Hoyte v. American National Red Cross

Opinion for the court filed by Circuit Judge HENDERSON.

Opinion concurring in part and dissenting in part filed by Circuit Judge TATEL.

Michelle Hoyte filed this action under the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq. The complaint alleges that Hoyte’s former employer, the American National Red Cross (ARC), (1) violated *63FCA section 3729(a)(7) by failing to report to the Federal Drug Administration (FDA) that ARC had mishandled blood supplies, for which conduct the FDA was authorized to assess financial penalties pursuant to a district court consent decree, (Count I) and (2) violated FCA section 3730(h), the “whistleblower” provision, by discharging Hoyte in retaliation for her investigating, and complaining to supervisors about, the mishandled blood (Count II). The district court dismissed Count I (the reverse false claim 1) on the ground that it was obliged to defer to the Government’s decision to dismiss the claim under FCA section 3730(c)(2)(A), which provides that “[t]he Government may dismiss [an FCA qui tam] action notwithstanding the objections of the person initiating the action.” The court dismissed Count II (the retaliation claim) on the ground that Hoyte did not allege that ARC was under an “obligation to pay or transmit money or property to the Government,” as section FCA 3729(a)(7) requires for a reverse false claim, and therefore Hoyte’s investigation into the blood mishandling, for which investigation she alleged she was discharged, was not “in furtherance of’ a viable qui tam action so as to be protected activity under the whistleblower provision. United States ex rel. Hoyte v. Am. Nat’l Red Cross, 439 F.Supp.2d 38 (D.D.C.2006). For the reasons set out below, we affirm the district court’s dismissal of both counts.

I.

On April 15, 2003, the district court issued a consent decree incorporating an agreement between ARC and the United States in which ARC agreed to adopt and follow specified blood handling and reporting requirements. See United States v. Am. Nat’l Red Cross, C.A. No. 93-0949 (Apr. 15, 2003) (Consent Decree), reprinted in Joint App. (JA) at 27. The Consent Decree provides that the FDA “may assess” financial penalties for various violations of its provisions “up to” specified máximums. See, e.g., id. at 35-36, 42, 52, 56-57, 61-64.

Hoyte was an ARC employee from 1997 until June 17, 2004. She alleges that in February 2004, when she was Director of Quality Audits, she discovered ARC had mishandled 607 units of blood at its “Penn-Jersey” facility in Philadelphia. She further alleges that ARC’s officials and staff were aware of the mishandled blood but did nothing about it even after she and her staff urged her superiors to report the matter to the FDA as required under the Consent Decree. Finally, she alleges that she scheduled a meeting with ARC’s Senior Vice President for Quality Assurance and Regulatory Affairs for June 18, 2004 but was fired by her supervisor over the telephone the day before the meeting.

On June 25, 2004, Hoyte filed this qui tam action under FCA section 3730(b)(1), which provides that “[a] person may bring a civil action for a violation of section 3729 for the person and for the United States Government.”2 As noted, the complaint includes a reverse false claim count under section 3729(a)(7) for which Hoyte is authorized to bring a qui tam action under *64section 3730(b) and a retaliation claim under the FCA’s whistleblower provision, section 3730(h). The United States filed a notice of election to decline intervention in the suit on November 7, 2005, pursuant to section 3730(b)(2).3 On January 24, 2006, ARC moved to dismiss both Count I and Count II for failure to state a claim under Fed.R.Civ.P. 12(b)(6) and to dismiss Count II for lack of jurisdiction under Fed. R.Civ.P. 12(b)(1) as well. The United States then moved on February 16, 2006 to dismiss Count I, asserting that under section 3730(c)(2)(A) “the United States’ decision to dismiss th[e] case is not subject to judicial review.” U.S. Mot. to Dismiss 1.

On April 27, 2006 the district court held a hearing on the motions to dismiss at the conclusion of which it granted the Government’s motion to dismiss Count I and deferred ruling on ARC’S motion. 4/27/06 Hr’g Tr. 43-44. On July 14, 2006 the court issued an opinion and order in which it granted ARC’S motion to dismiss Count II. United States ex rel. Hoyte v. Am. Nat’l Red Cross, 439 F.Supp.2d 38 (D.D.C.2006).

Hoyte filed a notice of appeal on August 3, 2006.

II.

