Fanslow, William v. Chgo Mfg Center Inc ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2111
WILLIAM FANSLOW,
Plaintiff-Appellant,
v.
CHICAGO MANUFACTURING CENTER, INC.,
Defendant-Appellee.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 01 C 3558—William J. Hibbler and John W. Darrah, Judges.
____________
ARGUED JANUARY 6, 2004—DECIDED SEPTEMBER 20, 2004
____________
Before EASTERBROOK, DIANE P. WOOD, and WILLIAMS,
Circuit Judges.
DIANE P. WOOD, Circuit Judge. William Fanslow claims
that his employer, the Chicago Manufacturing Center (CMC),
retaliated against him in violation of the whistle-blower pro-
tections of the False Claims Act (FCA), 31 U.S.C. § 3730(h),
the Illinois Whistleblower Reward and Protection Act, 740
ILCS 175/4(g), and Illinois public policy, when he reported
alleged misappropriations of federal funds to a government
official. CMC contends that it terminated Fanslow for legi-
timate, non-retaliatory reasons, including performance prob-
2 No. 03-2111
lems. Although the district court ruled in favor of CMC, we
conclude that its grant of summary judgment was pre-
mature. We reverse and remand for further development of
the record.
I
As is common with FCA cases, this one turns heavily on the
facts, which we must therefore recount in detail, in the light
most favorable to Fanslow. CMC is a nonprofit corporation
established to provide information technology (IT) con-
sulting services to small- and medium-sized manufacturing
enterprises in the Chicago area. CMC is sponsored by the
Manufacturing Extension Plan (MEP), under the auspices
of the National Institute of Standards and Technology (NIST),
an agency of the Department of Commerce. NIST funding
accounts for 47% of CMC’s operating budget. Another 22%
comes from the State of Illinois and the City of Chicago.
In October 1996, CMC hired Fanslow to fill a newly cre-
ated position of Senior Program Manager. He reported di-
rectly to Rosemary Cudzewicz, CMC’s Vice President of
Operations. Fanslow received his first evaluation from
Cudzewicz in June 1997. She was “extremely pleased” with
his performance and did not recall having any negative
criticism. Cudzewicz was unconcerned that Fanslow had not
met all of his quantitative goals because these goals
reflected Fanslow’s best estimate of what he would try to
accomplish in the new position. CMC’s evaluation process
required the employee and the supervisor to decide on a
final rating that they agreed represented the employee’s
achievements and performance over the rating period.
Fanslow and Cudzewicz agreed that Fanslow “exceeded job
requirements,” as evidenced by a 4.5 (out of 5) rating.
Cudzewicz felt that Fanslow had made substantial accom-
plishments in his new position and worked well with CMC
clients and employees.
No. 03-2111 3
Presumably as a result of his high evaluation, Fanslow’s
job responsibilities and salary increased steadily over time.
In October 1997, he was designated as the team leader to
select a new customer relations management system for
CMC. In April 1998, Fanslow was promoted to the position
of Director of Information Technology for CMC and took
on increased responsibility for internal IT systems. On
September 1, 1998, Fanslow’s salary increased from $78,850
to $90,000. About a year later, it rose to $125,000.
Sometime in June 1998, Cudzewicz resigned and left CMC.
Shortly before she left, Cudzewicz prepared her second eval-
uation of Fanslow’s job performance. Cudzewicz emphasized
that her preliminary rating of 3.5 should not be viewed as
final because she had not met with Fanslow to discuss her
score, nor had she taken account of his independent rating,
as required by the CMC evaluation process. CMC’s President,
Demetria Giannisis, instructed Cudzewicz not to meet with
employees to finish evaluations after Cudzewicz tendered
her resignation. As a result, Fanslow did not receive a formal
or final evaluation in 1998. Although she was unable to give
Fanslow a final rating before she left CMC, Cudzewicz
considered Fanslow to be an “effective and competent man-
ager working under less than optimal conditions. He worked
well with and was respected by his subordinates and other
managers. He was very well liked and respected by CMC
clients and consistently received high ratings from them.”
After Cudzewicz’s departure, Fanslow reported directly to
Giannisis. Several CMC employees described Giannisis as
a difficult and unpleasant manager. One claimed that
Giannisis “used micromanagement, threats, and a volatile
temper to harass and intimidate employees whom she felt
questioned her judgment or refused to follow directions re-
gardless of the ethical or legal implications.” This employee
stated that Giannisis used “pretextual, often false allega-
tions” to reprimand or terminate employees and that this
resulted in extremely high employee turnover, low morale,
4 No. 03-2111
and very low productivity. Another employee commented on
Giannisis’s “routine practice of abusing, berating, and
yelling at her employees.”
As already stated, one of Fanslow’s primary responsibil-
ities in 1998 was to lead a team in selecting an improved
customer relations management system. This system would
be used to generate internal reports as well as reports re-
quired by organizations such as NIST. Fanslow and other
team members ultimately recommended that CMC adopt a
system that came to be known as VAULT. Fanslow explained
that the team jointly and unanimously made all decisions
regarding the VAULT selection and worked together to de-
velop implementation procedures. Giannisis was a member
of this team. The VAULT system was implemented in early
1999.
In October 1999, Fanslow and Giannisis identified his
goals for the year 2000. The first goal was to “[s]tabilize
new CMC systems,” which Fanslow understood to refer to
the VAULT system. Fanslow knew that there were prob-
lems getting the VAULT system off the ground because of
dial-in problems and the stability of the Windows operating
platform. He understood that Giannisis wanted some of the
day-to-day problems with computers crashing to go away.
