Federal Court Throws Out False Claims Act Retaliation Claim Filed Against CEO in Individual Capacity

Last week, in United States ex rel. Brumfield v. Narco Freedom, Inc., No. 12 Civ. 3674 (JGK), 2018 WL 5817379 (S.D.N.Y. Nov. 6, 2018), a federal district court in the Southern District of New York dismissed claims filed against a CEO in his individual capacity under the False Claims Act’s anti-retaliation provision, and also rejected an alter-ego theory of liability.

The relators in Brumfield were four former employees of a nonprofit who alleged that the nonprofit’s CEO had fired them and objected to their unemployment benefits because they refused to engage in fraud. The relators alleged that this conduct violated the FCA’s anti-retaliation provision, 31 U.S.C. § 3730(h), which creates a cause of action for employees who are retaliated against by an employer “because of lawful acts done by the employee . . . in furtherance of an action under [the FCA] or other efforts to stop 1 or more violations of [the FCA].”

The defendant CEO moved to dismiss on several grounds, including that a claim under the FCA’s anti-retaliation provision can be brought only against an employer—not a CEO in his individual capacity. The district court agreed.

The court noted that “the Second Circuit Court of Appeals has not addressed the question,” but that “the overwhelming majority of courts . . . have held that the current version of § 3730(h) does not create a cause of action against supervisors sued in their individual capacities.” This same principle, the court explained, extended to a CEO and to a sole owner of an employer company, too.

The court also rejected the relators’ alter-ego theory of liability against the defendant CEO. The court observed that “[w]hether a § 3730(h) claim can be brought against an individual as an alter ego of an employer corporation” is not clear, and courts have split in answering this question. But the court declined to resolve the question, holding that the relators had failed to adequately allege that the defendant CEO was the alter ego of the employer nonprofit such that they could “pierce the corporate veil.” The court reasoned that the relators’ complaint failed to “contain sufficient factual allegations bearing on [the defendant CEO’s] domination of [the nonprofit] or that the corporate form was used as a fraud or sham.” The court thus dismissed the relators’ retaliation claims.  

The Brumfield decision arguably supports dismissal when a relator brings a retaliation claim against an individual—such as a supervisor or executive—under the FCA’s anti-retaliation provision. The decision also serves as yet another reminder that defendants need to consider all potential defenses when sued under the FCA’s anti-retaliation provision. See here for a post from last week about another potential defense to an FCA anti-retaliation claim.


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