who are government contractors or participate as providers in federal healthcare programs, especially, need to incorporate instruction on Section 3730(h) into their compliance plan training programs for senior management. Such periodic training is essential for senior staff, particularly those who may inadvertently interact with a potential relators. Since the reach of the statute is so broad, the key actors in any situation where a whistleblower situation is suspected from the outset need to be conversant with what is inappropriate conduct under the statute before any action is taken which later will be alleged to have been discriminatory.

In short, the goal is ensure that any clients who may encounter a whistleblower situation are sufficiently prepared so that, with the assistance of counsel, they can make informed decisions which are fully cognizant of Section 3730(h) and its pitfalls for employers. Because few employer clients are aware of the provision, correcting this gap in planning may well require substantial efforts on the part of both counsel and the client to prepare fully for any possible impact of the statute.

[RETURN TO INDEX]