Fanslow’s second goal was to “[w]ork with IT junior level
staff to improve relationship, attitude, and working en-
vironment.” Fanslow understood this to mean that he
needed to spend more time bringing junior level staff up to
speed. He did not recall discussing specific problems or par-
ticular relationships that needed attention.
There is conflicting evidence regarding Fanslow’s perform-
ance during the period following the VAULT implementa-
tion. David Swirnoff, CMC’s Director of Human Resources,
asserted generally that there were “ongoing problems, (e.g.,
staff management and VAULT system complaints) and
external (e.g., lack of sales) with the IT department and Mr.
No. 03-2111 5
Fanslow’s responsibility of them.” Yet several CMC employ-
ees stated that Fanslow had an excellent reputation as a
manager who effectively motivated his team and was widely
respected by his peers, employees, and customers.
Sometime in 1999, Fanslow learned of a concept called
MFR.Net that was the brainchild of John Panfil, CMC’s
Vice President. Initially, Fanslow was not sure exactly what
MFR.Net entailed because Panfil’s concept appeared to be
changing constantly. After Fanslow reviewed the MFR.Net
business plan at Panfil’s request, he expressed concern
about the lack of a defined product. Eventually, Fanslow
realized that MFR.Net would be a for-profit “dot com” spin-
off that would offer web-based services to CMC’s manufac-
turing clients. At some point during the year, Fanslow
discussed ownership issues regarding MFR.Net with Panfil.
Panfil told him that Giannisis was involved and that
Panfil’s idea was to grow the company and sell it off for a
profit. Fanslow came to believe that Panfil and Giannisis
intended to take the spin-off company public and get rich off
of it. Fanslow observed CMC’s resources being diverted to
MFR.Net in the form of travel and labor expenses, legal
fees, computer hardware, and equipment. Fanslow identified
several individuals who billed their time to CMC even though
they worked exclusively on MFR.Net. He believed that these
were unallowable costs under CMC’s nonprofit funding
structure.
Fanslow voiced his concerns to a federal official named
Ned Ellington at a conference sponsored by NIST in
November 1999. While at a session on e-business strategy,
Fanslow heard Ellington announce that NIST did not want
its centers engaged in any type of spin-off dot com enter-
prises. He recalls hearing Ellington say that NIST did not
want centers investing funds in start-up companies. Ellington
stated that NIST was going back to Congress for approval
to fund for-profit businesses in the long term. Fanslow un-
derstood Ellington to be saying that this use of funding was
6 No. 03-2111
actually unlawful, rather than being simply undesirable;
CMC has not disputed this interpretation thus far. After
Ellington finished his formal presentation, Fanslow ap-
proached him and asked if he was aware of the MFR.Net
initiative at CMC. Fanslow told Ellington that CMC was
funding and providing labor to MFR.Net. Ellington reit-
erated his comment that NIST did not want centers, like
CMC, to start for-profit dot com ventures.
After returning from this meeting, Fanslow met individu-
ally with three CMC executives to discuss Ellington’s
remarks. He first spoke with Dave Adams, CMC’s Director
of Finance, who told him that Giannisis was going to do
what she wanted. Fanslow then met with Giannisis and
relayed Ellington’s message. He told her that Ellington did
not want CMC using its funding for dot com start-ups be-
cause NIST considered that cost to be unallowable. Ac-
cording to Fanslow, Giannisis told him not to worry about
it. Fanslow testified that he conveyed Ellington’s message
to Giannisis because he was concerned about jeopardizing
CMC’s funding if the center was engaged in anything illegal
or unallowable. Finally, Fanslow told Panfil, who responded
without commenting.
In the months after these meetings, Fanslow focused on
improving the stability of the VAULT system. Fanslow tes-
tified that a number of factors contributed to CMC’s prob-
lems with VAULT. CMC employees were not following es-
tablished protocol in submitting their report requests, and
CMC’s database administrator, who Fanslow believed to
be inexperienced, did not effectively communicate with the
employees about their report requests. As a result of these
problems, CMC was tardy in submitting its required reports
to NIST. Fanslow held weekly meetings, which Giannisis
attended, focusing on these implementation problems with
VAULT. Fanslow understood that Giannisis was unhappy
with dial-in capability problems and workstation computer
crashes that prevented the user from accessing VAULT. He
No. 03-2111 7
believed that some of the dial-in problems could have been
caused by the outdated wiring in the old warehouse that
housed CMC. In fact, in its annual report to NIST, CMC
blamed VAULT implementation problems on the technical
infrastructure problems in the building. Fanslow also knew
that Giannisis was dissatisfied with the lack of timeliness
of the NIST reports. By June 2000, however, this problem
appeared to be solved. CMC submitted its first timely
VAULT-generated report to NIST that month.
As Fanslow focused on stabilizing the VAULT system, he
and other CMC employees continued to ask questions about
MFR.Net. For example, MFR.Net ownership issues came up
at a CMC staff meeting. Fanslow recalls that someone
asked if MFR.Net was “legal or not.” He testified that
Giannisis assured the staff that she thought MFR.Net was
legal. Fanslow believed that CMC’s staff questioned the
legality of MFR.Net because it did not meet any known
mission of the organization. Fanslow testified that he re-
ceived numerous questions about MFR.Net from his IT
staff, including one person who reported directly to him,
Bill Weiand. CMC employee Richard Kennedy stated that
he and other employees expressed concern “over the fact
that government funds given to CMC were being diverted
to MFR.Net.” He stated that CMC employees, including
Fanslow, felt that they were left in the dark regarding
MFR.Net’s ownership and funding structure. When Kennedy
asked Panfil directly about these issues, he was unable to
get any answers.
