Don Ascolese v. Shoemaker Construction Co ( 2022 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 21-2899
__________
UNITED STATES OF AMERICA ex rel. DON ASCOLESE
v.
SHOEMAKER CONSTRUCTION CO.;
MCDONOUGH BOLYARD PECK INC.;
SHOEMAKER SYNTERRA JV
Don Ascolese,
Appellant
__________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(District Court No. 2:18-cv-01864)
District Judge: Honorable Mitchell S. Goldberg
__________
Argued on September 20, 2022
Before: AMBRO, RESTREPO, and FUENTES
Circuit Judges
(Filed: November 30, 2022)
David F. McComb [Argued]
Zachary A. Silverstein
Zarwin Baum DeVito Kaplan Schaer Toddy P.C.
2005 Market Street
One Commerce Square, 16th Floor
Suite 1300
Philadelphia, PA 19103
Counsel for Appellant
Eileen M. Ficaro [Argued]
Kaufman Dolowich & Voluck, LLP
1600 John F. Kennedy Boulevard
Four Penn Center
Suite 1030
Philadelphia, PA 19103
Counsel for Appellee
__________
OPINION
__________
RESTREPO, Circuit Judge.
Appellant Don Ascolese, a compliance officer, challenges
the District Court’s dismissal of his False Claims Act (“FCA”)
retaliation claim against his former employer, Appellee
McDonough Bolyard Peck (“MBP”), in connection with a qui
tam action involving a federally funded public housing con-
struction project for the Philadelphia Housing Authority
(“PHA”). In 2009–2010, Congress amended the FCA to ex-
pand the scope of protected conduct shielded from retaliation
2
and the type of notice an employer must have of the protected
conduct. Here, the District Court denied Ascolese leave to file
a Second Amended Complaint, applying both the old and new
standards for retaliation under the FCA. This Court has not
yet had the opportunity to address the statutory changes to the
FCA retaliation standard. We take the occasion to do so now
and adopt the new post-amendment standard. We will vacate
and remand to the District Court for further proceedings.
I. BACKGROUND
This is a whistleblower case brought under the FCA. The
relevant background has three parts: (1) the statutory back-
ground, (2) the underlying alleged facts, and (3) the ensuing
procedural history. We recount each part below.
A. Statutory Background
The FCA prohibits any person from, inter alia, knowingly
presenting a “false or fraudulent claim for payment or ap-
proval” to the United States government. 31 U.S.C.
§ 3729(a)(1)(A). It extends to all false claims resulting in the
receipt of funds from the United States Treasury. See Hutchins
v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 185 (3d Cir.
2001). The government may bring a direct suit to recover dam-
ages resulting from fraudulent claims or, “[a]lternatively, a pri-
vate plaintiff [known as a relator] may bring a qui tam action
on behalf of the government to recover losses incurred because
of fraudulent claims,” in exchange for an award of up to thirty
percent of the funds the government recovers. Id. at 181–82
(citing 31 U.S.C. §§ 3730(b)(1), (d)).
3
Employees seeking to report from within an organiza-
tion might be reluctant to use these qui tam provisions for fear
of employer backlash, thus the act also shields whistleblowers
from retaliation “because of” conduct protected by the FCA.
31 U.S.C. § 3730(h)(1). Prior to 2009, protected activity in-
cluded only “lawful acts done by the employee . . . in further-
ance of an action under this section [i.e., a qui tam suit].” 31
U.S.C. § 3730(h) (2008). This was known as the “distinct pos-
sibility” standard since it required plaintiffs to show that their
employer had notice of the distinct possibility that the plaintiff
was contemplating the filing of an FCA lawsuit. Hutchins, 253
F.3d at 179 (holding that “a retaliatory discharge cause of ac-
tion under 31 U.S.C. § 3730(h) requires proof that the em-
ployee engaged in ‘protected conduct’ and that the employer
was on notice of the ‘distinct possibility’ of False Claims Act
litigation and retaliated against the employee”).
