Maturi v. McLaughlin Research Corp.

United States Court of Appeals
For the First Circuit

No. 04-2070

HAROLD J. MATURI; HENRY G. MATURI,

Plaintiffs, Appellants,

v.

MCLAUGHLIN RESEARCH CORP.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. William E. Smith, U.S. District Judge]

Before

Howard, Circuit Judge,
Cyr, Senior Circuit Judge,
and Stahl, Senior Circuit Judge.

Joseph D. Whelan, with whom Kathleen A. Collins, and Hinckley,
Allen & Snyder, were on brief, for appellants.
Mary Jo Johnson, with whom James S. Goldman, and Wilmer Cutler
Pickering Hale and Dorr LLP, were on brief, for appellee.

July 1, 2005
 STAHL, Senior Circuit Judge. On September 10, 1998,

Andra Kelly ("Andra"), the chairman of the board of Appellee

McLaughlin Research Corporation ("MRC"), fired Appellants Harold J.

Maturi ("Harold") and Henry G. Maturi ("Henry"), who had been MRC's

president and vice-president, respectively, since 1991.

Thereafter, Harold and Henry (collectively, "Appellants") filed

this action against MRC in the United States District Court for the

District of Rhode Island. In their complaint, Appellants asserted

a claim under the whistle-blower provision of the False Claims Act

("FCA"), 31 U.S.C. § 3730(h), as well as a claim under the Rhode

Island Whistle-Blowers' Protection Act ("RIWPA"), R.I. Gen. Laws §

28-50-1 et seq. The FCA and RIWPA claims were premised on

Appellants' belief that they were wrongfully fired for, among other

things, complaining about the allegedly fraudulent receipt of dual

salaries and benefits by Conn Kelly ("Conn"), Andra's son and the

director of marketing of MRC. Following the close of discovery,

MRC filed a motion for summary judgment, which the district court

allowed. Appellants now seek review of the dismissal of their

claims as they relate to Conn's allegedly fraudulent receipt of

dual salaries and benefits. We affirm.

I. Background

We recount the facts in the light most favorable to

Appellants, the individuals opposing summary judgment. See McAdams

v. Mass. Mut. Life Ins. Co., 391 F.3d 287, 290 (1st Cir. 2004).

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A. MRC and Related Businesses

MRC is a contractor that provides engineering services to

the government of the United States. At all relevant times, MRC's

principal shareholders were members of the McLaughlin family:

Andra, the daughter of MRC's founder; Bruce and Douglas McLaughlin,

Andra's brothers; and Brandy McLaughlin-Wall, Andra's niece.

Andra's son, Conn, and another niece, Morgan McLaughlin, also held

shares in MRC, although they held far fewer shares than the

aforementioned family members.1

Prior to Appellants' termination, the above individuals,

with the exception of Conn2 and the addition of Harold, comprised

MRC's board of directors (the "board").3 Andra was chairman of the

board; Harold, in addition to being a board member, was MRC's

president and chief operating officer4; and Henry was the company's

1
It appears that Conn owns less than one percent of MRC's
stock.
2
It is not clear whether Bruce McLaughlin was a member of the
board, but the issue has no relevance to this appeal.
3
Appellants, in their opening brief to this court, assert that
Conn was a member of MRC's board, but they do not include a
citation to the record to support their assertion. The record
indicates that Conn was the board's secretary and that he attended
board meetings only to take notes; it does not indicate that he was
a board member.
4
There is a dispute as to whether Harold was also MRC's chief
executive officer ("CEO"); Appellants claim that Andra, not Harold,
held this position. Nevertheless, this dispute is not material,
because, regardless of whether Harold was officially designated as
MRC's CEO, it is clear from the record that he was responsible for
the daily management of the company.

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executive vice-president. Henry reported to Harold, and Harold

reported directly to Andra.

Besides MRC, the McLaughlin family owned and operated

several other businesses. One of those businesses was McLaughlin

Partners ("Partners"), a company created to provide services (for

a fee) to the other McLaughlin businesses, including MRC.

As a government contractor, MRC had to follow a set

procedure in order to receive payment from the government. Before

the beginning of each fiscal year, MRC had to submit a provisional

budget to the government. The budget, which was based largely on

a projection of MRC's yearly expenses, would list the payments that

MRC was to receive from the government during the year. MRC could

adjust the budget at any time over the course of the year if its

actual expenses differed from its projections. At the end of the

year, a final accounting would determine whether the government

owed MRC money or vice versa.

