Archive for January, 2019

Fourth Circuit Adopts the “Objective Reasonableness” Standard for Protected Activity for Retaliation Claims

Tuesday, January 8th, 2019

The Fourth Circuit Court of Appeals recently ruled on a Relator’s appeal in United States ex rel. Grant v. United Airlines, Inc. and adopted the objective reasonableness standard for retaliation claims brought under 31 U.S.C. §3730(h). The Fourth Circuit joins the Seventh, Eighth, and Ninth Circuits in applying this standard to 3730(h) retaliation claims.

In the underlying case, Relator David Grant brought a qui tam action against his former employer, United Airlines, which was contracted to perform service and maintenance on the Boeing C-17 Globemaster military transport planes. Relator alleged that from 2008 to 2014, he observed that United would certify repairs that were not actually completed, that were done with improper tools, and that were done by technicians who were not properly trained.

The district court dismissed the Relator’s False Claims Act (FCA) claims for failure to state a claim under Rule 12(b)(6) and Rule 9(b) because the Complaint failed to sufficiently alleged that United ever presented, or caused to be presented a false claim for payment to the government.  Additionally, the lower court also dismissed the Relator’s 3730(h) retaliation claim on the basis that the Complaint did not allege that Grant engaged in the type of activity protected by the FCA.

Of interest, the Fourth Circuit Court of Appeals affirmed the dismissal of the FCA claims and reasoned that the Complaint did not plead Relator’s claims with the requisite particularity, specifically that he failed to show that the scheme necessarily led to the presentment of a claim to the government for payment. Notably, however, the appellate court found that the district court erred in dismissing Grant’s retaliation claim. The Court held that the Plaintiff sufficiently pleaded retaliation under section 3730(h).

Amendment to Section 3730(h) in 2010

Prior to 2009, “protected activity” was defined as measures taken in furtherance of an action under the FCA, but the statute has since been expanded. 31 U.S.C. §3730(h) was amended in 2010 to include a second, broader category of protected activity. Accordingly, 31 U.S.C. §3730(h) now defines two types of protected activity: (1) Acts in furtherance of an FCA action or (2) other efforts to stop one or more FCA violations. The type of activity at issue in this case was the latter. Specifically, the appellate court found that the “distinct possibility” standard (which is used to evaluate protected activity in furtherance of an FCA action) does not apply when evaluating the second type of protected activity. Instead, the court adopted the “objective reasonableness” standard for evaluating other efforts to stop FCA violations.

The “Objective Reasonableness” Standard

Under the objective reasonableness standard, an act constitutes protected activity where it is motivated by an objectively reasonable belief that the employer is violating, or soon will violate, the FCA. A belief is objectively reasonable when the plaintiff/relator alleges facts sufficient to show that he believed his employer was violating the FCA, that this belief was reasonable, that he took action based on that belief, and that his actions were designed to stop one or more violations of the FCA. The court noted that the plaintiff’s actions do not need to lead to a viable FCA action to establish protected activity.

In this case, the court found that it was (1) objectively reasonable for Grant to believe that United committed fraud and (2) his numerous verbal and written complaints, which were direct and specific in alleging the fraud, demonstrated action designed to stop one or more FCA violations. Accordingly, the court found that under the objective reasonableness standard, plaintiff sufficiently alleged that he was engaged in protected activity, United knew about the protected activity, and United terminated plaintiff because he engaged in the protected activity.

In adopting the objective reasonableness standard, the Fourth Circuit Court of Appeals made abundantly clear that retaliation claims can succeed with or without a viable FCA action intact.

Germany Whistleblowing Reform Law

Friday, January 4th, 2019

What Happened?

In July 2016, Germany amended the German Act on Financial Services Supervision (Finanzdienstleistungsaufsichtsgesetz – “FinDAG”) and created whistleblower protections for employees of all companies subject to the supervision of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”). BaFin, when formed in 2002, was one of the largest financial supervisory agencies in Europe. BaFin was created to supervise the banking, securities, and insurance sectors in Germany and ensures the stability of a European financial market. After major responsibility for banking oversight shifted to the European Central Bank in 2014, BaFin became more focused on its enforcement provisions. In 2016, it opened a new office dedicated to corporate whistleblowers in order to encourage business insiders to expose wrongdoing prohibited by the BaFin regulations and relevant European Union (“EU”) ordinances and directions.

The Background

Prior to the amended FinDAG, there was no German legislation expressly dedicated to whistleblower protection. Individuals had to piece together portions of other laws (the German Data Protection Act, the German Labor Protection Act, the German General Equal Treatment Act, and the German Works Constitution Act (“Four Acts”)) in an attempt to gain any protection under existing legislation. In theory, the Four Acts provided protection against unfair dismissal and discriminatory treatment. In reality, the Four Acts often left whistleblowers exposed to liability under labor and criminal laws.

The Motivation

The enactment of the German whistleblower protection law appears to be largely reactionary. In 2011, the European Court of Human Rights convicted Germany for restricting whistleblowers’ freedom of expression. This conviction, coupled with a rise in corruption and fraud, prompted the BaFin to reform its approach to whistleblowing. Recognizing the importance of whistleblowers, in 2016, BaFin implemented explicit whistleblowing protections for the first time in modern German history.

Who Can Be A Whistleblower Under Current German Law?

Under Section 4 of the FinDAG, a whistleblower is defined as an employed individual or contractor with specific knowledge of a company’s internal matters who reports potential or actual misconduct by a company that is under the supervision of the BaFin. Companies that fall under the supervision of the BaFin include, but are not limited to: banks; financial services institutions; capital management companies; insurance companies; and stock listed companies subject to the German Securities Trading Act.

What Protections Can A Whistleblower Receive under German Law?

Prior to the amended FinDAG, whistleblowers could be prosecuted for breaching the duty of loyalty to their employers or damaging their employers’ reputation. The amended FinDAG shields whistleblowers from all liability as long as they did not intentionally or negligently submit an untrue report. Whistleblowers are also afforded confidentiality. BaFin can reveal a whistleblower’s identity if the whistleblower consents to the disclosure. BaFin can also disclose the whistleblower’s identity if it is necessary to conduct further investigations or proceedings.

Blowing The Whistle In Germany

Whistleblowers may report misconduct internally, pursuant to their employers’ internal reporting mechanisms, or directly to the BaFin. In July 2016, BaFin established a central point of contact for whistleblowers to report supervisory violations. Whistleblowers can submit their reports of misconduct to BaFin by mail, e-mail telephone, or in person. As of January 2017, whistleblowers may also submit their report anonymously through an electronic reporting platform.

The Take Away

The amendment of the FinDAG to include whistleblower protections was considered by many to be revolutionary, given that previously, whistleblowers faced criminal liability or civil liability under labor laws for blowing the whistle. As of 2016, whistleblowers may report misconduct under the protective umbrella of freedom from liability and the added measure of confidentiality similar to American whistleblower statutes. Unlike the United States, however, German whistleblowers do not receive a financial reward for reporting alleged wrongdoing. Also, the FinDAG whistleblowing protections apply only to those who blow the whistle on activities that fall under the BaFin’s supervision or similar ordinances of the EU. Persons with knowledge of misconduct by German companies registered with the United States Securities and Exchange Commission (“SEC”) have the option of filing a report with the SEC. While many Germans are pushing for broad whistleblowing reform, it seems unlikely to happen in the near future. It raises the question, does Germany truly believe reform is unnecessary, or is financial wrongdoing the only fraud the country is interested in exposing through whistleblowing at this time?