In 2009, however, Congress expanded the universe of
protected conduct to whistleblowers who lawfully try to stop
one or more violations of the Act, without regard to whether
their conduct advances a qui tam suit under the Act:
Any employee, contractor, or agent shall be en-
titled to all relief necessary to make that em-
ployee, contractor, or agent whole, if that em-
ployee, contractor, or agent is discharged, de-
moted, suspended, threatened, harassed, or in
any other manner discriminated against in the
terms and conditions of employment because of
lawful acts done by the employee, contractor,
agent or associated others in furtherance of an
action under this section or other efforts to stop
1 or more violations of this subchapter.
4
31 U.S.C. § 3730 (emphasis added). Congress amended these
whistleblower protections once again in 2010, now expressly
protecting “lawful” acts “in furtherance of” either “an action”
under the FCA or “other efforts to stop 1 or more violations
of” the Act. 31 U.S.C. § 3730(h)(1); see, e.g., United States ex
rel. Reed v. KeyPoint Gov’t Sols., 923 F.3d 729, 765 (10th Cir.
2019) (adopting these two amendments to the Act).
The legislative history confirms the change was made
to “protect[] not only steps taken in furtherance of a potential
or actual qui tam action, but also steps taken to remedy the mis-
conduct . . . whether or not such steps are clearly in furtherance
of a potential or actual qui tam action.” 155 Cong. Rec. E1295-
03, E1300 (June 3, 2009) (statement of Rep. Berman). In other
words, to plead retaliation under the FCA, it is no longer solely
required that an employer be on notice that a plaintiff is con-
templating FCA litigation. See, e.g., Singletary v. Howard
Univ., 939 F.3d 287, 296 (D.C. Cir. 2019) (explaining that the
newly added language “is not tied to the prospect of a False
Claims Act proceeding” and instead “focuses on the whistle-
blower’s efforts to stop violations of the statute before they
happen”) (internal quotations omitted).1 The events giving rise
to this litigation took place against this statutory backdrop.
1
“To put it simply, the focus of the second prong is preventa-
tive—stopping ‘violations’—while the first prong is reactive to
an (alleged) actual violation of the statute.” Singletary, 939
F.3d at 296 (internal citations omitted)).
5
B. Factual Background
On July 1, 2014, the United States Department of Housing
and Urban Development (“HUD”) awarded a $30 million grant
to the PHA for the construction of public housing in North
Philadelphia (the “Project”). The PHA designated Shoemaker
Construction Co. and Shoemaker Synterra JV (together,
“Shoemaker”),2 a joint venture, as construction managers for
the Project. In the Spring of 2017, Shoemaker subcontracted
Appellee MBP to handle quality control and ensure that the
Project met all required construction standards.
Ascolese worked for MBP as the Quality Assurance/Qual-
ity Control (“QA/QC”) Manager for the Project. In this role,
he was tasked with detecting and reporting “deficiencies” such
as issues with the Project’s “design plans, specifications and
building codes.” App. 80. He was required to maintain an
electronic “Project Deficiency List,” noting each time the con-
tractors failed to follow design plans and specifications or
building codes. In that capacity, Ascolese “outlined dozens of
Project deficiencies” during his employment.
Ascolese alleges that he sent repeated emails to MBP
and Shoemaker expressing concerns regarding compliance
with the relevant contractual standards. For example, Ascolese
alleges that “the concrete used in the foundational walls had
not been allowed to fully cure before being backfilled. Nor
was steel horizontal rebar used in the foundation walls, even
though the building and design specifications required it as a
fundamental safety measure.” App. 186. Ascolese “advised
2
Ascolese settled his claims against Shoemaker and dismissed
it from the action; thus, Shoemaker is not a party to this appeal.
6
MBP and [Shoemaker management] that because of the dozens
of project deficiencies on the [Deficiency List], it would be
wrongful and fraudulent under those circumstances for [Shoe-
maker] and MBP to be paid government funds and that certifi-
cations of their contract compliance to obtain payments would
necessarily be false and fraudulent.” App. 199–200.