From 1991 to 1998, MRC's annual revenue fell from

approximately $30 million to $12 million.5 As a result, MRC

reduced its workforce by more than half. Moreover, in 1998,

Appellants' salaries were reduced by ten percent,6 and they were

5
Appellants contend that the decline in revenue was the result
of a reduction in government spending and not their management.
Further, Appellants point out that, despite the decline in revenue,
MRC remained profitable.
6
It appears that Andra's salary was also cut by ten percent.
In any event, Henry viewed the reduction in salary as an adverse

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not awarded performance-related bonuses for the first time since

1991. In his deposition, Harold testified that by 1998, "there was

an undertone of anxiety amongst all [MRC] employees, including

myself, . . . about the possibility of being laid off."7

B. Harold and Henry's Responsibilities

As president, Harold was responsible for the "day-to-day"

management, including the financial management, of MRC. Harold had

ultimate responsibility over the budget and its adjustment over the

course of a given year. In other words, Harold had authority over

government billings and payments. In adjusting the budget, Harold

could make any expense unallowable, meaning that it would not be

charged to the government. When Harold had a question about

whether an expense could be charged to the government, he sought

the advice of a government auditor from the Defense Contract

Auditing Agency ("DCAA").

Harold was also responsible for reporting "items of

concern" to Andra and the board. He "fulfilled that responsibility

. . . by [regularly] sending memos to Andra." Over the years, when

Harold discovered what he thought might be a fraudulent practice or

a wrongful charge to the government, he reported it to Andra in a

memo.

action against him.
7
Unless it is otherwise indicated, all quotations that appear
in this section were taken from Harold's deposition testimony.

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 Although Harold was ultimately responsible for the

budget, it was Henry who prepared the budget; Henry would submit a

draft budget to Harold for approval. Henry, like Harold, had the

authority to revise the budget during a given year and make any

expense unallowable. Henry felt that he had a duty to report any

problems he encountered to Harold, who would then report them to

Andra and the board. Indeed, in his deposition, Henry testified:

"[I]f somebody [in] the [McLaughlin] family were conducting fraud

. . . [, m]y responsibility would be to discuss it with [Harold],

. . . [and h]e would have to take it from . . . there."

C. Events Pertaining to the Litigation

In June 1998, MRC hired Conn as its director of

marketing.8 Before starting at MRC, Conn worked for Partners. A

short time after Conn's arrival at MRC, Harold and Henry learned

that he had been collecting a salary and benefits from both MRC and

Partners.9 Appellants then met with Conn on more than one occasion

8
Andra informed Harold that Conn was to be employed at MRC,
but it was Harold who assigned Conn to the position of director of
marketing. When Conn was hired, he had no business training or
experience.
9
The parties agree that Conn received dual salaries and
benefits and that Conn's Partners' salary and benefits were charged
to the government. But, MRC insists that Conn's MRC salary and
benefits were not charged to the government at any point during
1998 or in the final, end-of-the-year accounting and, thus, that
his receipt of dual salaries and benefits could not have resulted
in a fraud on the government. For purposes of this opinion, we
assume that Conn's receipt of dual salaries and benefits was
fraudulent.

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to discuss the issue. During one meeting, Harold informed Conn

that his actions were "fraudulent" and that he could be sent to

prison. Conn told Harold that the issue was "[n]one of [his]

business." Harold then threatened to discuss the issue with DCAA

auditors. In response, Conn allegedly said: "'If you go to DCAA,

I'll have you fired' or 'you'll be fired.'" Conn never mentioned

the details of his conversations with Appellants to Andra.10

During this period, Andra hired James Waddell

("Waddell"), a management consultant and her son-in-law, to

evaluate MRC's senior management--Harold and Henry. As part of his

evaluation, Waddell interviewed a number of MRC's mid-level

managers. Conn arranged for the interviews to occur while

Appellants were on vacation. In August 1998, Waddell submitted to

Andra a report that was critical of Appellants' management style.11

On August 24, 1998, Harold drafted a letter to Andra

concerning the Conn issue. It stated, in relevant part:

Recently it . . . has been brought to my
attention . . . that Conn has been receiving

10
According to the record, Conn told Andra that he had a heated
discussion with Appellants but did not discuss the details of that
discussion.
11
Appellants insist that Waddell was not qualified for the task
for which he was hired and that his interview notes did not support
the conclusions he reached in the report. Regardless of whether
Waddell was qualified to evaluate Appellants' management style, his
interview notes certainly contain comments critical of Appellants.
And, for purposes of this opinion, the information pertaining to
Appellants that was communicated to Andra is significant; the
veracity of that information is not.

