If you work for the state report fraud at your peril – part 2.

In February 2010 we blogged about Ligon v. County of Goochland and noted that sovereign immunity is a complete bar against many suits filed by public employees against their employer. Here is another example, with a slightly better outcome for the plaintiff:

In Huang v. The Rector and Visitors of the University of Virginia, et al., Case No. 3:11-cv-00050 (W.D. Va. December 19, 2011), a professor at a public university complained about fraud and misappropriation of funds from a research grant. Then he was fired. The complaint alleged these facts:

Dr. Huang worked at UVa as an assistant professor in the Department of Psychiatry and Neurobehavioral Sciences. In 2009, Huang received a grant from the National Institutes of Health. As the “principal investigator” of this NIH grant, Huang was responsible for allocating grant money to researchers and staff working on his project. His allocation in turn determined how much of the salaries of the people involved in his research project would come from the grant money, instead of from UVa. For example, Huang allocated fifty percent of his time to his research project: fifty percent of his salary would therefore be funded by the NIH while the other fifty percent would be paid by UVa.

Huang alleged that he later discovered that his supervisor, Dr. Li, had secretly changed the allocation of the grant money. The allocation of three persons had been increased even though this increase did not accurately reflect the time actually spent on the research. In other words, Huang alleged that he had discovered that funds from the NIH were improperly diverted to UVa employees for purposes unrelated to the grant. Huang was sure he had discovered a fraud.

Shortly after he complained about this to the Chair of his Department, Dr. Johnson, Huang was first disciplined, then put on administrative leave, and, ultimately, terminated. Huang filed a grievance which resulted in an offer of reinstatement for a one-year time period. Since the University had refused to address the issue of misappropriation of his NIH funds, however, Huang declined and filed suit.

The suit named as defendants the University and Huang’s two supervisors, Li and Johnson, and set out four counts: a count under Virginia’s Fraud and Abuse Whistle Blower Protection Act (“FAWBPA”); one count for breach of contract, a count under the False Claims Act; and, finally, one count under the Civil Rights Act of 1871 and the First Amendment. The defendants asked the court to dismiss all claims against them.

The FAWBPA, the False Claims Act (“FCA”), and (in a sense) the First Amendment all provide protections or rewards to whistle blowers. The FAWBPA protects certain state employees in Virginia who have reported, or are about to report, instances of wrongdoing or abuse committed by a state agency, or an independent contractor of a state agency, from discrimination or retaliation.  The FCA protects an employee from retaliation because of lawful acts done by the employee in furtherance of an action under the FCA. And the First Amendment guarantees a public employee (in certain circumstances) the right to speak as a citizen addressing matters of public concern and be free from retaliation by his or her public employer.

The court held that the count under the FAWBPA was barred by the Eleventh Amendment because UVa was an instrumentality of the state and Virginia had not consented to being sued under this law in federal court. In other words, Huang could have brought this claim against UVa only in state court. The FAWBPA claim was dismissed.

The court also dismissed the breach of contract claim because Huang was not a party to the contract between NIH and UVa, and he was not a third beneficiary to the contract either. To obtain such a status – and have standing to sue on the contract – Huang would have had to “establish that the parties to the underlying contract clearly and definitely intended to confer a benefit upon the alleged beneficiary.” This Huang was unable to do. Secondly, Huang also had not met some procedural requirements for his breach of contract claim against UVa, and his breach of contract claim was dismissed on this second ground as well.

Huang fared better on his other two claims. His claim under the False Claims Act was directed against Li and Johnson, both in their official and in their individual capacity. As to the former, the court relied on a Supreme Court opinion according to which “a suit against a state official in his or her official capacity is not a suit against the official but rather is a suit against the official’s office.” Again, as to this part of Huang’s claims, the Eleventh Amendment provided the Defendants with a powerful shield: Huang was in fact suing UVa – not Li and Johnson – and UVa was protected by sovereign immunity. Congress has not expressly and clearly stated that it intended to waive state sovereign immunity against retaliation claims under the FCA. As a result, such claims are barred — but only as to lawsuits for monetary damages.

Huang, however, also sought equitable and injunctive relief: he wanted to be reinstated to his job with the same seniority status he would have had but for his termination. This part of his claim against Li and Johnson in their official capacity survived. The court ruled that Huang had stated a valid claim and denied this part of the defendants’ motion to dismiss. The defendants argued that Huang’s claim for reinstatement was precluded by the fact that he had declined UVa’s unconditional offer of reinstatement, but the court decided that this argument was for another day. The jury would have to decide, later, whether or not Huang acted reasonably under the circumstances when he declined to be reinstated.

The court also noted that the defendants had not asked to have Huang’s FCA claim against them in their individual capacity dismissed. Huang was allowed to proceed on this claim as well.

Huang’s First Amendment/Civil Rights Act claim was also against Li and Johnson, also both in their official and in their individual capacity. The court dismissed the claim for damages against the officials on Eleventh Amendment grounds, just as it had done with the FCA claims. The defendants asked to dismiss all First Amendment claims, however, on the grounds that Huang’s speech at issue – his complaints that NIH funds were improperly diverted – was not protected by the First Amendment. The defendants were arguing that Huang had been speaking pursuant to his official duties as a “principal investigator” on a research grant, not as a citizen. They also argued that the topic of Huang’s speech – his complaints about the administration of the NIH funds – was “entirely internal in nature” and not “on a matter of public concern” as required under First Amendment jurisprudence. As with the defendants’ motion to dismiss the FCA claim, the court decided that the defendants’ arguments were unpersuasive on a motion to dismiss. The defendants may be able to succeed with their arguments on summary judgment, but at this stage of the case the court held that Huang was entitled to discovery on these questions. The defendants’ motion to dismiss was denied as to the First Amendment claim against them in their individual capacity and the claim for equitable and injunctive relief against them in their official capacity.

To summarize, the court dismissed Huang’s whistleblower claim and his breach of contract claim in their entireties. The court also dismissed his claims for damages under the FCA and his First Amendment claim against Li and Johnson in their official capacity. However, his FCA and First Amendment claims against Li and Johnson in their individual capacity, and his FCA and First Amendment claims for equitable and injunctive relief against Li and Johnson, survived, and he can proceed on these claims. It is possible that the defendants will ask the court to dismiss some or all of these remaining claims on summary judgment on a more complete factual record.

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