Hoyte contends the district court erred in dismissing Count I and Count II. We consider each count in turn.

A. Count I: Reverse False Claim Charge

Section 3730(c)(2)(A), which sets out the “[rjights of the parties to qui tam actions” brought on behalf of the United States, provides: “The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” In granting the Government’s motion to dismiss Count I, the district court concluded that under this provision, as construed in Swift v. United States, 318 F.3d 250 (D.C.Cir.2003), the court did not “have a role to play” in the Government’s decision whether to dismiss Count I given “the general presumption of the Government’s right to end a prosecution” and the absence of special circumstances that “warrant an exception such as fraud on the court.” 4/27/06 Hr’g Tr. 41. The district court correctly dismissed Count I.

In Swift, a Department of Justice (DOJ) lawyer filed a qui tam action alleging that three employees of the DOJ Office of Legal Counsel had conspired to defraud the Government of $6,169.20 using falsified time sheets and leave slips. The Government moved to dismiss the action and the *65district court granted the motion. On appeal, we upheld the dismissal, concluding that the Government has what amounts to “an unfettered right to dismiss” a qui tam action, citing four bases for our conclusion: (1) the separation of powers doctrine, (2) the Government’s broad discretion in initiating or continuing a criminal prosecution, (3) Federal Rule of Civil Procedure 41(a)(1)®, which permits a plaintiff to dismiss a civil action “without order of the court,” and (4) the language of section § 3730(c)(2)(A) itself, which grants to “[t]he Government” (not the court) unilateral authority to “dismiss the action notwithstanding the objections of the person initiating the action.” Swift, 318 F.3d at 252. As we there explained: “Nothing in § 3730(c)(2)(A) purports to deprive the Executive Branch of its historical prerogative to decide which cases should go forward in the name of the United States. The provision neither sets ‘substantive priorities’ nor circumscribes the government’s ‘power to discriminate among issues or cases it will pursue.’ ” Id. at 253 (quoting Heckler v. Chaney, 470 U.S. 821, 833, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985)). In addition, we noted that, although “the government conceded at oral argument that there may be an exception for ‘fraud on the court,’ no evidence of that sort was presented” and therefore we “d[id] not pass on whether this type of exception, or any other, might be consistent with our reading of § 3730(c)(2)(A).” Id.

We conclude that under Swift the district court correctly deferred to the Government’s virtually “unfettered” discretion to dismiss the qui tam claim. As in Swift, there is no evidence here of fraud on the court or any similar exceptional circumstance to warrant departure from the usual deference we owe the Government’s determination whether an action should proceed in the Government’s name. Hoyte asks us to recognize a new exception for a dismissal “clearly contrary to manifest public interest,” Appellant’s Br. at 14, contending that in Swift we left the door open for future recognition of other types of exceptions in addition to “fraud on the court.” In Swift, however, we flatly rejected the relator’s suggestion that we routinely review the Government’s decision to dismiss a qui tam action, instead holding the door only barely ajar for review in an exceptional circumstance — in particular, where there is “fraud on the court.” See id. at 253. It is clear from Swift that any exception to section 3730(c)(2)(A) — if there are any — must be like “fraud on the court” and Hoyte’s proposed “manifest public interest” exception is not.4 Hoyte was afforded the hearing the FCA mandates to give her “a formal opportunity to convince the government not to end the case.” Id. The Government was not persuaded to proceed, however, and its decision to dismiss the case, based on its own assessment, is not reviewable in the district court or this court. Accordingly, we affirm the district court’s dismissal of Count I.

B. Count II: Retaliation Claim

FCA section 3730(h) provides in relevant part:

*66Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.

31 U.S.C. § 3730(h) (emphasis added). Count II alleges that ARC violated this provision by discharging Hoyte in retaliation for her “protected activity,” namely, “repeatedly advising her supervisors that she believed that the American Red Cross had violated the law, [standard operating procedures], and the Consent Decree by not appropriately addressing the problems associated with the collection of the 607 unsuitable units of blood in Penn-Jersey.” Compl. ¶ 71. The district court dismissed Count II on the ground that Hoyte’s investigation and complaints about the blood handling and reporting were not “in furtherance of’ an FCA action as required by section 3730(h) because Count I&emdash;asserting the reverse false claim under section 3729(a)(7)&emdash;did not allege that ARC had any “obligation to pay or transmit money or property to the Government” as section 3729(a)(7) requires. We agree.

