McVeigh v. Recology San Francisco et al., 213 Cal. App. 4th 443 (Jan. 31, 2013): The California court of appeals recently held that a “fraud-alert” employee may pursue a retaliation claim under the California False Claims Act (CFCA) if the employee engaged in protected conduct, the employer was on notice that the employee was engaged in protected conduct and the employer discriminated against the employee based on such conduct.
The plaintiff sued his former employer, Recology San Francisco (Recology), a waste recycling facility that operated various buy-back centers for recycled goods. The plaintiff alleged that Recology terminated him based on his investigation and reports of Recology’s allegedly inflated payments to third parties for recycled goods and alleged receipt of inflated payments from the California Department of Conservation based on Recology’s inaccurate representations of the weight and source of goods Recology sold to third parties. Specifically, the plaintiff alleged that Recology’s employees engaged in “tag inflation” – a process whereby Recology attendants weighed customers’ recyclables and issued a “tag” to customers indicating the weight of goods submitted, but recorded more weight on the tag than the weight of the recyclables actually submitted. This resulted in inflated payments to customers and potential kickbacks to the attendants. Over a period of several years, Plaintiff repeatedly told the local police about his suspicions of fraud and ultimately reported it to Recology’s board of directors. Recology fired him three months later. The trial court granted summary judgment to Recology dismissing plaintiff’s retaliation claims under the CFCA. The appellate court affirmed, in part, and reversed, in part.
The appellate court first noted that a viable false claim requires loss to the government. It rejected the plaintiff’s argument that his investigation and reporting of tag inflation was protected conduct under the CFCA regardless of whether the state suffered financial or economic loss from the tag inflation. The court held that “there is no possibility of a viable false claim” under the CFCA absent financial or economic loss to the state.
But the appellate court also held that, to the extent that the plaintiff’s investigation of fraud related to Recology’s receipt of alleged overpayments from the state, there was a triable issue of fact as to whether Recology improperly terminated the plaintiff under the CFCA. The court engaged in a three step analysis.
First, it found that the plaintiff engaged in protected activity when he reported to the police (and others) his suspicions of tag inflation at the recycling facilities, and how it might result in overpayments to Recology by the state. Although the plaintiff conceded that he did not know precisely how Recology obtained reimbursement from the state for payments at the buy-back centers, the court held that, because the plaintiff subjectively believed that there may have been fraud on the government, and his concerns were objectively reasonable, a false claims action was “reasonably possible.”
Second, the appellate court considered whether Recology knew that the plaintiff was engaged in protected activity. It rejected the trial court’s reasoning that Recology did not know that the plaintiff was engaged in protected activity because he was performing his “regular job responsibilities” when he blew the whistle. The trial court had relied on federal case law stating that an employer lacks knowledge of an employees’ protected conduct – a required element for a federal FCA (FFCA) retaliation claim – if the employer is not put on notice of the “distinct possibility of FFCA litigation.” But the appellate court found that, even under the heightened notice standard required when dealing with “fraud-alert” employees like the plaintiff, Recology was on notice that the plaintiff was involved in protected activity because: (1) he reported his suspicions to law enforcement using terms like “embezzlement,”; (2) he secured an offer from the police to investigate the matter, which Recology declined; and (3) he reported his concerns and suspicions to Recology’s board of directors. Accordingly, the evidence raised at least a triable issue whether Recology was on notice of possible litigation.
Finally, the appellate court rejected the trial court’s conclusion that that there was no causal link between plaintiff’s termination and the protected activity because plaintiff was not terminated until almost three years after he first began reporting the tag inflation. The appellate court noted that: (1) the plaintiff was fired only three months after reporting his tag inflation suspicions to the board of directors; and (2) the plaintiff had declared that his supervisor had told him he could be fired if he pressed on with his concern about possible fraud.