Seventh Circuit: ARRA Whistleblower Claim Failed Because Complaints Did Not Relate to “ARRA-Covered Funds”

by Proskauer - Whistleblowing & Retaliation
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A Seventh Circuit panel recently affirmed dismissal of a whistleblower claim under the American Reinvestment and Recovery Act of 2009 (“ARRA”) where the complaint did not state a claim (for Rule 12(b)(6) purposes) for misuse or mismanagement of ARR-covered funds. Fuqua v. SVOX AG, Case No. 12-cv-1870 (7th Cir. May 16, 2014).

Background

Plaintiff Kurt Fuqua worked as a computational linguist for SVOX (the “Company”). In June 2009, the Company requested that he agree to a new employment contract containing certain clauses he believed were unlawful, including assignment of his trademark, invention and copyright rights. While the parties negotiated for approximately five months regarding the terms of the contract, they ultimately could not reach agreement, and the Company terminated Mr. Fuqua’s employment in October 2009.

Mr. Fuqua filed a complaint with the Officer of Inspector General of the Department of Defense (“OIG DOD”), alleging his termination was a prohibited reprisal under the whistleblower protection provision in Section 1553 of ARRA. Under Section 1553, an employer is prohibiting from retaliating against an employee who discloses misuse of ARRA-covered funds. “Covered funds” under ARRA are defined as any contract, grant, or other payment the federal government provides to a federal employer that is, at least partially, made available by ARRA. In support of his claim, Mr. Fuqua asserted that the Company’s efforts to require him to agree to provisions of the proposed agreement which would assign certain of his copyright, trade secret and trademark rights to the Company constituted misuse of funds under ARRA. Mr. Fuqua based his claims  that  the Company received covered funds on: (a) tax credits the Company received based on monthly transit passes; (b) the Company’s licensing of National Institute of Standards and Technology (“NIST”) data from NIST competitions sponsored with money provided by ARRA; and (c) payments made under COBRA. Notably, none of Fuqua’s claimed protected activities related to any of the identified funding. The OIG DOD concluded that the Company did not receive ARRA funds and therefore was not subject to liability under Section 1553 of ARRA.

Mr. Fuqua then pursued his claim in the U.S. District Court for the Northern District of Illinois. The Company moved to dismiss pursuant to Rule 12(b)(6), emphasizing that it did not receive covered funds under ARRA. The District Court agreed. It also concluded that Mr. Fuqua failed to exhaust his administrative remedies because he filed his claim with the wrong agency; he neglected to file with the Commerce or Treasury Departments.

Seventh Circuit’s Ruling

The Seventh Circuit affirmed, ruling that Mr. Fuqua failed to allege misuse of ARRA-covered funds. Mr. Fuqua argued that he and the Company received covered funds by licensing government-sponsored data from NIST competitions, which in turn were sponsored by ARRA funds. But the Seventh Circuit determined that: (a) licensing of the NIST data did not constitute receipt of covered funds under ARRA; and (b) Mr. Fuqua’s complaints did not involve misuse or mismanagement of covered funds. Similarly, while COBRA payments could be covered funds under ARRA, Mr. Fuqua’s complaints and alleged protected activity had nothing to do with the use or misuse of the COBRA payments. The Seventh Circuit did not address the issue of whether Mr. Fuqua failed to exhaust administrative remedies.

Implications

Companies that received funds under ARRA are prohibited from retaliating against individuals who complain of misuse and waste of those funds. While this decision took a close look at whether the funds at issue were connected to ARRA, employers receiving ARRA funds should nevertheless be cautious when receiving, addressing and responding to whistleblower complaints about financial mismanagement or wrongdoing.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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