This court has established that

to prevail on a whistleblower claim, an employee must demonstrate that:

(1) he engaged in protected activity, that is, “acts done ... in furtherance of an action under this section”; and

(2) he was discriminated against “because of’ that activity. To establish the second element, the employee must in turn make two further showings. The employee must show that: (a) “the employer had knowledge the employee was engaged in protected activity”; and (b) “the retaliation was motivated, at least in part, by the employee’s engaging in [that] protected activity.”

United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1260 (D.C.Cir.2004) (quoting United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 736 (D.C.Cir.1998) (quoting S.Rep. No. 99-345, at 35 (1986), U.S.Code Cong. & Admin.News 1986 pp. 5266, 5300 (alterations in Yesudian))).5 For the first requirement&emdash;engaging in protected activity&emdash;“ ‘it is sufficient that a plaintiff be investigating matters that ‘reasonably could lead’ to a viable False Claims Act case.’ ” Id. (quoting Yesudian, 153 F.3d at 740). The matters Hoyte was investigating, however, could not have reasonably led to a viable FCA case. Section 3729(a)(7), on which Hoyte relies, imposes civil liability on a person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” Yet Hoyte has not alleged that ARC had any “obligation to pay or transmit money or property to the Government” which it “could conceal, avoid, or decrease” through a false statement or *67record so as to violate section 3729(a)(7). The Consent Decree imposed no obligation on ARC to tender money or property to the Government but only to follow the prescribed blood handling and reporting requirements. In this respect, ARC is in the same position as any regulated entity subject to possible sanctions for violating an administrative requirement and we made clear in Yesudian that an unassessed potential penalty for regulatory noncompliance does not constitute an obligation that gives rise to a viable FCA claim or, consequently, a related whistleblower claim.

Like Hoyte, the plaintiff in Yesudian filed a qui tam action asserting both (1) a false claim count — alleging that his superi- or in the Purchasing Department at Howard University (Howard) falsified time and attendance records, accepted bribes from vendors, permitted payments to vendors who provided no services to Howard and took university property home for personal use — and (2) a whistleblower claim — alleging he was discharged because he reported the misconduct to various Howard officials. A jury returned a verdict against the relator on the false claim count and in his favor on the whistleblower count but the district court subsequently granted the defendants’ motion for judgment as a matter of law on the whistleblower count.

On appeal, we reversed the judgment on the whistleblower claim. Noting that in a whistleblower claim, “it is sufficient that a plaintiff be investigating matters that ‘reasonably could lead’ to a viable False Claims Act case,” 153 F.3d at 740, we concluded that neither the relator’s uncertainty whether a FCA suit would follow nor the jury’s adverse verdict on the false claim count precluded success on the whis-tleblower count. See id. at 741 (“Nor was it necessary for Yesudian to ‘know’ that the investigation he was pursuing could lead to a False Claims Act suit.”), 739 (“[T]he protected conduct element of such a claim does not require the plaintiff to have developed a winning qui tam action before he is retaliated against.”). Nonetheless, we unequivocally stated that “an employee’s investigation of nothing more than his employer’s non-compliance with federal or state regulations” is not enough to support a whistleblower claim. Id. at 740 (citing Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir.1996); United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1523 (10th Cir.1996)). In Yesudian, we found that “the nature of [the relator’s] charges could not have been mistaken for a complaint about mere regulatory compliance” because his was a “classic false claim” which charged his supervisor with attempting to defraud the Government of money. Id. at 744. Not so with Hoyte’s claim, which cannot be deemed a “classic” reverse false claim — in which the defendant’s alleged deception “results in no payment to the government when a payment is obligated,” United States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648, 653 (5th Cir.2004) (emphasis added) — but, in contrast to Yesudian, involves “mere regulatory compliance,” namely, ARC’S failure to follow the blood handling and reporting procedures spelled out in the Consent Decree.

