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San Francisco Unified School District Ex. Rel. Manuel Contreras et al v. First Student

February 19, 2013

SAN FRANCISCO UNIFIED SCHOOL DISTRICT EX. REL. MANUEL CONTRERAS ET AL., PLAINTIFFS AND APPELLANTS,
v.
FIRST STUDENT, INC., DEFENDANT AND RESPONDENT.



Superior Court of the City and County of San Francisco, No. CGC-07-463308, Ernest H. Goldsmith, Judge.

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

CERTIFIED FOR PUBLICATION

(City and County of San Francisco Super. Ct. No. CGC-07-463308)

In this action brought under the False Claims Act (Gov. Code, § 12650 et seq.),*fn1 the qui tam plaintiffs allege that defendant Laidlaw Transit, Inc. (Laidlaw), and its successor in interest, First Student, Inc. (FSI), failed to maintain and repair the company's buses as required by the company's contract with San Francisco Unified School District (SFUSD). At issue here is an injunction issued by the trial court barring the individual plaintiffs, former employees of Laidlaw, from discussing the lawsuit with any current employees of FSI.

The individual plaintiffs challenge the injunction, arguing it is unsupported by the State Bar Rules of Professional Conduct barring ex parte communication with represented parties (Rules Prof. Conduct, rule 2-100),*fn2 is inconsistent with the policies underlying the False Claims Act, and infringes on their First Amendment rights of free speech. We vacate the injunction.

I. BACKGROUND

We described the background of this case in our opinion in a prior appeal: "Plaintiffs [William] Padilla and [Manuel] Contreras are former Laidlaw employees. Plaintiff Environmental Law Foundation is a California nonprofit organization 'dedicated to the preservation and enhancement of human health and the environment.' In May 2007, plaintiffs filed a complaint against Laidlaw alleging violations of the [False Claims Act]. As required by the [False Claims Act], the complaint was filed in camera and under seal to allow [SFUSD] to investigate and potentially intervene in the action. (See § 12652, subd. (c).) On January 28, 2008, [SFUSD] filed a notice that it was declining to intervene, and the trial court lifted the seal.

"In July 2008, plaintiffs filed their second amended and operative complaint (Complaint), seeking damages and civil penalties on behalf of [SFUSD] for false claims, records, and statements presented by Laidlaw in violation of the [False Claims Act]. (§ 12651, subds. (a)(1), (2) & (7).) Plaintiffs also sought for themselves an award of a portion of the damages and penalties, as well as payment of their attorney fees, expenses, and costs of suit.

"According to the Complaint, Laidlaw has for a number of years provided bus transportation services under a series of contracts with [SFUSD]. The Complaint describes certain requirements imposed on Laidlaw in the contract effective between August 16, 2005, and August 15, 2010 (Contract). Those requirements include provisions that Laidlaw: (1) provide school buses meeting state and federal standards relating to pupil transportation; (2) maintain its buses in ' "excellent mechanical condition and appearance" ' and replace all vehicles ' "which are deemed to be unfit for providing the required service" '; (3) maintain an extra 10 percent of each type of bus as a spare fleet; (4) provide buses meeting or exceeding specified state and federal safety standards; (5) provide buses meeting a specified particulate matter emissions standard or equipped with a specified emission control device and diesel buses with a ' "closed crankcase emission control system" '; (6) not authorize ' "overnight park-out" ' of any buses without prior authorization; and (7) employ a ' "Fleet Maintenance Supervisor" ' to ' "establish and maintain a complete and effective preventative maintenance program with complete and accurate records on each vehicle." ' Each of those provisions is a material term of the Contract. [SFUSD] agreed to provide payment on a monthly basis 'for services satisfactorily performed by [Laidlaw] after receipt of properly documented invoices.'

"The Complaint further alleges that 'Laidlaw has been in breach of one or more of these material terms throughout the term of the Contract and at the time Laidlaw has presented invoices, claims or demands for payment to [SFUSD].' The Complaint contains numerous specific allegations describing how the buses utilized by Laidlaw were in inadequate and/or unsafe operating condition and failed to meet the pollution control requirements in the Contract. . .