CMC employees vocalized these concerns at a “kick-off”
meeting for MFR.Net on July 17, 2000. One of Panfil’s em-
ployees presented the new entity to a group that included
CMC employees, as well as representatives from outside
organizations known as CMC affiliates. A representative
from one of the affiliates asked who specifically had an
ownership interest in MFR.Net and was told by the pre-
senter that CMC was the majority owner. Fanslow testified
8 No. 03-2111
that the attendees pushed as to the identity of the other
owners but did not receive clear answers. Other attendees
asked if MFR.Net’s product was fully developed and ready
to be delivered and how it compared to other website de-
velopment products in the marketplace. The presenter
apparently could not answer these questions about MFR.Net’s
product capabilities and decided to end the meeting early.
Fanslow did not ask any questions during this group meeting.
Despite his nonparticipation in the morning meeting,
Fanslow was called on the carpet later that afternoon by
Giannisis. Weiand and another IT staff member were also
present. Giannisis accused Fanslow and the IT group of
“sabotaging” the morning meeting. Fanslow disagreed and
told her that the IT department was not willing to endorse
the MFR.Net product without more information. Weiand
told Giannisis that the questions being asked were valid
and needed to be answered. A day or two after this meeting,
Giannisis instructed Fanslow to fire Weiand. According to
Fanslow, Giannisis was upset with Weiand during the after-
noon meeting on July 17 because she thought he was “being
disrespectful.” Fanslow refused to terminate Weiand be-
cause he believed that the questions Weiand asked were
legitimate and needed to be answered. He also told her that
CMC could not easily replace Weiand. Giannisis relented
but asked Fanslow to migrate Weiand out of the organiza-
tion over a period of time.
The record indicates that Fanslow’s concern about the
alleged misappropriation of CMC resources to MFR.Net
extended beyond conversations with CMC executives and
employees. He recalled at least two incidents involving the
purchasing of computers for MFR.Net, one several months
before the July 17 meeting and the other one several months
after the July 17 meeting. On both occasions, Fanslow was
asked to purchase hardware for MFR.Net using CMC funds.
He refused, telling Panfil and Giannisis that he considered
these costs to be unallowable. Fanslow testified that Panfil
No. 03-2111 9
was “furious” when the IT department would not sign the
requisitions for the equipment. Fanslow testified that he
talked with Giannisis “numerous” times about MFR.Net. He
repeatedly told her that CMC should not be using its
resources on MFR.Net because of the NIST policy (which he
believed Ellington to be describing) prohibiting spin-off dot
com companies. Fanslow was particularly concerned that
CMC’s reporting structure did not allow for clear docu-
mentation of funds spent on MFR.Net; he believed that
there was a commingling of nonprofit and for-profit funds
because CMC employees were not provided with a separate
accounting code for MFR.Net.
On July 24, 2000, only one week after he was accused of
sabotaging MFR.Net, and a few days after he refused to fire
Weiand, Fanslow was called into a meeting by Giannisis and
Human Resources Director Swirnoff. According to Swirnoff,
the meeting was called to inform Fanslow that he was being
placed on a Performance Action Plan (PAP) due to manage-
ment’s ongoing concerns with his performance as Director of
IT. Fanslow explained, however, that PAPs were Giannisis’s
method of firing someone that angered her. Both Weiand
and Kennedy testified that Giannisis used PAPs to discrimi-
nate against, harass, and ultimately terminate the targeted
employee who had crossed her. Kennedy, who was placed on
a PAP, stated that these plans contained impossible-to-attain
goals and targets as a condition of continued employment.
Although Giannisis told Fanslow that the focus of the PAP
was going to be on internal IT issues, Fanslow believed that
he was put on a PAP because he voiced concerns about
MFR.Net. In the original version of the PAP that Fanslow
received, Giannisis raised concerns about the IT group’s
failure to generate standardized reports in a timely fashion
and Fanslow’s failure to ensure that new CMC employees
received IT support. For example, Giannisis identified two
new employees who had failed to receive their new laptops,
cell phones, and VAULT passwords in a timely manner.
10 No. 03-2111
Fanslow responded to her concerns in writing, explaining
that high employee turnover made it very difficult for IT to
ensure that all new employees received their equipment
quickly. Fanslow further explained that many of the prob-
lems with VAULT were not solely technical, but implicated
management’s commitment to the product. Giannisis raised
other concerns in the PAP, like Fanslow’s practice of work-
ing from home. Fanslow responded that this had never been
an issue before and that working from home facilitated his
visits to CMC clients in the Chicago suburbs near his home.
On August 7, 2000, Fanslow received a revised version of
the PAP that incorporated some of his comments. According
to this document, the PAP would be in effect until October
31, 2000.
In response to the concerns raised in his PAP, Fanslow
recommended that Giannisis retain a third party to conduct
an audit of CMC’s IT department. Swirnoff claims, however,
that a third party was brought in because of Fanslow’s
ongoing performance problems. Giannisis hired consultants
from CNA, who Fanslow testified were there to help the IT
department determine whether it should upgrade the
VAULT system or switch to an entirely different database.
The CNA report appears to confirm Fanslow’s evaluation of
the system. In its summary section, CNA noted that “the
issues CMC is experiencing with the VAULT application are
not unusual. Certainly the issues are frustrating, especially
relative to the high expectations one would have with a new
application system, but some of them are to be expected.”
Despite the problems with VAULT, CNA did not recom-
mend that CMC switch vendors because CNA felt that
VAULT’s poor performance resulted from inadequate data
entry by CMC employees. CNA made several recommenda-
tions, including improved training and more visible man-
agement commitment to the VAULT application. The CNA
report did not evaluate Fanslow’s job performance.
