Publications & Presentations
January 8, 2016
Judge Rejects Heightened Pleading Standard for “Fraud Alert” Employees

By Emma R. Cecil and Brian F. McEvoy

A recent decision from the Southern District of New York denying a motion to dismiss a former employee’s False Claims Act (FCA) retaliation claim casts doubt on whether the heightened pleading standard to which “fraud alert” employees have historically been held should continue to be applied following the 2009 Federal Emergency Relief Administration (FERA) amendments to the FCA.

In her complaint, New York University (NYU) Langone Medical Center’s former Director of Research for the Department of Radiation Oncology alleged that she was terminated after she discovered and reported to her supervisor that NYU employees had been unlawfully billing tests performed on blood specimens to the federal government, overcharging federal grants for patient clinic visits, and paying for the salary of a post-doctorate employee out of an unrelated federal grant. NYU moved to dismiss her claims on the grounds that she was subject to more stringent pleading standards because she was a “fraud alert” employee whose job duties required her to address the very billing problems she raised during the course of her employment.

Rejecting NYU’s argument, the court noted that while some circuits have held employees whose jobs require investigating fraud against the government to a higher pleading standard, those decisions were concerned with ensuring that employers were on notice of employees’ “intentions of bringing or assisting in an FCA action.” The court indicated in dicta that because FERA allows a retaliation claim to be stated so long as the employee was engaged in efforts to stop an FCA violation - even if the employee’s actions were not necessarily in furtherance of an FCA claim – those amendments likely eliminated any heightened pleading standard for duty speech. The court ultimately held that, regardless of what standard applied, the plaintiff had alleged that NYU’s billing practices were outside the scope of her job duties as a “Director of Research,” and thus had adequately pled an FCA retaliation claim.

SDNY’s decision stands in contrast to cases from other circuits in which courts have continued to apply a heightened pleading standard for meeting the notice requirement of an FCA retaliation claim where an employee’s investigation and reporting of fraud is part of his or her job duties. See, e.g., Frett v. Howard Univ., 24 F. Supp. 3d 76 (D.D.C. 2014) (holding that because it was plaintiffs job to address deficiencies and risks in the University’s HR department, the University could not have known that her report to the auditor constituted a step towards an FCA claim, rather than simply a report detailing inefficiencies that she had discovered in the performance of her); Gronemeyer v. Crossroads Community Hospital, Case No. 3:10-cv-00571 (S.D. Ill. Aug. 26, 2013) (“If investigating fraud is part of the employee’s job then the employee is held to a heightened notice standard.”).

The case is Malanga v. NYU Langone Med. Ctr., Case No. 1:14-cv-09681 (S.D.N.Y Nov. 12, 2015).

To learn more about Polsinelli's False Claims Act Defense practice, click here.