"The Complaint's first cause of action alleges that Laidlaw violated section 12651, subdivision (a)(1), by knowingly presenting false 'claims' to [SFUSD] for payment or approval. It asserts, '[w]hen Laidlaw submitted monthly invoices for payment, [it] impliedly certified that [it] had met each and every material term of the [C]ontract.' . . . "

(San Francisco Unified School Dist. ex rel. Contreras v. Laidlaw Transit, Inc. (2010) 182 Cal.App.4th 438, 442-444 (SFUSD), fn. omitted.)

In SFUSD, we reversed a trial court order sustaining a demurrer to the first cause of action and a subsequent dismissal. (SFUSD, supra, 182 Cal.App.4th at pp. 444, fn. 6, 458.) In this February 2010 opinion, we held that Laidlaw's submission of invoices to SFUSD impliedly certified that Laidlaw had complied with express and material contract terms. (Id. at p. 442.) The allegations that it submitted those invoices knowing it had not complied with those express and material contract terms, therefore, stated a cause of action for filing a false claim for payment in violation of section 12651, subdivision (a)(1). (SFUSD, at pp. 442, 458.) On remand, FSI answered the complaint as a successor in interest to Laidlaw.

A. First Application for Preliminary Injunction

On June 1, 2011, Alise M. Cappel (an Environmental Law Foundation (ELF) investigator who was testifying as ELF's person most qualified to testify on certain subjects) stated at her deposition that, in 2010 and 2011, she had interviewed certain then-current FSI employees about the False Claims Act matter. On the advice of counsel, who raised a work product privilege objection, she declined to identify those employees. ELF later responded to FSI discovery requests with a list of 67 FSI employees who might have knowledge relevant to the lawsuit.

In a letter to plaintiffs' counsel dated June 7, 2011, FSI's attorneys "demand[ed] that ELF, its employees and counsel, as well as counsel for the other qui tam plaintiffs, immediately cease and refrain from communicating with [FSI's] employees. Pursuant to Rule 2-100 . . . , [FSI's] employees may not be interviewed without the consent of counsel."

On July 19, 2011, FSI applied ex parte for a temporary restraining order and order to show cause regarding issuance of a preliminary injunction prohibiting ELF and its attorney from communicating with FSI employees outside the presence of FSI's attorneys or using any information it had obtained in such communications. The court issued the temporary restraining order, ordered briefing, and set a hearing for August 2.

Both sides submitted sworn declarations. In a July 14, 2011 declaration, drafted during a meeting with FSI's counsel, FSI mechanic Mahendra Lal described a meeting he had attended with plaintiffs and their counsel in March 2011. Lal averred that he had worked with Contreras at Laidlaw/FSI for years. In about March 2011, Contreras called Lal and asked him to meet with Jim Wheaton, an attorney who had handled an earlier Proposition 65 environmental case ELF had brought against Laidlaw. Lal met with Wheaton in a San Bruno restaurant in March 2011. Cappel, Padilla and Contreras were also present. Neither Wheaton nor Cappel asked Lal if he had a lawyer, if "it was ok to speak with" him, or if he held a management position with the company. They did not disclose that they were suing FSI, that FSI had counsel, that Lal could refuse to speak to them, or that Lal could consult an attorney or his union before speaking to them. Wheaton falsely told Lal the Proposition 65 case was still pending, and Contreras and Padilla were not seeking any money from the instant case. Wheaton asked Lal about "whether [FSI's] buses were 'smoking,' pollution warnings, [his] job duties, staffing levels in the shop, the company's computer systems, and whether the mechanics were working overtime." Wheaton also asked whether Lal had done anything wrong while working for Laidlaw or FSI. Lal felt uncomfortable and later concluded "they were trying to trick me into making statements against my own interests and to hurt my employer in their current case against it."

