The Fifth Circuit reversed the Department of Education’s award of damages to a whistleblower who reported potential fraud in connection with a federal grant. The whistleblower alleged she was terminated by the Texas Educational Agency after she raised concerns about a potential conflict of interest in the award of a contract under an Education-funded grant. The department inspector general substantiated the allegations and awarded damages to the whistleblower. The state petitioned the Fifth Circuit for review, arguing that the department’s decision violated Texas’ sovereign immunity. The whistleblower asserted that the dispute was analogous to a suit brought by the United States, which would not be barred by sovereign immunity. The court disagreed, finding that the NDAA provides that agencies can investigate claims of retaliation, but did not contemplate that the proceedings would be equivalent to a federal lawsuit against a state. Further, while the United States had an interest in the outcome, it did not commence a lawsuit. The agency argued that the NDAA required recipients of federal funds to waive immunity against retaliation suits, but the court found that the implementing language did not adequately put states on notice that their acceptance of federal grant funds would result in a waiver of sovereign immunity.
The Texas Educational Agency petitioned the Fifth Circuit for review of a decision of the Department of Education awarding damages to a former employee who was allegedly discharged in retaliation for whistleblowing in violation of National Defense Authorization Act of 2013.
Former TEA employee Laurel Kash filed a complaint with the Department of Education alleging that she was fired in retaliation for whistleblowing. A department investigation substantiated the charges and Kash was awarded damages. The TEA appealed to the Fifth Circuit, arguing that the decision violated Texas’ sovereign immunity.
The NDAA’s whistleblower protection language establishes that contractor and grantee employees may not be retaliated against for disclosing evidence of gross waste, fraud, or abuse; danger to public health or safety; or legal or regulatory violations related to a federal contract or grant.
Kash was hired as the TEA’s Director of Special Education in the summer of 2017. During the hiring process, the TEA conducted a background check in which it discovered that Kash had been accused of covering up sexual abuse of a student during her previous employment. Kash explained that the allegations were false, had been made by a disgruntled and discredited colleague, and had been rejected by state officials. The TEA hired Kash despite the allegations because she had been exonerated. However, early in her employment, Kash’s supervisor, Justin Porter, repeatedly counseled her about allegedly unprofessional behavior.
In October 2017, Kash expressed concerns about the TEA’s data analysis contract with an entity called SPEDx, funded with money granted under the Individuals with Disabilities Education Act. Kash told her supervisor that she believed the contract was unnecessary and that it was awarded because the SPEDx contractor and a sub-contractor were friends of Penny Schwinn, Porter’s direct supervisor. Schwinn heard of those allegations and discussed them with Kash and Porter. The same day as that conversation, Kash reported her concerns about the SPEDx contract to Bill Wilson, the TEA’s Director of Internal Audit. She repeated her belief that the contract was awarded because the contractor and sub-contractor had a personal relationship with Schwinn, and she added a concern that the contract was inappropriately awarded on a sole-source basis.
The following month, Porter issued Kash a formal letter of reprimand that alleged instances of Kash’s purported unprofessionalism and inappropriate communications with external stakeholders. The letter also discussed Kash’s complaints about the SPEDx contract, saying that, although Kash could report the allegations through appropriate channels, she had done so inappropriately. The letter specifically said that voicing concerns to external stakeholders could undermine Schwinn’s reputation and negatively impact the TEA. Shortly thereafter, Kash followed up with Wilson about her concerns with the SPEDx contract and expressed her fear that she would be fired.
A few weeks later, the allegations about Kash arising from her previous employment were made public when a lawsuit was filed by Kash’s former colleague. After learning of the lawsuit and receiving inquiries from the public, Porter informed Kash that any questions would be referred to the agency’s communications director.
Soon after, Kash filed a complaint about the SPEDx contract with the Department of Education Office of Inspector General. The next day, Kash was fired. The following September, Kash filed a whistleblower-retaliation complaint with the OIG, in which she claimed that her letter of reprimand and termination were retaliation for reporting her concerns about the contract. The TEA maintained that it terminated her because she could no longer effectively do her public-facing job after the cover-up allegations broke. Following a yearlong investigation, the OIG sustained Kash’s allegations of whistleblower reprisal based on her termination and an administrative law judge ordered the TEA to pay damages.
TEA appealed to the Fifth Circuit, arguing that the order violated the state’s sovereign immunity from federal agencies’ adjudication of private parties’ complaints, in the same way they are immune from suit.
The government and Kash disagreed, for different reasons. Kash argued that the dispute was analogous to a suit brought by the United States, which would not be barred by sovereign immunity. The government argued that the state waived its immunity from whistleblower retaliation claims because the NDAA conditions acceptance of federal money on such a waiver.
