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 ARRA-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.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.…

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. He is a Fellow of the College of Labor and Employment Lawyers. Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC, and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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