Scott Carlson v. DynCorp International LLC , 657 F. App'x 168 ( 2016 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1281
SCOTT N. CARLSON,
Plaintiff - Appellant,
v.
DYNCORP INTERNATIONAL LLC,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Liam O’Grady, District
Judge. (1:13-cv-00751-LO-TRJ)
Argued: March 1, 2016 Decided: August 22, 2016
Before GREGORY, Chief Judge, and MOTZ and THACKER, Circuit
Judges.
Affirmed by unpublished opinion. Chief Judge Gregory wrote the
opinion, in which Judge Motz and Judge Thacker joined.
ARGUED: Jacob Madison Small, J. MADISON PLC, McLean, Virginia,
for Appellant. Edward T. Ellis, LITTLER MENDELSON, P.C.,
Philadelphia, Pennsylvania, for Appellee. ON BRIEF: Andrew B.
Rogers, LITTLER MENDELSON, P.C., McLean, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
GREGORY, Chief Judge:
Appellant Scott Carlson appeals from a district court order
dismissing with prejudice his second amended complaint for
failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6). Carlson argues that the district court
applied the wrong standard in dismissing his claim under the
False Claims Act’s (“FCA”) anti-retaliation provision, 31 U.S.C.
§ 3730(h). While we agree that the district court applied a
standard rendered erroneous by recent amendments to the statute,
we nevertheless affirm its decision dismissing the case.
Defendant-Appellee DynCorp International, LLC, is a
government contractor which, on May 14, 2012, hired Plaintiff-
Appellant Scott Carlson as Director of Stabilization and
Governance. DynCorp has substantial government contracts and is
therefore subject to the Cost Accounting Standards (“CAS”)
promulgated by the Office of Federal Procurement Policy’s Cost
Accounting Standards Board. JA 91. These dictate accounting
and billing practices for entities with $50 million or more in
government contracts. Carlson is familiar with the CAS owing to
twenty years of experience in government contracting while
employed at the U.S. State Department.
While at DynCorp, Carlson supervised a team of six
employees who performed work on several of the company’s
government contracts. At least one of these was with the U.S.
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Agency for International Development (“USAID”), known as the
“USAID Mindanao project.” Central to this case was the work
Carlson and his team did preparing a bid for another contract
with USAID, this one dubbed the Rule of Law Indefinite Quantity
Contract (“ROL IQC”).
Carlson alleges that a major hurdle to securing the ROL IQC
arose out of USAID’s suspicion that the indirect cost rate
DynCorp put in its bid was too low. DynCorp bid lower-than-
average indirect costs, and Carlson alleges that indirect cost
competition is “the central distinguishing factor amongst bids
for service contracts.” JA 93.
According to Carlson, he first sought to address concerns
about the indirect cost rate during a call with his superiors in
September 2012. When he inquired into the low rate, Carlson was
given a “clear signal to back off” from DynCorp CFO William
Kansky. JA 94. Carlson alleges that Kansky asked him “Who are
you?” and “What do you think your role is here?”, and then later
pulled Carlson’s employee file. JA 94-95.
Several months later, in December 2012, DynCorp began
altering billing procedures for Carlson’s team. Initially the
team’s access to the overhead work billing code in the
timekeeping system was simply eliminated. After Carlson
complained to staff in the company’s finance department that
this could result in employees billing their overhead work as
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direct work (in order to get credit for that time), DynCorp
instructed the team to bill overhead activity to a code leftover
from a previous project, the “SWIFT III Zimbabwe Code” (also
called the “Zimbabwe Unbillable Code”).
Carlson still considered the accounting method irregular and
alleges that at this time he became concerned that DynCorp might
be attempting to hide its indirect costs from the government.
Carlson raised the overhead billing issue with management
persistently over the next several months, including by email,
comments in the timekeeping system, and verbally with his
superiors, noting at least once that he did not think the
practices were “legally compliant.” JA 97-98. Carlson alleges
that he tried to strike a balance by raising the issue without
accusing his superiors at DynCorp of illegal conduct. DynCorp
did not address his concerns and Carlson never felt he’d been
assured that everything was above board.
In March 2013, Carlson was informed that his team had
accumulated $75,000 in cost overruns on the USAID Mindanao
project. He alleges that DynCorp refused to show him how the
overruns had occurred and that the “lack of transparency made it
impossible for him to see the alleged costs” despite his
requests for more information. JA 98-99.
