By Giovanna A. Ferrari and David S. Wilson
Seyfarth Synopsis: On November 30, 2022, the U.S. Court of Appeals for the Third Circuit reversed the trial court’s dismissal of Plaintiff’s claim in Ascolese v. Shoemaker Const. Co. The case involved a retaliation claim brought under the federal False Claims Act, and it forced the Third Circuit to consider the effects of Congress’ 2009 and 2010 amendments to the statute. Ultimately, the court held that an employee may be protected by the FCA’s anti-retaliation provision if they are acting outside of their normal duties in trying to remedy a violation of the FCA.
In 2014, the Philadelphia Housing Authority (“PHA”) received a $30 million grant from the U.S. Department of Housing and Urban Development for the construction of public housing in North Philadelphia. This grant was contingent on the PHA’s compliance with the applicable construction standards and regulations. The project’s general contractor hired a subcontractor to handle quality control, and this subcontractor hired the Plaintiff, Don Ascolese, to detect and report any project “deficiencies.”
The number of alleged deficiencies was large. Among other shortcomings, Plaintiff noticed that the concrete had not been allowed to fully cure, and that the contractors had failed to use the required type of rebar. Bringing this to his supervisor’s attention, Ascolese stated that it would be “wrongful and fraudulent” for the project to receive government funds, and that “certification of their contract compliance would necessarily be false and fraudulent.”
Defendant failed to correct the mistakes, and in response, Plaintiff went outside his chain of command to inform PHA’s engineers of the deficiencies. When Defendant learned of this extraneous communication, it advised Ascolese to “just put [his feet] up on the desk and take it easy” and to “not relay [his concerns] to PHA.” Plaintiff ignored these commands, and his employment was terminated.
FCA Retaliation Standard
For an FCA retaliation claim to succeed, the plaintiff must show that their employer had notice that the plaintiff engaged in “protected conduct.” Prior to 2009, protected conduct included only “lawful acts done by the employee . . . in furtherance of an action under this section.” In other words, the pre-amendment FCA required a retaliation plaintiff to show that their employer had notice of the “distinct possibility” of False Claims Act litigation.
However, Congress amended the Act in both 2009 and 2010 to broaden the definition of “protected conduct.” After the amendments, “protected conduct” now includes either (1) the pursuit of a qui tam action or (2) “other efforts to stop one or more violations” of the FCA. This means that an employer need not be aware that FCA litigation is likely. Instead, it is enough that they have notice of their employee’s attempt to remedy the violation.
Third Circuit Reverses District Court
The appellate panel reversed the trial court’s decision and allowed the case to proceed. In doing so, it framed the issue as “whether Ascolese pled facts that plausibly showed [Defendant] was on notice he tried to stop [Defendant’s] alleged FCA violations.” The court further clarified that this question has two prongs: first, whether an employee was engaging in protected conduct, and second, whether the employer had notice of this conduct.
Regarding the first prong, the court relied on the legislative intent behind the 2009 and 2010 amendments in finding that Plaintiff was in fact engaged in protected conduct. While an employee “must do more than [their] job responsibilities to trigger FCA protection,” Ascolese’s outward reporting of the project’s deficiencies to PHA was over and above his normal duties as a compliance officer. Put simply, his breaking of the chain of command amounted to an “effort to stop one or more violations” of the FCA.
Similarly, the “notice” prong was satisfied both by Plaintiff’s external reporting as well as his communications within the chain of command. The court highlighted the fact that Plaintiff “directly advised [Defendant] that receiving government funds for the project was fraudulent.” These statements, coupled with Defendant’s insistence that Plaintiff refrain from further inspection, gave rise to a “plausible inference that [Defendant] was on notice of Ascolese’s efforts to stop FCA violations in the project.”
The court was also careful to distinguish this case from Reed v. KeyPoint Gov’t Sols., a post-amendment retaliation case with similar facts. While both cases involved the reporting of compliance analysts, the plaintiff in Reed “did not plead facts regarding her specific job description nor define the scope of her duties such that the court could discern the contours of her chain of command.” Without that information, the court reasoned, there was no reasonable inference that the Plaintiff was engaged in protected conduct.
Implication for Employers
Employers that accept federal dollars or receive governmental approval should be mindful of this case and its implications, especially those subject to suit in the Third Circuit. The 2009 and 2010 amendments to the False Claims Act greatly expand the bounds of “protected activity,” and courts are updating their guidance to reflect this new standard. Further, employers should continue to comply with federal regulations and treat employees in a fair, respectful fashion.