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Frey v. United States Department of Health and Human Services

United States Court of Appeals, Fifth Circuit

April 8, 2019

CHRISTOPHER FREY, Petitioner
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Respondent

          Petition for Review of a Decision of the United States Department of Health and Human Services, Departmental Appeals Board

          Before WIENER, DENNIS, and OWEN, Circuit Judges.

          WIENER, CIRCUIT JUDGE

         Health Management Systems ("HMS") contracts with state health agencies to help them recover improperly paid Medicaid funds. Christopher Frey, a regional vice president for HMS, disclosed to supervisors that he believed some of HMS's billing practices were unlawful. Frey made these disclosures in 2009, and HMS fired him in 2013. Frey filed a whistleblower complaint, alleging that he was fired because of his disclosures. The Office of the Inspector General ("OIG") for the Department of Health and Human Services ("HHS") investigated Frey's claim and submitted a report to the HHS. In its report, the OIG found that although Frey had made protected disclosures, (1) those disclosures were not a "contributing factor" in HMS's decision to fire Frey, and (2) HMS would have fired him absent the disclosures. The HHS adopted the OIG's report and denied Frey's claim. Frey petitioned this court for review of that decision.

         I. Background

         A. Statutory Framework

         This case is governed by the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 ("Recovery Act" or "Act"), an economic stimulus package enacted early in 2009.[1] In addition to providing federal stimulus funds for infrastructure, health, and energy projects, the Recovery Act provides substantive protections for whistleblowers and administrative procedures for handling whistleblower complaints against employers that receive or use stimulus funds.[2]

         The Recovery Act defines a "non-Federal employer" as a "State or local government receiving the [covered] funds and any contractor or subcontractor of the State or local government."[3] The Act prohibits employers that receive stimulus funds from retaliating against employees for disclosing evidence about the misuse of those funds:

         § 1553. Protecting State and Local Government Contractor Whistleblowers.

         (a) PROHIBITION OF REPRISALS.-An employee of any non-Federal employer receiving covered funds may not be

discharged, demoted, or otherwise discriminated against as a reprisal for disclosing, including a disclosure made in the ordinary course of an employee's duties, to the Board, an inspector general, . . . a State or Federal regulatory or law enforcement agency, a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct), . . . the head of a Federal agency, or their representatives, information that the employee reasonably believes is evidence of-
(1) gross mismanagement of an agency contract or grant relating to covered funds;
(2)a gross waste of covered funds; [or] . . . (5) a violation of law, rule, or regulation related to an agency contract . . . or grant, awarded or issued relating to covered funds.[4]

         The Act sets out specific burdens of proof for whistleblower complaints. A whistleblower "shall be deemed to have affirmatively established the occurrence of the reprisal if the person demonstrates that" the protected disclosure was "a contributing factor in the reprisal."[5] A whistleblower may demonstrate that a protected disclosure was a "contributing factor" by using circumstantial evidence, including:

(I)evidence that the official undertaking the reprisal knew of the disclosure; or
(II)evidence that the reprisal occurred within a period of time after the disclosure such that a reasonable person could conclude that the disclosure was a contributing factor in the reprisal.[6]

         If the whistleblower "affirmatively establish[es]" that the protected disclosure was a contributing factor to the reprisal, the non-Federal employer has an "opportunity for rebuttal," to "demonstrate[] by clear and convincing evidence that the non-Federal employer would have taken the action constituting the reprisal in the absence of the disclosure."[7] If the employer makes that showing, the agency "may not find the occurrence of a reprisal . . . ."[8] This burden-shifting framework uses the same "contributing factor" and "clear and convincing evidence" language as the standard for Sarbanes-Oxley Act whistleblower actions.[9]

         The Recovery Act also sets out a process for evaluating complaints. First, the whistleblower must submit the complaint to the appropriate inspector general.[10] That inspector general must investigate the complaint and submit "a report of the findings of the investigation to the person, the person's employer, the head of the appropriate agency, and the Board."[11]

         Next, within 30 days after receiving the inspector general's report, the agency must "determine whether there is sufficient basis to conclude that the non-Federal employer has subjected the complainant to a [prohibited] reprisal."[12] The agency must either "issue an order denying relief in whole or in part" or take one or more of the following actions: (a) "[o]rder the employer to take affirmative action to abate the reprisal"; (b) reinstate the person, with compensation, compensatory damages, and employment benefits; or (c) pay the complainant for his costs and expenses reasonably incurred for bringing the complaint.[13] If the agency issues an order denying relief in whole or in part, or fails to issue an order within 210 days of the submission of a complaint, the complainant will be deemed to have "exhausted all administrative remedies with respect to the complaint" and may sue the employer in federal district court.[14]

         The Recovery Act authorizes direct review in the court of appeals for the circuit in which the alleged reprisal occurred for anyone "adversely affected or aggrieved by an order" issued by the agency.[15] Review in the court of appeals must conform to chapter seven of the Administrative Procedure Act ("APA").[16]

         B. Factual Background

         Petitioner-Appellant Christopher Frey filed a whistleblower complaint under § 1553, alleging that his employer, Health Management Services, Inc. ("HMS"), fired him in retaliation for protected disclosures. Defendant-Appellee United States Department of Health and Human Services ("HHS") investigated and denied his claim. Frey petitions this court for review of the agency action.

