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Whistleblower pleading standard clarified by court

4tth Circuit Seal FEADirect evidence of government payment and receipt of fraudulent services must be alleged at the pleading stage for a qui tam action to survive a motion to dismiss, the 4th U.S. Circuit Court of Appeals has ruled.

Despite this, a former United Airlines employee and government whistleblower’s case has been sent back to the district court for a rehearing on the grounds that the court erred in dismissing a retaliation claim.

The court’s Dec. 26 opinion is United States ex rel. David Grant v. United Airlines Inc. (VLW 018-2-237).

The case was filed in the South Carolina district court in February 2015 after former United Airlines maintenance technician David Grant claimed the company falsified repairs and reports on F117 U.S. Air Force transport plane engines. Grant said in a complaint that regulations required United to use a specific tool to test repairs before returning the engines to the Air Force for payment, but that for months, his worksite didn’t even have the requisite tool, but signed off on having done the work anyways.

Grant said that when he complained of the maintenance violations to management, explaining that such failures could lead to catastrophic engine failure and even death, he was fired.

Soon thereafter, he filed a qui tam action alleging the company violated provisions of the False Claims Act, including knowingly presenting false claims for payment or approval, using false records material to a false claim and unlawfully terminating him for his efforts to stop the FCA violations. The district court then dismissed the complaint for failing to sufficiently allege all three claims.

On appeal to the 4th Circuit, Grant claimed he had, in fact, met the pleading requirements for making section 3729(a)(1)(A) and (B) claims. Judge Allyson K. Duncan, writing for the majority, disagreed, saying he did not make the allegations with the “particularity” required under Rule 9(b), the heightened standard for claims of fraud.

“[W]hile the allegations state with particularity that United engaged in at least some fraudulent conduct, the [complaint] fails to provide the last link which is critical for FCA liability to attach: namely, that this scheme necessarily led to the presentment of a false claim to the government for payment,” Duncan said.

Because Grant, as a maintenance technician, did not have access to evidence of how and if the government received or paid for the services, Duncan said Grant cannot state a claim under sections 3729(a)(1)(A) or (B).

On the matter of Grant’s retaliation claim, Duncan said that the district court erred in using an outdated standard.

“We find that the distinct possibility standard does not apply to § 3730(h)’s second prong and adopt the objective reasonableness standard for protected activity under this prong,” Duncan said.

Duncan said a belief is objectively reasonable when the plaintiff alleges enough facts to show he believed his employer was violating the FCA, that the belief was reasonable, and that he acted on that belief with the intent of ending the violations. In this case, Duncan said Grant reached all the requirements and that he otherwise successfully pled a retaliation claim before remanding the case to the district court.

In a dissenting opinion, Judge Barbara M. Keenan said that sometimes, circumstantial evidence is enough to show that a false claim must have been presented to the government.

“[T]he majority requires that a relator allege direct evidence of presentment at the pleading stage … without the benefit of discovery,” Keenan said. “As a result, the majority effectively limits qui tam actions to whistleblowers in ‘white collar’ position with access to financial and other business records.”

Ultimately, Keenan said the majority’s decision will “close the doors” to allegations of dangerous misconduct which otherwise might never be brought to light.

Grant was represented by William S. Norton of Mount Pleasant, South Carolina. Norton did not respond to requests for comment before press time.

United was represented by Keith J. Harrison of Washington D.C. and Michael T. Cole & Erika J. Fedelini, who practice law in Charleston, South Carolina. Harrison was unavailable to speak and United’s media relations team did not respond to requests for comment before press time.

Fairfax lawyer Zachary A. Kitts was not involved in the litigation but reviewed the opinion at Virginia Lawyers Weekly’s request.

He said he thinks Grant successfully pled all three claims, and that the new presentment standard will make it “virtually impossible for anybody to prove a false or fraudulent claim in the procurement context.”

“The majority appears to say that on one hand, you’d have to have boots-on-the-ground knowledge that an airline mechanic would have, and the person would simultaneously need to have knowledge of fairly high-level contractual dealings,” he said, “But it seems to me that they’re requiring a level of knowledge that no one person would ever have.”

Bill Nettles of Columbia, South Carolina, also was not involved in the litigation, but reviewed the decision, Nettles previously served as U.S. attorney for the District of South Carolina where he handled false claims act violation cases before going into private practice.

Nettles said that while the case represents a change in case law, it’s not as drastic as it may appear.

“I do think that it probably makes it harder for people lower in the corporation to bring false claims cases, but that’s always been the case,” he said. “It’s easier for people at the top than people at the bottom because they don’t have as much access to information.”