When Congress amended the whistleblower protection provisions of the False Claims Act in 2009, it added “contractors” and “agents” to the ambit of protected whistleblowers.  The purpose of these amendments was to ensure that whistleblowers disclosing or opposing fraud on the government would be protected.  Recently a Tennessee federal judge held in Munson Hardisty LLC v. Legacy Pointe Apartments that the False Claims Act’s anti-retaliation provision protects a general contractor on a construction project funded by the U.S. Department of Housing and Urban Development (HUD) from retaliation for opposing fraudulent misrepresentations to HUD.

Munson Hardisty’s False Claims Act Retaliation Claim

Munson Hardisty served as a general contractor on Legacy Pointe Apartments, an apartment complex financed through a loan offered and insured by HUD. Pursuant to HUD regulations, Legacy Pointe and its investors were barred from entering into private secondary financing or receiving any distributions during the term of the construction financing. When Munson Hardisty learned that Legacy Pointe was refinancing the project, it refused to consent to the financing because it believed that the financing was being obtained under false pretenses that were fraudulent and wrongful. Legacy Pointe retaliated against Munson Hardisty by divesting the company of its ten percent membership in the project and refusing to pay for approximately $2M in work that Munson Hardisty performed building the apartment complex.

Munson Hardisty brought claims alleging violations of the FCA’s retaliation provision and RICO, and state law claims, including unjust enrichment. Legacy Pointe moved for judgment on the pleadings and asserted that the FCA retaliation claim should be dismissed because a general contractor is not a covered whistleblower.

False Claims Act Affords Broad Protection to Whistleblowers

Judge Varlan held that the plain meaning of the FCA authorizes Munson Hardisty to proceed with an FCA retaliation claim. Relying on the Black’s Law Dictionary definition of contractor as “one who contracts to do work for or supply goods to another,” Judge Varlan held that Munson Hardisty was a covered contractor under the FCA’s plain meaning in that Legacy Point contracted with Munson Hardisty to oversee construction of the project in exchange for monetary and proprietary compensation.

Legacy Pointe asserted that the statutory language “terms and conditions of employment” requires the parties to maintain a conventional employment-like relationship for Munson Hardisty to seek relief.  Munson Hardisty, however, contended that the 2009 amendments to the FCA expanded the scope of coverage to protect contractors and agents more generally and that the terms and conditions of its employment were set forth in its construction contract.  Munson Hardisty argued that Legacy Pointe violated those terms when it withheld Munson Hardisty’s compensation and equity in retaliation for the company opposing the alleged fraudulent misrepresentations to HUD.

Judge Varlan found that the retaliatory actions alleged by Munson Hardisty relate directly to the terms and conditions of compensation owed under the construction contract, including Legacy Pointe’s refusal to pay agreed upon fees relating to Munson Hardisty’s services as the general contractor.  Relying on the legislative history of the FCA, Judge Varlan noted that the FCA is a remedial statute designed to stymie fraud against the government and therefore must be construed broadly.

Implications for Whistleblowers

Munson Hardistyis a fairly unusual case in that the plaintiff-whistleblower is a corporation, not an individual.  But it highlights the broad scope of coverage afforded by the False Claims Act’s anti-retaliation provision.