Earlier this year, my colleague, Matt Feinberg, and I reviewed the False Claims Act (FCA) statistics for 2020. We forecasted that the Paycheck Protection Program (PPP) and other small business loan programs initiated through the Coronavirus Aid, Relief, and Economic Security (CARES) Act would generate a surge in new FCA matter reporting. This month, a former employee of a government contracting firm filed a complaint against the firm under the federal FCA anti-retaliation clause and Florida state whistleblower statutes.[1] This lawsuit serves as a reminder for recipients of PPP loans to ensure that they are properly using funds. Otherwise, recipients risk enforcement under the FCA: not only by the federal government and qui tam relators, but also under its whistleblower provisions.
The plaintiff in Rucker was the personal assistant to Great Dane Petroleum Contractors, Inc.’s (“Great Dane”) Chief Financial Officer. According to her lawsuit, she observed that Great Dane claimed and collected over $2 million in federal money under the PPP. Then, Great Dane allegedly misused those monies “for purposes unintended by the federal program,” while also fraudulently altering payroll to make it appear it was compliant with PPP requirements when it knowingly had not. The plaintiff allegedly reported these acts to Great Dane’s CEO and President. Subsequently, she was placed on administrative leave and terminated. Therefore, the complaint alleges, “as a direct and proximate result of objecting to and filing a complaint of [Great Dane’s] violations of the law, which included the Defendant fraudulently obtaining and retaining PPP monies, the Defendant subjected the Plaintiff to adverse employment action[.]”
In effort to prevent companies from using the threat of economic retaliation to silence whistleblowers, the FCA provides that any employee who is discriminated against in the terms of his or her employment because of lawful acts done under the FCA—including reporting violations of the FCA–is entitled to receive “all relief necessary to make that employee . . . whole.”[2] In Rucker, the plaintiff accordingly seeks to be reinstated, receive restitution for her lost wages, front pay, and compensatory damages.
This suit comes on the heels of indicators from the Department of Justice (DOJ) that it intends to enforce the FCA against fraudulent schemes arising from the receipt of PPP loans. Throughout 2020, DOJ announced charges against companies and individuals for fraudulently obtaining PPP funds, and in January 2021, it announced its first settlement of a civil case for PPP loan fraud. The violations alleged by DOJ to date range from individuals forming fake companies to receive PPP loans, to legitimate business owners spending the funds on luxury items for themselves rather than paying employees. Since releasing loans under the PPP, the Small Business Administration Inspector General expressed concern that the program may be vulnerable to “pervasive” fraud. And, as we continue to anticipate a surge in FCA litigation based on the increased cases and investigations opened by DOJ in 2020, it remains crucial that recipients take measures to ensure that they properly used and documented their receipt and application of PPP loans.
Government contractors should seek to avoid costly and damaging FCA and fraud-related litigation, including whistleblower claims, by developing a clear understanding of their obligations under the PPP and implementing a robust audit procedure to ensure accurate claims for payments are made to the government. In addition, companies should take employee allegations of PPP loan fraud seriously, investigate thoroughly, and document the findings of the investigation. Even where a whistleblower complaints turns out to be unfounded or misguided, the company must avoid taking any adverse employment action against that individual in order to stay compliant with the FCA anti-retaliation provisions.
[1] Rucker v. Great Dane Petroleum Contractors, Inc., No. 2:21-cv-207 (M.D. Fla. Mar. 10, 2021).
[2] 13 U.S.C. § 3730(h).