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 two salaries. . . . In that we are subject to
DCAA [a]udits there could be a potential
problem should [DCAA auditors] uncover this .
. . . In that I recognize that this could be
a potential problem . . . , I am first
bring[ing this] to your attention. I tried to
discuss this with Conn . . . , but he . . .
wouldn't recognize the problem. I am looking
to you . . . to help me resolve this
situation.

Andra did not respond to the letter. Neither Harold nor Henry took

any further action with respect to the Conn issue while employed by

MRC. And, they did not discuss the issue with the government until

May 31, 2000, almost two years after they were fired and subsequent

to the initiation of this litigation.

On September 10, 1998, Andra met with Harold. At the

meeting, Andra allegedly said that she felt "threatened" by

Harold's letter of August 24, 1998 and referred to it as "the last

straw." She then terminated the employment of Harold and Henry.12

On December 17, 1999, Appellants initiated this action.

In their complaint, Appellants asserted claims against MRC under

the whistle-blower provisions of the FCA, 31 U.S.C. § 3730(h), and

the RIWPA, R.I. Gen. Laws § 28-50-1 et seq. Appellants asserted

that they were fired for, inter alia, complaining about Conn's

receipt of dual salaries and benefits. Following the close of

discovery, MRC filed a motion for summary judgment, which was

12
The day before, Andra and Waddell had a conversation over the
telephone. Waddell's notes from the call state, "Letter re Conn is
focal point." Although Appellants contend that Conn participated
in the call, there is no support for this contention in the record.

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allowed. Appellants now appeal that ruling, but only as it relates

to Conn's receipt of dual salaries and benefits.

II. Discussion

We review the grant of a motion for summary judgment de

novo. GTE Wireless, Inc. v. Cellexis Int'l, Inc., 341 F.3d 1, 4

(1st Cir. 2003). Summary judgment is appropriate only if the

record reveals "that there is no genuine issue as to any material

fact and that the moving party is entitled to a judgment as a

matter of law." Fed. R. Civ. P. 56(c). We may affirm a grant of

summary judgment on any ground supported by the record. See Geffon

v. Micrion Corp., 249 F.3d 29, 35 (1st Cir. 2001).

A. False Claims Act Claim

The FCA prohibits the knowing submission of false or

fraudulent claims13 to the federal government. 31 U.S.C. § 3729(a);

see United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360

F.3d 220, 224-25 (1st Cir. 2004). The statute's "'qui tam'

provisions[, see 31 U.S.C. § 3730,] authorize[] private individuals

to sue on behalf of the federal government and were intended to aid

the government in discovering fraud and abuse by unleashing a posse

of ad hoc deputies to uncover and prosecute frauds against the

13
A claim is defined as "any request or demand . . . for money
or property which is made . . . if the United States Government
provides [or will reimburse] any portion of the money or property
which is requested or demanded." 31 U.S.C. § 3729(c).

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government." Karvelas, 360 F.3d at 224 (internal quotation marks

and footnote omitted).

To encourage the filing of qui tam actions and protect

whistle-blowers--persons who expose false or fraudulent claims, the

FCA imposes liability on employers who retaliate against employees

who pursue, investigate, or contribute to an action exposing fraud

against the government. See 31 U.S.C. § 3730(h). The statute

provides, in relevant part:

Any employee who is discharged . . . or in any
. . . manner discriminated against in the
terms and conditions of employment by his or
her employer because of lawful acts done by
the employee on behalf of the employee or
others in furtherance of an action under this
section, including investigation for,
initiation of, testimony for, or assistance in
an action filed or to be filed under this
section, shall be entitled to all relief
necessary to make the employee whole.

Id. Thus, to prevail on an FCA retaliation claim, a plaintiff must

show that: he engaged in conduct protected under the FCA; the

employer knew that he was engaged in such conduct14; and the

employer discharged or discriminated against him because of his

protected conduct.15 Karvelas, 360 F.3d at 235. An employee's

14
"The requirement that employers have knowledge that an
employee is engaged in 'protected conduct' ensures that § 3730(h)
suits are only prosecuted where there has been actual retaliation."
Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 186 n.7 (3d
Cir. 2001).
15
If the plaintiff satisfies his burden, "the burden shifts to
the employer to prove that the employee would have been terminated
or subjected to other adverse action even if he or she had not

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conduct is protected where it involves "acts done . . . in

furtherance of" an FCA action. 31 U.S.C. § 3730(h).