When neither Shoemaker nor MBP acted in response to
his internal complaints, Ascolese broke his chain of command
and expressly informed PHA’s engineers, via email on Decem-
ber 5, 2017, that Shoemaker’s concrete work was deficient.
Ascolese informed PHA engineers via email that “we may
have a problem with the foundation walls at [several of the Pro-
ject buildings]” and that the concrete work did not meet the
necessary requirements. App. 188.
After Ascolese sent these external emails, Shoemaker
told him not to go into the field—where he normally reviewed
the Project’s construction work and compliance issues—and
instead should “just put [his] feet up on the desk and take it
easy.” App. 188. Ascolese was further instructed to “keep his
concerns to himself and not relay them to PHA.” App. 190.
But Ascolese allegedly chose to not obey and “continued to
question the safety of the project and note deficiencies,” in-
cluding uploading over 1,600 photographs reflecting these de-
ficiencies in the Project Submittal Exchange. App. 188–89.
Shortly thereafter, on January 18, 2018, MBP informed Asco-
lese that Shoemaker wanted him “off the job” and fired him.
App. 199. Ascolese alleges that his termination constituted un-
lawful retaliation for whistleblowing activities protected by the
FCA.
7
C. Procedural History
Following his termination from MBP, Ascolese filed a
qui tam action on behalf of the government under the FCA.3
Ascolese alleged that MBP and Shoemaker defrauded the gov-
ernment by falsely certifying compliance with safety require-
ments to get paid by the PHA. He further alleged that his em-
ployer, MBP, illegally retaliated against him for trying to stop
MBP and Shoemaker’s fraud, which is protected activity under
§ 3730(h) of the False Claims Act. After the government de-
clined to intervene and Ascolese amended his complaint to, in-
ter alia, withdraw certain claims generally applicable only to
the government, MBP moved to dismiss the suit for failure to
state a claim.
On April 19, 2021, the District Court granted MBP’s
Motion to Dismiss on all counts without prejudice. At the
Court’s invitation, Ascolese moved for leave to file a Second
Amended Complaint. His proposed amendment contained
several new allegations regarding MBP’s alleged notice of
FCA-protected whistleblower conduct, including that Ascolese
advised MBP that (1) “because of the dozens of project defi-
ciencies . . . , it would be wrongful and fraudulent . . . for [Shoe-
maker and MBP] to be paid government funds;” (2) “certifica-
tions of [Shoemaker’s] contract compliance to obtain payments
would necessarily be false and fraudulent;” and (3) he was con-
cerned that Shoemaker was intentionally hiding deficiencies
from the PHA. App. 199. Ascolese also clarified that when he
made reports directly to the PHA, he was acting outside of his
usual “reporting chain of command.” App. 199.
3
Because he filed a qui tam action, the record refers to Asco-
lese as both a “plaintiff” and a “relator.”
8
On June 7, 2021, the District Court denied Ascolese’s
motion for leave to file a Second Amended Complaint, con-
cluding that amendment would be futile because Ascolese
failed to show that MBP was on notice that he would file an
FCA action or report fraud to the government, or that he acted
to stop one or more of MBP’s alleged FCA violations. Asco-
lese filed a motion for reconsideration, which the District Court
denied on June 17, 2021.
Ascolese now appeals from the District Court’s order
denying leave to file a Second Amended Complaint. His ap-
peal presents two overarching questions. First, did the District
Court exercise proper discretion in denying Ascolese’s motion
for leave to file a Second Amended Complaint? Second, did
the Court exercise proper discretion in not granting Ascolese’s
motion for reconsideration of its order denying leave to file the
proposed Second Amended Complaint?
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had federal question jurisdiction un-
der 28 U.S.C. § 1331. We have jurisdiction over this appeal
pursuant to 28 U.S.C. § 1291, which provides for review of
final decisions of the district courts.