Contreras, in a July 24, 2011 declaration, averred that he remained on friendly terms with many current FSI employees and that the subject of work often came up in their conversations, including employees' complaints about the company. Contreras called Lal in early 2011 and they spoke about work. Because Lal "seemed to think the company could be doing a better job," Contreras asked if Lal wanted to talk to his lawyer and Lal said he did. Lal met with Wheaton, Cappel, Padilla and Conteras at a San Bruno restaurant. Just before the meeting started, Lal joked with Contreras that he should hide so no one from the company would see him.*fn3

Wheaton averred that either Contreras or Padilla invited him to meet with Lal in or about March 2011. They met at a San Bruno restaurant and Cappel, Contreras and Padilla were present. Wheaton asked Lal if he had an attorney, and Lal said he did not and he did not feel he needed one. Wheaton asked if Lal had spoken to management about getting permission to speak to him, and Lal said he did not and he would not because he feared retaliation. Wheaton asked Lal about his job duties to determine if he was a management employee and concluded that he was not. Wheaton told Lal that the False Claims Act provided some protection if Lal suffered retaliation for providing information and that Lal could contact him if he suffered any adverse action. Wheaton also told Lal the Proposition 65 lawsuit had settled but was still ongoing because Laidlaw had agreed to a multi-year remedial plan, and that ELF, Contreras and Padilla had brought the False Claims Act lawsuit against Laidlaw not "for personal gain like a personal injury case. Rather, their mutual goal was to change Laidlaw practices and policies to make sure that buses were clean and safe" and most of the money recovered would go to SFUSD. Wheaton then asked Lal about what he had observed regarding bus maintenance and repair at Laidlaw/FSI. He "never asked Mr. Lal whether he had done anything wrong himself. Such a question would be disruptive and destroy any trust with a witness who is not a client. I did ask him whether the company had ever asked him to do anything wrong, as we had heard allegations that mechanics had been ordered to falsify inspection reports, and falsify whether repairs on inspection reports had in fact been performed. I also asked him whether he knew whether any other mechanic had been told to or had falsified either inspection or repair records. His answer was succinct: if it happened you'll never be able to prove it because there won't be any record of it, nor any documents that contradict a falsified record."

Regarding Cappel's interviews with FSI employees other than Lal, Wheaton averred that he "instructed Ms. Cappel to start every conversation with an employee . . . with an inquiry into whether the individual had any managerial responsibilities or authority for company policies. If the answer was anything other than an unequivocal no the interview had to be terminated. [Otherwise], employees could be interviewed about what they saw, heard or were told to do, but not about anything they had done that could be wrong. This latter instruction was both to follow [rule 2-100] and also to prevent any possibility that an employee was--or felt they were--being asked to admit any personal wrongdoing." Cappel confirmed that Wheaton had instructed her not to ask employees whether they had personally done anything wrong.

Padilla and Cappel's declarations about the meeting with Lal were similar to Wheaton's. Both Contreras and Padilla, who each had known and worked with Lal for years, averred that Lal was forthcoming during the meeting and did not appear to be uncomfortable.

Contreras averred that, in mid-July 2011, Lal left him a phone message asking him to call. When they spoke, Lal said he had been pulled into a meeting at work with an FSI lawyer and asked to sign a paper, which he signed without reading. Sometime later, Lal called him again and "expressed his frustration that [Contreras] had placed him in 'the middle of this shit.' "

In a reply declaration filed August 2, 2011, Lal denied that he told Contreras he was forced to sign a declaration. Lal spoke to Contreras on the phone in July 2011 before his July 14 meeting with FSI's attorney and before he signed the declaration, and he said he was upset that Contreras had broken a promise to keep his meeting with plaintiffs' attorney private. Lal further averred that he had asked to meet with FSI's counsel, that the July 14 declaration was based on his statements, and that he had had time to read the declaration before he signed it. Lal wrote, "I just want Mr. Contreras and Mr. Padilla and their lawyers to leave me alone and stop contacting me. I told them my company has lawyers and I do not want to talk with them unless my company's lawyers are present." The FSI lawyer and paralegal who attended the July 14 meeting with Lal averred that they observed Lal read his July 14 declaration before he signed it.