No. 03-2111 11
After Fanslow’s PAP expired on October 31, 2000, Giannisis
informed him that she had retained another consultant
named Kathy Grady to assist the IT department. According
to Grady’s affidavit, she was there to “coach” Fanslow.
Fanslow claims he was unaware that this was one of Grady’s
responsibilities and that she did not “coach” him. According
to Fanslow, he and Grady had an amicable relationship, but
he did not feel that she offered any particular guidance to
him in addressing CMC’s technical problems. Fanslow felt
that CMC’s problems stemmed from management’s reluc-
tance to spend the money on the necessary computer soft-
ware and hardware upgrades. Grady believed that there
were problems between the IT department and CMC’s staff,
and that Fanslow had some responsibility for these prob-
lems as Director of IT.
The events leading up to Fanslow’s termination started on
December 7, 2000, when CMC moved its offices to a new
location. Fanslow was charged with transferring the entire
IT infrastructure and had scheduled to backup the organiza-
tion’s data files prior to the move. When Fanslow asked
Weiand if the scheduled backup was on target, he was in-
formed that a newly hired employee named Brian Ferrentino
had pulled the plug connected to the backup server. Fanslow
told Weiand to restart the server. Later that evening, Fanslow
approached Ferrentino to discuss performance issues and
told Ferrentino that he “needed to get his fucking butt in
gear and be part of the team.”
On December 11, five days after the move, Giannisis
called Fanslow into a meeting with Swirnoff and Grady and
asked if he had cursed at Ferrentino. After Fanslow
admitted that he had used a curse word in his discussion
with Ferrentino, he asked Giannisis why this incident had
caused such a stir. According to Fanslow and other em-
ployees, use of profanity was commonplace at CMC and that
Giannisis often used the word “fuck” when speaking with
other employees. The following day, Giannisis and Swirnoff
12 No. 03-2111
terminated Fanslow. At the time of his termination, the only
thing Giannisis told Fanslow was that she did not feel that
he was “happy” with his employment at CMC. Swirnoff
recommended that Giannisis terminate Fanslow because of
his “unprofessional conduct” towards Ferrentino, which
Swirnoff viewed as the “last straw” in light of Fanslow’s
ongoing performance issues. Fanslow, however, thinks that
he was terminated for refusing to support MFR.Net, an
initiative that he believed violated CMC’s status as a non-
profit entity receiving federal funds because it diverted
those funds to impermissible uses. His termination came
within six months of being told by Giannisis that he had
“sabotaged” MFR.Net and within four months of being
placed on a PAP.
II
We review the district court’s grant of summary judgment
in favor of CMC de novo, construing all facts and inferences
in the light most favorable to Fanslow, as the non-moving
party. Williams v. Waste Mgmt. of Ill., 361 F.3d 1021, 1028
(7th Cir. 2004). As the Supreme Court explained in Anderson
v. Liberty Lobby, Inc., 477 U.S. 242 (1986), the substantive
law will identify which facts are material and only disputes
over facts that might affect the outcome of the suit under
the governing law properly preclude the entry of summary
judgment. Id. at 248.
The governing law in this case is the False Claims Act, 31
U.S.C. § 3729-§ 3732 (2004), which imposes a civil penalty
and treble damages upon any person who presents to the
United States Government “a false or fraudulent claim for
payment or approval.” Id. § 3729(a). To enhance enforce-
ment, the Act permits private persons known as relators to
bring qui tam actions on behalf of the government. Id.
§ 3730(b); see also Hindo v. Univ. of Health Sci./ The Chi.
Med. Sch., 65 F.3d 608, 612-13 (7th Cir. 1995).
No. 03-2111 13
Congress amended the False Claims Act in 1986 to pro-
vide for “whistleblower” protection by adding a new subsec-
tion (h), which provides that:
Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner discrimi-
nated against in the terms and conditions of employ-
ment by his or her employer because of lawful acts done
by the employee . . . 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 . . . .
31 U.S.C. § 3730(h). A plaintiff may proceed under subsection
(h) independently of a qui tam action. Neal v. Honeywell Inc.,
33 F.3d 860, 865 (7th Cir. 1994) (“Damages under § 3730(h)
compensate an employee for harm caused by the harass-
ment and discharge; they are not a substitute for the
recovery an employee could have had in a qui tam suit.”).
As the district court recognized, Fanslow had to present
evidence at the summary judgment stage supporting the
following elements of his claim: (a) his actions were taken
“in furtherance of” an FCA enforcement action and were
therefore protected by the statute; (b) his employer had
knowledge that he was engaged in this protected conduct;
and (c) his discharge was motivated, at least in part, by the
protected conduct. Brandon v. Anesthesia & Pain Mgmt.
Assoc., Ltd., 277 F.3d 936, 944 (7th Cir. 2002). We therefore
turn to the evidence in the summary judgment record on
each of these points.
A
Fanslow must first show that he engaged in protected
conduct under the FCA. The plain language of the statute
provides that an employee may not be retaliated against
14 No. 03-2111
“because of lawful acts done . . . 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.”
31 U.S.C. § 3730(h) (emphasis added). The term “protected
activity” is interpreted broadly, in light of the purpose of
the statute. See generally United States ex rel. McKenzie v.
BellSouth Telecommunications, Inc., 123 F.3d 935, 944 (6th
Cir. 1997) (“The statute provides examples of the types of
activity that are protected, including investigation, initiation
of a suit, and testimony, but these examples are not
exclusive . . . .”).
An employee need not have actual knowledge of the FCA
for her actions to be considered “protected activity” under
§ 3730(h). If so, only those with sophisticated legal knowl-
edge would be protected by the statute. United States ex rel.
