“No Claims Means No False Claims”—and No FCA Whistleblower Protection

On January 19, 2021, the U.S. Court of Appeals for the Eleventh Circuit in Hickman v. Spirit of Athens[1] dismissed a whistleblower retaliation claim under the False Claims Act (“FCA”), finding that the employer’s alleged “garden-variety fraud” did not fall under the statute. Two employees of a nonprofit were terminated after seeking to audit financial irregularities which, the Court held, did not involve the submission of a false claim to the federal government. Only when the suspected fraud involves making a false claim to the federal government will the FCA protect an employee who speaks out about it.

Case Background

The plaintiffs, Dana Hickman, executive director of Spirit of Athens, Alabama, Inc., and her assistant, Robbin Hines, uncovered a series of alleged “significant financial irregularities” when working with the company’s accountant to file its annual tax return. The company’s treasurer kept its books at her house and refused to provide records to Hickman or the accountant. When the accountant completed the tax return there was a single line item for “other expenses,” representing over half the total revenues. The plaintiffs discovered additional “troubling financial discrepancies” while working on fundraising.

The plaintiffs hired a firm to audit Spirit of Athens. When Hickman notified the board president he fired the auditor almost immediately and he fired Hickman and Hines two days later. The plaintiffs then sued, alleging that Spirit of Athens unlawfully retaliated against them for engaging in activity protected under the FCA.

To trigger the FCA’s whistleblower protections, the plaintiffs alleged that Spirit of Athens received federal funds and that they were investigating its fraudulent use of those funds when they sought the audit. Spirit of Athens is a nonprofit corporation that, under state law, receives $5,000 each year from funds paid to the State of Alabama in lieu of property taxes by the Tennessee Valley Authority, a federal corporation that performs public works. The Court observed that at no point in the “somewhat unorthodox funding stream” did Spirit of Athens make any representations or claims to the federal government.[2]

FCA Retaliation and “Protected Activity”

Under the FCA individuals—known as qui tam relators or ‘whistleblowers’—can bring an action on behalf of the United States to recover damages from an entity that submits false claims to the federal government.

Because whistleblowers are often employees of the defrauding entity, the FCA was amended in 1986 to include an anti-retaliation provision protecting employees who engage in conduct “in furtherance of” an FCA action. The protection was expanded in 2009 and 2010 to employees and others who engage in “efforts to stop 1 or more violations” of the FCA.[3]

Since the latest amendment, courts have held that employees are protected from retaliation when their conduct is “motivated by an objectively reasonable belief that the employer is violating, or soon will violate,” the FCA.[4]

The question was whether the plaintiffs reasonably believed Spirit of Athens was violating the FCA—that is, submitting false claims. The Court said no.

Activity Furthering Unreasonable Belief in FCA Violation Not Protected By FCA

The Eleventh Circuit agreed with Spirit of Athens that, even assuming it received federal funds, the company never made representations or claims to the federal government to obtain the funds, nor was its automatic receipt of the funds subject to any limits on its use or reporting. In short, “[n]o claims means no false claims,” and the FCA retaliation provision “only protects employees where the suspected misdeeds are a violation of the False Claims Act.”[5]

The Court found the plaintiffs’ belief that Spirit of Athens was misusing federal funds, and their subjective belief that this violated the FCA, was not enough to trigger the FCA’s retaliation protections.

In closing, the Court observed: “We echo the district court’s concern that Hickman and Hines may well have acted in good faith in an attempt to uncover what they feared were shady practices. But the False Claims Act is not a general anti-fraud statute; whether the plaintiffs’ suspicions were well-grounded or groundless, it offers them no relief.”[6]

Practical Takeaways

• Only when an employer’s suspected fraud involves making a false claim to the federal government will the FCA protect an employee who speaks out about it.
• But other whistleblower or general employment protections may still apply, including, wrongful discharge in violation of public policy.

If you have any questions please contact:

• David Honig at (317) 977-1447 or dhonig@wp.hallrender.com;
• Heather Mogden at (248) 457-7835 or hmogden@wp.hallrender.com;
• Lauren Rodriguez at (317) 977-1453 or lrodriguez@wp.hallrender.com;
• Brian Sabey at (720) 290-4919 or bsabey@wp.hallrender.com; or
• Your regular Hall Render attorney.

Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.