Court Opinion

ID: 4027081
Source: CourtListenerOpinion
Date Created: 2016-08-22 19:01:01.234511+00
Date Added: 2024-06-11T07:45:06.238297
License: Public Domain

UNPUBLISHED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Affirmed by unpublished opinion.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Unpublished opinions are not binding precedent in this circuit.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.

                                              2
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

                                              3
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,

                                             4
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

                                                   5
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

                                                 6
(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

                                            7
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

                                          8
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

                                                   9
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

                                            10
§ 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.

                                            11
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

                                           12
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

                                             13
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

                                              14
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

                                                 16
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

                                        18