In the

United States Court of Appeals

For the Seventh Circuit

No. 11-3305

JASON HALASA,

Plaintiff-Appellant,

v.

ITT EDUCATIONAL SERVICES, INC.,

Defendant-Appellee.

Appeal from the United States District Court 

for the Southern District of Indiana, Indianapolis Division.

No. 1:10-cv-00437-WTL-MJD—William T. Lawrence, Judge.

ARGUED JUNE 6, 2012—DECIDED AUGUST 14, 2012

Before EASTERBROOK, Chief Judge, and WOOD and SYKES,

Circuit Judges.

WOOD, Circuit Judge. ITT Educational Services is a

for-profit corporation that runs “ITT Technical Institutes”

in several locations throughout the United States,

including Lathrop, California. Plaintiff Jason Halasa was

the Lathrop Campus’s College Director for six months in

2009. The parties provide competing accounts of the

end Halasa’s tenure: ITT says that Halasa was fired for
2 No. 11-3305

exhibiting poor management skills and delivering inadequate results; Halasa alleges that he was fired in violation of the False Claims Act, 31 U.S.C. § 3730(h), after

identifying and reporting several irregularities in the

way ITT was handling its federally subsidized loans

and grants for students. We conclude that even if

Halasa did engage in protected conduct under the Act,

he has not shown that he was fired because of this conduct. Thus, we affirm the decisions of the district court

granting summary judgment and costs in ITT’s favor.

I

ITT is a for-profit corporation that operates Technical

Institutes throughout the country. Like many such forprofit institutions, nearly three-quarters of its total

cash receipts come from the federal treasury by way of

student loans and grants. See S. Comm. On Health, Educ.,

Labor and Pensions, For Profit Higher Education: The

Failure to Safeguard the Federal Investment and Ensure

Student Success, S. PRT. NO. 112-37, at 30 (July 30, 2012).

Students enroll in ITT’s Institutes, and they often pay

for those programs with federally-funded student aid.

In order to qualify to receive this aid on behalf of its

students, ITT must comply with certain regulatory requirements, some of which are incorporated into a Program Participation Agreement (PPA) between ITT and

the U.S. Department of Education.

Drawing all inferences in Halasa’s favor, as we must

at this stage of the litigation, Chicago Reg’l Council of Carpenters v. Village of Schaumburg, 644 F.3d 353, 356 (7th Cir.
No. 11-3305 3

2011), we summarize the events underlying this case.

On March 9, 2009, Halasa began employment at ITT’s

Lathrop Campus as its College Director. According to

Halasa, the campus was in disarray when he arrived. It

was undergoing a large remodeling project, and several

important leadership positions were vacant. Halasa

contends that this had created a vacuum of leadership.

In the absence of proper oversight, he said, some Lathrop

employees had begun engaging in a variety of unlawful

recruiting and reporting practices. Student recruiters

(that is, employees responsible for persuading prospective students to enroll in Institute programs) were

paid on an incentive basis—a scheme that is expressly

prohibited by the PPA. See 20 U.S.C. § 1094(a)(20) (prohibiting “commission, bonus, or other incentive payment

based directly or indirectly on success in securing enrollments”). Other ITT employees were allegedly pressured

to change the entrance exam scores of prospective students, to alter the grades of students to improve their

job prospects, and to misreport the employment

statistics of graduates. Halasa reported all these observations to his direct supervisor, Jeff Ortega. He also

reported some of them to Valory Hemphill, ITT’s

Regional Director of Recruitment, and Chris Carpentier,

its Director of Compliance.

Meanwhile, ITT was experiencing some problems of

its own with Halasa. ITT received several complaints

about Halasa’s behavior via its Ethics Alert Line. According to these complaints, Halasa smoked a hookah

pipe with other ITT employees in the campus parking
4 No. 11-3305

lot during a student orientation event. He also allegedly

referred to himself as the “King” and his colleagues as

the “Mafia.” (We have highlighted only a few such incidents here. There are others. For example, Halasa

allegedly hatched an ill-advised plan to close all of the

restrooms on the Lathrop Campus simultaneously.

When employees needed to use those facilities, he proposed that they to go to a nearby Arby’s fast-food restaurant.) Beyond these incidents, the Lathrop campus was

performing below expectations. During an operational

review conducted in May 2009, ITT Executive Vice President Gene Feichtner was unimpressed with the

campus’s development under Halasa’s management. A

few months later, in August 2009, the campus received

a low score in an internal audit, prompting ITT CEO

Kevin Modany to send an email to Halasa indicating

his “disappoint[ment]” with the campus’s progress.