Yesudian v. Howard Univ., 153 F.3d 731, 741 (D.C. Cir. 1998)
(“. . . only [lawyers] would know from the outset that what
they were investigating could lead to a False Claims Act
prosecution.”). In the past, we have said that an employee
must show that an FCA action is a “distinct possibility” at
the time of the investigation for her actions to be considered
“protected activity.” Neal, 33 F.3d at 864. This was not
meant to contradict the rule that does not require actual
knowledge of the FCA, however. It implied instead that
there is an objective component to the test for a claim under
§ 3730(h), as well as a subjective one. We agree with several
of our sister circuits, which have held that the relevant
inquiry to determine whether an employee’s actions are
protected under § 3730(h) is whether: “(1) the employee in
good faith believes, and (2) a reasonable employee in the
same or similar circumstances might believe, that the em-
ployer is committing fraud against the government.” Moore
v. Cal. Inst. of Tech. Jet Propulsion Lab., 275 F.3d 838, 845
(9th Cir. 2002). See also Wilkins v. St. Louis, 314 F.3d 927,
933 (8th Cir. 2002) (adopting the Moore standard); McNeil
v. Empl. Sec. Dep’t, 2002 Wash. App. LEXIS 1900, at *15-16
No. 03-2111 15
(D.C. Cir. Aug. 9, 2002) (same). We now consider how Fanslow
fares under that standard.
Fanslow was concerned that the CMC executives were
taking actions inconsistent with the funding restrictions
imposed by NIST. He believed that CMC was submitting
false claims for reimbursement—claims that asked NIST for
funds for CMC, although the funds were really being di-
verted to MFR.Net or other impermissible uses. The question
now is whether he submitted enough evidence on these
matters to survive summary judgment.
Pursuant to 15 U.S.C. § 278k, Congress authorized NIST
to establish Regional Centers, like CMC, to “enhance pro-
ductivity and technological performance in United States
manufacturing.” 15 U.S.C. § 278k(a). The statute requires
each center to be affiliated with a United States-based non-
profit institution or organization, or group of such entities,
that applies for and is awarded financial assistance by the
federal government. Id. The implementing regulations
provide that the Regional Centers will be operated under
cooperative agreements with NIST, 15 C.F.R. § 290.3(d),
and that all financial awards by NIST “shall be subject to
all Federal and Departmental regulations, policies, and
procedures applicable to Federal assistance awards.” Id.
§ 290.4(a).
Fanslow believed that CMC and its executives violated
the terms of a NIST cooperative agreement that involved
$700,000 of federal funds. The agreement recognized CMC’s
nonprofit status and required CMC to establish “an ap-
propriate corporate status and structure” for any venture
created under the agreement. As Fanslow saw it, CMC ex-
ecutives were defrauding the federal government by divert-
ing CMC’s nonprofit funds to a for-profit entity in which the
executives had a personal stake. He claims that he was
engaged in protected investigatory conduct on several oc-
casions: (1) when he discussed MFR.Net with NIST official
16 No. 03-2111
Ellington, (2) when he refused to purchase equipment for
MFR.Net using CMC funds, and (3) when he repeatedly
asked CMC executives about the funding and ownership
structure of MFR.Net. In this litigation, however, CMC
asserted that it was clearly authorized to create and fund a
web of for-profit ventures under its cooperative agreements
with NIST. It argued before the district court that any
allegation to the contrary would be so baseless and frivolous
that it would violate FED. R. CIV. P. 11.
It is unclear on this record, however, whether Fanslow
sufficiently understood, or should have understood, the terms
of the NIST agreements at the time of his investigation and
whether a reasonable employee in these circumstances
would have thought the same. As the district court noted,
Fanslow knew that CMC received substantial funding from
NIST, and Fanslow specifically approached an NIST official
to ask about the propriety of MFR.Net. This official indi-
cated that NIST did not yet have approval for start-up
ventures. The record indicates that Fanslow and other em-
ployees could not get straight answers from CMC executives
about MFR.Net, and that they witnessed the diversion of
CMC resources to MFR.Net without apparent authorization
or proper accounting. The record includes no evidence from
key CMC executives offering their version of what Fanslow
and other employees were told about MFR.Net. Aside from
an affidavit submitted by Swirnoff, which does not even
mention MFR.Net, there are no affidavits or depositions from
Giannisis or Panfil or any other CMC executive with
relevant knowledge.
Congress intended to protect employees from retaliation
while they are collecting information about a possible fraud,
before they have put all the pieces of the puzzle together.
Neal, 33 F.3d at 864; United States ex rel. Yesudian, 153
F.3d at 739. The statute does not, however, protect an em-
ployee who just imagines fraud without proof. Neal, 33 F.3d
at 864; Luckey v. Baxter Healthcare Corp., 183 F.3d 730,
No. 03-2111 17
733 (7th Cir. 1999). In the case before us, the record is
simply too thin at this point to conclude that Fanslow was
unreasonable to think CMC might be committing fraud on
the government by submitting claims for funds that ap-
peared to be for permitted uses within CMC itself, but that
were really being diverted to impermissible uses.
A few further points are also important. The district
court’s analysis of Fanslow’s investigatory activity focused
solely on the interaction with Ellington in November 1999.
As to that, the court concluded that it constituted protected
activity, “albeit just barely.” Although the court suggested
that Fanslow’s investigation of fraudulent conduct was not
very extensive, it ultimately found that a reasonable juror
could conclude that Fanslow was in the initial stages of
investigating possible fraud because of his discussion with
Ellington. In our view, Fanslow’s conversation with Ellington
can comfortably be characterized as investigatory conduct.
Fanslow initiated contact with Ellington, a federal official
in the relevant agency, after hearing Ellington say that cen-
ters, like CMC, should not be engaged in spin-off ventures.
