Summary Judgment
Seventh Circuit Says Summary Judgment Stands: Evidence Does Not Support FCA Retaliation
Yesterday, the Seventh Circuit Court of Appeals affirmed a summary judgment decision dismissing a former employee’s False Claims Act (“FCA”) retaliation suit. Lam v. Springs Window Fashions, LLC, No. 21-2665, 2022 U.S. App. LEXIS 16633 (7th Cir. June 16, 2022). The appellate court agreed that the employer’s conduct fell short of “harassment” under the statute, and that the employee failed to establish a causal connection linking her protected reports and her termination. The employee, Jennifer Lam, began working at Springs Window Fashions, LLC (“Springs”), a window covering manufacturer, as its senior manager of global trade in January 2019. In that role, she came to believe the fabric blankets the company used to make window shades originated in China and not in Taiwan and Malaysia, as the supplier stated. Fabrics originating in China are subject to a higher 25 percent tariff. Between June and September 2019, the employee informed her supervisor—the company’s chief executive officer (“CEO”)—that Springs would need to pay higher tariffs on the fabric. She claimed the CEO was “frustrated and visibly irritated” with her conclusions about the tariffs and “angrily berated” her in a senior leadership meeting. The employee also claimed two other executives “scolded” her for disagreeing with the CEO on the issue. The employee raised no further reports on the tariff issue. In late September 2019, the employee began reporting to the company’s chief financial officer (“CFO”). The CFO wanted Lam to focus on an inventory problem with three manufacturing facilities in Mexico. Displeased with her lack of progress on the inventory issue, the CFO put her on a performance improvement plan (“PIP”) in December 2019. In February 2020, the CFO fired the employee for failing to adequately address the inventory problem, which resulted in an audit by the Mexican government. The employee sued Springs for FCA whistleblower retaliation in April 2020. She claimed her supervisors harassed and then terminated her for her reports about violations of trade law. The district court granted the employer’s motion for summary judgment, ruling that Springs did not retaliate by reacting angrily to the employee’s reports about the Chinese tariff issue. The court also concluded the employee had not established a causal connection between her last report in September 2019 and her termination in February 2020. On appeal, the parties asked the Seventh Circuit to define what constitutes “harassment” under the FCA. The employee pushed for the “harassment” standard used in Title VII retaliation claims: “whether the conduct here would have dissuaded a reasonable worker from complaining to management about its obligation to pay the tariffs.” Lam-Quang-Vinh, 2022 U.S. App. LEXIS 16633, at *10 (citing Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 57 (2006)). Springs argued for the more stringent test used to analyze hostile-work-environment discrimination claims under Title VII: whether the “retaliatory acts were severe or pervasive enough to affect the terms and conditions of her employment.” Id. (citing Vance v. Ball State Univ., 570 U.S. 421, 427 (2013)). The court concluded the employee could not meet either test and declined to decide which standard applies. The employee’s claims that the CEO appeared “frustrated and visibly irritated,” that he “berated” her, and that two other executives “scolded” her did not rise to the level of harassment even under the more lenient test. The court relied on its own Title VII precedent, which requires more than generic descriptions of yelling and “unspecified harassment” to prove a reasonable worker would be dissuaded from reporting violations of the law. Id. at *11-12 (citing Stephens v. Erickson, 569 F.3d 779, 790 (7th Cir. 2009); Henry v. Milwaukee Cty., 539 F.3d 573, 587 (7th Cir. 2008)). The court also rejected the employee’s claim that her termination was retaliation. First, the court concluded there was not sufficient temporal proximity between Lam’s last conversation about tariffs in September 2019 and her termination in February 2020. Likewise, there was no evidence that the CFO—who made the termination decision—was influenced by the CEO’s disagreement with Lam about the tariffs. Second, there was no evidence that the CFO’s vague statement months before the employee’s termination that she “wouldn’t be here in five years” was connected to the tariff issue. Third, there was nothing suspicious about the timing of the employee’s PIP and subsequent termination; rather, the PIP was designed to address legitimate performance concerns. Further, the CFO implemented the PIP in response to a directive that all leaders review their employees and implement PIPs if needed. Finally, the court concluded that Springs offered a legitimate reason for the employee’s termination, and the employee failed to present evidence that the CFO did not honestly believe his reasons for firing her. The CFO testified that he terminated the employee because of her failure to address the inventory problem in Mexico. Although the PIP also stated the CFO was unhappy with the way the tariff issue had been communicated, his concerns related to the employee failure to provide necessary context and propose solutions. The Seventh Circuit agreed with the district court that re was no evidence Springs terminated the employee because she reported violations of trade law. Id. at *16-18. Although the Springs opinion leaves open the question of what, exactly, constitutes “harassment” for purposes of FCA retaliation outside of the Ninth and Fifth Circuits, the Seventh Circuit’s reasoning is consistent with the FCA retaliation analysis in those Circuits. The Springs decision is also consistent with employment retaliation cases arising under state and federal civil rights statutes, which generally set a high bar for establishing causation. To stay up-to-date on False Claims Act news, subscribe to Dorsey’s FCA Now Blog today.
