United States: Federal Court Sends "Academi" Back To School: Finds Agreement Requiring Arbitration Of False Claims Act Retaliation Claims Unconscionable

Last Updated: April 29 2013
Article by Tirzah S. Lollar and Elizabeth Brandon

In a ruling last month, a federal district court sent a warning signal to companies that mandatory arbitration provisions in their agreements with employees and independent contractors may not stand up when an employee or contractor cries foul under the anti-retaliation provision of the False Claims Act (FCA). Winston v. Academi Training Ctr., Inc., 2013 WL 989999, No. 1:12-cv-767 (E.D. Va. Mar. 13, 2013). Many companies negotiate such agreements to inoculate the company from the uncertainty and costs of litigation, but the Academi decision must cause these companies to consider – would our arbitration provisions pass muster?

Mandatory arbitration provisions that contain terms designed to create a fair process, do not overreach, and are clearly articulated have the best chance to be enforced. Because the Federal Arbitration Act (FAA) reflects a strong federal policy in favor of arbitration, there is a presumption of validity for arbitration agreements that follow this model. Yet as the Academi court found, that presumption can be overcome where the claims to be arbitrated are brought under the FCA anti-retaliation provision.

Under the FCA, an employee who uncovers a fraud against the federal government may sue in the government's name for the wrongdoing, and in return for his efforts, receive a share of any damages awarded to the government. See 31 U.S.C. § 3730. The FCA includes an anti-retaliation provision that prohibits the employer from retaliating against the employee "because of lawful acts done by the employee . . . in furtherance of an action" to expose false claims through investigation or internal complaints of fraud. Id. § 3730(h). Prohibited retaliation includes termination, suspension, demotion, harassment, or any other discrimination in the terms and conditions of employment. Id.

The court held that the Academi arbitration provisions were so restrictive that they would frustrate the purpose of the FCA, were unconscionable and, therefore, also were unenforceable. 2013 WL 989999, at *2-4. Plaintiffs were two independent contractors engaged by Academi as firearms instructors for a contract to provide private security for the State Department. The instructors claimed they witnessed other Academi contractors submitting false firearm certification records to the State Department. Id. at *1. Plaintiffs alleged that one day after they reported the fraudulent activity, Academi fired them for failing to report the fraud in a timely manner and participating in the fraud. Id.

The two instructors filed FCA retaliation claims in federal court and Academi moved to dismiss or to stay the action on the grounds that the instructors' independent contractor agreements contained unenforceable mandatory arbitration provisions. Id.1 Although the court acknowledged the strong presumption in favor of arbitrating claims arising under federal law, it refused to enforce the arbitration provisions, finding that they would preclude the effective vindication of the plaintiffs' rights under the FCA for two reasons. Id. at *1-2. First, the agreements barred all discovery, but the court found that it would be difficult, if not impossible, for plaintiffs to prove their false certification claims without obtaining the allegedly falsified certifications through discovery. Id.2 Second, the arbitration provisions required the instructors to pay all costs and attorney's fees, regardless of the success of their claims. The court found that this fee shifting provision frustrated the clear intent of Congress since the FCA provides attorney's fees to successful plaintiffs. Id. As a result, the court ruled that the clauses were unconscionable and that the instructors' FCA claims were not subject to arbitration. Id.

In reaching its decision, the court considered whether the arbitration provisions violated certain principles under the Federal Arbitration Act (FAA). Id. An employee's agreement to arbitrate an FCA retaliation claim should be enforced, provided that the employee would not be required to forego substantive rights afforded under the FAA. See Morgan v. Sci. Applications Int'l. Corp., 612 F. Supp. 2d 81, 83 (D.D.C. 2009).3 There are five factors to be considered in determining whether an agreement to arbitrate satisfies the FAA — whether the agreement:

  • provides for neutral arbitrators;
  • provides for more than minimal discovery;
  • requires a written award;
  • provides for all types of relief that would otherwise be available in court; and
  • does not require an employee to pay either unreasonable costs or any arbitrator's fees or expenses as a condition of access to the arbitral forum.

Id. The Academi agreement failed to meet two of the factors and the court refused to enforce it.

Prior to Academi, only one other court had refused to enforce an agreement to arbitrate an FCA retaliation claim. See Nguyen v. City of Cleveland, 121 F. Supp. 2d 643 (N.D. Ohio 2000) (denying defendants' motion to compel arbitration of Section 3730(h) claims), appeal dismissed, 312 F.3d 243 (6th Cir. 2002). The Nguyen court found that an inherent conflict existed between the mandatory arbitration clause and the underlying purposes of the FCA, and noted that employment contracts — with their arbitration clauses — are the result of unequal bargaining power. Id. at 646-47. Given the policies of the FCA, the court held that an employee who brings a claim against his employer on behalf of the federal government should not be forced by unequal bargaining power to accept a forum demanded as a condition of employment by the very party on which he blew the whistle, and refused to enforce the arbitration agreement. Id.

In contrast, other federal courts have consistently held that FCA retaliation claims may be arbitrated, and that compelling arbitration of such claims does not undermine the FCA's purposes or public policy generally. See United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 381 (4th Cir. 2008) (noting other courts "have not found Nguyen persuasive" and holding FCA retaliation claims are arbitrable); United States ex rel. Cassaday v. KBR, Inc., 590 F. Supp. 2d 850, 862-63 (S.D. Tex. 2008) (same); McBride v. Halliburton Co., 2007 WL 1954441, at *4-5 (D.D.C. July 5, 2007) (finding reasoning of Nguyen is "unpersuasive"); Orcutt v. Kettering Radiologists, Inc., 199 F. Supp. 2d 746, 753-56 (S.D. Ohio 2002) (same); Mikes v. Strauss, 889 F. Supp. 746, 755-57 (S.D.N.Y. 1995) (compelling arbitration of FCA retaliation claim); see also Nudelman v. Int'l Rehab. Assoc., Inc., 2006 WL 3098009 (E.D. Pa. Oct. 30, 2006) (same).

To be sure, Nguyen and Academi are outliers, and Academi is on appeal. But absent some contrary ruling from the Fourth Circuit, Academi provides a clear warning for employers about provisions that could render their arbitration agreements unenforceable. The decision underscores the importance for companies to consider whether their arbitration provisions would survive scrutiny under the FAA five factor test so they do not run the risk that a court would refuse to enforce it.


1 In 2009, the Fraud Enforcement and Recovery Act (FERA) expanded the anti-retaliation provision of the FCA to cover contractors and agents in addition to employees. FERA, Pub. L. No. 111-21, 123 Stat. 1617.

2 The court's ruling on this point was somewhat inconsistent with the statute since plaintiffs need not prove that Academi committed a substantive violation of the FCA in order to prevail in their retaliation claims. See 31 U.S.C. § 3730(h).

3 Under the FAA, a written provision requiring arbitration of any controversy arising under a contract or transaction affecting commerce is valid and enforceable. 9 U.S.C. § 2.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.