On April 17, 2013, Carlson delivered the completed ROL IQC
bid to USAID. The bid named Carlson himself for a key position,
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but later that day DynCorp fired him. Carlson was told the
termination was due to a reorganization, but when DynCorp
provided him with a list of employees terminated in the
restructuring Carlson was one of just two people on the list.
The other person was not named, but Carlson asserted that the
only person fitting the information provided was program
director named Eduardo Fernandez. Carlson alleges that he
participated in Fernandez’s termination and that it was not
pursuant to any reorganization.
Carlson filed this FCA suit for retaliatory termination
under 31 U.S.C. § 3730(h) in the Eastern District of Virginia on
June 20, 2013. An initial complaint was dismissed without
prejudice under Rule 12(b)(6) on November 22, 2013, for failure
to state a claim. Carlson refiled, and his amended complaint
was dismissed, this time with prejudice, for the same reason on
February 28, 2014. Carlson timely appealed, but his appeal was
placed in abeyance for Ronald P. Young v. CHS Middle East, LLC,
No. 13-2342, which was resolved in an unpublished opinion on May
27, 2015, 611 F. App’x 130, 134 (4th Cir. 2014).
II.
We review the district court’s Rule 12(b)(6) dismissal de
novo. United States ex rel. Badr v. Triple Canopy, Inc., 775
F.3d 628, 634 (4th Cir. 2015). To survive the motion to
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dismiss, Carlson must state a plausible claim entitling him to
relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Triple
Canopy, 775 F.3d at 634. Facts alleged in the complaint are
taken as true and all facts are viewed in the light most
favorable to the plaintiff. LeSueur-Richmond Slate Corp. v.
Fehrer, 666 F.3d 261, 264 (4th Cir. 2012). The Court, however,
“need not accept the legal conclusions drawn from the facts, and
. . . need not accept as true unwarranted inferences,
unreasonable conclusions, or arguments.” Giarratano v. Johnson,
521 F.3d 298, 302 (4th Cir. 2008) (citations omitted).
The FCA was originally passed in 1863 in response to
widespread contractor fraud during the Civil War. “Debates at
the time suggest that the Act was intended to reach all types of
fraud, without qualification, that might result in financial
loss to the Government.” United States v. Neifert-White Co.,
390 U.S. 228, 232 (1968).
In order to bring government contractor fraud to light, the
FCA has a whistleblower provision which entitles a contractor’s
employee to relief where “lawful acts done by the employee . . .
in furtherance of an action under this section or other efforts
to stop 1 or more violations of this subchapter” result in
retaliatory conduct by the employer. § 3730(h)(1). To
establish a prima facie case under this provision (and thereby
survive a motion to dismiss), Carlson must plausibly allege that
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(1) he engaged in a protected activity; (2) the employer knew
about the activity; and (3) the employer retaliated against him
in response. See Eberhardt v. Integrated Design & Const., Inc.,
167 F.3d 861, 866 (4th Cir. 1999). As explained in greater
detail below, this provision establishes two kinds of protected
activity for employees of government contractors: that which
supports an FCA action against the employer alleging a fraud on
the government (whether brought by the government itself or in a
qui tam suit on the government’s behalf), and that which is part
of an effort to stop a FCA violation.
Carlson is seeking to recover under the latter of these two
prongs. His theory is that questioning DynCorp’s accounting and
billing practices and encouraging his staff to do the same
amounted to “efforts to stop 1 or more violations of [the FCA],”
§ 3730(h), and that his termination by DynCorp was in
retaliation for engaging in this protected activity.
A.
Before addressing the specifics of Carlson’s theory of
recovery, we must first interpret § 3730(h) in light of
amendments made to the statute in 2009 and 2010.
Prior to 2009, the FCA’s whistleblower provision defined
protected activity as employee conduct “in furtherance of an
action under this section, including investigation for,
initiation of, testimony for, or assistance in an action filed
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or to be filed under this section.” See False Claims Amendments
Act of 1986, Pub. L. 99-562, § 4, 100 Stat. 3153, 3157-58. In
interpreting this earlier version of § 3730(h), this Court and
others adopted a “distinct possibility” standard, holding that
“an employee engages in protected activity when litigation is a
distinct possibility, when the conduct reasonably could lead to
a viable FCA action, or when . . . litigation is a reasonable
possibility.” Eberhardt, 167 F.3d at 869 (citations and
quotations omitted).
