‘Where’s the beef?’ The FCA and its whistleblower protections
Thirty-two years ago, 81-year-old actress Clara Peller filmed a commercial for the Wendy’s fast-food chain. She marveled at a hamburger with an enormous fluffy bun and grumbled the immortal words: “Where’s the beef?” Since then, that phrase has been used in everything from politics to parodies. Even today’s teenagers, who may have never seen the original 1984 commercial, are familiar with the phrase.
But if Wendy’s opened a store in China today and someone asked a Chinese employee, “Where’s the beef?” the employee might be able to point to a patty that looks similar to the patties found in U.S. stores, but there would be one significant difference: The patty in China would contain exactly zero U.S. beef. Indeed, China bans the importation of all U.S. beef.
Recently, some beef exporters pleaded guilty to making false statements about where they had shipped their product. According to a former employee, the exporters had intentionally mislabeled their beef so they could smuggle it into China. The same former employee brought a lawsuit against the exporters under the False Claims Act (FCA) after he was fired.
In addition to claiming that the exporters had violated the FCA’s substantive provisions, he argued that they had terminated him in retaliation for notifying the government of their apparent wrongdoing. Read on to see how employers that contract with the federal government not only need to be honest in their dealings but also must be fair in how they treat whistleblowers.
What? Moldova isn’t a Chinese province?
Parker-Migliorini International, LLC, Parker International, Inc., Cottonwood Trading, LLC, and Fortuna Foods, LLC (collectively referred to in this article as “Parker”), export U.S. beef internationally. U.S. regulations for exported beef differ depending on the receiving country’s importation standards. Some countries, such as Costa Rica, Honduras, and Moldova, have few standards for U.S. beef. But other countries, such as China and Japan, have strict standards that exceed the standards imposed by the U.S. Department of Agriculture (USDA). Indeed, China has banned all U.S. beef imports.
When a receiving country has stricter standards than those imposed in the United States, U.S. law requires that the exporter pay an hourly rate for the meat to be inspected by the U.S. Food Safety and Inspection Service (FSIS), whose job it is to verify that the meat complies with the receiving country’s standards. The FSIS does not charge the exporter for the inspection if the receiving country’s standards are the same or less strict than U.S. standards. Because the exporter specifies the receiving country, it determines which FSIS inspection occurs.
During his time as a Parker employee, Brandon Barrick became concerned that the exporter was intentionally misidentifying receiving countries in an effort to ship what he believed was “banned” U.S. beef products into China, Hong Kong, and Japan. Specifically, he believed Parker was labeling meat as being sent to Costa Rica, Honduras, and Moldova when it was actually being shipped, and sometimes smuggled, into China, Hong Kong, and Japan.
While still a Parker employee, Barrick filed a sealed complaint under the FCA against Parker. He gave a copy of his complaint to the government, and the FBI began a criminal investigation. Barrick helped the FBI’s investigation, even wearing a hidden recording device during conversations he had with Parker’s CFO, Steven Johnson.
During Johnson’s subsequent interrogation, the FBI asked him about specific information Barrick had provided. Thus, Barrick believed the FBI’s questioning tipped off Johnson that he was aiding the investigation.
Shortly after the FBI searched its business premises, Parker terminated Barrick’s employment. The exporter ultimately pleaded guilty to a misdemeanor and paid a $1 million fine.
Barrick’s FCA lawsuit
While the government investigated and pursued its criminal action against Parker, Barrick pursued his FCA claim in the U.S. District Court for the District of Utah. In addition to claiming that Parker’s intentional mislabeling of beef violated the FCA, he claimed his termination was retaliatory and violated the FCA’s whistleblower protections.
Before going to trial, Parker asked the court to dismiss all of Barrick’s claims, arguing that even if his allegations were true, it couldn’t be held liable for any FCA violations. The court agreed with Parker on Barrick’s mislabeling claim but allowed his retaliation claim to proceed.
Dismissal of reverse false claim argument
The FCA is designed to prevent fraudulent attempts to cause the government to pay out money. In other words, it’s designed to prevent false claims from being presented to the government. But the FCA also forbids anyone from knowingly and improperly avoiding payment of an “obligation” to the government. Thus, the FCA protects not only against false claims made in an effort to swindle money out of the government but also against so-called reverse false claims made in an attempt to avoid payment to the government.
According to Barrick, Parker had violated the FCA’s reverse false claims protections by engaging in conduct that allowed it to avoid having to pay the higher FSIS inspection costs. The district court rejected his claim. The court recognized that Parker had pleaded guilty to making a false statement to the government. Nevertheless, because the beef at issue was, according to Barrick, “banned” from entering China, Hong Kong, or Japan, the court held that Parker’s actions were not an effort to knowingly avoid the fee for an FSIS inspection.
The court analogized the situation to someone attempting to bring ivory into the United States. Under U.S. law he (1) can purchase ivory in Europe freely and bring it into the United States without paying a customs duty, (2) can purchase ivory in Asia but must pay a customs duty of $10 per pound, and (3) cannot bring ivory into the United States if it is purchased in Africa. In its hypothetical, the court stated:
Assume a traveler returning to the United States with ivory from a trip abroad. If he purchased the ivory in Asia and tells the customs agent he purchased the ivory in Europe, he will have committed fraud and avoided a fee. But if he purchased the ivory in Africa and tells the customs agent he purchased the ivory in Europe he will have committed fraud but will not avoid a fee because no fee could possibly attach to the product that was prohibited from importation into the [United States] at any price.
Because there was no way the FSIS would have even conducted an inspection of meat headed for China, Hong Kong, or Japan, Parker had not avoided the inspection fee by mislabeling the meat. Thus, the court dismissed Barrick’s reverse false claim.
Retaliation claim permitted to proceed
Under the FCA, an employee may not be “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment” for notifying the government of apparent violations of the Act or for maintaining his own FCA action against his employer. Thus, someone like Barrick can sue his former employer for retaliation if:
(1) He engaged in a protected activity such as reporting a violation to the government or filing an FCA lawsuit.
(2) The employer had notice of his protected activities.
(3) The employer discriminated against him because of his protected activities.
Barrick alleged in his complaint that Parker learned of his involvement in the government’s investigation as a result of information the FBI shared with Johnson during his interrogation. Because of that allegation and because Barrick was fired after the interrogation, the court found that his retaliation claim was plausible and could proceed. U.S. ex rel. Barrick v. Parker-Migliorini Int’l, LLC, et al., 2016 WL 3029933 (D. Utah).
Perhaps the primary lesson to be drawn from this case by any business that contracts with the federal government (even though the court dismissed Barrick’s claim) is the simple lesson we all learned in kindergarten: Don’t lie. If you lie to the federal government, not only might you be running afoul of criminal laws, but you might also open yourself up to lawsuits brought by your own employees.
The second lesson is related to the first: If your employees do sue you for violating the law—whether it’s the FCA, the Americans with Disabilities Act (ADA), or any other applicable law—proceed carefully before you take any action against them. In such cases, seek competent legal counsel, and make sure any adverse action is based on the employee’s objectively verifiable performance, not on your anger, irritation, or desire to “get even.” If you don’t, you may be putting another arrow in the employee’s quiver.