Relying heavily on Yesudian, Hoyte contends the district court erred in dismissing her whistleblower count because “winning the underlying claim is not a necessary predicate to maintaining a Section (h) action.” Appellant’s Br. 27. It is true that under Yesudian a relator need not ultimately prevail on a FCA charge in order to recover for retaliation under section 3730(h). See 153 F.3d at 739. Indeed, in Yesudian, we concluded that the evidence supported the jury verdict in the relator’s favor on the whistleblower claim notwithstanding the jury found against the relator on the underlying false claim count and we *68therefore reversed the district court’s post-trial judgment setting aside the whis-tleblower verdict. Nonetheless, we made clear that the relator must have been “investigating matters that ‘reasonably could lead’ to a viable False Claims Act case,” id. at 740, and here that is simply not the case. Under no reasonable interpretation of the statutory language can ARC be deemed to have had an “obligation to pay or transmit money ... to the Government,” as section 3729(a)(7) requires, at the time of Hoyte’s investigation and complaints. Hoyte’s investigation was into mere regulatory noncompliance and did not “concern ‘false or fraudulent claims’ ” as it must to support a retaliation claim under section 3729(a). Yesudian, 153 F.3d at 740 (citing 31 U.S.C. § 3729(a)). Because the conduct Hoyte was investigating — ARC’S failure to report its noncompliance with the Consent Decree — could not have reasonably led to a viable claim under section 3729 of the FCA, her investigation of it was not protected activity “in furtherance of an action under [section 3730],” 31 U.S.C. § 3730(h) — that is, an action “for a violation of section 3729,” id. § 3730(b)(1) — so as to support a retaliation claim. Cf. Hamm v. Weyauwega Milk Prods., 332 F.3d 1058, 1066 (7th Cir.2003) (district court properly dismissed Title VII retaliation claim because complaints to employer and state agency amounted to claims of sexual orientation discrimination, not sex discrimination, and therefore “did not concern an employment practice that violated Title VII”).

Relying again on language in Yesudian, Hoyte contends the court should focus on “whether Hoyte had a good faith chance of success at the time that she suffered the retaliation.” Appellant’s Br. 27. In Yesu-dian the defendants argued that no actionable false claim charge existed at the time of the relator’s investigation because there was no evidence that Howard ever resubmitted the allegedly false claims to the Government so as to transform the defendants’ fraud on Howard into fraud on the United States as well. Without expressly deciding whether resubmission was necessary, the court concluded that Yesudian’s personal knowledge that “80% of Howard’s money came from the United States Government” afforded “a good faith basis for going forward at the time of the retaliation” because, “[g]iven the information he had about Howard’s finances, it would have been reasonable to conclude there was a ‘distinct possibility’ he would find evidence of resubmission of the claims.” 153 F.3d at 739-40 (quoting Childree v. UAP/GA AG Chem., Inc., 92 F.3d 1140, 1146 (11th Cir.1996) (requiring “distinct possibility” of suit), and Neal v. Honeywell Inc., 33 F.3d 860, 864 (7th Cir.1994) (sufficient if litigation was “distinct possibility” or “could be filed legitimately”)). As we explained in Yesudian, determining whether the false claims were resubmitted required “the kind of information a plaintiff normally cannot acquire until he files a suit and obtains the benefits of court-sanctioned discovery.” Id. at 740. We therefore concluded Yesudian’s personal knowledge provided the requisite “good faith basis” at the time of the investigation and retaliation to believe the defendants were defrauding the federal Government. Hoyte, in contrast, regardless of her subjective beliefs, had no objectively reasonable basis to believe that she was “ ‘investigating matters that reasonably could lead’ to a viable False Claims Act case.’ ” Martin-Baker Aircraft Co., 389 F.3d at 1260 (quoting Yesudian, 153 F.3d at 740); see Lang v. Nw. Univ., 472 F.3d 493, 495 (7th Cir.2006) (“What [FCA relator] actually believed is irrelevant, for people believe the most fantastic things in perfect good faith; a kind heart but empty head is not enough. The right question is whether *69her belief had a reasonable objective basis _”)■ There was not even a “distinct possibility” that her claim against ARC might become viable before or at trial because under any view of the facts as alleged the claim lacked one of the legal requirements for a reverse false claim charge: the defendant must have an “obligation to pay or transmit money or property to the Government,” 31 U.S.C. § 3729(a)(7). ARC had no such obligation and no amount of discovery could cure this defect. There being no viable action against ARC under section 3730 for violation of section 3729(a), Hoyte’s investigation and reporting of ARC’s conduct did not constitute “protected activity” — “that is, ‘acts done ... in furtherance of an action under [section 3730],’ ” Yesudian, 153 F.3d at 736 (quoting S.Rep. No. 99-345, at 35 (1986), U.S.Code Cong. & Admin.News 1986 pp. 5266, 5300) — and her subsequent discharge was therefore not unlawful retaliation under section 3730(h).6

