MADELINE HUGHES HAIKALA, District Judge.
Defendant Spirit of Athens, Alabama, Inc. is a 501(c)(3) non-profit corporation that provides economic development services to the city of Athens, Alabama. Plaintiff Dana Hickman served as the executive director for Spirit of Athens, and plaintiff Robbin Hines served as Ms. Hickman's assistant until Spirit of Athens terminated both of the plaintiffs. The plaintiffs allege that Spirit of Athens terminated them because they voiced concerns about the organization's misuse of funds. Ms. Hickman and Ms. Hines bring this action against Spirit of Athens under the False Claims Act's anti-retaliation provision. 31 U.S.C. § 3730(h).
"Liability under the False Claims Act arises from the submission of a fraudulent claim to the government" of the United States. Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir. 2005). "Indeed, the `central question' regarding whether a relator's allegations state a claim [] is, did the defendant present (or caused to be presented) to the government a false or fraudulent claim for payment?" Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1052 (11th Cir. 2015) (quoting Hopper v. Solvay Pharm., Inc., 586 F.3d 1318, 1326 (11th Cir. 2009)). In a motion to dismiss that it filed shortly after the plaintiffs filed their complaint, Spirit of Athens argued that it could not be sued under the False Claims Act because the corporation does not receive federal funds. (Doc. 6, p. 1). The Court denied Spirit of Athens's motion but ordered the parties to engage in limited discovery concerning the extent to which Spirit of Athens receives federal funds. (Doc. 16).
Based on the information that the parties gathered during discovery, Spirit of Athens has renewed its argument. Spirit of Athens asks the Court to enter judgment in its favor pursuant to Rule 56 of the Federal Rules of Civil Procedure, arguing again that it is not subject to suit under the FCA. (Doc. 28). For the reasons discussed below, the Court finds that the plaintiffs cannot maintain their retaliation claim against Spirit of Athens because the plaintiffs have not engaged in activity that is protected under the FCA.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). To demonstrate that there is a genuine dispute as to a material fact that precludes summary judgment, a party opposing a motion for summary judgment must cite "to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." FED. R. CIV. P. 56(c)(1)(A). When considering a summary judgment motion, a district court must view the evidence in the record and draw reasonable inferences in the light most favorable to the non-moving party. Asalde v. First Class Parking Sys. LLC, 898 F.3d 1136, 1138 (11th Cir. 2018). "The court need consider only the cited materials, but it may consider other materials in the record." FED. R. CIV. P. 56(c)(3).
Spirit of Athens is a non-profit corporation tasked with revitalizing downtown Athens, Alabama. (Doc. 25-1, p. 13; Doc. 25-2, p. 7, tp. 23; Doc. 27-9, p. 7, tp. 23). Spirit of Athens receives funding from the City of Athens; Limestone County, Alabama; TVA "in-lieu-of-taxes" funds; and membership dues. (Doc. 27-9, p. 7, tpp. 22-23; Doc. 27-1, p. 8, tp. 26; Doc. 26-6, pp. 7, 15 (2014 tax return); Doc. 26-7, pp. 9, 32 (2015 tax return)).
TVA "in-lieu-of-taxes" funds are funds that the Tennessee Valley Authority or TVA provides to states in which the TVA operates. The TVA is a federal corporation. 16 U.S.C. § 831. It is "the nation's largest government-owned power provider," supplying "electricity to local power companies and to large, energy-intensive industrial customers and federal facilities." "Energy," Tennessee Valley Authority, available at https://www.tva.gov/About-TVA/TVA-at-a-Glance (last accessed Feb. 22, 2019). According to the TVA's website, the corporation is self-funded:
"How We're Funded," Tennessee Valley Authority, available at https://www.tva.gov/About-TVA/TVA-at-a-Glance (last accessed Feb. 22, 2019).
Rather than paying taxes on the income that it derives from sales of electricity, "to render financial assistance to those States and local governments in which the power operations of the Corporation are carried on and in which the Corporation has acquired properties previously subject to State and local taxation," the TVA provides a "percentage[] of the gross proceeds derived from the sale of power by the Corporation for the preceding fiscal year . . ., together with such additional amounts as may be payable pursuant to the provisions" of 16 U.S.C. § 831l, "said payments to constitute a charge against the power operations of the Corporation." 16 U.S.C. § 831l. The payments that the TVA makes under § 831l are "in lieu of taxation, and the Corporation, its property, franchises and income, are expressly exempted from taxation in any manner or form by any State, county, municipality, or any subdivision or district thereof." 16 U.S.C. § 831l.
The State of Alabama receives "in-lieu-of-taxes" funds from the TVA. The state divides this money among the Alabama counties in which the TVA operates. ALA. CODE. § 40-28-2 (1975).