June 17, 2022
by Briana Al Taqatqa
Summary Judgment
Supreme Court Declines to Resolve Circuit Split Regarding Standard for “Falsity” in FCA Claims
On February 22, 2021, the United States Supreme Court declined to resolve a circuit split regarding the proper standard under which False Claims Act (“FCA”) claims in the medical context should be reviewed. See Care Alternatives v. United States, No. 20-371, 2021 U.S. LEXIS 915 (Feb. 22, 2021). The Court’s decision leaves open the question of what constitutes “falsity” under the FCA and opens the door to further expansion of the circuit split as additional appeals reach jurisdictions that have not yet determined this question of law. In United States ex rel. Druding v. Druding, the Third Circuit Court of Appeals considered whether the district court properly concluded relators were required to demonstrate “objective falsity” in order to satisfy the falsity element of an FCA claim. 952 F.3d 89 (3d Cir. 2020). There, relators alleged that Care Alternatives, a palliative care provider, submitted false hospice-reimbursement claims to Medicare and Medicaid for care provided to patients that were not sufficiently ill to qualify for hospice care. Id. at 93. The relators’ case relied heavily upon the expert report of a geriatric care physician, who examined the records of dozens of hospice-admitted patients and opined that 35 percent (35%) of the patients did not qualify for hospice care under the federal guidelines. Id. at 94. Care Alternatives’ expert, also a physician, concluded the opposite, finding that a physician could have reasonably determined that each patient was near the end of life and appropriately admitted to hospice care. Id. After extensive discovery, including the dueling expert opinions, Case Alternatives moved for summary judgment, arguing inter alia that relators had not produced sufficient evidence of falsity. Id. The district court agreed with Case Alternatives, holding that the “mere difference of opinion between physicians, without more, is not enough to show falsity” because “medical opinions are subjective and cannot be false.” Id. In so holding, the district court embraced the “objective falsehood” standard for falsity under the FCA articulated by the Eleventh Circuit Court of Appeals in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). On appeal, the Third Circuit reversed, finding that the district court’s reliance upon an “objective falsity” standard “improperly conflates the elements of falsity and scienter, inconsistent with the application of the FCA.” Druding, 952 F.3d at 95. Turning to the text of the statute, the court noted the FCA provides that “any person who ‘knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval’ is liable to the United States…” Id. (emphasis in original). Based on that statutory text, and the lack of a definition within the statute for the terms “false” or “fraudulent,” the court determined that, under common law principles, an “opinion can be considered ‘false’ for purposes of liability” and therefore medical opinions may supply a basis for finding falsity under the FCA. Id. The court further noted that the scienter element of an FCA claim, distinct and separate from the falsity element, served to limit the possibility that hospice providers would be “exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.” Id. at 96. Thus, “[b]y requiring ‘factual evidence that Defendant's certifying doctor was making a knowingly false determination,” the court determined the lower court’s “‘objective’ falsity standard conflates scienter and falsity” by “incorporat[ing] a scienter element into its analysis regarding falsity.” Id. at 96. The court explained that the correct standard for falsity under the FCA “simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for payment set by the government.” Id. at 97. Following its defeat at the Third Circuit Court of Appeals, Care Alternatives sought to appeal the decision to the Supreme Court. In its petition, Care Alternatives noted the need for the Court to resolve the “square circuit split” between the Third and Eleventh Circuits which “creates the untenable prospect that hospices in New Jersey will face treble damages for the same difficult medical judgments that cannot be second-guessed in Florida.” Care Alternatives also emphasized the importance of the legal issue, contending that “the Third Circuit’s decision opens up hospices and physicians to crushing financial liability and reputational harm, notwithstanding near universal acknowledgment that determinations about life expectancy are notoriously difficult and inexact.” On February 22, 2020, the Supreme Court declined to hear Care Alternatives’ appeal without comment, leaving unresolved a growing circuit split between the Fourth, Seventh, Tenth, and Eleventh Circuits, which have adopted the objective falsity standard, and the Third and Ninth Circuits, which have embraced the more lenient standard for falsity. Given the prevalence of FCA claims premised upon medical reimbursements, the circuit split is likely to expand. Although the Third and Ninth Circuits have established a lower bar for relators to establish the falsity element for a claim—perhaps eliminating a pathway for defendants to resolve FCA claims at the summary judgement stage—both courts have stressed that the scienter requirement under the FCA, i.e., the requirement that Defendant knows “the treatment was not medically necessary,” Winter ex rel. United States v. Gardens Reg'l Hosp. & Med. Ctr., Inc., 953 F.3d 1108, 1114 (9th Cir. 2020), should serve to appropriately limit liability. Whether and to what extent this circuit split bears on the outcomes of FCA cases is an issue for FCA practitioners and their clients to monitor.