Finally, on September 9, 2009, several vice presidents

and the CEO decided to terminate Halasa’s employment.

The parties disagree about what prompted this. ITT

asserts that it fired Halasa because it had lost “confidence

in his ability to lead the college.” Halasa contends that

ITT ended their relationship because he had identified

and reported violations of ITT’s legal obligations under

the PPA. Believing that this type of retaliation violates

the False Claims Act, Halasa filed suit in the U.S.

District Court for the Southern District of Indiana, where

ITT is headquartered. The district court granted summary judgment in favor of ITT. Halasa now appeals.
No. 11-3305 5

II

We review the district court’s grant of summary judgment de novo. Village of Schaumburg, 644 F.3d at 356. In

opposing ITT’s summary judgment motion on his claim

for unlawful retaliatory discharge under the Act, Halasa

needed to point to evidence showing first that he

engaged in protected conduct and then that he was fired

“because of” that conduct. 31 U.S.C. § 3730(h)(1); Brandon

v. Anesthesia & Pain Mgmt. Assocs., 277 F.3d 936, 944

(7th Cir. 2002).

Section 3730(h)(1) protects two categories of conduct.

The statute has long prevented employers from terminating employment for conduct that is “in furtherance of

an action under this section.” In Brandon, we explained

that this language reached conduct that put an employer “on notice of potential [False Claims Act] litigation.” 277 F.3d at 945. In 2009, Congress amended the

statute to protect employees from being fired for undertaking “other efforts to stop” violations of the Act, such

as reporting suspected misconduct to internal supervisors. For the purposes of this appeal, we proceed on

the assumption that Halasa’s conduct falls within the

scope of the statute’s amended language. As we noted

above, recruiters at the Lathrop Campus were allegedly

compensated on the basis of their recruitment success

in violation of 20 U.S.C. § 1094(a)(20), a requirement that

was specifically incorporated into ITT’s PPA. See id. at

§ 1094(a). Furthermore, some prospective students

were allegedly receiving inappropriate assistance on

placement exams (so-called “ability to benefit” exams)
6 No. 11-3305

or had their scores altered post hoc so that they could

qualify to receive financial aid. See id. at § 1091(d)(1).

Halasa investigated these claims and reported his

findings to Ortega, Hemphill, and Carpentier, presumably to ensure that ITT ended these practices and

to prevent ITT from making any false certifications to

the U.S. Department of Education in connection with

its PPA. We are satisfied that Halasa’s evidence would

permit a trier of fact to find that he engaged in “efforts

to stop” potential FCA violations.

Even assuming that his conduct was protected by

the Act, however, Halasa faces a second hurdle. He

must show that his protected conduct was connected to

ITT’s decision to fire him. Practically, in order to avoid

summary judgment he must have evidence that would

support a finding that he was fired “because of” his

protected conduct. That is where his case founders. The

record is undisputed that the decision to fire Halasa

was made by Vice President Barry Simich and approved

by Senior Vice President Nina Esbin, Executive Vice

President Feichtner, and CEO Modany. Yet Halasa has

no evidence that any of these decisionmakers knew of

his protected conduct. Rather, the record shows that

Halasa reported his findings only to Ortega, Hemphill,

and Carpentier and there is no indication that any of

these people passed along Halasa’s findings to the

decisionmakers. Halasa’s best evidence is deposition

testimony stating that all formal ethics complaints are

required to be forwarded to Simich. But none of

Halasa’s False Claims Act-related reports was expressed
No. 11-3305 7

as a formal ethics complaint, and there is no evidence

either that any of these reports ever reached a decisionmaker or that any of them otherwise learned

of Halasa’s protected activity.

Unable to prove causation as a factual matter, Halasa

argues that we should find causation as a matter of law.

He suggests that we impute to ITT (and its agents)

any knowledge that Ortega gained when Halasa

reported potential violations. This argument seriously

misunderstands the way liability rules work in the corporate setting. The broad (and unprecedented) doctrine

of constructive knowledge that Halasa urges would

defeat the specific statutory requirement that an employee’s termination be “because of” her protected conduct. The law is clear that it is the decisionmakers’ knowledge that is crucial. Apart from narrow exceptions

like the one that has come to be called the “cat’s paw”

theory, see Staub v. Proctor Hospital, 131 S. Ct. 1186

(2011), which does not apply here, companies are not

liable under the False Claims Act for every scrap of

information that someone in or outside the chain of

responsibility might have.