Relying on the accuracy of the official’s advice, he reported
this communication to his supervisors at CMC. Fanslow
had seen resources being diverted to MFR.Net and was
aware that MFR.Net was supported solely by CMC funds
because no separate accounting mechanism existed for
MFR.Net activities.
The district court’s conclusion that Fanslow presented a
“weak” case also failed to consider whether any of Fanslow’s
other actions could constitute protected conduct. On appeal,
Fanslow contends that his protected activity extended be-
yond the meeting with Ellington. First, Fanslow asserts that
he lodged numerous internal complaints when he spoke with
Panfil and Giannisis about his concerns regarding MFR.Net.
Other circuits have recognized internal complaints as FCA-
protected conduct. Yesudian, 153 F.3d at 741 n.9 (citing
cases). While we have not explicitly held that internal com-
18 No. 03-2111
plaints constitute protected conduct, Neal specifically rejected
the argument that a plaintiff must raise her concerns di-
rectly to the government to qualify for protection. 33 F.3d
at 865 (noting that it was appropriate for plaintiff to com-
plain through corporate channels). As the D.C. Circuit has
explained, there are sound reasons for finding that internal
complaints are protected:
Nor would it be in the interest of law-abiding employers
for the statute to force employees to report their concerns
outside the corporation in order to gain whistleblower
protection. Such a requirement would bypass internal
controls and hotlines, damage corporate efforts at self-
policing, and make it difficult for corporations and
boards of directors to discover and correct on their own
false claims made by rogue employees or managers.
Yesudian, 153 F.3d at 742. With a more fully developed rec-
ord, the district court should consider whether Fanslow’s
actions were the type of internal complaints protected by
the FCA.
Fanslow also argues that he engaged in protected conduct
by refusing to purchase hardware for MFR.Net expressly
because he considered the purchases to be unallowable.
Fanslow explained that on at least two occasions he refused to
purchase hardware for MFR.Net using CMC funds. CMC
counters that the refusal to purchase hardware is not sig-
nificant because Fanslow could not identify the time period
in which this happened. The record shows, however, that
the time period was quite clear. Fanslow’s deposition testi-
mony demonstrates that he refused to purchase hardware
on two occasions, in his words “a couple of months before
and a couple of months after” the July 17, 2000 meeting at
which he was accused of sabotaging MFR.Net. Invoices
produced in discovery revealed that Fanslow’s first refusal
to purchase the equipment occurred on June 21, 2000, ap-
proximately one month before Fanslow was put on a PAP.
No. 03-2111 19
The district court never considered whether this refusal
would also constitute protected conduct under the FCA.
Fanslow further argues that he engaged in protected con-
duct by refusing to fire Weiand after Weiand questioned the
MFR.Net scheme. The relevance of this to his claim is less
clear, but we leave its further development for the district
court’s consideration in the first instance.
One final point warrants comment. In a footnote to its dis-
cussion of Fanslow’s protected conduct, the district court
stated that Fanslow “frequently offered in his affidavit facts
that he did not raise at his deposition. Such a tactic is
inappropriate and the Court will disregard his new evi-
dence.” A careful comparison of Fanslow’s affidavit with his
deposition testimony shows, however, that the affidavit
consistently tracks Fanslow’s deposition testimony. In its
memorandum opinion, the district court faulted Fanslow for
supposedly claiming in his affidavit that he “told the NIST
official that CMC had been illegally diverting NIST funds
to MFR.Net.” The district court found that Fanslow had
failed to raise this point at his deposition. A review of the
record shows that Fanslow made no such claim in either his
affidavit or his deposition. According to his affidavit,
Fanslow asked Ellington “whether he knew CMC’s relation-
ship to MFR.Net.” Fanslow then told Ellington “that CMC
was funding and providing labor to MFR.Net.” Fanslow’s
affidavit further stated that “[d]uring that discussion, it be-
came clear . . . that NIST did not know about the rela-
tionship between CMC, Panfil and MFR.Net . . . .” This
narrative is consistent with Fanslow’s deposition, in which
he testified that he approached Ellington and asked if
Ellington “was aware of the MFR.Net initiative at CMC.”
This is not a situation where a plaintiff has directly con-
tradicted her own earlier statements, without explaining
the contradiction or attempting to resolve the disparity.
Holland v. Jefferson Nat’l Life Ins. Co., 883 F.2d 1307, 1315
n.3 (7th Cir. 1989). We find no inherent inconsistency
between Fanslow’s affidavit and deposition.
20 No. 03-2111
Thus, Fanslow’s affidavit is distinguishable from those at
issue in Rogers v. City of Chicago, 320 F.3d 748, 751 (7th Cir.
2003), and Albiero v. City of Kankakee, 246 F.3d 927, 933
(7th Cir. 2001), the two cases cited by the district court in
support of its decision to disregard Fanslow’s affidavit. In
Rogers, we found that the district court properly disre-
garded an affidavit that “contained numerous paragraphs
that contradicted, in self-serving respects, [Rogers’s] deposition
testimony, contained inadmissible hearsay, or relied often
on unauthenticated documents.” 320 F.3d at 751. “The
district court was under no obligation to scour Rogers’s
affidavit in order to glean what little admissible evidence it
may have contained.”Id. Fanslow’s affidavit does not suffer
from any of these defects. In Albiero, we stated that a
plaintiff cannot defeat summary judgment by submitting a
self-serving affidavit that contains “the bald assertion of the
general truth of a particular matter.” 246 F.3d at 933
(quoting Drake v. Minn. Mining & Mfr. Co., 134 F.3d 878,
887 (7th Cir. 1998)). Rather, the affidavit must “cite specific
concrete facts establishing the existence of the truth of the
matter asserted.” Id. Fanslow’s affidavit conforms to this
latter standard. We therefore conclude that the district
court abused its discretion in excluding this evidence from
consideration.