March 9, 2021
by Jack Huerter
Summary Judgment
Tread Carefully: District of Utah Grants Motion For Attorneys’ Fees After Unsupported FCA Claim
On February 3, 2020, the U.S. District Court for the District of Utah granted a motion for attorneys’ fees against Plaintiff Kelly Sorenson (“Sorenson”), finding that the claims Sorenson asserted against his former employer under the False Claims Act (“FCA”) were “clearly frivolous” and compensable under 31 U.S.C. § 3730(d)(4). United States ex rel. Sorenson v. Wadsworth Bros. Constr. Co., No. 2:16-cv-875, 2021 U.S. Dist. LEXIS 21561 (D. Utah Feb. 3, 2021). In its decision, the Court emphasized that Sorenson’s claims were “conclusory, unsupported, and/or baseless,” entitling Defendant Wadsworth Brothers Construction Company, Inc. (“Wadsworth”) to “reasonable attorneys’ fees and expenses” incurred over the course of the four-year litigation, including both motion to dismiss and summary judgment briefing. Id. at *3-5. Although courts have long been reticent to deem FCA claims frivolous, this decision may indicate a shift in judicial decision-making with respect to the FCA. In August 2016, Sorenson filed a qui tam complaint alleging that Wadsworth violated the FCA by failing to comply with the Davis-Bacon Act—which requires employers to pay certain wages to laborers on government contracts—when paying his wages on a federally-funded project for the Salt Lake International Airport. Sorenson further alleged that Wadsworth violated the FCA’s retaliation provisions by cutting his hours and terminating him when he raised wage-related concerns to his supervisors. The government declined to intervene. Wadsworth moved to dismiss the complaint in its entirety, arguing that Sorenson had already litigated his wage claims in state court and that the FCA claims lacked the factual allegations necessary to satisfy the Rule 12(b)(6) and heightened Rule 9 pleading standards for fraud claims. The Court largely granted Wadsworth’s motion, dismissing the fraud, false record, false receipt, and conspiracy to defraud claims brought under the FCA. Emphasizing the need for “knowingly” presenting a false or fraudulent claim for approval under the FCA, the Court concluded that a certification of compliance with the Davis-Bacon Act alone was not a material misrepresentation. In so doing, the Court recognized that the FCA is not an “all-purpose antifraud statute” or a statute to be used to punish garden-variety contract or regulatory violations. Similarly, the Court dismissed Sorenson’s claim for conspiracy to defraud because Sorenson did not establish that Wadsworth had made fraudulent misrepresentations under the FCA, and therefore could not establish that Wadsworth had acted with other actors to defraud the government. Sorenson continued to pursue the sole surviving claim—retaliation—and Wadsworth filed a motion for summary judgment in May 28, 2020. The Court granted Wadsworth’s motion, concluding that Sorenson never put Wadsworth on notice of his protected activity and was laid off for normal business reasons. Wadsworth did not stop there, however. Instead, Wadsworth also filed a motion for attorneys’ fees in December 2020 as allowed under Section 3730(d)(4) of the FCA, which provides: If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment. 31 U.S.C. § 3730(d)(4) (emphasis added); see also Docket No. 45 at 4. Although this bar is high, the Court concluded that Sorenson’s suit was “clearly frivolous” because of Sorenson’s failure to fulfill basic elements of an FCA claim, including alleging more than conclusory statements, presenting evidence that Sorenson communicated to Wadsworth that he was accusing them of violating the FCA, and showing some form of retaliation. On those grounds, the Court granted Wadsworth’s motion and ordered that Sorenson pay “reasonable attorneys’ fees and expenses” under Section 3730(d)(4). This decision illustrates that if the claim does not fit within the specific parameters established under the FCA, a court will not hesitate to dismiss the action as insufficient and unsupported. And if the relator has clearly failed to fulfill basic requirements for an allegation of fraud under the FCA, the relator runs the risk of paying defense fees if the Court finds the claims to be either frivolous or harassing. As made clear in Sorenson, the consequences can be expensive.
February 15, 2021