We review a district court’s decision granting or deny-
ing leave to amend a complaint for abuse of discretion. See
Urrutia v. Harrisburg County Police Dept., 91 F.3d 451, 457
(3d Cir. 1996). However, we review this decision de novo
when the amendment was denied for legal reasons, such as
when the proposed amendment would fail to state a claim.
Mullin v. Balicki, 875 F.3d 140, 150 (3d Cir. 2017). The Court
reviews a denial of a motion for reconsideration under an
9
abuse-of-discretion standard. B.C. v. Att’y Gen. United States,
12 F.4th 306, 313 (3d Cir. 2021).
III. DISCUSSION
This Court has not yet had the opportunity to address
the effect of the 2009–2010 Congressional amendments on the
FCA retaliation standard. This has led to some confusion in
the District Courts of the Third Circuit. Here, the District
Court understandably misinterpreted Third Circuit precedent
as holding that Ascolese is “require[d]” to show that MBP had
notice either that he was contemplating FCA litigation or re-
porting to the government that MBP had committed fraud.
App. 35–36 (citing United States ex rel. Petras v. Simparel,
Inc., 857 F.3d 497, 507 (3d Cir. 2017)). However, this pre-
amendment “distinct possibility” standard is no longer the sole
basis for liability.
The District Court correctly acknowledged that the new
standard is whether Ascolese showed “(1) he engaged in pro-
tected conduct (in furtherance of an [FCA] action . . . or other
efforts to stop 1 or more violations of the [the FCA]) and (2)
that he was discriminated against because of his protected con-
duct.” App. 35. However, the District Court, necessarily af-
fected by its belief that the pre-amendment standard was re-
quired by the Third Circuit, ultimately concluded that Ascolese
failed to show MBP was on notice that he was attempting to
stop MBP from violating the FCA and not merely doing his job
as a Quality Control/Quality Assurance Manager for the Pro-
ject.
10
A. Retaliation Standard After the FCA Amend-
ments
We take this occasion to formally adopt a reading of the
anti-retaliation standard that takes into consideration the 2009–
2010 FCA amendments. See United States v. Adams, 252 F.3d
276, 286 (3d Cir. 2001) (observing that “[a]lthough a panel of
this court is bound by, and lacks authority to overrule, a pub-
lished decision of a prior panel, a panel may reevaluate a prec-
edent in light of intervening authority and amendments to stat-
utes or regulations”) (citation omitted). In this Court’s only
post-amendment FCA retaliation case, Petras, we referenced
the old “distinct possibility” of FCA litigation standard without
considering the newly added “other efforts” to stop FCA vio-
lations prong. 857 F.3d at 507. Since Petras stated that the
whistleblower provision with the notice of an FCA claim ele-
ment applies “only to actions in furtherance of a viable FCA
case,” it implicitly suggested that the “distinct possibility”
standard would continue to apply despite the FCA amend-
ments. Id. at 507–08 (emphasis in original); see, e.g., Heckman
v. UPMC Wellsboro, No. 4:20-CV-01680, 2021 WL 2826716,
at *14 n.187 (M.D. Pa. July 7, 2021) (acknowledging limited
nature of the Petras holding). We determine now that this is
not the case.
The District Court understandably concluded that in
Petras “[t]he Third Circuit [] held that the knowledge prong
requires the employee to put his employer ‘on notice of the dis-
tinct possibility of False Claims Act litigation.’” App. 35
(quoting Petras, 857 F.3d at 507). However, we conclude that
neither our holding in Petras nor the plain text of the amended
whistleblower provisions supports such a narrow view. Pet-
ras’s reaffirmance of the “distinct possibility” standard was
11
limited to the FCA litigation prong of § 3730 since the retalia-
tion claim was only asserted under that element of the whistle-
blower provision. Briefing shows Petras never raised the
“other efforts” prong on appeal. Significantly, the Petras
Court never reached the retaliation issue since it found that the
underlying FCA claim was not viable. Petras, 857 F.3d at 507
(“Even if Petras had sufficiently alleged [his employer had] no-
tice [of his protected conduct]—an issue we do not address
here. . . Petras’s reverse FCA action is not viable. Therefore,
Petras’s retaliation claim fails as well.”).
