Quick Hits
- In a precedential decision, the Third Circuit held that the FCA’s anti-retaliation provisions protect employees from retaliation for their efforts to stop fraud against the government, but those efforts must be related to an alleged FCA violation.
- The court distinguished the legal standard applicable to claims under the FCA’s anti-retaliation provisions and the FCA’s qui tam provisions.
- The court held that claims of retaliation under the FCA must demonstrate both a subjective belief of fraud by the employee and an objectively reasonable belief of such conduct.
- The court found that concerns about regulatory violations alone, such as FDA compliance, were not enough to plead a FCA anti-retaliation claim under the FCA’s “other efforts” prong.
Background
In a precedential decision in Lisenby v. Olympus Corp. of the Americas, No. 25-1480, the Third Circuit held that Congress’s 2009–2010 FCA amendments protect whistleblowing employees who make “other efforts” to stop violations of the FCA only “when they are motivated by an objectively reasonable belief that the employer has submitted, or will submit, false or fraudulent claims for payment to the federal government.”
The holding comes in a case brought by a former employee of a Japanese-owned company that sells medical devices to the U.S. government (notably, the U.S. Department of Veterans Affairs (VA)), who alleged that his job was eliminated after he raised concerns regarding potential U.S. Food and Drug Administration (FDA) regulatory violations.
The Third Circuit affirmed the lower court’s dismissal of a lawsuit claiming unlawful retaliation in violation of the FCA and state law, finding that the employee’s complaint lacked allegations supported by an “objectively reasonable belief that the employer ha[d] submitted, or [would] submit, false or fraudulent claims for payment to the federal government.”
No Heightened Pleading Requirements
The Third Circuit held that FCA retaliation claims are not subject to the heightened standard for pleading fraud under Federal Rule of Civil Procedure 9(b), which requires plaintiffs to allege fraud “with particularity.” The court noted that while FCA qui tam claims are subject to this heightened pleading standard because they allege false or fraudulent payments, “[r]etaliation claims under the FCA do not … involve allegations of fraud.” Accordingly, “an FCA retaliation claim need only satisfy Rule 8(a)’s notice pleading standard,” the Third Circuit stated.
‘Other Efforts’ Must Be Connected to FCA Violations
The FCA protects employees from retaliation for “lawful acts done … in furtherance of” either “an action [under the FCA]” or “other efforts to stop [one] or more violations of [the FCA].” The Third Circuit explained that it had not previously addressed the “other efforts” prong and set forth two central holdings with regard to what constitutes “other efforts.”
First, the court concluded that “a plaintiff’s actions must be connected to a violation of the FCA,” meaning that the “plaintiff’s conduct must be related to the submission of a false or fraudulent claim to the federal government for payment or approval.”
Second, the court held that “a plaintiff must, in good faith, have held an objectively reasonable belief that [the] employer was violating, or would violate, the FCA.” The Third Circuit explained that Congress’s addition of the “other efforts” prong in the 2009–2010 FCA amendments was intended to expand the scope of the FCA anti-retaliation provision to protect an employee’s efforts to prevent an FCA violation (or, in other words, stop it before it happens).
Regulatory Concerns Alone Are Insufficient
The Third Circuit held that the employee’s complaint failed to show that the employee reasonably believed the employer “was violating, or would soon violate, the FCA.” The court emphasized that the complaint focused on the employee’s concerns that the employer was violating FDA regulations, not on the employer’s alleged fraud on the government. Allegations that the employer was a federal contractor and had already sold allegedly non-FDA-compliant devices for use in medical procedures covered by Medicare and Medicaid were not sufficient because they suggested only that the employee was concerned with “FDA regulatory violations and the attendant risks to patient safety, not fraud committed against the government.”
Key Takeaways
The decision in Lisenby, underscores that employers may be subject to claims of unlawful retaliation by discharged employees who have allegedly attempted to stop potential fraud against the government. Notably, such claims are governed by Rule 8’s notice pleading standard, not Rule 9(b)’s heightened fraud-pleading standard.
Still, the decision emphasizes that, at least in the Third Circuit, retaliation claims under the FCA for “other efforts” are limited. The “other efforts” prong requires conduct motivated by an objectively reasonable belief that the employer submitted, or would submit, false or fraudulent claims for payment to the federal government.
Further, the court drew a sharp distinction between complaints about regulatory violations and complaints tied to false or fraudulent claims for government payment. Accordingly, the ruling suggests that in the Third Circuit an employee’s actions regarding product safety concerns or potential regulatory violations, absent an objectively reasonable connection to an FCA violation, are insufficient to trigger the FCA’s anti-retaliation protections.
Ogletree Deakins’ will continue to monitor developments and provide updates on the Ethics/Whistleblower, Government Contracting and Compliance, and Healthcare blogs as additional information becomes available.
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