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Stein v. Tri-City Healthcare District

United States District Court, S.D. California

August 27, 2014

STEVEN D. STEIN, Plaintiff,
TRI-CITY HEALTHCARE DISTRICT, a California healthcare district; LARRY B. ANDERSON, an individual, Defendants.



Defendants Tri-City Healthcare District and Larry B. Anderson have moved for partial summary judgment. For the following reasons, Defendants' motions are DENIED.


Plaintiff Steven D. Stein ("Stein") is the former Senior Vice President of Legal Affairs and Chief Compliance Officer for Tri-City Healthcare District ("Tri-City"). He has sued his former employer and its Chief Executive Officer, Larry B. Anderson ("Anderson"), for violation of his civil rights; disability discrimination; retaliation; breach of contract; intentional infliction of emotional distress; harassment; false light; and blacklisting. The parties are familiar with the facts giving rise to this litigation and the Court need not detail them further at this time.


A motion for summary judgment will be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); accord Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48 (1986). The moving party bears the burden of proof and "must produce either evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos. , 210 F.3d 1099, 1102 (9th Cir. 2000) (citation omitted); see also Cleotex Corp. v. Catrett , 477 U.S. 317, 322 (1986) ("[T]he plain language of Rule 56(c) mandates the entry of summary judgment... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."). When ruling on a summary judgment motion, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986) (citation omitted).


Tri-City contends it is entitled to partial summary judgment because Plaintiff cannot establish essential elements of his federal and state retaliation claims. Tri-City also argues that Stein's case impermissibly relies on privileged and confidential information. Anderson argues that he is entitled to partial summary judgment because Plaintiff cannot establish essential elements of his claims for violation of his right to due process, intentional infliction of emotional distress, retaliation, and punitive damages. The Court will address each of these arguments in turn.

I. Stein's 31 U.S.C. § 3730 Retaliation Claim against Tri-City

Tri-City argues that Stein cannot establish that Tri-City had notice that Stein was engaged in protected activity under the FCA, and thus it could not have retaliated against him for taking such actions.

The FCA imposes liability on "any person who... knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval [to the United States government]." 31 U.S.C. § 3729. Additionally, the FCA's anti-retaliation provision states that "[a]ny employee... shall be entitled to all relief necessary to make that employee... whole, if that employee... is discharged... because of lawful acts done by the employee... in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter." 31 U.S.C. § 3730(h)(1).

The Ninth Circuit has held that "[a]n FCA retaliation claim requires proof of three elements: 1) the employee must have been engaging in conduct protected under the Act; 2) the employer must have known that the employee was engaging in such conduct; and 3) the employer must have discriminated against the employee because of her protected conduct." United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc. , 637 F.3d 1047, 1060 (9th Cir. 2011) (internal quotation marks and citation omitted).

Tri-City's argument is limited to the second element: notice. "The standard for notice... is flexible: the kind of knowledge the defendant must have mirrors the kind of activity in which the plaintiff must be engaged." United States ex rel. Williams v. Martin-Baker Aircraft Co. , 389 F.3d 1251, 1260 (D.C. Cir. 2004) (internal quotation marks and citation omitted). In this case, Plaintiff alleges he was undertaking efforts to prevent a violation of the FCA, thus he must show that Tri-City knew about his efforts.

However, many of the Circuit Courts of Appeal have held that when an employee's job duties include providing information or advice regarding compliance with regulations or laws, the bar for proving the employer knew about the employee's protected activities is higher than it would be for a conventional employee. This is because compliance employees are presumed to be acting in accordance with their job duties. To prove that their employer knew the employee was engaging in protected conduct, plaintiffs must show that they went beyond their normal job duties. See Maturi v. McLaughlin Research Corp. , 413 F.3d 166, 172-73 (1st Cir. 2005); Williams , 389 F.3d at 1260-61; Yuhasz v. Brush Wellman , 341 F.3d 559, 567 (6th Cir. 2003); Brandon v. Anesthesia & Pain Mgmt. Assocs. , 277 F.3d 936, 945 (7th Cir. 2002); Hutchins v. Wilentz, Goldman & Spitzer , 253 F.3d 176, 191-93 (3d Cir. 2001); Eberhardt v. Integrated Design & Constr., Inc. , 167 F.3d 861, 868-69 (4th Cir. 1999); United States ex rel. Ramseyer v. Century Healthcare Corp. , 90 F.3d 1514, 1522-23 (10th Cir. 1996); Robertson v. Bell Helicopter Textron, Inc. , 32 F.3d 948, 951-52 (5th Cir. 1994).