Halasa has not shown that ITT fired him because of any

protected conduct. The district court therefore properly

granted summary judgment in ITT’s favor, because

Halasa failed to respond with evidence on one of the

essential elements of his claim for retaliatory discharge

in violation of the Act.
8 No. 11-3305

III

Halasa also appeals from district court’s decision requiring him to pay costs in the amount of $33,401.04

pursuant to 28 U.S.C. § 1920, and another $2,975.00

under Federal Rule of Civil Procedure 26(b)(4)(E)(i) for

the deposition fees of an expert witness, Dr. Gerald

Lynch. We first address our appellate jurisdiction over

this part of the case, and then the merits of the two orders.

A

As always, we must ensure that our jurisdiction is

secure before addressing the merits of a question. See

Blue v. International Bhd. of Elec. Workers Local Union 159,

676 F.3d 579, 582 (7th Cir. 2012). Halasa’s notice of

appeal predates the district court’s order for costs and is

thus not effective as to that order. See Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 468 (7th Cir.

1999) (“The notice of appeal from the order dismissing

their suit could not bring up an order entered later.”).

The notice of appeal, however, is not the only document that can satisfy the requirements of Appellate

Rules 3 and 4. As the Supreme Court stated in Smith v.

Barry, 502 U.S. 244, 248-49 (1992), “[i]f a document filed

within the time specified by Rule 4 gives the notice required by Rule 3, it is effective as a notice of appeal.” See

also In re Turner, 574 F.3d 349, 354 (7th Cir. 2009)

(“[R]equirements for perfecting an appeal that do not

involve deadlines are not jurisdictional”). Thus in Smith

the Court ruled that a timely filed appellate brief sub-
No. 11-3305 9

stituted for a properly filed notice of appeal. Here,

Halasa’s opening appellate brief was filed within 30 days

of the district court’s costs order, and it clearly gives

notice of his intent to contest that ruling. We therefore

have jurisdiction over this aspect of Halasa’s appeal.

B

Halasa’s appeal from the costs order presents a novel

question: How should we reconcile provisions in the

federal rules providing for the cost-shifting of expert

discovery with statutes that impose limits on payable

fees for expert witnesses? Formally, this requires us to

consider whether the payment provisions of Federal

Rule of Civil Procedure 26(b)(4)(E) supersede, by force

of the Rules Enabling Act, 28 U.S.C. § 2072(b), the rules

set forth in 28 U.S.C. § 1821, which governs witness

expenses. The costs ITT would like to have reimbursed

are for Lynch’s deposition preparation, travel to and

from his deposition, and time spent reviewing his deposition transcript.

The Rules Enabling Act authorizes the Supreme Court

to “prescribe general rules of practice and procedure,”

28 U.S.C. § 2071, and further provides that “[a]ll laws

in conflict with such rules shall be of no further force

or effect.” Id. at § 2072(b). In order to ascertain the combined effect of Rule 26(b)(4)(E) and § 1821, we must first

determine whether the payment provisions in Rule 26

postdate the relevant provisions of 28 U.S.C. § 1821. See

Jackson v. Stinnett, 102 F.3d 132, 135 (5th Cir. 1996) (The

supersession clause trumps “only statutes passed before
10 No. 11-3305

the effective date of the rule in question.”). If this part

of Rule 26 went into effect after the statute was passed,

then we must decide whether there is a conflict between

the rule and the statute. See Collins v. Gorman, 96 F.3d

1057, 1059 (7th Cir. 1996). If there is such a conflict, then

under the supersession clause, the rule controls; if there

is no conflict, then we must determine how to apply

both the rule and the statute.

The first question is readily answered. As the Supreme

Court explained in Crawford Fitting Co. v. J.T. Gibbons,

Inc., 482 U.S. 437, 439-40 (1987), Congress in 1793

“enacted a general provision linking some taxable costs . . .

to the practice of the court of the State in which the

federal court sat.” Dissatisfied with the widely divergent

practices that persisted through the mid-nineteenth

century, Congress passed the Act of Feb. 26, 1853, 10 Stat.

161, which comprehensively regulated fees and costs in the

federal courts. Crawford Fitting, 482 U.S. at 440; see also

Taniguchi v. Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2001

(2012). Those “sweeping reforms” have “carried forward

to today,” with occasional modifications by Congress.