In sum, the protected conduct element of Fanslow’s retali-
ation claim needs further development. On remand, both
parties should address more concretely the question whether
Fanslow in good faith believed and a reasonable employee
in similar circumstances would have believed that CMC
was committing fraud on the government in the actions
Fanslow has identified. The record should be developed
further to show which of CMC’s claims for federal funds
Fanslow thought were fraudulent or false: What was CMC
telling NIST about its use of the funds? What did Fanslow
reasonably believe it was saying? Finally, the district court
should consider whether Fanslow’s actions beyond his discus-
No. 03-2111 21
sion with Ellington constitute protected FCA conduct,
taking into account the facts as presented in Fanslow’s
affidavit.
B
Turning to the second element, Fanslow must demon-
strate that his protected conduct put CMC on notice of the
distinct possibility of a qui tam action. Brandon, 277 F.3d
at 945. We have held that a retaliatory complaint must be
dismissed if the employer did not know about the whistle-
blower’s protected conduct before it discharged him. Luckey,
183 F.3d at 733. The district court concluded that Fanslow
had failed to meet the notice requirement because he did
not use “the terms illegal, fraudulent, or false” in his dis-
cussions with CMC about the funding of MFR.Net. According
to the district court, Fanslow’s use of the word “unallow-
able” did not go far enough. The district court emphasized
the fact that Fanslow did not ask questions about MFR.Net
during the morning meeting on July 17, 2000, and did not
discuss MFR.Net with CMC’s management after this meet-
ing. There are several problems with the district court’s
analysis.
The district court erroneously held Fanslow to the height-
ened notice standard that is reserved for employees who are
charged with discovering fraud in the normal course of their
job duties. In Brandon, we explained why it is important to
consider whether monitoring is part of the employee’s
ordinary job. Brandon was an anesthesiologist who discov-
ered that some of his associates were falsifying the bills
they submitted to Medicare. 277 F.3d at 939. He obtained
copies of the relevant Medicare regulations and brought his
concerns to the attention of his colleagues. Shortly thereaf-
ter, Brandon began to experience problems at work and was
eventually discharged. Id. We found that Brandon’s em-
ployer was not on notice of a possible qui tam action—even
22 No. 03-2111
though Brandon used terms like “illegal,” “improper,” and
“fraudulent” when he raised concerns about the Medicare
billing practices—because this type of monitoring was part
of his job:
It is more accurate to say that Brandon’s investigation
of the billing reports was part of the general course of
his responsibilities. At trial, [the employer] testified
that one of Brandon’s job duties was to ensure that the
billing practices complied with Medicare rules and reg-
ulations. Thus, the fact that Brandon was alerting his
supervisors to the possibility of their non-compliance
with the rules would not necessarily put them on notice
that he was planning to take a far more aggressive step
and bring a qui tam action against them or report their
conduct to the government.
Brandon, 277 F.3d at 945. Other circuits have also identi-
fied a heightened notice requirement for employees who are
charged with investigating fraud. Eberhardt v. Integrated
Design & Constr., Inc., 167 F.3d 861, 867-68 (4th Cir. 1999);
United States ex rel. Ramseyer v. Century Healthcare Corp.,
90 F.3d 1514, 1523 n.7 (10th Cir. 1996); Robertson v. Bell
Helicopter Textron, Inc., 32 F.3d 948, 951-52 (5th Cir. 1994).
These cases suggest that a “fraud-alert” employee may be
expected to use words like “illegal” or “unlawful” when shar-
ing her concerns with her employer. Robertson, 32 F.3d at
951. Fanslow’s IT job, in contrast, did not have any such
reporting or investigatory duties, and therefore he was not
required to use any magic words to put CMC on notice of
his investigation into MFR.Net. (We note parenthetically
our puzzlement with the district court’s conclusion that
Fanslow’s use of the term “unallowable” was insufficient to
put CMC on notice of his protected conduct. Webster’s Third
New International Dictionary defines “unallowable” as “not
allowed; impermissible; unpermitted.” These synonyms
evoke the same idea as “illegal,” defined by Webster’s as
“contrary to or violating a rule having the force of law.” See
No. 03-2111 23
United States ex rel. Schumer v. Hughes Aircraft Co., 63
F.3d 1512, 1524 (9th Cir. 1995), rev’d on other grounds, 520
U.S. 939 (1997) (observing that the knowing submission of
“unallowable costs can trigger the False Claims Act”
(emphasis added)).
Because he was not a fraud-alert employee, Fanslow had
to show only that CMC was aware of his investigation, a
point for which there is ample support in the record. Fanslow
claims that he returned from his meeting with Ellington in
November 1999 and immediately reported his conversation
to three CMC executives, including Giannisis and Panfil. He
did so because he was concerned about jeopardizing CMC’s
funding if the center was engaged in anything illegal or un-
allowable. It does not appear that any of these executives
tried to reassure him at that time that his concerns were
unfounded. Moreover, Fanslow argues that his refusal to
approve the purchase of the equipment in June 2000 also
served to put CMC on notice of his protected conduct. The
record as it now stands suggests that CMC was acutely aware
of its employees’ concerns about the legality of MFR.Net.
Kennedy, who worked with Panfil on MFR.Net, stated that
Fanslow and other CMC employees had “numerous conver-
sations” about the diversion of government funds. According
to Kennedy, no one could get a straight answer about
MFR.Net’s ownership and funding structure. Weiand asserted
that CMC employees discussed the “diversion of CMC’s
financial resources to for-profit entities” as well as “the ap-
parent conflicts of interest, and illegal use of government
monies.”
