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Brian Mcveigh v. Recology San Francisco et al

January 31, 2013


Super. Ct. No. CGC-09-491654) Trial Court: San Francisco County Superior Court Trial Judge: Hon. Ronald E. Quidachay

The opinion of the court was delivered by: Siggins, J.


(San Francisco County

Plaintiff Brian McVeigh appeals following the grant of summary judgment in favor of his former employer Recology San Francisco.*fn1 Recology provides waste collection, recycling and disposal services to San Francisco residents and businesses. McVeigh's complaint alleged that Recology fired him in retaliation for his reporting possible fraud in connection with California Redemption Value payments made by and to Recology for recycled materials.

McVeigh's whistleblower causes of action were brought under Government Code section 12653, part of the California False Claims Act (CFCA) (Gov. Code, § 12650 et seq.), and Labor Code section 1102.5. Government Code section 12653 prohibits an employer from discriminating against an employee for acts taken to expose false claims presented to the government. Labor Code section 1102.5, subdivision (b), prohibits an employer from discriminating against an employee for reporting unlawful conduct to the government.

In reviewing whether summary judgment was proper under the CFCA, we will discuss whether the state was harmed by the alleged fraud reported by McVeigh and whether his report of possible fraud was protected conduct under the statute. In order to determine whether summary judgment was proper under the Labor Code provision, we will consider whether the statute protects an employee from discrimination for reporting illegal acts by fellow employees or only illegal acts of his or her employer.

We reverse the summary judgment on three of McVeigh's causes of action, and affirm the judgment for Recology on two others. Because McVeigh did not demonstrate that the fraud alleged in one of his causes of action under the CFCA involved possible financial harm to the state, summary judgment was proper on that claim. We conclude as to his other CFCA cause of action that McVeigh alleged possible fraud on the government that caused it economic harm and that his reporting of fraud was protected conduct. We also conclude that the Labor Code protects an employee from discrimination for reporting claims of illegal conduct by fellow employees as well as by an employer.


McVeigh began working for Recology in 2000. From late 2004 through late November 2005, he was an Operations Supervisor at Pier 96, a Recology facility where recyclables collected from various sources are sorted for processing and sale to vendors. Recology also operated two buy back centers, one at Pier 96 and one at 501 Tunnel Road in Brisbane, where employees weighed customers' recyclables presented for redemption, such as glass bottles and aluminum cans. The employee who weighed the material would write the weight on a tag and give the tag to the customer. The customer brought the tag to a cashier, who logged the material and weight into a computer showing the date and time, and paid the customer the California Redemption Value (CRV) in cash for the weight shown on the tag.

In addition to buy back center purchases, Recology collected CRV recyclables from various sources, including "curbside" collection. Recology aggregated, processed, and weighed the recyclables from all sources at Pier 96 and shipped them to third-party purchasers with a form DR-6 that showed their weight. Bales of recyclables collected from the different sources were commingled before they were shipped from Pier 96. The sources of the materials were not shown on the bales, but the weight of recyclables purchased at the buy back centers was distinguished from the weight of other recyclables on the DR-6 forms. The purchasers verified the weights they received, recorded them on a form DR-7, and the DR-6 and DR-7 forms were submitted to the Department of Conservation, which reimbursed Recology the CRV. Recology was reimbursed at a higher rate for recyclables purchased at the buy back centers than for recyclables collected from other sources.

Around September 2005, Pier 96 supervisor Bo Duong received a tip that an employee was engaged in "tag inflation" fraud and asked McVeigh to investigate. Tag inflation fraud occurs when an attendant records more weight on the tag than the weight of the recyclables actually bought back by Recology, resulting in an overpayment by Recology to the customer, and possibly a kickback to the attendant. The suspected employee admitted committing tag inflation in collaboration with a buy back attendant. McVeigh reported this information to Pier 96 General Manager John Jurinek, who directed him to call the San Francisco police, and the employees were arrested. McVeigh also received tips from co-workers that tag inflation was occurring at Tunnel Road. In September 2005, McVeigh reported information about tag inflation at Pier 96 and Tunnel Road to San Francisco Police Officer James Lewis.

While he was assigned to Pier 96, McVeigh worked under Jurinek and Operations Manager Joe Damele. McVeigh was counseled by Jurinek and Damele because they were concerned about his "overly aggressive" management style. Pier 96 employees complained that McVeigh seemed intent on finding wrongdoing and said he was "witch-hunting" or "stalking." Numerous union members filed grievances against him, and Jurinek said McVeigh had a "cop mentality."*fn2 In November 2005, Damele gave McVeigh a performance rating of three on a scale going from a low of one to a high of five. The rating reflected satisfactory job performance; and Damele had never given anyone a four or five.

That same month, McVeigh transferred from Pier 96 to Tunnel Road. In addition to a buy back center, Tunnel Road houses a public waste dumping area and an Industrial Material Recycling Facility (IMRF). McVeigh was assigned to supervise the IMRF, where recyclable materials are separated from industrial waste. He worked under Operations Manager Ken Stewart.