In January of 2016, Spirit of Athens hired Dana Hickman as its executive director. (Doc. 27-1, p. 5, tp. 13). A few months later, Spirit of Athens hired Robbin Hines to assist Ms. Hickman. (Doc. 27-3, p. 5, tpp. 13-14). When Ms. Hickman arrived at Spirit of Athens, the organization was experiencing financial difficulties. The IRS had questions about Spirit of Athens's 2013 and 2014 tax returns and had revoked Spirit of Athens's 501(c)(3) status. (Doc. 27-6, p. 13, tp. 47; see also Doc. 1, p. 6, ¶ 18).
While the plaintiffs worked for Spirit of Athens, Spirit of Athens received one check from Limestone County for TVA in-lieu-of-taxes funds. (Doc. 27-1, pp. 8-9, tpp. 28-29; Doc. 27-3, p. 6, tpp. 18-19). Ms. Hines testified that while she and Ms. Hickman worked for Spirit of Athens, she heard that the TVA funds were federal funds. (Doc. 27-3, p. 8, tpp. 27-28). According to Ms. Hines, Jason Black, a Limestone County Commissioner, once stated that Spirit of Athens was to receive "some federal money from the TVA, we should be getting it soon, and not to feel bad that [the Commission] didn't vote for us to get money from the County for [an upcoming event] because we should be getting some federal money soon from TVA, and we could use that for [the event] because it is putting it back into the community." (Doc. 27-3, p. 9, tpp. 29-30). Later Ms. Hines "[g]oogled TVA in lieu of tax," and found that this "was federal money." (Doc. 27-3, p. 9, tp. 30). Ms. Hines then "just assumed that it was [federal money]." (Doc. 27-3, p. 9, tp. 34).
Ms. Hickman also believed the TVA funds were federal funds. (Doc. 27-1, p. 10, tp. 33). Ms. Hickman stated: "when we receive a check that says in lieu of tax TVA, that spells to me federal money." (Doc. 27-1, p. 10, tp. 36). Ms. Hickman explained: "[I] was associated with other ladies who were directors in this community or in our town . . . [and they] said that they received [TVA in-lieu-of-taxes] moneys, too. . . . [T]hey told me that it was federal money, so that's why I know that this is federal money." (Doc. 27-1, p. 27, tp. 101).
Ms. Hickman testified that Spirit of Athens could use the TVA funds "for anything that was within our scope of what we were going to do." (Doc. 27-1, p. 9, tp. 30). To Ms. Hickman's knowledge, the TVA did not restrict the use of the in-lieu-of-taxes funds, and the TVA did not require an accounting of the funds after the TVA disbursed the funds. (Doc. 27-1, p. 9, tpp. 30-31). To Ms. Hickman's knowledge, Spirit of Athens did not submit a written request to the TVA for the in-lieu-of-taxes funds that the corporation received. (Doc. 27-1, pp. 9-10, tpp. 32-33). Ms. Hickman testified: "No. The way that all worked was that it was the law and it was — TVA would distribute the money to Spirit of Athens. So it wasn't something we had — that I had any — to go back to fill out any paperwork to say we are needing this money, we are asking for appropriations for that." (Doc. 27-1, pp. 9-10, tpp. 32-33). Ms. Hickman understood that the TVA "issued [in-lieu-of-tax payments] to Limestone County and it was held in an escrow for them to distribute to Spirit of Athens." (Doc. 27-1, p. 10, tp. 33).
At about the same time that Spirit of Athens received the 2016 installment of TVA funds, Spirit of Athens's accountant asked Ms. Hickman to sign Spirit of Athens's 2015 tax returns. (Doc. 1, p. 8, ¶ 36). Ms. Hickman signed the returns. Later, when she noticed that more than half of Spirit of Athens's total revenue was categorized as "expenses," she retracted her signature. (Doc. 1, pp. 8-9, ¶¶ 37-38). When Ms. Hickman and Ms. Hines presented the 2016 budget for Spirit of Athens to the organization's board of directors, Ms. Hickman "explained the problem associated with the unaccounted-for expenses and the fact that she had refused to sign the returns as drafted." (Doc. 1, p. 9, ¶¶ 40, 42).
Ms. Hickman hired an auditor with hopes of "accomplish[ing] the goal of financial transparency." (Doc. 1, p. 11, ¶ 53). She let the board president, Mr. Gates, know that "due to the lack of financial transparency," she had retained an auditor. (Doc. 1, p. 11, ¶ 54). But the board president fired the auditor and fired Ms. Hickman and Ms. Hines "[w]ithout preamble or reason provided." (Doc. 1, p. 12, ¶¶ 57-58).