Appellants cannot satisfy the above standard, and as a

result, their FCA claim was properly dismissed. Even if we assume

that Appellants were engaged in protected conduct in connection

with the Conn issue, and we are skeptical that they were,16 the

record does not establish that their superior at MRC knew that they

were engaged in such conduct.

Ordinarily, an employer is charged with knowledge that an

employee is engaged in protected conduct when the employer is put

on notice that the employee is taking action that reasonably could

lead to an FCA case. See Karvelas, 360 F.3d at 238. But, a number

of our sister circuits have held that where an employee oversees

government billings or payments as a part of his regular job

responsibilities, he must make it clear that his actions go beyond

his regular duties to establish that his employer was on notice

that he was engaged in protected conduct. See Yuhasz v. Brush

engaged in the protected conduct." Karvelas, 360 F.3d at 235.
16
It does not appear that any of Appellants' actions in
connection with the Conn issue were undertaken "in furtherance of"
an FCA action. 31 U.S.C. § 3730(h). Rather, it appears as though
Appellants acted entirely in accordance with their employment
duties when they investigated and pursued the Conn issue and that
they sought to resolve the issue in-house and without any thought
of initiating an FCA action. See Hutchins, 253 F.3d at 191
("[W]here an employee's job duties involve investigating and
reporting fraud, the employee's burden of proving he engaged in
'protected conduct' . . . is heightened.").

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Wellman, Inc., 341 F.3d 559, 567-68 (6th Cir. 2003); Hutchins, 253

F.3d at 191; Eberhardt v. Integrated Design & Constr., Inc., 167

F.3d 861, 868 (4th Cir. 1999); United States ex rel. Ramseyer v.

Century Healthcare Corp., 90 F.3d 1514, 1523 (10th Cir. 1996);

Robertson v. Bell Helicopter Textron, Inc., 32 F.3d 948, 951-52

(5th Cir. 1994). Placing a heightened burden on such employees

ensures that employers will be disciplined for taking adverse

action against their employees only when they are aware that the

employees were engaged in protected conduct, that is, only when a

nexus exists between the adverse employment action and the

protected conduct. See Ramseyer, 90 F.3d at 1523 n.7 (Employees

subject to the heightened burden "must make clear their intentions

of bringing or assisting in an FCA action in order to overcome the

presumption that they are merely acting in accordance with their

employment obligations.").

We agree that where an employee's job responsibilities

involve overseeing government billings or payments, his burden of

proving that his employer was on notice that he was engaged in

protected conduct should be heightened. Yet, such an employee can

put his employer on notice by "any action which . . . [, regardless

of his job duties,] would put the employer on notice that [FCA]

litigation is a reasonable possibility." Eberhardt, 167 F.3d at

868.

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 Here, both Harold and Henry had authority over government

billings and payments,17 and consequently, they have to establish

that, despite their job duties, Andra was on notice that FCA

litigation was a reasonable possibility when she fired them.

Neither Appellant can meet this heightened burden.

1. Harold

Harold's August 24, 1998 letter to Andra was his only

communication with his superior18 about Conn's receipt of dual

salaries and benefits. In the letter, Harold raised the Conn issue

as a "potential problem" if discovered by DCAA auditors and asked

Andra to help him "resolve th[e] situation." Harold did not accuse

Andra or MRC of engaging in fraudulent behavior or express a desire

to involve any other individual or entity in the Conn issue. See

id. (stating that an employee whose job duties include overseeing

government billings or payments can put his employer on notice by

"characterizing the employer's conduct as illegal or fraudulent or

recommending that legal counsel become involved"). Given the

17
Appellants may have delegated tasks associated with
government billings and payments to other MRC employees, but that
does not change the fact that they were still responsible for
overseeing such billings and payments.
18
Harold insists that Conn was also his superior. There is no
question that Harold felt that he needed to give Conn and those at
MRC related to Andra special consideration because of their
relationship with Andra and that Conn, in particular, did not
always act towards Harold in a way in which a typical subordinate
would ordinarily act towards a superior. Still, the record does
not support the view that Conn was Harold's superior.