The dissent argues that Hoyte can pursue a retaliation claim even in the absence of a viable reverse FCA claim, relying in part on language culled from the Supreme Court’s decision in Graham County Soil & Water Conservation District v. United States ex rel. Wilson, 545 U.S. 409, 125 S.Ct. 2444, 162 L.Ed.2d 390 (2005). Dissent at 70, 71-72, 72, 74. In Graham County, the question before the Supreme Court was whether the correct limitations period for an FCA retaliation claim is the 6-year period prescribed in FCA for “[a] civil action under section 3730,” 31 U.S.C. § 3731(b)(1), or the period established under the “most closely analogous state statute of limitations,” 545 U.S. at 422, 125 S.Ct. 2444. The Court held the latter and in the course of its analysis, observed that “proving a violation of § 3729 is not an element of a § 3730(h) cause of action” and thus, section 3730(h) “protects an employee’s conduct even if the target of an investigation or action to be filed was innocent,” id. at 416 & n. 1, 125 S.Ct. 2444 — both points that we made in Yesudian when we upheld the jury’s verdict in Yesudian’s favor on the whistleblower claim notwithstanding the jury held against him on the underlying qui tarn claim. While it is true, as the dissent notes, that “ ‘a well-pleaded retaliation complaint need not allege that the defendant submitted a false claim,’ ” Dissent at 74 (quoting Graham County, 545 U.S. at 416, 125 S.Ct. 2444), the complaint must allege that “the defendant retaliated against him for engaging in ‘lawful acts done ... in furtherance of an FCA ‘action filed or to be filed,’ ” Graham County, 545 U.S. at 416, 125 S.Ct. 2444 (quoting 31 U.S.C. § 3730(h) (ellipsis in Graham)), that is, for engaging in protected conduct. Yesudian defines “protected conduct” as conduct that “ ‘reasonably could lead’ to a viable False Claims Act case,” 153 F.3d at 740, as the Court acknowledged in Graham County, 545 U.S. at 416 n. 1, 125 S.Ct. 2444 (citing Yesudian).7

As we have explained, supra pp. 67-69, under Yesudian Hoyte’s investigation *70could not reasonably lead to a viable reverse false claim action under section 3729(a)(7) (so as to support a whistleblower claim under section 3730(h)) because the activity she claims to have been investigating did not constitute an attempt to “conceal, avoid, or decrease an obligation to tender money or property to the Government.” The plain language of the statute (whether read by a lawyer or layman) requires that there be an obligation to make payment to the Government and ARC had no such obligation, “contractual” or otherwise. See Dissent at 73-74. It is true, as the dissent asserts, Dissent at 72-73, that the statute does not require in so many words that the investigation be in furtherance of a “viable” or “non-frivolous” action. But section 3730(h) does expressly require that the whistleblower’s conduct, to be protected, be “in furtherance of an action under this section ” (emphasis added), that is, in furtherance of an action under section 3730, which in turn requires that the action be “for a violation of section 3729” (in this ease a violation of section 3729(a)(7)). Thus, to recover for retaliation under section 3730(h), it is not sufficient that the whistleblower further an action under some other statutory scheme or, as here, a non-existent action. In any event, it is the law of this Circuit that “the employee must be investigating matters which are calculated, or reasonably could lead, to a viable FCA action.” Shekoyan v. Sibley Int’l, 409 F.3d 414, 423 (D.C.Cir.2005) (quotation omitted); see also Martin-Baker Aircraft Co., 389 F.3d at 1260; Yesudian, 153 F.3d at 740. And a frivolous action is by definition not a viable one. See Brandon v. D.C. Bd. of Parole, 734 F.2d 56, 59 (D.C.Cir.1984) (“[I]f the complaint is viable — it cannot be deemed frivolous.”). Because there was no viable FCA action here, the district court properly dismissed Count II.

For the foregoing reasons, we affirm the district court’s judgment dismissing Hoyte’s complaint.

So ordered.