The Eighth Circuit affirmed a district court’s decision granting summary judgment in favor of the defendant in a complaint regarding unlawful retaliation. The plaintiff argued that he was fired after he advised his employer of potential violations of HUD loan guarantee regulations, but the court found that internal communications generally amounted to disagreement over the interpretation of those rules, not serious violations. While the plaintiff’s co-workers expressed annoyance with his strict interpretation of federal regulations, the court found his termination related to performance issues, not an investigation into actual false claims.
Plaintiff Richard Sherman appealed the district court’s decision to grant summary judgment in favor of his former employer, Berkadia Commercial Mortgage LLC, in his compliant alleging unlawful employment retaliation in violation of the FCA.
Sherman was employed by Berkadia as an underwriter after some local offices came under scrutiny by the Department of Housing and Urban Development for irregular conduct. Because Sherman had a reputation for integrity and a previous relationship with HUD, Berkadia hoped he could mend relations with HUD regulators. Subsequently, Sherman became a senior vice president and the chief underwriter of Berkadia’s HUD group. In this role, he was in charge of a team of underwriters who reviewed mortgages for adherence to HUD regulations and company rules prior to their submission to HUD.
During his employment, Sherman successfully reduced the HUD rejection rate on loans Berkadia submitted. He also urged greater transparency with HUD, and recommended that Berkadia notify HUD when it discovered a discrepancy between the company’s practices and HUD regulations. For example, Sherman raised concerns about a loan for which Berkadia had not disclosed certain fees to HUD when the loan was submitted for approval. Berkadia’s internal investigation of the matter found that one of its staff may have knowingly allowed the company to submit the loan to HUD without disclosing the fees. Sherman recommended that Berkadia disclose the violation of HUD rules to the government. Instead, Berkadia repurchased the failed loan from HUD and took the loss. Sherman’s complaint alleged other instances where Berkadia failed to disclose information required by HUD for loan approvals.
According to Sherman, his attention to compliance created tension between Berkadia’s production and underwriting teams. The production team complained about Sherman’s withholding of approval based on what they perceived to be trivial glitches in the origination process. They also complained that he adhered too closely to HUD’s “bright-line” rule, which prohibits mortgage originators from unduly influencing those who underwrite those mortgages. Others also complained that Sherman was excessively strict and prone to overreaction.
Eventually, the relationship between Sherman and the load production manager became so toxic that outside mediators were hired. The mediators interviewed multiple employees and identified concerns with Sherman’s ability to work effectively with other managers. Not long after, Sherman sent an email to superiors that seemed to suggest that if the production manager were not replaced, Sherman would quit his position. Berkadia terminated Sherman’s employment, citing performance issues uncovered by the mediation team. According to Sherman, his supervisor told him that he had not “done himself any favors” by going to the company’s executive committee with concerns about a major industrial loan.
Sherman filed this suit, alleging unlawful retaliation under the FCA and wrongful termination under Missouri law. The district court granted Berkadia summary judgment on all claims. On appeal, Sherman argued error in the court’s rulings on his FCA retaliation and wrongful-termination claims.
Sherman argued he had presented direct evidence of retaliation, citing his supervisor’s comments about his decision to go to the executive committee with concerns about a certain loan. However, the appeals court held that while this may be direct evidence that Berkadia was unhappy with Sherman’s decision to circumvent the chain of command, circumventing the chain of command is not protected conduct under the FCA. The court also explained that internal disagreement about Sherman’s interpretation of HUD regulations is not protected conduct. Further, those comments were made months before Sherman was fired. The court found they amounted to stray remarks in the workplace, unrelated to any employment decision.
Without direct evidence of retaliation, the court examined whether Sherman had presented a prima facie case. To establish a prima facie case, Sherman had to show that (1) he engaged in protected conduct, (2) Berkadia knew he engaged in protected conduct, (3) Berkadia retaliated against him, and (4) the retaliation was motivated solely by his protected activity. If Sherman could make this showing, the burden would shift to Berkadia to articulate a legitimate reason for the termination. Then Sherman would have the opportunity to rebut, showing that the reason was pretextual and that the actual motivation was retaliatory intent.
The court held that Sherman failed to make this showing. While Sherman showed evidence that Berkadia was sometimes critical of his suggestions about HUD compliance, the court also found evidence that his superiors disapproved of other parts of his job performance. Even considering the evidence in the light most favorable to Sherman, the court found no reasonable jury would find that Berkadia fired him solely due to his alleged protected activity.
Sherman based his state claim on the same evidence as his FCA claim, but the court noted that the statutes have very different elements requiring different analyses. For example, under Missouri law, in order to prove a wrongful-discharge claim based on his alleged whistleblowing, Sherman had to show that he reported to superiors or to public authorities serious misconduct that constitutes a violation of the law and of well established and clearly mandated public policy.
The court found Sherman failed to make any meaningful argument supporting his state claim, and therefore had waived review of it. Further, even assuming the claim was not waived, the court found that none of the HUD compliance issues Sherman raised amounted to serious misconduct on the part of Berkadia or its employees. Again, the court noted that internal disagreement over the interpretation of HUD lending rules fell far below the level needed to assert violations of the FCA or clearly mandated public policy.