On December 27, 2010, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of an employee’s retaliation claim against a firearms contractor, Heckler & Koch Defense, Inc. (“HKD”), brought under the anti-retaliation provision (§ 3730(h)) of the federal False Claims Act. Mann v. Heckler & Koch, Defense, Inc., No. 09-1847, 2010 WL 5262729 (4th Cir. Dec. 27, 2010). The Fourth Circuit held that the employee’s opposition to, and investigation of, his employer’s conduct surrounding a government bid submission and the employee’s subsequent filing of a retaliation claim were not protected activities under the FCA because the employer’s conduct involved “nothing more than non-fraudulent statements made…during the course of a contractual bidding process.”

In this case, the U.S. Secret Service requested government contractors to submit a bid for the supply of rifles meeting certain component specifications. Although HKD’s rifles were nonconforming, HKD submitted its bid with the accompanying representation that the missing components were “in production” and would be provided if HKD won the bid. Several HKD employees, including the plaintiff Jason Mann, expressed concerns that the missing components that HKD later acquired were incompatible with the rifles and did not meet HKD’s typical quality standards. Overruling these concerns, HKD arranged to have the components delivered to a contact at the Secret Service after the close of the bidding process. The Secret Service ultimately rejected HKD’s bid. Mann expressed disapproval of HKD’s conduct in the bidding process and began investigating whether HKD’s conduct violated certain federal contracting regulations. Subsequently, HKD placed Mann on administrative leave. Soon thereafter, Mann filed a complaint asserting that HKD retaliated against him for engaging in protected activity under the FCA. HKD terminated Mann’s employment when the complaint was filed, prompting Mann to amend his complaint to assert an additional claim of retaliation.

Noting that Congress amended the FCA in 1986 to add the anti-retaliation provision to protect whistleblowers and promote enforcement of the FCA, the Fourth Circuit reiterated the three elements an employee must prove to prevail under § 3730(h): (1) that an employee took acts in furtherance of a qui tam suit; (2) that the employer knew of these acts; and (3) that the employer took adverse action against the employee as a result of these acts. As the latter two elements were not in dispute, the Fourth Circuit focused on the first element, applying the “distinct possibility” standard to assess whether the employee’s acts were in furtherance of a qui tam suit. Under the “distinct possibility” standard, protected activity under the FCA occurs when an employee’s opposition to fraud takes place in a context where “litigation is a distinct possibility, when the conduct reasonably could lead to a viable FCA action, or when…litigation is a reasonable possibility.”

The Fourth Circuit clarified that, although the “distinct possibility” standard is an objective one and the company conduct in question must involve “an objectively reasonable possibility of an FCA action,” the court must apply the standard from the perspective of the facts known by the employee and not from the vantage point of the employer. The court also noted that the relevant facts under this standard are not what the employee now knows, but what the employee knew at the time of the allegedly protected activity.

The Fourth Circuit rejected Mann’s theory that HKD’s bid submission and accompanying representation amounted to fraud or fraudulent inducement. The court found that the employee’s belief, however “sincere,” was not an objectively reasonable one, because HKD’s representation to the government indicated that it was taking care to point out, rather than hide, the defects in its bid. Moreover, Mann’s newfound concerns over the “in production” language in HKD’s representation was immaterial because there was no evidence that the employee knew about this or expressed this concern to anyone prior to the litigation. The Fourth Circuit characterized Mann’s concern not as one of fraud, but as a disagreement over HKD’s bid strategy and strategic business decisions.

Although HKD’s delivery of the missing components to the government after the close of the bidding process and outside of proper channels was unconventional and may have appeared to violate federal contractor bidding regulations, the court noted that “FCA is not concerned with bidding regulations.” Since there was no fraud or misrepresentation by HKD, Mann’s “investigatory activities had no reasonable prospect of uncovering fraud” and thus were not protected activities under the FCA.

The court also rejected Mann’s contention that, under a plain text reading of the FCA, an employee’s filing of a § 3730(h) retaliation action itself qualifies as a protected activity insofar as it is an “action filed or to be filed under this section.” Extending the United States Supreme Court’s reasoning in Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U.S. 409 (2005), the Fourth Circuit held that the “action filed or to be filed under this section” language of § 3730(h) refers primarily to actions brought under §§ 3730(a) and (b) of the FCA, which authorize actions by the government and qui tam relators. The court reasoned that adopting Mann’s construction would permit litigants to bypass the protected activity element and that “disputes over business strategy or regulatory compliance, both of which clearly fall outside the scope of the FCA, would be transformed into protected activity simply by the act of filing a § 3730(h) claim.” On the other hand, the Fourth Circuit rejected HKD's position that the filing of a retaliation claim “can never qualify” as protected conduct, since this construction could prompt employers to use the filing of a successful retaliation action as a “contrived reason” for termination.