Court allows FCA retaliation claim to move forward

A former employee can sue the Danville Redevelopment & Housing Authority for retaliation under the federal False Claims Act, the U.S. District Court for the Western District of Virginia has held in denying a motion to dismiss.

Plaintiff Nancy Larissa Deedrich was an agency director who resigned after reporting a suspected fraudulent payment scheme. She then sued, claiming retaliation under the federal False Claims Act and the state’s anti-retaliation statute, breach of contract, violation of the Virginia Wage Payment Act and constructive discharge.

The defendant moved to dismiss, arguing that sovereign immunity barred the FCA claim.

Judge James P. Jones rejected that claim, finding that while the agency accepts federal funds for affordable housing initiatives and operates with a board appointed by local government entities, it also maintains control over its projects and operates more in line with a private entity in the housing market.

“DRHA is essentially a landlord; thus, it engages in proprietary, not governmental functions,” he wrote.

Further, Jones said that the plaintiff didn’t need to prove that a False Claims Act violation had occurred for her retaliation claim to succeed. Instead, “she need only show an objectively reasonable belief that a violation occurred.”

The judge also allowed the constructive discharge and breach of contract claims to proceed.

The 17-page opinion is Deedrich v. Danville Redevelopment & Housing Authority (VLW 025-3-181).

Constructive discharge

Christopher E. Collins of Roanoke-based Yugo Collins represented the plaintiff.

He said that the DRHA’s decision to shift from arguing that it was absolutely immune as an arm of the state to asserting it was entitled to the same immunity as an arm of state when it was engaged in government functions meant its claim “had to survive the proprietary/governmental function analysis applied to municipal corporations, such as DRHA.”

Further, he said that the court’s decision to let the constructive discharge claim move forward would benefit plaintiffs.

“Employees sometimes have to choose between resigning and seeking alternative employment or waiting to be terminated,” Collins said. “If they wait, they will have to tell all future prospective employers they were terminated, dimming their prospects significantly.  This court recognized that such a dilemma acts as a constructive termination.”

He added that while state courts have rejected the argument that a constructive discharge claim is preempted by statutory remedies in the FCA and Virginia Code § 40.1-27.3, in the past “federal courts have been less receptive” to that reasoning.

Jonathan W. Gonzalez, with Williamsburg-based Gordon Rees Scully Mansukhani, represented the housing authority. Gonzalez and DRHA did not respond to a request for comment before deadline.

Embezzlement suspected

Deedrich began working as DRHA’s director on April 1, 2020. About a year later, DRHA hired a chief financial officer who became romantically involved with Danville’s mayor. The mayor also served as chairman of the authority’s board of commissioners.

The new CFO’s sister worked for DRHA as an intern during the summers of 2021, 2022 and 2023. However, the intern could not receive payments from the DRHA due to her status as an undocumented immigrant.

In the summer of 2023, the intern created a North Carolina-based limited liability company. The CFO then created an invoice for nearly $7,000 and paid the intern’s LLC with DRHA funds. Although Deedrich was initially unaware of the LLC’s existence, she subsequently confronted the CFO regarding overdraft charges. The CFO then emailed the mayor, claiming that Deedrich authorized a contract without following procedure.

Around the same time, Deedrich was renegotiating her employment contract. The board granted her a pay raise and a two-year contract extension effective Oct. 1, 2023. Later that month, Deedrich began investigating and later confirmed a rumor that the CFO had paid her undocumented sister through the LLC.

Two days after Deedrich told the DRHA’s attorney about her discovery, the board said it would not honor the terms of her new employment contract.

In December 2023, the board asked Deedrich to sign a memorandum detailing “Procurement Process Irregularities.” She declined, believing the memo would be used to fire her. She claimed she was pressured to sign a performance improvement plan and was inadvertently forwarded an email with information that the board planned to fire her.

Deedrich ultimately resigned in early 2024, citing severe emotional and physical and distress, increased blood pressure and complications with a pre-existing medical condition because of the alleged workplace retaliation.

Judge: FCA violation not required

Jones noted that for DRHA’s actions to be governmental, and therefore entitled to immunity from liability, it must be so connected with the commonwealth that it is in effect an arm of the state.

“Here, the Housing Authority … operates with a Board appointed by local government entities and concerns itself with local housing matters. The House Authority’s Board also maintains control over its projects. It operates as an owner and manager of housing units, much like private entities in the housing market. Accordingly, [it] is not sufficiently connected in its operations to the state’s concerns to enjoy sovereign immunity.”

The judge next determined that the plaintiff could support a retaliation claim under the FCA because “she alleged that she engaged in protected activity, that the Housing Authority knew of her activities, and that the [authority] retaliated against her in response.”

The DRHA argued that Deedrich’s investigation and report of the unauthorized payment scheme was not protected activity under the FCA because no violation of the act occurred, claiming that a payment to an LLC with an undocumented person as a member is legal.

But the court found that “argument fails because Deedrich does not need to prove that an FCA violation occurred to be successful in a retaliation claim.”

The plaintiff “states that she was pressured to sign a performance improvement plan and received information that Board members were planning to fire her when an email was accidentally forwarded to her stating that her recent action was ‘the last straw.’ … Throughout this time, the Housing Authority did not implement the terms of [the plaintiff’s] alleged new contract, despite the agreement Deedrich believed they had made.  Collectively, this conduct could create intolerable working conditions that would lead a reasonable person to resign.  Accordingly, [the plaintiff’s] allegations sufficiently state a claim for retaliation under the FCA.”

The judge further concluded that the plaintiff had alleged “a series of particularized actions by the Housing Authority that reasonably created an intolerable work environment and led her to fear that her termination was imminent. This satisfies the requirement for pleading a wrongful discharge claim.”

However, the judge rejected the plaintiff’s claims under the Virginia anti-retaliation statute and the Virginia Wage Payment Act, granting the defense’s motion to dismiss.