Ninth Circuit affirms dismissal of whistleblower suit, award of attorney's fees to employer

by Ben Vernia | March 30th, 2011

In a March 24 opinion in U.S. ex rel. Cafasso v. General Dynamics C4 Systems, Inc., the Ninth Circuit Court of Appeals affirmed a District Court’s 2009 decision dismissing a qui tam relator’s suit and awarding attorney’s fees to her former employer for breach of her confidentiality agreement by taking company documents.

The case involved a research and development contract between her employer and the Army. The relator alleged that the company concealed innovations that its contract required it to disclose to the government. She was terminated in what the company described as a corporate reorganization, and she copied eleven gigabytes of documents in anticipation of filing her qui tam suit shortly before she left.

The procedural posture of the case was complicated: after her firing, the company realized that she had taken its internal documents, and filed for and obtained a temporary restraining order in state court on the basis of a confidentiality agreement that she executed at the start of her employment. Two days later, the woman filed her False Claims Act suit, alleging that the company submitted false claims and retaliated against her for complaining about the company’s failure to disclose the inventions. The district judge permitted the woman to notify the state court of the qui tam suit, and she used this notice to obtain, ex parte, a lift of the TRO and a stay of the action (which the state appeals court later overturned). The district judge was displeased that the whistleblower had used its orders to disrupt the state court suit, and it vacated them. The company filed an answer and counterclaim, and after acrimonious discovery and the whistleblower’s refusal to identify the specific provision of the False Claims Act she believed had been violated, the district court entered judgment on the pleadings for the company, regarding both her False Claims Act claims, and the company’s attorney fee demand.

The Ninth Circuit affirmed the district court in all respects:

  • Dismissal of the qui tam – Noting that the False Claims Act attaches liability not to underlying fraudulent activity, but to the submission of a claim for payment, the court agreed with the trial judge that under the facts of the case, the relator had not alleged a violation of the Act. Even if the company was obliged to disclose inventions to the Army, the court reasoned, she had not alleged that the company had falsely asserted that it was entitled to obtain or retain government money or property.
  • In reaching this decision, the court held that the requirement of Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), that a complaint’s allegations, together with reasonable inferences, state a plausible claim for relief, applied to suits subject to Rule 9(b)’s particularity requirement (such as False Claims Act cases).

  • Denial of leave to amend – The district court, after proposing that the relator amend her complaint, acted within its discretion in denying her leave to amend after she proffered a 733-page proposed amended complaint. The complaint’s length and complexity violated Rule 8(a)’s requirement of a “short and plain statement of the claim,” the court wrote, and prejudiced and burdened the company.
  • Dismissal of her termination claim – The Ninth Circuit found no evidence that the company’s dismantling of the relator’s office and its termination of her was causally related to her protected activity in complaining of the failure to disclose the inventions to the Army. The executive who decided to shut down the woman’s office testified that he did not know at the time of her complaints, and she testified that she had no reason to disbelieve him. The court rejected her “cat’s-paw” theory of liability – that one of the executive’s subordinates, knowing of her complaints, “poisoned” him against her, causing him to decide to close the office. The relator had shown only that this conceivably could have occurred, the court reasoned, but did not give rise to a reasonable inference that it did in fact occur.
  • Grant of attorney’s fees for the relator’s theft of documents – The whistleblower conceded that her conduct – taking eleven gigabytes of company documents – fell within the scope of the confidentiality agreement she had signed when she started her job, but she urged the court to adopt a public policy exception that would permit relators to disclose such documents in an FCA action. The Ninth Circuit acknowledged the possible merit in her proposal, but it concluded that it need not adopt it because her misappropriation was so indiscriminate that applying the proposed exception would “make all confidentiality agreements unenforceable as long as the employee later files a qui tam action.” In dicta, the court wrote:

    Were we to adopt a public policy exception to confidentiality agreements to protect relators—a matter we reserve for another day—those asserting its protection would need to justify why removal of the documents was reasonably necessary to pursue an FCA claim. Cafasso has made no such particularized showing. The need to facilitate valid claims does not justify the wholesale stripping of a company’s confidential documents. Although courts perhaps should consider in particular instances for particular documents whether confidentiality policies must give way to the needs of FCA litigation for the public’s interest, Cafasso’s grabbing of tens of thousands of documents here is overbroad and unreasonable, and cannot be sustained by reference to a public policy exception.

Leave a Reply

Recent Posts

Recent Comments