The financial irregularities that Ms. Hickman and Ms. Hines observed at Spirit of Athens are concerning, but to give rise to a claim for retaliation under the FCA, those irregularities must involve a particular type of fraud. For more than 150 years, the False Claims Act has been the federal government's primary tool for combatting fraud perpetrated against it. 31 U.S.C. §§ 3729-3733; see also S. Rep. No. 345, at 34 (1986) reprinted in 1986 U.S.C.C.A.N. 5266, 5299. Congress enacted the statute in 1863 to address "massive frauds" by government contractors during the Civil War. Universal Health Servs., Inc. v. United States, 136 S.Ct. 1989, 1996 (2016). In 1863, the record before Congress indicated, for example, that contractors were billing the United States for goods that the contractors had not actually provided. 136 S. Ct. at 1996.
Since 1863, Congress has amended the FCA a number of times to expand the scope of the statute's coverage, but the Act's focus "remains on those who present or directly induce the submission of false or fraudulent claims" for payment to the United States, 136 S. Ct. at 1996, and those who submit "a false record or statement" to the United States to avoid "an obligation to pay or transmit money or property" to the United States, 31 U.S.C. § 3729(a)(1)(G). In the words of the Eleventh Circuit Court of Appeals, the "submission of a false claim is `the sine qua non of a False Claims Act violation.'" United States v. HPC Healthcare, Inc., 723 Fed. Appx. 783, 789 (11th Cir. 2018) (quoting US ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th Cir. 2002)); Urquilla-Diaz, 780 F.3d at 1045 (same).
The FCA contains an anti-retaliation provision. That provision makes whole an "employee, contractor, or agent" who suffers a retaliatory employment action because the employee engaged in "lawful acts" to try to prevent a violation of the FCA. 31 U.S.C. § 3730(h).
Borrowing principles from other types of retaliation litigation, to establish that they engaged in protected activity in this case, Ms. Hickman and Ms. Hines must demonstrate that they had a reasonable belief that Spirit of Athens violated the FCA. Roberts v. Rayonier, Inc., 135 Fed. Appx. 351, 357 (11th Cir. 2005).
Roberts, 135 Fed. Appx. at 357 (quoting Little v. United Techs., 103 F.3d 956, 960 (11th Cir. 1997)) (using retaliation principles from race retaliation decision to evaluate ADA retaliation claim) (emphasis in Roberts).
Roberts, 135 Fed. Appx. at 357-58; see also McCrary, 200 F. Supp. 3d at 790 (in an FCA retaliation action, "for conduct to be considered protected, it must be shown that `(1) the employee in good faith believes, and (2) a reasonable employee in the same or similar circumstances might believe, that the employer is committing fraud against the government.'") (quoting Fanslow v. Chicago Mfg. Ctr., Inc., 384 F.3d 469, 480 (7th Cir. 2004)).
Here, in light of existing substantive law, neither Ms. Hickman nor Ms. Hines could have reasonably believed that Spirit of Athens engaged in conduct that violated the FCA because "for the FCA to apply, a false claim must be made or contemplated, whether it be to the federal government directly or to an entity that will pay the claim with federal funds." McCrary, 200 F. Supp. 3d at 791. Assuming for argument's sake that the TVA's statutory in-lieu-of-taxes payments to the State of Alabama constitute "federal funds" within the meaning of the FCA, the record makes plain that Spirit of Athens did not submit a claim or supply false information to the TVA, the State of Alabama, or Limestone County to obtain the in-lieu-of-taxes funds.
The plaintiff's retaliation theory in McCrary was much like the plaintiffs' theory in this case. In McCrary, the plaintiff was an employee of a county highway department. 200 F. Supp. 3d at 787. In his complaint, Mr. McCrary alleged that the county was misusing funds and other resources. Mr. McCrary asserted that the county:
McCrary, 200 F.Supp.3d at 792. In its opinion dismissing Mr. McCrary's complaint, the district court explained that Mr. McCrary did not allege conduct prohibited by the FCA because Mr. McCrary did not allege that the county used the federal funds that it received "to advance a federal government program or interest, or that the federal government will be responsible for paying or reimbursing any portion of the costs associated with the allegedly fraudulent grading job." 200 F. Supp. 3d at 792. The district court held that Mr. McCrary's "vague allegation that Knox County receives some federal funding is not enough to bring his retaliation claim within the purview of the FCA." 200 F. Supp. 3d at 792.
Moreover, Mr. McCrary did not allege that the county submitted a claim to an entity to obtain federal funds. The district court stated:
200 F. Supp. 3d at 793 (citation to the district court record omitted).
Last but not least, because Mr. McCrary did not allege fraudulent conduct in relation to the submission of a claim for federal funds, he did not assert the type of fraud that the FCA prohibits. In the words of the McCrary court:
200 F. Supp. 3d at 793-94 (citation to the district court record omitted). The district court observed that Mr. McCrary "frames the misconduct he was allegedly terminated for reporting not as fraud against the federal government — which is the focus of the FCA — but as another type of fraud against a local government. Thus, Mr. McCrary's allegations regarding illegal conduct of the Defendants are outside the purview of the FCA, as is retaliation based on those allegations." 200 F. Supp. 3d at 794.