         HMS is a publicly traded company that helps state health agencies recover Medicaid funds that have not been paid or have been inappropriately paid. It contracts with states to recover third-party liability ("TPL") claims.[17]Section 1553 of the Recovery Act applies to HMS because HMS contracts with states that received federal stimulus funds under the Recovery Act and is engaged by state Medicaid agencies to identify and recover TPL payments.[18]

         Frey was a regional vice president for HMS from September 2006 until HMS fired him in May 2013. In that role, he managed sales and client relations within his assigned region. He alleges that in 2009, he made protected disclosures to HMS executives about (1) HMS's failure to bill timely for Medicaid reclamation claims, a practice he believed violated 42 C.F.R. § 433.139, and (2) HMS's practice of double-billing the state of Tennessee for Medicaid information.

         Frey contends that after he made these disclosures, he experienced a pattern of retaliatory acts, including (1) a reduction of the territories for which he was responsible, (2) exclusion from high-level meetings, and (3) HMS's failure to pay him bonuses to which he was entitled. He maintains that these acts culminated in HMS firing him in May 2013. The parties dispute the reason for Frey's firing: HMS contends that it fired him as part of a reduction-in-force; Frey contends that there was no reduction-in-force and that instead he was fired in retaliation for his 2009 disclosures.

         C. Litigation Background

         After HMS fired Frey, he filed a whistleblower complaint with the Office of the Inspector General ("OIG") for the HHS, alleging that HMS fired him in retaliation for his 2009 disclosures. OIG investigators corresponded with Frey's counsel, who provided additional information and lines of questioning.

         The OIG reviewed documents and interviewed Frey and several HMS employees. It issued its first investigative report to the HHS in August 2015. Frey's counsel wrote to the OIG, objecting to that report's conclusions. In June 2016, the OIG issued a second report to the HHS. Frey's counsel wrote to the HHS Secretary, objecting to the second report's conclusions.

         In June 2017, the OIG issued its third and final investigative report to the HHS. That 23-page report set out the interviews the OIG had conducted and the documents it had considered. The OIG found that Frey had made protected disclosures in 2009. First, Frey had told his supervisor, Ron Singh, the executive vice president of the HMS Commercial Division, and Maria Perrin, HMS's executive vice president, that he believed HMS was billing TPL claims in an untimely and unlawful manner. The OIG also found that Frey told David Dawson, an HMS vice president, about HMS's practice of double-billing Tennessee for Medicaid information.

         The OIG determined that HMS took an "unfavorable personnel action" against Frey by firing him, but "could not substantiate" Frey's allegations of a pattern of retaliation between 2009 and 2013. First, Frey alleged that HMS had cut the number of states for which he was responsible. The report states that, although Frey had lost some states, he had also gained other territory, including Louisiana. Second, Frey alleged that he was excluded from high-level meetings. The report states that investigators "were not able to find evidence to confirm that Frey was excluded from any meetings that he was permitted to attend." Finally, Frey alleged that HMS had denied him bonuses that his contract promised. The report states that Frey's bonuses were not guaranteed.

         Although the OIG report determined that Frey had made protected disclosures and that HMS management knew of the disclosures when it fired him, the OIG concluded that the disclosures were not a contributing factor in HMS's decision:

The OIG finds that Frey made protected disclosures in 2009 and that HMS management knew of Frey's disclosures. The OIG also finds that HMS took a personnel action against Frey (he was terminated as part of a RIF) and that certain HMS management officials responsible for the RIF were aware of Frey's protected disclosures at the time the RIF was conducted. Nevertheless, HMS has established by clear and convincing evidence that Frey would have been terminated as part of the RIF in the absence of the disclosures. As a consequence, the OIG finds that Frey's claim that he was subjected to whistleblower retaliation is unsupported.

         Because of "the four years that passed between the protected disclosures in 2009 and Frey's termination in 2013" and a "lack of other evidence to support a finding of retaliation," a "reasonable person would not conclude that the disclosure was a contributing factor in the reprisal due to the extensive passage of time." The OIG also found that even if Frey's disclosures were a contributing factor in HMS's decision, HMS had established by clear and convincing evidence that it would have fired Frey in the absence of the disclosures.

         Frey did not receive a copy of the final report until he filed a petition for review in this court.[19] In 2016 and 2017, Frey sent several emails to HHS officials asking for an update on the agency's decision. HHS officials responded to some of these emails with vague answers, and some went unanswered.[20]

         In a January 2018 letter to Frey's attorney, the Associate Deputy Secretary of the HHS stated that he "agree[d] with the findings of the OIG," and denied Frey's claim. Although the January 2018 final agency action took much longer than the statutorily prescribed "30 days after receiving" the June 2017 OIG report, Frey does not challenge the timeliness of the agency action on appeal.[21] Instead, Frey timely filed a petition for review in this court.

         II. Standard of Review

         Section 1553 of the Recovery Act requires us to review the HHS's final decision denying Frey's claim under the standards set out in Chapter Seven of the APA.[22] Under the APA, we "will set aside agency action, findings, and conclusions found to be 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law . . . .'"[23] Because the HHS is not charged with administering § 1553, we review its legal conclusions and interpretations of that statute de novo.[24]

         The parties disagree about the standard of review for the HHS's factual findings. Both Frey and the HHS contend that those findings should be reviewed for substantial evidence. In contrast, HMS, an intervenor in this case, contends that the HHS's factual findings should be reviewed under the arbitrary and capricious standard. HMS maintains that agency findings "are reviewed under the substantial evidence standard only where there has been a formal agency adjudication in which the agency was required to conduct a hearing on the record, which was not required and did not occur in this case."

         HMS is correct. 5 U.S.C. § 706(2)(E) states that a reviewing court shall hold unlawful agency findings or conclusions found to be "unsupported by substantial evidence . . . reviewed on the record of an agency hearing provided by statute." The Recovery Act, unlike other whistleblower statutes, does not allow a complainant to request a hearing.[25] In this case, neither the HHS nor the OIG held a hearing. And other courts of ...


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