Crawford Fitting, 482 U.S. at 440. Notably for our purposes, Congress amended § 1821 in 1959 specifically to

include “the taking of a deposition pursuant to any rule

of a court of the United States.” Thus, since 1959 the

limitations on reimbursement set forth in § 1821 have

applied not only to trial witnesses, but also to deposition

witnesses. (This disposes of the timing issue that the

parties have debated: if § 1821 applies, then it would

govern any award of fees, whether the motion was

made at the pre-trial stage, during the trial, or post-trial.)
No. 11-3305 11

By contrast, the provisions now appearing in Civil

Rule 26(b)(4)(E) for the payment of expert witnesses

in discovery were added after the 1959 amendment to

§ 1821. Subsection (b)(4) to Rule 26 was introduced

with the 1970 amendments to the Civil Rules; it required

a court to issue an order “that the expert be paid a reasonable fee for time spent in responding to discovery”

and “that the party whose expert is made subject to

discovery be paid a fair portion of the fees and expenses . . .

incurred.” See FED. R. CIV. P. 26, adv. comm. n. (1970

Amendment). These provisions took on their current

form in 1993, after a major set of revisions, and were

then renumbered as subsection (b)(4)(E) in the 2010

amendments. FED. R. CIV. P. 26, adv. comm. nn. (1993

Amendments, 2010 Amendments). In short, because the

relevant statutory provision was enacted in 1959 and

the relevant rule was promulgated in 1970 (and revised

in 1993), the rule prevails over any inconsistent part of

the statute.

But is there a conflict? There is surprisingly little law

on this issue. The case that comes closest to addressing

this issue is from the D.C. Circuit, but that court never

squarely confronted the question now before us. It

noted that “§ 1821(b) does in fact limit witness fees to

$40 per day,” Haarhuis v. Kunnan Enter., Ltd., 177

F.3d 1007, 1015 (D.C. Cir. 1999), but then it went on to

assume the answer to the question before us: whether

that limit carries over to an award made under Rule 26

(then Rule 26(b)(4)(C)). After noting that the expert

there was seeking fees under Rule 26, it apparently

found that § 1821 was irrelevant, and then went on to
12 No. 11-3305

conclude that the award of a fee based on the expert’s

normal charge of $300 per hour for the time he spent

“responding to the opposing party’s discovery request”

was “reasonable.” Id.; see also Trepal v. Roadway Express,

Inc., 266 F.3d 418, 426-27 (6th Cir. 2001); Anderson v. City

of St. Louis, 220 F.3d 898, 905 (8th Cir. 2000); Louisiana

Power & Light Co. v. Kellstrom, 50 F.3d 319, 332-33 (5th

Cir. 1995). The district courts have taken different approaches to the way in which § 1821 applies to motions

for costs under Rule 26(b)(4)(E) when those particular

items are also addressed in § 1821. Compare, e.g., United

States v. Davis, 87 F. Supp. 2d 82, 91 (D.R.I. 2000) (“no

need to depart from th[e] rule” set out in Crawford

Fitting in the context of Rule 26, and therefore limiting

attendance fees to $40 per day); Hm v. City of Creve Coeur,

No. 4:07-CV-00946, 2010 WL 1816693 at *2 (E.D. Mo.

May 4, 2010) with Jorden v. Steven J. Glass, MD, No. 09-

1715, 2010 WL 3023347 at *3 (D.N.J. July 23, 2010) (distinguishing between fee payable to deposition witness

under § 1821 and fee payable to expert deposition

witness under Rule 26(b)(4)).

There are respectable arguments both for reconciling

the rule and the statute and for finding a conflict that

would require giving precedence to the rule. The

former conclusion would flow from literal adherence

to Crawford Fitting, under which one would find that

Rule 26 authorizes recoupment of expenses and § 1821

simply caps the amount that may be awarded. Crawford

Fitting involved the computation of costs taxable

under Rule 54; in that context, the Court found a way to

harmonize the rule and the statute. It held that the effect
No. 11-3305 13

of the “language and interrelation” of § 1821 and Rule 54

(directing the entry of costs for a prevailing party) was

(1) that the rule “provides that the cost shall be taxed

against the losing party,” (2) that another statute—28

U.S.C. § 1920—directs that witness fees were among

the costs that could be taxed, and finally, (3) that “§ 1821

specifies the amount of the [witness] fee that must be

tendered.” 482 U.S. at 441. Although Rule 54 and Rule 26

provide distinct avenues of cost recovery, Chambers v.