Furthermore, the amendments to the anti-retaliation
provision reflect a congressional intent to expand protection to
“‘efforts to stop’ violations of the statute before they happen or
recur.” Singletary, 939 F.3d at 296 (emphasis added). When
“Congress expands the scope of activity protected by a statute,
we cannot restrict ourselves to applying a narrower old stand-
ard that the expansion . . . eschew[ed].” United States ex rel.
Grant v. United Airlines Inc., 912 F.3d 190, 201 (4th Cir.
2018). Ascolese is correct that the District Court’s continued
reliance on the old standard vitiates the newly added category
of protected activity—“other efforts to stop 1 or more viola-
tions of this subchapter”—and renders Congress’s amendment
null. Appellant Br. 10. Accordingly, we recognize that the
2009–2010 FCA amendments expanded the anti-retaliation
standard to protect “lawful” acts “in furtherance of” either “an
action” under the FCA or “other efforts to stop 1 or more vio-
lations of” the Act. 31 U.S.C. § 3730(h)(1).
12
B. Applying the New Standard, Ascolese Suffi-
ciently Pled Retaliation
As relevant here, the right question is whether Ascolese
pled facts that plausibly showed MBP was on notice he tried to
stop MBP’s alleged FCA violations. On appeal, Ascolese
“submits that the FCA protects him because he went well be-
yond the scope of his job responsibility as a QA/QC manager
to stop fraudulent conduct at the Project.” Appellant Br. 3.
As a compliance employee, Ascolese must do more than
his job responsibilities to trigger FCA protection, like “acting
outside [his] normal job responsibilities [or] notifying a party
outside the usual chain of command.” United States ex rel.
Schweizer v. Oce N.V., 677 F.3d 1228, 1239 (D.C. Cir. 2012);
Hutchins, 253 F.3d at 194 (holding an employee generally
tasked with investigating regulatory deficiencies “must make
it clear that his investigatory and reporting activities extend be-
yond [his] assigned task in order to allege retaliatory discharge
under § 3730(h)”); Reed, 923 F.3d at 767 (holding that to ade-
quately pled notice, a compliance officer must show they were
attempting to stop their employer from violating the FCA, and
not just merely doing their job). This is a fact intensive inquiry.
When applying this prong, consistent with the 2009–
2010 amendments and Ascolese’s pleadings, the District Court
should focus on whether Ascolese acted outside of his chain of
command or his job duties. Here, the District Court relied on
the Tenth Circuit’s decision in Reed, which involved a senior
quality control analyst who brought an FCA action and retali-
ation claim against her former employer. 923 F.3d at 729. It
concluded that, like the relator in Reed, Ascolese “has failed to
plead specific facts . . . that make clear that MBP was on notice
13
that he was attempting to stop MBP from violating the FCA
and not merely doing his job as the Quality Control/Quality
Assurance Manager for the Project.” App. 37.
Although Reed is instructive, it is distinct from this case.
The relator 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 or
ordinary reporting structure related to fraud matters. Reed, 923
F.3d at 770. Without that information, the court could not say
or reasonably infer that the relator broke her chain of command
or ordinary communication protocol by speaking with individ-
uals inside the company. Id. Accordingly, the Reed Court con-
cluded that the relator did not sufficiently plead that she vio-
lated her employer’s established communication protocol,
broke her chain of command, or otherwise acted outside of the
scope of her job duties. Id. at 771–72.
i. Ascolese sufficiently pled he engaged in pro-
tected conduct
Here, Ascolese sufficiently pled that he engaged in pro-
tected conduct when he went outside of his chain of command
to report his concerns of fraudulent work to the PHA. He first
outlined his usual job responsibilities, including “inspecting
and verifying construction activities, noting . . . deficiencies,
and various document and records keeping and reporting func-
tions.” App. 182. He was “required . . . to maintain a Project
Deficiency List” online through “a platform called the Project
Submittal Exchange.” App. 185, 193.