The analysis in McCrary applies fully to the theory of fraud that Ms. Hickman and Ms. Hines pursue against Spirit of Athens. The plaintiffs allege that they "were attempting to bring transparency and accountability to this non-profit corporation that receives federal and other funds and they were fired for it." (Doc. 1, p. 2). They report that when Ms. Hines joined Spirit of Athens and began reviewing the organization's membership records, she found "troubling financial discrepancies." (Doc. 1, p. 8, ¶¶ 34-35). Ms. Hickman refused to sign the organization's federal and state tax returns because they were "based on less-than-complete information created" by the organization's previous Executive Director. (Doc. 1, p. 9, ¶ 38). Ms. Hickman and Ms. Hines shared their concerns about the organization's financial records with the Executive Board of the Spirit of Athens. (Doc. 1, p. 9, ¶¶ 40-42). A few weeks after Ms. Hickman and Ms. Hines disclosed their concerns to the Executive Board, the Chairman of the Limestone County Commission contacted Ms. Hickman to request accounting information for Spirit of Athens. (Doc. 1, p. 10, ¶ 48). The plaintiffs assert that they were terminated "in an effort to conceal" that Spirit of Athens "had misused and/or mismanaged funds, at least some of which constituted funds from the federal government via one or more grants provided by the TVA" and "in an effort to conceal" that Spirit of Athens's "tax returns were drafted with insufficient information." (Doc. 1, pp. 12-13, ¶¶ 59-60). Finally, Ms. Hickman and Ms. Hines allege that Spirit of Athens fired them because they were in the process of revealing the Spirit of Athens had "knowingly made or caused to be made false records and/or statements material relative to the appropriate accounting for certain federal funds." (Doc. 1, p. 15, ¶ 74).
Like Mr. McCrary, Ms. Hickman and Ms. Hines have not alleged that Spirit of Athens used TVA in-lieu-of-taxes funds to advance a federal government program or interest or that Spirit of Athens would have to use federal funds to make up potential shortages due to accounting irregularities. Like Mr. McCrary, Ms. Hickman's and Ms. Hines's "vague allegation that [Spirit of Athens] receives some federal funding is not enough to bring [the plaintiffs'] retaliation claim within the purview of the FCA." 200 F. Supp. 3d at 792.
Moreover, like Mr. McCrary, Ms. Hickman and Ms. Hines have not alleged that Spirit of Athens submitted a claim to an entity to obtain federal funds. The plaintiffs:
200 F. Supp. 3d at 793. Ms. Hickman acknowledged in her deposition that under "the law," the TVA "would distribute the money to Spirit of Athens. So it wasn't something we had — that I had any — to go back to fill out any paperwork to say we are needing this money, we are asking for appropriations for that." (Doc. 27-1, pp. 9-10, tpp. 32-33).
Last but not least, like Mr. McCrary, because Ms. Hickman and Ms. Hines do not allege fraudulent conduct in relation to the submission of a claim for federal funds, they do not assert the type of fraud that the FCA prohibits.
200 F. Supp. 3d at 793-94 (citation to the district court record omitted). The misconduct that Ms. Hickman and Ms. Hines describe may amount to tax fraud against the United States or the State of Alabama or to some form of fraud against Limestone County, but that conduct is outside of the purview of the FCA and thus outside of the scope of an FCA retaliation claim.
Had Ms. Hickman or Ms. Hines alleged that Spirit of Athens somehow submitted false information to an entity to apply for TVA funds, the record establishes that TVA in-lieu-of-taxes funds are funds that the TVA must pay to the State of Alabama, and the Alabama Legislature determines the manner in which the funds are distributed within the State of Alabama. If there were an application for funds, the application would have to be made to the State of Alabama. Thus, the conduct in this case is even further removed from the field of operation of the FCA than the conduct at issue in McCrary.
Accordingly, as a matter of law, Ms. Hickman and Ms. Hines cannot demonstrate that they engaged in protected conduct under the FCA such that they can establish a prima facie case of retaliation. Although the allegations surrounding Spirit of Athens's financial operations are serious, and Ms. Hickman and Ms. Hines may have lost their jobs because they were on the brink of exposing fraudulent or illegal conduct, that misconduct does not fall within the scope of the FCA's prohibition on the submission of a false claim as a means of obtaining federal funds.
For the reasons stated above, the Court grants Spirit of Athens's motion for summary judgment. The Court will enter a separate order closing the case.
31 U.S.C. § 3730(h)(1).