Since the distinct possibility standard was adopted,
§ 3730(h) has been amended twice, once in 2009 and again in
2010. The 2009 amendment struck the reference to a FCA action
altogether, describing protected activity as “lawful acts
done . . . in furtherance of other efforts to stop 1 or more
violations” of the FCA. Fraud Enforcement and Recovery Act of
2009, Pub. L. No. 111-21, 123 Stat. 1617, 1624-25 (2009)
(“FERA”). The new provision was grammatically incorrect,
however, as the word “other” was extraneous—the provision only
covered “other efforts to stop [a] violation.” Id. Congress
amended § 3730(h) again in 2010, Dodd-Frank Wall Street Reform
and Consumer Protection Act, Pub. L. 111-203, § 1079A(c), 124
Stat. 1376, 2079 (2010), adding back some of the previously
excised language. The provision now covers employee conduct “in
furtherance of an action under this section or other efforts to
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stop 1 or more violations of this subchapter.” 31 U.S.C.
§ 3730(h).
It is the effect of these changes that is in dispute.
Carlson argues that the distinct possibility standard only
applies to the pre-2009 language—“in furtherance of an [FCA]
action”—and that the “other efforts to stop 1 or more
violations” language requires a different, and broader, rule.
In other words, he argues that the amendments had the effect of
creating two separate prongs to the whistleblower provision, and
that the second prong necessarily broadens the provision’s
coverage. We agree.
First, it is clear that the distinct possibility standard
cannot apply to the second prong of § 3730(h). While the first
prong refers to activity associated with an action under the
FCA, the second prong specifically encompasses “other efforts.”
It would be nonsensical to say that these efforts only become
protected activity if a lawsuit under the FCA becomes a distinct
possibility—the second prong is explicitly untethered from any
such action. Moreover, the distinct possibility standard winked
out of existence for a brief period when Congress excised
language from the statute in 2009. In the 2009 FERA amendment
to § 3730(h), Congress decided to create an entirely new, and
clearly broader, category of protected activity within the FCA
by premising coverage on “efforts to prevent 1 or more
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violations” rather than on the distinct possibility of
litigation. Finally, applying the distinct possibility standard
to cover both the old and the new language in § 3730(h) would
render the latter a nullity in contradiction to the well-
established canon that courts engaged in statutory
interpretation must “give each word some operative effect.” In
re Ennis, 558 F.3d 343, 346 (4th Cir. 2009).
The district court therefore erred when it relied on our
application of the pre-2009 § 3730(h), stating that “to pass
muster under the distinct possibility standard, a plaintiff must
be investigating matters that reasonably could lead to a viable
FCA action.” JA 171 (quoting Glynn v. EDO Corp., 710 F.3d 209,
214 (4th Cir. 2013) (internal quotation marks omitted). That is
no longer the (only) standard for identifying protected activity
under this provision.
Instead, we will assume, without deciding, that Carlson is
correct in arguing that the second prong of § 3730(h) makes
“efforts to stop 1 or more violations” protected activity where
those efforts are motivated by an objectively reasonable belief
that the employee’s employer is violating, or soon will violate,
the FCA. It is worth noting that several of our sister circuits
had adopted such a standard under the earlier, unamended
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§ 3730(h). * Fanslow v. Chi. Mfg. Ctr., Inc., 384 F.3d 469, 480
(7th Cir. 2004); Wilkins v. St. Louis Hous. Auth., 314 F.3d 927,
933 (8th Cir. 2002); Moore v. Cal. Inst. of Tech. Jet Propulsion
Lab., 275 F.3d 838, 845 (9th Cir. 2002). And more recently a
panel of the Sixth Circuit explained in an unpublished opinion
that the new “efforts to stop” language added to § 3730(h)
demonstrates that the statute covers internal reports of fraud
where the plaintiff’s “allegations of fraud grew out of a
reasonable belief in such fraud.” Jones-McNamara v. Holzer
Health Sys., 630 F. App’x 394, 399-400 (6th Cir. 2015).
Finally, an objectively reasonable belief standard aligns with
our treatment of similarly structured whistleblower provisions
in Title VII, the Age Discrimination in Employment Act, and the
Americans with Disabilities Act. E.g., E.E.O.C. v. Navy Fed.