The court acknowledged that states are not immune to suits brought by the federal government. Kash argued that the NDAA’s whistleblower protections reflect Congress’ recognition and concerns about whistleblower activity and that Education’s investigation and order advanced the government’s interest in having state grantees comply with federal law. Therefore, she opined that the proceeding was akin to a suit brought by the United States to defend its own interests, rather than an administrative hearing in which a private party brings a state before the federal government.
The court disagreed. Rather than contemplating a federal lawsuit against a state, the NDAA provides that a private party may bring a complaint to an agency for investigation. That distinction weighed against Kash. Second, Fifth Circuit caselaw has concluded that qui tam suits are barred by sovereign immunity, unless the United States intervenes. Similarly, while the United States may have an interest in the whistleblowing proceeding, it did not commence the action.
Third, the circuit panel suggested it would prefer to avoid a circuit split on this issue, citing a First Circuit case that held that a suit brought under the Solid Waste Disposal Act, which also provides administrative relief for retaliation, was barred by sovereign immunity. Kash argued that case could be distinguished, because the NDAA applies only to states that have a contractual or grantor-grantee relationship with a federal agency. However, the court found that distinction irrelevant. The First Circuit’s reasoning did not rely on the lack of a relationship between the state and federal governments, but instead on the role the federal government played in the whistleblowers’ claims. The court found the government played the same role here, regardless of the grantee relationship.
Turning to Education’s argument, the court agreed that states can waive their immunity. Education argued that the NDAA conditions the acceptance of any federal grant or contract on waiving immunity from whistleblower retaliation claims related to that grant or contract.
However, the court found the NDAA language too ambiguous for any such waiver to be effective. For a waiver of sovereign immunity to apply, it must be knowing and voluntary. Where the waiver is made by accepting federal funds, the conditions on the receipt of federal funds must be unambiguous and the conditions cannot be coercive. Neither party argued that the NDAA’s conditions were coercive, so the court turned its attention to the “knowing” requirement.
Education argued that the NDAA unambiguously put the TEA on notice that it would be subject to its remedial scheme, including the possibility of damages, should the TEA choose to accept federal funds through any grant. The TEA counters that the NDAA is inadequately clear because the statutory text makes no reference to ‘states’ or to ‘immunity.’ Further, the TEA argued that Education’s interpretation would mean that the NDAA—solely by referencing the terms contractor and grantee—applies a global waiver of sovereign immunity for any state that enters into any contract with or receives any grant from the federal government. The TEA argued that the breadth of that waiver belied the possibility that it would be a knowing waiver.
The court agreed, finding the NDAA lacked clarity on this issue. The court noted that it had previously held that the IDEA and Title IX unambiguously conditioned a federal grant on states’ waiving their immunity, in part because the statutory language expressly mentioned sovereign immunity. The court reasoned the laws implementing those programs plainly contemplated that states could be sued for violations relating to the grants. In contrast, the court held that statutes lacking an explicit reference to sovereign immunity are not sufficiently clear.
The court noted that the NDAA does not mention states, leaving it ambiguous whether it applies to them. Further, other recent statutes, including the American Recovery and Reinvestment Act, do mention states, demonstrating that Congress understands the distinction. Moreover, the NDAA does not mention sovereign immunity or the Eleventh Amendment. While a statute need not specifically use the words waiver or condition, the court held that its caselaw requires that the statute at least mention immunity, which the NDAA does not. Accordingly, the court held that the TEA had not waived its sovereign immunity by accepting the grant funds. Finally, the court agreed that the sheer breadth of Education’s interpretation of the statute was reason to be skeptical of it.
Education also argued that regulations clarify what the statute may have left ambiguous, thereby making the state’s waiver knowing and voluntary. Specifically, the implementing regulation states that the “non-federal entity” is responsible for complying with all requirements of the federal award, including the whistleblower protections. Because “non-federal entity” is defined to include state governments, Education argued this applied to its grantees, including the TEA.
However, the court disagreed, explaining that the clarity must come from the statute, not the regulations. First, when Congress places conditions on the states’ receipt of federal funds, it must do so unambiguously. The court explained that regulations that interpret statutes are valid only if they either match Congress’s unambiguous command or are clarifying a statutory ambiguity. If the NDAA regulations implementing the whistleblower protections clarified a statutory ambiguity, then by definition, Congress’ conditioning of the receipt of grant funds was not unambiguous and therefore cannot apply to the states.
Second, court explained that the ability to place conditions on federal grants ultimately comes from the Spending Clause, which empowers Congress, not the Executive, to spend for the general welfare. The court reasoned that allowing the Executive to require states to waive immunity to receive federal funds would grant the Executive a power of the purse and thus would be inconsistent with the Constitution’s meticulous separation of powers. Therefore, regulations cannot provide the clarity needed to render the state’s waiver of sovereign immunity knowing.