McVeigh told Stewart that he had reported tag inflation to Officer Lewis, and informed Stewart that Lewis had a business that supplied video surveillance equipment that could be used by Recology to detect and deter the fraud. In January 2006, Stewart told McVeigh that video equipment would not be installed, and ordered him "to stay out of the CRV Buy Back business" and "only mind . . . the IMRF." Thus, from January 2006 to September 2007, when McVeigh was made supervisor of the Tunnel Road buy back center, he did not report his "concerns of CRV theft scams of State funds" even though he continued to receive tips of ongoing fraud.

In November 2006, Stewart also gave McVeigh an overall annual performance rating of three. Toward the end of that month or in early December 2006, an employee accused McVeigh of, among other things, "[m]isuse of authority" and "caus[ing] turmoil amongst employees." A human resources specialist investigated the accusations and determined that McVeigh had acted "unprofessionally" in his dealings with employees. He was placed on a 90-day "Performance Improvement Plan," which included "a training course on dealing effectively with others."

In September 2007, when McVeigh was put in charge of the Tunnel Road buy back center, Stewart told him that he was to "straighten out the facility," and McVeigh understood his duties to include preventing tag inflation. He suspected that tag inflation was occurring, and that "management was involved in some type of coverup" of the problem. He reported his suspicions to Sergeant Thomas Lynn of the Brisbane police department.

In October 2007, Stewart gave McVeigh a two on his performance review, and as a result McVeigh received no raise or bonus. At a meeting with Stewart and Tunnel Road General Manager Mike Crosetti, McVeigh claimed that he was being denied a raise and bonus in retaliation for his reporting of tag inflation. Stewart and Crosetti refused to change his performance score.

To deter tag inflation, McVeigh spent increasing time at the weigh-in station and told employees that he was beginning to look over each day's CRV weight records. Once he started doing so, the buy back center's average daily CRV payout dropped, from over $13,000 per day in the first two weeks of October 2007 to $7,000 per day from November 15 to 24, 2007. Based on this observation, McVeigh believed he was saving Recology $100,000 per year. He recommended that handwritten weight tags be replaced with a system where "the scale [was] tied directly into the tag printout, but this did not happen while [he] was employed with [Recology]." He again recommended use of video surveillance equipment, which was installed beginning on November 23.

After the video equipment was installed, McVeigh obtained "obvious video evidence that attendant Andre Lewis was engaged in large and repeated weight tag inflation." At a meeting on December 18, McVeigh, Stewart, and another Tunnel Road supervisor confronted Lewis with video clips that showed him inflating weight tags, and Lewis admitted having done so. Crosetti thought that Lewis must have been getting kickbacks in exchange for the fraud. When Lewis was interviewed by Pier 96 General Manager Jurinek and Human Resources representative David Jackson, he implicated three other employees in the scheme, including two Tunnel Road attendants, Luis Hernandez and Jose Castellanos, who had also aroused McVeigh's suspicions. Lewis was transferred from Tunnel Road to Pier 96.

By January 2008 the average daily CRV refund payout at Tunnel Road was less than $5,000. McVeigh believed that only a small part of this reduced payout was attributable to a ban on walk-in customers that began on November 27. McVeigh suspected that "massive" "CRV theft" was ongoing at the buy back center, and recommended that Recology hire a private investigator to look into the problem. Stewart agreed with the recommendation, but Crosetti told him that the company rejected it.

Because McVeigh suspected fraud was continuing at Tunnel Road, he told Sergeant Lynn that Lewis had been caught inflating weight tags, that Recology had not fired or pressed criminal charges against Lewis, that other employees had been implicated in weight tag inflation, and that Recology would not hire a private investigator to look into the matter. McVeigh reported to Stewart that the Brisbane Police Department was willing to investigate "the fraudulent CRV theft scams" at the Tunnel Road buy back center, but the District Attorney's office required that Recology agree to press charges against anyone caught. Stewart advised McVeigh that upper management rejected the proposal for a police investigation.

McVeigh's concerns that there were large losses associated with CRV buybacks were based in part on accounting information he received in December 2007. Apparently, the weights of recyclables purchased at the Tunnel Road buy back center in November significantly exceeded the weights of materials transferred that month from Tunnel Road to Pier 96 for processing. For example, over seven tons less aluminum showed up at Pier 96 (16.56 tons) than were purchased at Tunnel Road (23.60 tons). Information McVeigh received about amounts purchased and transferred from December 1 through 11, after the video surveillance cameras were installed, showed more modest but continuing shortages. For example, 6.45 tons of aluminum were purchased and 5.83 tons were transferred, a discrepancy of .62 tons.

On February 4, 2008, McVeigh filed an online "EthicsPoint" report that was transmitted to senior management and the Recology board of directors. The report alleged that Recology employees had engaged in tag inflation and that Recology managers were aware of the problems but had not remedied them.

Recology's outside counsel was called in to investigate the EthicsPoint report, and interviewed McVeigh and other witnesses.