Credit Union, 424 F.3d 397, 406-07 (4th Cir. 2005) (“[S]ection
704(a) protects activity in opposition not only to employment
actions actually unlawful under Title VII but also employment
*
While this Court did not adopt that formulation, we did
say that the “[distinct possibility] standard requires that
protected activity relate to company conduct that involves an
objectively reasonable possibility of an FCA action.” Mann v.
Heckler & Koch Def., Inc., 630 F.3d 338, 344 (4th Cir. 2010).
We also rejected the plaintiff’s claim in that case in part
because “[i]t was unreasonable . . . [for the plaintiff] to
expect opposition to such a bid to lead to a viable FCA action.”
Id. at 346 (emphasis added). Thus, although § 3730(h)’s new
language demands a fresh interpretation, our decision today does
not substantially depart from past precedent.
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actions an employee reasonably believes to be unlawful.”
(citations omitted)); Buchhagen v. ICF Int’l, Inc., 545 F. App’x
217, 221 (4th Cir. 2013) (unpublished) (“Even if ICF’s actions
ultimately do not amount to unlawful age discrimination, the
allegations that we found sufficient to support Buchhagen’s
wrongful discharge claim also suffice to establish that
Buchhagen had a reasonable belief that ICF violated the ADEA.”);
Freilich v. Upper Chesapeake Health, Inc., 313 F.3d 205, 216
(4th Cir. 2002) (“A plaintiff need not establish that the
conduct she opposed actually constituted an ADA violation. But
a complainant must allege the predicate for a reasonable, good
faith belief that the behavior she is opposing violates the
ADA.”).
The district court therefore erred when it relied on our
application of the pre-2009 § 3730(h), stating that “to pass
muster under the distinct possibility standard, a plaintiff must
be investigating matters that reasonably could lead to a viable
FCA action.” JA 171 (quoting Glynn v. EDO Corp., 710 F.3d 209,
214 (4th Cir. 2013) (internal quotation marks omitted). That is
no longer the (only) standard for identifying protected activity
under this provision.
B.
Having established the applicable standard for applying
§ 3730(h)’s second prong, we must now determine whether
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Carlson’s complaint establishes that he engaged in protected
activity (the first element required for a prima facie
retaliation case). In other words, does he allege facts
sufficient to show that he believed DynCorp was violating the
FCA, that his belief was reasonable, that he took action based
on that belief, and that his actions were designed to “stop 1 or
more violations of” the FCA?
We find that Carlson has failed to show that his belief
that DynCorp was violating the FCA was objectively reasonable.
It is a violation of the FCA to “knowingly present[], or
cause[] to be presented, a false or fraudulent claim for
payment” to the federal government. 31 U.S.C. § 3729(a)(1)(A).
It is likewise a violation to “knowingly make[], use[], or
cause[] to be made or used, a false record or statement material
to a false or fraudulent claim.” § 3729(a)(1)(B). Carlson’s
complaint relies primarily on the latter of these, arguing that
he feared “his billing entries and those of his staff were being
used to create false records of Indirect Costs,” JA 98, and that
he “was attempting to stop the creation of false records
material to a false claim, namely statements of Indirect Costs
that did not include [his team’s] Indirect Costs, which would
violate 31 U.S.C. § 3729(1)(1)(B) [sic],” JA 101. His complaint
also asserts that he was “attempting to stop a conspiracy within
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DynCorp to violate” both of the provisions quoted above. JA
101.
Carlson’s evidence that DynCorp was preparing to violate
the FCA, as enumerated in his complaint and his response to
DynCorp’s motion to dismiss, was that (1) he “encountered
hostility at any inquiry into the calculation of the indirect
cost rate,” (2) DynCorp made it impossible for his team to
“honestly record their work” in the timekeeping system by
compelling staff to bill overhead to an old project code, (3)
others at DynCorp thought the changes were inappropriate, and
(4) DynCorp never explained its changes or adequately addressed
Carlson’s internal complaints. JA 151.
None of this, however, states a theory of fraud on the
government. As DynCorp has maintained throughout this
litigation, all Carlson has accused the company of doing is
under billing the government on existing contracts. Carlson has
not, in either his original complaint or his briefs to this
Court, pointed to any FCA provision or case that would make
under billing a violation. As we noted above, the FCA “was
intended to reach all types of fraud . . . that might result in
financial loss to the Government.” Neifert-White Co., 390 U.S.
at 232. And it is clear that the Financial Acquisition
Regulations (“FAR”)—which Carlson accuses DynCorp of violating,
Appellant’s R. Br. 2-3—anticipate situations where a contractor
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may “seek[] to enhance its competitive position in a particular
circumstance by basing its proposal on indirect cost rates lower
than those that may reasonably be expected to occur during
contract performance.” 48 C.F.R. § 42.707(b)(1)(iii).