FSI argued that ELF and its attorneys violated rule 2-100*fn4 by interviewing Lal, a current FSI mechanic whose "act[s] or omission[s] . . . in connection with the [lawsuit] . . . may be binding upon or imputed to the organization for purposes of civil . . . liability"; that they violated other ethical obligations because they used misrepresentations to entice Lal to speak with them (see Bus. & Prof. Code, § 6068); and that they improperly sought disclosure of trade secrets and attorney-client communications. On the rule 2-100 question, they cited Lal's statement that Wheaton specifically asked him if he had done anything wrong. However, even under Wheaton's account of the meeting, FSI argued, plaintiffs' counsel simply "cleverly phras[ed] questions that elicit[ed] the type of information Rule 2-100 is designed to protect, while appearing proper on the surface."

Plaintiffs denied that they or their attorneys had violated rule 2-100. "[T]he evidence confirms that none of the employees interviewed by ELF were asked about their own actions. Rather, they were asked about their observations as percipient witnesses. This is precisely the type of questioning that is permitted under Rule 2-100." They argued "the False Claims Act . . . clearly contemplates that a defendant's employees may provide information to Plaintiffs' counsel during the course of counsel's investigation." Plaintiffs also challenged the credibility of Lal's declarations in light of four contrary plaintiff-side declarations and evidence that Lal apparently feared employer retaliation, thus giving him a motive to inaccurately describe the meeting. Plaintiffs' counsel further argued injunctive relief was unnecessary because they had averred, and were willing to state again in writing, that they did not intend to interview any more FSI employees.

At the August 2, 2011 hearing, the court (Hon. Loretta M. Giorgi) made no specific credibility findings, but said, "While I understand it's important for plaintiffs to try to put together their case, . . . declarations I have been reading have raised real issues of concern of whether or not it has crossed a line. I don't think it has quite yet crossed it, but it has certainly gotten there in terms of communication with a represented party. [¶] . . . [M]y inclination . . . is to grant this in part and to . . . come up with some type of protocol that you guys need to follow in order to interview witnesses in the future that happen to be employees of the corporation." The court added, "both sides are behaving badly, quite honestly. . . . [¶] I'm not going to issue the preliminary injunction, but I'm going to hold [plaintiffs to their] representation to this court [that they would not contact any more FSI employees]. [¶] . . . [¶] . . . You've got to be careful when you're talking to their employees. . . . [I]n part, for the employee's sake. [¶] Everyone has now put this poor gentleman in a very difficult position. And whether or not he was actually lied to, we don't know, but he feels he has been put in a difficult position. . . . [¶] . . . [¶] . . . And I am also concerned that he feels pressured that he is going to lose his job if he doesn't file or sign declarations to that effect. So everyone needs to lay off this man at this point."

FSI's counsel expressed concern that Contreras or Padilla, whom he characterized as "instruments of counsel," telephoned Lal after the temporary restraining order was issued. The court said, "I don't want [the individual plaintiffs] contacting other employees and getting them involved at this point. . . . [T]his needs to be conducted between the lawyers. Discovery needs to be conducted per the rules of discovery." Plaintiffs' counsel noted that Contreras and Padilla knew many FSI employees and frequently encountered them, and the court clarified that they were free to talk to those employees about any subject other than the lawsuit. "And if the people they talk to bring it up . . . [¶] . . . [¶] . . . they should just say talk to the lawyers. [¶] . . . [¶] . . . [T]hey can't be out soliciting folks to give information or anything of that sort. They shouldn't have any discussion. That taints your witness."

An August 2, 2011 minute order stated, "Argued and the court rules as follows: motion for preliminary injunction is denied without prejudice. Attorneys are to conduct discovery pursuant to the discovery rules. Parties are to be instructed not ...


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