On February 19, Stewart called McVeigh into a supply room, locked the door, and "threatened [McVeigh] with being fired for continuing to push the issue of CRV fraudulent theft." McVeigh reported the confrontation to HR representative Jackson, and met with Jackson to discuss his concerns about "fraudulent theft of CRV funds." Jackson initially told McVeigh that a private investigator would be hired to investigate the fraud, but then informed him "that the investigation had been cancelled."

General Manager Crosetti and HR Manager Kathy Jamison asked Jackson to investigate McVeigh's allegations. McVeigh reported to Jackson that, in addition to tag inflation, Recology employees were involved in a " 'truck theft scam' " in which they conspired to steal CRV recyclables from trucks during transport for processing from Tunnel Road to Pier 96. McVeigh had received a tip that a driver was stopping his truck in route to Pier 96 so that a customer with whom another employee had a relationship could off-load CRV recyclables and resubmit them for a second CRV refund.

Jackson asked McVeigh about possible marijuana scavenging in the public disposal area of Tunnel Road. McVeigh told Jackson that large quantities of marijuana were dumped with "some frequency" in the area, and that "loader drivers had reported that employees in the pit were scavenging marijuana and it was dangerous [because] the loaders could run over the employees without seeing them." McVeigh reported that Stewart had ordered that steps be taken to stop the scavenging, but the supervisor in charge of the public disposal area "did not appear to be dedicated to stopping the activity."

McVeigh declared in opposition to the motion for summary judgment: "I became extremely concerned that management did not want a real inquiry into the CRV theft issues, and that my job was being threatened for doing what I thought was something I needed to do in my job both for the company and to protect public funds in the State CRV program. I felt I had to try to find out what was actually taking place with State funds, that it was the right thing to do even if my job was being threatened by my managers for doing it. I continued to review CRV records, continued to inform Sergeant Lynn, and continued to inform my management that I was doing these actions."

The records McVeigh continued to review included truck shipment logs for transfers of CRV recyclables from Tunnel Road to Pier 96, which showed the weight of the recyclables when they left Tunnel Road, the weight when they arrived at Pier 96, and the duration of the trip. He discovered what he considered to be irregularities. For example, a truck was shown as leaving Tunnel Road at 5:29 a.m. on February 25, 2008 with 2,340 pounds of aluminum, and arriving at Pier 96 at 6:06 a.m. with 1,920 pounds of aluminum. The trip that should have taken ten minutes lasted 37 minutes and ended with 420 pounds less of aluminum than when it began. McVeigh estimated from experience with the trucks that a driver and two people could off-load 100 to 200 pounds of CRV recyclables in two minutes. Information such as he discovered in the February 25 truck shipment log heightened McVeigh's concern about theft.

Jackson prepared a report dated May 13, 2008 recommending that McVeigh "be separated from this organization immediately," and McVeigh was placed on administrative leave that day. Jackson found that McVeigh had a "headstrong attitude" and could not get along with other employees. He "stir[red] up gossip, arguments, and conflicts on a regular daily basis." His "peers and supervisors made a point of avoiding him," and did not believe he "could be trusted to uphold the organization's best interests." He "had chosen to 'remove himself' from the rest of the team and not partner collaboratively with the management."

The report did not discuss "tag inflation" by that name, but apparently considered the issue in addressing McVeigh's allegations of "misappropriation of cash and cash receipts" at the Tunnel Road buy back center by two African-American supervisors and an African-American employee. The report stated that "McVeigh did not focus on the activity of the Hispanic employees [presumably, Hernandez, Castellanos, and Juan Gomez, another employee implicated by Lewis] who had been widely suspected for some time by members of senior management of the same questionable conduct that McVeigh had accused the African-American employees of perpetrating." Jackson determined that McVeigh's allegations against the African-American employees could not be substantiated. Neither could his many other allegations,*fn3 including marijuana scavenging in the public waste disposal area. Employees who worked in the disposal area told Jackson that the marijuana remnants left there were unusable " 'junk.' "

General Manager Crosetti concluded that McVeigh's allegations were made in bad faith, and terminated his employment on May 28, 2008.

McVeigh sued Recology in August 2009. His complaint contained five causes of action. The first and second alleged that he was wrongfully terminated in violation of the CFCA whistleblower statute. (Gov. Code, § 12653.) The third cause of action alleged that his termination was in violation of public policy. The fourth cause of action alleged he was terminated in violation of whistleblower protections in the Labor Code. (Lab. Code, § 1102.5, subd. (b).) The final cause of action alleged his termination was in breach of an implied contract that he could not be discharged without good cause.

Recology moved for summary judgment, arguing that McVeigh could not establish a prima facie case for the CFCA and Labor Code causes of action. The trial court granted the motion. It concluded that the whistleblower causes of action failed because McVeigh was merely performing his "regular job responsibilities" in investigating and reporting on weight tag inflation, and thus Recology did not know that he was engaging in protected activity. Also, McVeigh could not establish that his employment was terminated due to protected activity because he was not fired until almost three years after he first blew the whistle on the alleged tag inflation scheme. Because his whisteblower claims were untenable, so was his cause of action for termination in violation of public policy.

He has timely appealed from the judgment entered for Recology. He does not contest the judgment on his fifth cause of action ...

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