Ascolese also established the contours of his chain of
command—he raised Project issues and safety concerns with
14
his superiors at MBP, and reported MBP’s alleged fraudulent
conduct to PHA, “HUD’s fiscal intermediary and a party out-
side of [his] reporting chain of command.” App. 199. Under
the contract with PHA, Shoemaker was supposed to inspect the
work of its subcontractors, like MBP. Ascolese listed various
MBP and Shoemaker supervisors that he reported to by name.
Ascolese also pled that, in an effort to stop FCA violations, he
“advised MBP and [Shoemaker] that because of the dozens of
project deficiencies on the [deficiency list], it would be wrong-
ful and fraudulent under those circumstances for [Shoemaker]
and MBP to be paid government funds and that certifications
of their contract compliance to obtain payments would neces-
sarily be false and fraudulent.” App. 199–200.
In addition to these internal reports of fraud, Ascolese
went outside of his chain of command and continued to docu-
ment fraudulent project deficiencies despite being told not to
do so. After he emailed PHA engineers and told them that
there were problems with the foundational walls and the con-
crete, Shoemaker instructed him to stay out of the field, where
he normally reviewed the Project’s construction work and
compliance issues, and instead should “just put [his] feet up on
the desk and take it easy.” App. 188. But Ascolese alleges to
have disobeyed this instruction and “continued to question the
safety of the project and note deficiencies,” including upload-
ing over 1,600 photographs reflecting these deficiencies in the
Project Submittal Exchange. App. 188–89. He “repeatedly
pressed the [P]roject to correct the deficiencies and reiterated
that the deficiencies were a violation of the contract standards,
fraudulent and creating potentially dangerous conditions” but
“he was told to keep his concerns to himself and not relay them
to PHA.” App. 190 (emphasis added); see, e.g., Schweizer, 677
F.3d at 1239 (holding relator made prima facie claim of
15
retaliation after pleading she “repeatedly disobeyed the orders
of . . . her supervisor, to stop investigating” the alleged FCA
fraud). Taking these facts as true and in the light most favora-
ble to plaintiff, Ascolese sufficiently pled that he engaged in
protected conduct.
ii. Ascolese sufficiently pled MBP was on notice of
his protected conduct and retaliated against him
because of it
Ascolese sufficiently alleged that MBP was on notice of
his efforts to stop MBP and Shoemaker’s alleged FCA viola-
tions and retaliated against him because of it. He alleged that
“MBP was fully aware of [his] protected activity” because he
“complained to MBP and [Shoemaker] management, as well
as PHA management on numerous occasions in person and in
writing about [Shoemaker’s] and MBP’s fraudulent conduct.”
App. 200. Specifically, Ascolese directly advised MBP that
receiving government funds for the Project was fraudulent un-
der the circumstances since there were dozens of project defi-
ciencies on his Deficiency List and, consequently, “certifica-
tions of their contract compliance to obtain payments would
necessarily be false and fraudulent.” App. 199–200.
MBP was aware that Ascolese made external reports to
the PHA, which was “outside of [his] reporting chain of com-
mand.” App. 199. After Ascolese circulated an email to sev-
eral individuals, including PHA engineers, regarding project
deficiencies that were allegedly fraudulent, Shoemaker took
him out of the field and told him to “just put [his] feet up on
the desk and take it easy.” App. 188. Ascolese’s employer
then told him “to keep his concerns to himself and not relay
them to PHA.” App. 190 (emphasis added). Ascolese
16
disobeyed these instructions and continued to make reports on
the safety of the Project. A month and a half later, MBP fired
him at Shoemaker’s request. We conclude that these facts give
rise to a plausible inference that MBP was on notice of Asco-
lese’s efforts to stop FCA violations in the Project and retali-
ated by firing him.
We need not reach a decision on the motion for reconsid-
eration as it is moot.
IV. CONCLUSION
For the foregoing reasons, we will vacate and remand to
the District Court for further proceedings consistent with this
opinion.
17