Ingram, 858 F.2d 351, 360-61 (7th Cir. 1988), the same

methodology might apply to both, especially because

nothing in § 1821 limits its rules to awards to prevailing

parties. Under this view, one would say that

Rule 26(b)(4)(E) directs a district court to “require” the

payment of a reasonable or fair fee to compensate

the expert for time spent in responding to discovery,

FED. R. CIV. P. 26(b)(4)(E), but that the amount

recoverable for certain components of the expert’s

expenses is dictated by statute. Section 1821 sets a mandatory cap on certain specified costs related to the

taking of a “deposition pursuant to any rule or order of

a court of the United States.” 28 U.S.C. § 1821(a)(1).

Those costs include an attendance fee of $40, actual

expenses of travel, and a subsistence allowance consistent with federal law. See id. § 1821(b), (c), (d).

The other approach would reject such a close analogy

to Crawford Fitting and Rule 54. To begin with, the language of the two rules is different. Rule 54(d) refers

to “costs” generically, while Rule 26(b)(4)(E)(i) says that

“[u]nless manifest injustice would result, the court must

require that the party seeking discovery . . . pay the expert
14 No. 11-3305

a reasonable fee . . . .” (Emphasis added.) This amounts to

a much more explicit expense-shifting mandate, and it

also provides some guidance on the amount of costs

(i.e., a “reasonable” fee). In Collins, we observed that the

1993 amendments to the rules were “designed to

reduce the expense of litigation without altering who

must bear that expense.” 96 F.3d at 1060. See also Gwin

v. American River Transp. Co., 482 F.3d 969, 975 (7th

Cir. 2007) (stating that the relevant language of Rule 26,

then in subpart (b)(4)(C), required only that “the expert’s

fees must be reasonable.”) The Committee Notes that

accompanied the addition of subpart (4)(E) confirm this

view, stating that “[c]oncerns regarding the expense of

such depositions [meaning those of experts, whether

testifying or just for trial preparation] should be

mitigated by the fact that the expert’s fees for the deposition will ordinarily be borne by the party taking

the deposition.” FED. R. CIV. P. 26, adv. comm. nn. (1993

Amendments, Subdivision (b)).

In choosing between these two approaches, we think

it important to pay heed to the differences between

Rule 54 and Rule 26. Both rules direct the court to

shifts some costs; but as we have noted, unlike Rule 54,

Rule 26 sets out a substantive standard—a reasonable

fee for time spent in responding to discovery. We think

it unrealistic in the extreme to assume that $40 is

by definition a “reasonable” fee. Rule 26’s flexible reasonableness standard is “irreconcilabl[e]” with the

hard-and-fast schedule embodied in § 1821. Henderson v.

United States, 517 U.S. 654, 663 (1996). This is not a

case where the statute and the rule both contain
No. 11-3305 15

flexible standards that can easily be read together. United

States v. Microsoft, 165 F.3d 952, 959-60 (D.C. Cir. 1999).

Rather, the rule operates to give courts the discretion

to award a fee that appropriately compensates an

expert witness, while application of the statute “extinguish[es] all discretion.” Crawford Fitting, 482 U.S.

at 446 (Marshall, J., dissenting). Importantly, § 1821 acknowledges that other laws may override its terms: it

begins with the phrase “[e]xcept as otherwise provided

by law.” 28 U.S.C. § 1821(a)(1). Rule 26, the later-enacted

of the two, does “otherwise provide[].” Although

we consider it a close call, we conclude that the flexible

authorization for a reasonable fee contained in Rule 26

supersedes the specific schedule outlined in § 1821(b).

This means, as the district court held, that certain

expenses and fees associated with experts are not

capped by § 1821 when recovered under Rule 26.

ITT identified several items relating to Dr. Lynch for

which it was seeking reimbursement: (1) deposition

preparation, (2) travel to and from the deposition, and

(3) time spent reviewing his deposition transcript. We

agree with the district court that the fact that ITT did

not seek these fees until it filed its bill of costs is of no

moment; its request was timely. On the merits, we

further find no abuse of discretion in the district court’s

conclusion that Dr. Lynch’s total fee of $2,975.00 was

reasonable, or in its award of costs in the amount

of $33,401.04.

We AFFIRM the judgment of the district court.

8-14-12