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content of the letter, the fact that Harold oversaw government

billings, and that he had raised similar issues in letters to Andra

in the past, the letter could not reasonably have put Andra on

notice that FCA litigation was a realistic possibility.19

Moreover, despite Harold's insistence to the contrary, it

is of no consequence that Harold told Conn that Conn's actions were

fraudulent; Harold told Conn that he intended to discuss Conn's

receipt of dual salaries and benefits with DCAA auditors; and Conn

told Harold that he would be fired if he did so. First, the record

shows that Conn was subordinate to Harold; Conn was not Harold’s

superior. Second, it was Andra, and not Conn, who fired Harold.

And, third, Conn never mentioned the details of his confrontations

with Harold to Andra. Harold's interactions with Conn could not

19
Appellants claim that immediately before their firing, Andra
referred to the letter as a "threat" and "the last straw." But, it
would not be reasonable (indeed, it would be overly speculative) to
interpret these statements (even assuming they were made in the
first place) as proof that Andra viewed the letter as a precursor
to FCA litigation. Given the content of the letter, it is
reasonable to assume that Andra characterized it as a threat
because it could have jeopardized her control over MRC--it could
have led MRC's other board members to question her decision to hire
Conn and, quite possibly, her overall leadership of the company,
particularly in light of the fact that MRC's revenues had been on
the decline. And, Andra's "last straw" comment does not appear
particularly retaliatory when one considers that she viewed the
letter as raising a non-issue; a report had recently been compiled
that was critical of Appellants' management style; a short time
before, Appellants' salaries had been reduced and they had not been
awarded performance-related bonuses; and MRC's revenues (and
workforce) had been declining for a number of years.

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have put Andra, his superior, on notice that FCA litigation was a

distinct possibility.20

2. Henry

Turning now to Henry, there is nothing in the record

indicating that Andra was or should have been on notice of Henry's

actions in connection with the Conn issue. Henry never discussed

with Andra his concerns with respect to Conn.21 In fact, at his

deposition, Henry stated that he would report problems that he

encountered to Harold and that Harold would "take it from . . .

there." And, there was nothing in Harold's sole communication to

Andra about the Conn issue that would have put Andra on notice that

there was a realistic possibility of FCA litigation, much less FCA

litigation initiated by Henry.

B. Rhode Island Whistle-Blowers' Protection Act Claim

Having determined that the district court did not err in

dismissing Appellants' federal whistle-blower claim, we now address

whether it erred in dismissing their state law claim. In order to

20
We note that, given the factual circumstances of this case,
a threat of disclosing the Conn issue to DCAA auditors, even if
communicated to Andra, would not have been sufficient to satisfy
the notice obligation. Whenever Harold was unsure of whether an
expense could be properly charged to the government, he consulted
DCAA auditors. Thus, threatening to disclose the Conn issue to
DCAA auditors is not akin to threatening, for example, to disclose
the issue to the Federal Bureau of Investigation or file a whistle-
blower action.
21
Moreover, there is nothing in the record to suggest that Conn
communicated Henry's concerns to Andra.

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recover under the RIWPA, a plaintiff must "show by clear and

convincing evidence that he . . . or a person acting on his . . .

behalf was about to report to a public body . . . a violation,

which the employee knew or reasonably believed had occurred or was

about to occur, of a [state or federal] law." R.I. Gen. Laws § 28-

50-4(d). Appellants' state law claim must fail, because neither

Harold nor Henry was "about to report" Conn's receipt of dual

salaries and benefits to "a public body." Id. Henry was content

to let Harold handle the Conn issue, and in the letter of August

24, 1998, Harold made it clear that he hoped that he and Andra

would be able to handle the issue in-house.22 We note that the fact

that Appellants did not report the issue to the government until

May 31, 2000, almost two years after their firing, goes against any

argument that they were "about to report" it to the government in

September 1998.

Affirmed.

22
Although the DCAA arguably constitutes "a public body" under
R.I. Gen. Laws § 28-50-2(4) ("'Public body' means . . . (vii) [a]ny
federal agency."), and Harold told Conn that he intended to discuss
Conn's receipt of dual salaries and benefits with DCAA auditors,
Harold's subsequent letter establishes that he was not "about to
report" the Conn issue to the DCAA. Therefore, we need not address
whether, under the facts of this case, the DCAA constitutes "a
public body." Cf. supra note 20.

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