In concluding that Fanslow failed to meet the notice
requirement, the district court emphasized Fanslow’s si-
lence during the morning meeting on July 17, 2000 and the
fact that he did not discuss MFR.Net with CMC’s manage-
ment after this meeting. The district court’s emphasis on
these facts is peculiar. Despite Fanslow’s nonparticipation
in the morning meeting, he was nonetheless dragged into a
24 No. 03-2111
conference room by Giannisis that same afternoon and
accused of sabotaging MFR.Net. Thus, a reasonable juror
could infer that CMC imputed to Fanslow the concerns raised
in the morning meeting about the ownership and legality of
MFR.Net. Further, Fanslow was placed on a PAP one week
after this meeting. He understood that PAPs were used
when Giannisis intended to terminate an employee. At this
point, he could reasonably have concluded that his job was
on the line because of his continued complaints about
MFR.Net. Drawing all reasonable inferences in Fanslow’s
favor, we believe that a jury could conclude that by the time
he refused to purchase the computer equipment in 2000,
Fanslow had given CMC numerous indications of his
concern with MFR.Net and thus met the notice require-
ments of the FCA.
C
Turning to the last element, Fanslow must demonstrate
that his discharge was motivated, at least in part, by the
protected conduct. Brandon, 277 F.3d at 944. Compare
Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003) (discussing
mixed motive standard for Title VII cases and holding that
the plaintiff may use either direct or circumstantial evi-
dence to show that the protected characteristic was a mo-
tivating factor in the challenged employment decision).
Once the plaintiff has made this showing, “the burden of
proof shifts to the employer to prove affirmatively that the
same decision would have been made even if the employee
had not engaged in protected activity.” Yesudian, 153 F.3d
at 736 n.4.
We are unable to apply this legal standard to Fanslow’s
case at this point, because the record lacks explanations
from the key decisionmakers, including Giannisis, about
why she placed Fanslow on a PAP and ultimately termi-
nated him. The district court concluded that Fanslow had
failed to show a causal connection between his whistle-
No. 03-2111 25
blowing activities and these adverse employment actions. In
our view, however, the evidence is not so one-sided at this
point as to warrant summary judgment in CMC’s favor.
From the time CMC hired Fanslow in October 1996 until
his discussion with Ellington in November 1999, he received
a stellar evaluation, four significant pay raises (his salary
went from $70,000 to $125,000), and a promotion to lead
CMC’s IT department. CMC employees noticed that
Giannisis’s and Panfil’s praise turned increasingly to criti-
cism only after Fanslow reported on his discussion with
Ellington.
Even more telling is the series of closely timed events in
June and July 2000. Holland, 883 F.2d at 1315 (stating that
a “telling temporal sequence” can demonstrate a causal link
between adverse action and protected conduct). One of
Giannisis’s specific complaints to Fanslow about the VAULT
system was that CMC consistently submitted untimely re-
ports to NIST. In June 2000, CMC sent a timely VAULT re-
port to NIST for the first time. On June 21, 2000, Fanslow
refused to purchase hardware for MFR.Net and told Panfil
he considered this cost unallowable. On July 17, 2000,
Giannisis accused Fanslow of sabotaging MFR.Net and di-
rected him to fire Weiand because she considered Weiand’s
questions about the legality of MFR.Net inappropriate.
Fanslow refused to do so and a few days later Giannisis
placed him on a PAP. During the time he was on the PAP,
Fanslow recommended to Giannisis that CMC obtain an in-
dependent evaluation of the IT department and the VAULT
system, which confirmed that the problems with VAULT
were typical. Fanslow’s PAP expired on October 31, 2000
and there is no evidence in the record of any discussions
about performance problems after this date. On December
12, 2000, nearly six weeks after the PAP expired, Fanslow
was terminated for using “a four-letter word,” despite the
fact that profanity was commonplace at CMC.
26 No. 03-2111
On these facts, Fanslow argues that a reasonable juror
could readily infer that his discussion with Ellington, his re-
fusal to purchase hardware, his alleged “sabotaging” of the
MFR.Net kick-off meeting, and his refusal to fire Weiand
for questioning the legality of MFR.Net played a motivating
and substantial role in Giannisis’s decision to place him on
a PAP and ultimately to terminate him. CMC asserts that
it terminated Fanslow based on performance concerns and
the reported verbal abuse of Ferrentino. Fanslow was told he
was being terminated because Giannisis felt that he was
not “happy” with his job, a reason that we find barely
passes the straight-face test. The problem is that Giannisis,
Panfil, and other relevant CMC executives have not offered
any evidence of their side of the story. The conclusory
affidavit by HR Director Swirnoff refers only to generalized
performance problems and does not give us a sufficient
basis to determine what CMC thought. Without evidence
that CMC had a legitimate reason for firing Fanslow, the case
was not a candidate for summary judgment. Whether, after
further discovery on remand, the parties wish to present
new motions for summary judgment must await further
development of the record and the assessment of the parties
at that time.
D
In addition to his FCA claim, Fanslow alleged that his
discharge violated the Illinois Whistleblower Reward and
Protection Act, 740 ILCS 175/4(g), and Illinois public policy.
Relying heavily on its FCA analysis, the district court
summarily dismissed Fanslow’s state law claims because it
concluded that Fanslow had failed to establish the causal
connection required to support a claim of retaliation. For
the same reasons we are remanding the FCA claim, we
remand the state law claims for reconsideration.
No. 03-2111 27
III
For these reasons, we REVERSE and REMAND for proceed-
ings consistent with this opinion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-20-04