While the Ninth Circuit has not directly addressed this issue, the Court finds the reasoning of the other Courts of Appeal to be persuasive and adopts it. A compliance officer like Stein must prove that he went beyond his normal job duties to show that his employer knew he was engaging in protected activities. Williams , 389 F.3d at 1261 ("[W]hen an employee acts outside his normal job responsibilities or alerts a party outside the usual chain of command, such action may suffice to notify the employer that the employee is engaging in protected activity.").

Stein's employment agreement outlined his job duties:

(i) managing and directing the Medical Center's day-to-day legal and compliance program requirements with high level oversight over Medical Center's risk management program, provided that the day-to-day operations of the risk management program will be the direct responsibility of Medical Center' Risk Manager;
(ii) oversee the assignment of legal work to outside counsel;
(iii) to advise the Chief Executive Officer, the Board and responsible Board committees regarding legal and compliance issues; and
(iv) such other duties as may be agreed upon from time to time by Chief Executive Officer and Executive.

("Stein Decl." Exhibit A, Employment Agreement § 4.1).

The agreement further provided that Stein had "direct line reporting to the Chief Executive Officer and dotted line reporting to the Chair of the Board and Audit and/or Compliance Committee of the Board." (Id.). Plaintiff elaborated that he reported to the CEO on a "day-to-day" basis, but "also had an obligation to the audit committee and the board on compliance issues... when we had meetings." (Doc. 240-3, Declaration of Robert Mahlowitz ("Mahlowitz Decl.") Exhibit A, Deposition of Steven Stein ("Stein Depo.") 51:6-14).

As an attorney and Tri-City's Chief Compliance Officer, any legal advice Stein gave within the normal course of his duties was not sufficient to put Tri-City on notice that Stein was engaged in protected activity, even if he warned that particular actions violated the False Claims Act or other federal laws. See Robertson , 32 F.3d at 952 (finding no notice where "the record contains no evidence that [the plaintiff] expressed any concerns to his superiors other than those typically raised as part of a contract administrator's job" and "[the plaintiff's] actions were consistent with the performance of his duty."). But see Eberhardt , 167 F.3d 868-69 (employee tasked with internal investigation of fraud put employer on notice by characterizing conduct as illegal and recommending defendant obtain counsel). Stein's job duties included day-to-day reporting to Anderson on compliance issues. Accordingly, his reports to Anderson that particular actions would violate the FCA (Stein Decl. ¶¶ 6-8) did not put Defendants on notice that Stein was engaged in protected activity.

However, Plaintiff has also advanced evidence that he acted outside his normal duties and chain of command. For example, Stein reported his belief that several of the proposed transactions would lead to violations of the False Claims Act to not only Anderson, but also to Chief Operating Officer Casey Fatch, Jeff Segal, and outside counsel Mary Norvell. (Id.). Stein also raised his concerns again during the March 2, 2012 executive meeting, which included Anderson, Casey Fatch, Kathy Naylor, Sharon Shultz, Alex Yu, and Allison Borkenheim. (Id. at ¶ 11; Stein Depo. 290:8-15). Moreover, Stein also sought a meeting with Tri-city Board of Directors members Charlene Anderson and George Coulter to discuss potential FCA violations, but his request for a meeting was denied.[1] (Stein Decl. ¶ 9).

Based on the foregoing, a reasonable jury could find that Stein's multiple reports outside his usual chain-of-command went beyond his normal day-to-day duties and put Tri-City on notice that Stein was making efforts to prevent a violation of the FCA. Defendant has not carried its burden of showing that Plaintiff cannot prove that Tri-City knew about Stein's protected activity. Summary judgment on this basis is denied.

II. Stein's Cal. Labor Code § 1102.5 Retaliation Claim against Tri-City

Tri-City contends that it is entitled to partial summary judgment on Stein's California retaliation claims because (1) Plaintiff cannot establish that his allegedly protected conduct went beyond his job duties, (2) Plaintiff failed to disclose information to a government or law enforcement agency, and (3) Plaintiff failed to exhaust his administrative remedies.

1. Stein's activities and job duties

From January 1, 2004, to December 31, 2013, Cal. Labor Code § 1102.5 provided that"[a]n employer may not retaliate against an employee for disclosing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute...." However, the plaintiff must also show that their disclosure of information went beyond their normal job duties. See, e.g., Edgerly v. City of Oakland , 211 Cal.App.4th 1191, 1207 (2012); Lukov v. Schindler Elevator Corp., 2012 WL 5464622. at *6 (N.D. Cal. Nov. 8, 2012).[2]

Defendant contends that there is no evidence that Stein acted outside his job duties when he reported his concerns of potential illegality. However, for the same reasons discussed in the previous section, the Court rejects this argument. There is sufficient evidence on which a reasonable jury could conclude that Stein went outside his normal duties and chain of command when he reported his concerns to the Chief Operating Officer, outside counsel, and ...

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