Carlson’s complaint does not contain “enough factual matter
(taken as true) to suggest that” DynCorp made or was about to
make a false claim on the government. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 556 (2007). As such, we cannot say that
his evidence was enough to make his alleged belief in DynCorp’s
fraud objectively reasonable—in fact, it was entirely
speculative. His complaint articulates no mechanism by which
failing to charge certain overhead expenses could later result
in the government being fraudulently over billed. As the FAR
provision just quoted indicates, “the defendants’ allegedly
conspiratorial actions could equally have been prompted by
lawful, independent goals which do not constitute a conspiracy”
to violate the FCA. See Kramer v. Pollock-Krasner Found., 890
F. Supp. 250, 256 (S.D.N.Y. 1995).
Thus, though Carlson rightly points out that “proving a
violation of § 3729 [of the FCA] is not an element of a
§ 3730(h) cause of action,” Graham Cty. Soil & Water
Conservation Dist. v. U.S. ex rel. Wilson, 545 U.S. 409, 416 n.1
(2005), he has failed to raise even a plausible case that what
15
he observed was part of an FCA violation, and thus his alleged
belief that DynCorp was violating the FCA was not reasonable.
Carlson also argues that the contract DynCorp obtained from
USAID was fraudulently obtained and that any claim for payment
submitted under such a contract would violate the FCA. He
argues that “hiding” overhead costs in another project’s code
violated the FAR and CAS, and that because the USAID bid
required DynCorp to certify that it was complying with FAR and
CAS, the bid contained a false certification.
It is correct that where a contractor makes claims for
payment from the government pursuant to a fraudulently obtained
contract, there may be liability under the FCA. U.S. ex rel.
Marcus v. Hess, 317 U.S. 537, 541 (1943). But Carlson’s
argument fails here for two reasons. First, we are not bound to
accept his “legal conclusion[]” that DynCorp’s alleged under
billing violated FAR and CAS. Giarratano, 521 F.3d at 302.
Despite Carlson’s years of experience in government contracting,
his amended complaint, his appellate brief, and his oral
argument before us have all failed to explain with any
particularity how or which provisions of FAR or CAS might have
been violated.
Second, even if he could show that FAR and CAS were
violated, Carlson still cannot show that he held an objectively
reasonable belief that this conduct amounted to a violation of
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the FCA. “[W]ithout fraud, there can be no FCA action” or
violation. Mann, 630 F.3d at 345-46. And it is axiomatic that
fraud involves “[a] knowing misrepresentation or knowing
concealment of a material fact made to induce another to act to
his or her detriment.” Fraud, Black’s Law Dictionary (10th ed.
2014) (emphasis added). Carlson alleges that FAR and CAS were
violated because DynCorp was under billing the government on
other contracts, but this still fails to show how the government
would be acting to its detriment in accepting a bid from
DynCorp. Surely we cannot be expected to hold that any failure
to follow an accounting regulation or best practice on any
government contract makes a company a fraudster ineligible to
even bid for further business with the United States government?
See Univ. Health Servs., Inc. v. United States ex rel. Escobar,
136 S. Ct. 1989, 2002-04 (2016) (“We emphasize, however, that
the False Claims Act is not a means of imposing treble damages
and other penalties for insignificant regulatory or contractual
violations.”). Nor has Carlson pointed to any case where a
contract was held to be fraudulently obtained merely for
resulting from a bid that incorrectly certified compliance with
these accounting regulations. Thus, even if DynCorp’s indirect
cost accounting practices were not entirely consistent with FAR
and CAS—an allegation Carlson has utterly failed to plead with
sufficient particularity—Carlson has failed to sufficiently
17
allege how the practice could amount to fraud and thereby
support an objectively reasonable belief that the company was
violating the FCA.
III.
Because Appellant Scott Carlson has failed to plausibly
allege facts sufficient to show he reasonably believed that
DynCorp was engaged in a fraud on the government, we affirm the
district court’s dismissal of his action under 31. U.S.C.
§ 3730(h).
AFFIRMED
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