The U.S. Court of Appeals for the Fourth Circuit recently affirmed dismissal of an FCA complaint for failure to state a claim under the FCA’s anti-retaliation provision, 31 U.S.C. § 3730(h). In U.S. ex rel. Carlson v. Dyncorp Int’l, LLC, the Fourth Circuit held that the relator failed to establish that he had engaged in protected activity, a required element for a prima facie retaliation case under the FCA. In reaching that conclusion, the Fourth Circuit provided useful guidance on the standards used to assess whether a relator engaged in protected activity.

Congress has amended the portion of the FCA defining what constitutes “protected activity” for purposes of a retaliation claim on multiple occasions. Prior to 2009, “protected activity” was defined as employee conduct “in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed 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 language, the Fourth Circuit and other courts adopted the so-called “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 v. Integrated Design & Const., Inc., 167 F.3d 861, 866 (4th Cir. 1999). Since the “distinct possibility” standard was adopted, § 3730(h) has been amended on two occasions. The current definition of “protected activity,” enacted in 2010, covers employee conduct “in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.” 31 U.S.C. § 3730(h) (emphasis supplied).

The Fourth Circuit’s opinion in Dyncorp centers on the latter prong. The relator alleged that he questioned certain of his employer’s billing practices and, in so doing, engaged in “efforts to stop 1 or more violations of [the FCA],” for which he alleged he was terminated in retaliation. The U.S. District Court for the Eastern District of Virginia dismissed the relator’s claim, relying on the distinct possibility standard and noting “to pass muster under the distinct possibility standard, a plaintiff must be investigating matters that reasonably could lead to a viable FCA action.” The relator appealed, arguing that the district court applied the wrong standard in dismissing his retaliation claim. The Fourth Circuit agreed, relying on principles of statutory interpretation and legislative intent to conclude that “it is clear that the distinct possibility standard cannot apply to the second prong of § 3730(h). … That is no longer the (only) standard for identifying protected activity under this provision.” Dyncorp, — Fed. Appx. —, 2016 WL 4434415, at *4 (4th Cir. Aug. 22, 2016).

The Fourth Circuit then “assume[d] without deciding” that the relator’s proposed standard for applying § 3730(h)’s second prong was correct, i.e., “efforts to stop 1 or more violations” constitutes 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.” Dyncorp, 2016 WL 4434415, at *4. In other words, to determine whether a plaintiff has adequately pleaded “protected activity” under the second prong of § 3730(h), the Fourth Circuit asks whether the relator has “allege[d] facts sufficient to show that he believed [his employer] 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.” Id. at *5. The Fourth Circuit cited approval for this standard from sister circuits, including the Sixth Circuit. See Jones-McNamara v. Holzer Health Sys., 630 F.App’x 394, 399-400 (6th Cir. 2015) (unpublished) (explaining 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.”). The Fourth Circuit also noted “[the] objectively reasonable belief standard aligns with our treatment of similar structured whistleblower provisions,” including in Title VII, the ADEA, and the ADA. Id. at *4.

Even assuming that the relator’s proposed standard was applicable, however, the Fourth Circuit ultimately affirmed dismissal of the relator’s claim, finding that he “failed to show that his belief that [his employer] was violating the FCA was objectively reasonable.” Id. at *5. The Fourth Circuit noted that the complaint did not contain sufficient factual allegations (taken as true) to suggest that the defendant employer made or was about to make a false claim. The relator’s main theory of fraud boiled down to accusations that the company “under bill[ed] the government on existing contracts” to enhance its competitive position on a new bid. Id. As the Fourth Circuit noted, the complaint “articulate[d] no mechanism by which failing to charge certain overhead expenses could later result in the government being fraudulently over billed.” Id. Thus, the relator’s “alleged belief in DynCorp’s fraud … was entirely speculative.” Id.