A recent decision from the Southern District of New York denying a motion to dismiss a False Claims Act retaliation case calls into question the viability of the heightened pleading standard for “duty speech” whistleblowing under the False Claims Act. In particular, Judge Pauley’s decision in Malanga v. NYU Lagone Med. Cir. suggests that the 2009 amendments to the False Claims Act’s anti-retaliation provision eliminates the heightened pleading standard for “fraud alert” employees or employees whose job duties entail investigating or reporting fraud.

While working at the NYU Lagone Medical Center as Director of Research for the Department of Radiation Oncology, Malanga discovered that NYU employees were unlawfully billing tests performed on blood specimens to the federal government, overcharging federal grants for patient clinic visits, and paying for the salary of a post-doctorate employee out of an unrelated federal grant. Malanga investigated these practices and disclosed to her supervisor and other NYU employees. NYU terminated Malanga’s employment, and Malanga sued under the FCA and anti-discrimination laws.

NYU moved to dismiss, contending that Malanga is subject to more stringent pleading standards because she was a “fraud alert” employee whose job duties required her to address the very billing problems she raised during the course of her employment. Applying the plain meaning of the FCA, Judge Pauley rejected NYU’s “duty speech” defense:

Certain courts have held employees whose jobs require investigating fraud against the government to higher pleading standards. See, e.g., U.S. ex rel Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1523 n.7 (11th Cir. 1996)  (“[A]n individual whose job entails the investigation of fraud . . . must make clear their intentions of bringing or assisting in an FCA action in order to overcome the presumption that they are merely acting in accordance with their employment obligations.”). However, it is doubtful that those heightened pleading standards survive FERA, which was enacted “to counter perceived judicial interpretations of the protected activity prong. . . .” Layman v. MET Labs., Inc., No. 12-cv-2860, 2013 WL 2237689, at *7 (D. Md. May 20, 2013). Those decisions establishing a higher pleading standard for fraud alert employees were concerned with ensuring that the employer was on notice of an employee’s “intentions of bringing or assisting in an FCA action.” Ramseyer, 90 F.3d at 1514 n.7. Under FERA, a retaliation claim can be stated so long as the employee was engaged in efforts to stop an FCA violation, even if the employee’s actions were not necessarily in furtherance of an FCA claim. See 31 U.S.C. § 3730(h). Moreover, even if a heightened pleading standard for so-called fraud alert employees exists, Malanga alleges that as a “Director of Research,” “Defendants’ billing practices were outside the scope of Plaintiff’s job duties.” (Am. Compl. ¶¶ 29, 35.) Accepting her allegation as true, this Court cannot determine whether Malanga qualified as a “fraud alert” employee on this motion. Accordingly, Malanga has adequately pled an FCA retaliation claim.

Malanga recognizes that Congress intended to provide robust protection for employees disclosing fraud against the government.  In addition, Malanga is consistent with a trend in SOX whistleblower cases rejecting the duty speech defense.

Recently, a New York district court held that the “duty speech” defense is inapplicable to SOX claims. See Yang v. Navigators Group, Inc., 2014 WL 1870802 (S.D.N.Y. May 8, 2014). Yang worked as the chief risk officer for Navigators Group, an insurance company. Id. at *1. Yang alleged that Navigators terminated her employment for disclosing deficient risk management and control practices to her supervisor. Id. at *4.   Navigators moved to dismiss Yang’s SOX claim in part on the basis that Yang’s disclosures about “risk issues were ‘part and parcel of her job.’” Id. at *8. Judge Roman rejected the duty speech argument, relying on a 2012 district court decision holding that “whether plaintiff’s activity was required by job description is irrelevant.” Barker v. UBS AG, 888 F. Supp. 2d 291, 297 (D. Conn. 2012).

Similarly, DOJ ALJs have generally rejected the duty speech defense in SOX cases.  For example, Judge Lee Romero concluded in Deremer v. Gulfmark Offshore Inc. that “one’s job duties may broadly encompass reporting of illegal conduct, for which retaliation results” and “[t]herefore, restricting protected activity to place one’s job duties beyond the reach of the Act would be contrary to congressional intent.”  2006-SOX-2, at 59-60 (ALJ June 29, 2007). The ARB has also declined to apply the duty speech defense to SOX claims. See, e.g., Robinson v. Morgan–Stanley, Case No. 07–070, 2010 WL 348303, at *8 (ARB Jan. 10, 2010) “[Section 1514A] does not indicate that an employee’s report or complaint about a protected violation must involve actions outside the complainant’s assigned duties”).