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.

Posted in Uncategorized
Print:
Email this postTweet this postLike this postShare this post on LinkedIn
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, Restrictive Covenant & Trade Secret, and Whistleblower…

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, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) 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 the unusual experience of testifying in federal court in connection with investigations. 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 is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

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 U.S. Library of Congress Burton Award Winner 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.

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.

Read more about Steven J. Pearlman
Show more Show less