California Stretches to Find Exception to the Litigation Privilege

The Litigation Privilege Is Limited in California

The so-called litigation privilege allows a person to be safe from tort litigation for statements made in court or for reporting a crime to authorities. It should be an unlimited privilege since it protects litigants and witnesses from suits for performing their public duty to testify or to report crimes.

In The People ex rel. Mahmoud Alzayat, v. Gerald Hebb et al., E066471, Court Of Appeal Of The State Of California Fourth Appellate District Division Two, (December 19, 2017) an employer and workers’ compensation provider accused Alzayat of making a false claim for workers’ compensation benefits. The employer claimed it was protected by the litigation privilege and the People and the Relator Alzayat claimed the privilege did not apply.

INTRODUCTION

Mahmoud Alzayat, on behalf of the People of the State of California, filed this qui tam action against his employer, Sunline Transit Agency, and his supervisor, Gerald Hebb, alleging a violation of the Insurance Frauds Prevention Act (IFPA or the Act). (California Ins. Code, § 1871 et seq.) Alzayat alleged Hebb made false statements in an incident report submitted in response to Alzayat’s claim for workers’ compensation, and Hebb repeated those false statements in a deposition taken during the investigation into Alzayat’s claim for compensation. Hebb’s false statements resulted in Alzayat’s claim being initially denied.

The superior court concluded the workers’ compensation exclusivity rule is inapplicable, but ruled the litigation privilege bars Alzayat’s claim. Therefore, the court granted the motions without leave to amend and entered judgment dismissing the lawsuit.

FACTS

Sunline Transit Agency (Sunline) is a public entity that provides regional transportation services and oversight of other transportation entities such as taxi companies. Alzayat was employed by Sunline as a stops and zones technician, and in that capacity he maintained bus stop infrastructure. Hebb was Alzayat’s supervisor.

On the day of the current injury, Alzayat was working on a bus stop and needed concrete mix to anchor some posts. The only available bags of concrete mix weighed 90 pounds. To avoid reinjuring his lumbar, Alzayat asked Hebb for permission to either break down a 90-pound bag into lighter ones or to have another employee help him lift the 90-pound bag. Hebb refused Alzayat’s requests, and the two argued for about two minutes. Hebb ultimately ordered Alzayat to lift the 90-pound bag by himself without breaking it down first. Alzayat complied and, immediately upon lifting the bag, Alzayat felt intense pain in his lumbar spine, and he partially collapsed. Alzayat dropped the bag and its contents spilled out. When Hebb asked Alzayat why he had dropped the bag, Alzayat complained he had injured his back when lifting the bag.

Hebb was deposed during the investigation into Alzayat’s workers’ compensation claim. Hebb testified under oath that he had no conversation with Alzayat about the request to either break down the bag of concrete mix or to obtain help in lifting the bag. Hebb also denied having witnessed Alzayat injure himself when he lifted and then dropped the bag. Alzayat alleged Hebb knowingly provided false testimony because Hebb was present and had witnessed Alzayat’s injury. In addition, Alzayat alleged Sunline adopted and ratified Hebb’s misrepresentations, and Hebb and Sunline knew or should have known that Hebb’s deposition testimony would be used in determining whether Alzayat’s workers’ compensation claim would be granted or denied.

Sunline’s risk management authority denied Alzayat’s workers’ compensation claim based on Hebb’s report and deposition testimony. Alzayat alleged Hebb’s misrepresentations were material in that a reasonable insurance carrier would consider them important when determining whether to accept or deny liability for Alzayat’s injuries.

DISCUSSION

Alzayat’s Qui Tam Claim Under the IFPA Is Not Barred by the Litigation Privilege.

Alzayat does not dispute that, in general, the litigation privilege bars tort liability for communications that are made in judicial and quasi-judicial proceedings such as a workers’ compensation proceeding. Rather, he argues the IFPA is an exception to the litigation privilege.

The IFPA.

The IFPA was in large measure designed to prevent workers’ compensation insurance fraud, and the Act includes a number of legislative findings and declarations that are relevant here. “[T]he actions of employers who fraudulently fail to secure the payment of workers’ compensation as required by Section 3700 of the Labor Code harm employees, cause unfair competition for honest employers, and increase costs to taxpayers.”

The IFPA’s civil penalties are intended to be remedial and not punitive and they are not the exclusive remedies available for insurance fraud. An action to recover civil penalties under the IFPA may be initiated by the district attorney or the insurance commissioner. In addition, any “interested person,” including an insurance company, may file such an action in the name of the People of the State of California.

Alzayat pleaded predicate offenses under Penal Code section 550, subdivision (b)(1) and/or (b)(2).

THE LITIGATION PRIVILEGE

The litigation privilege, codified at Civil Code section 47, subdivision (b), provides that a publication or broadcast made as part of a judicial proceeding is privileged. This privilege is absolute in nature, applying to all publications, irrespective of their maliciousness. The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that has some connection or logical relation to the action. The privilege ‘is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.

The principal purpose of Civil Code section 47, subdivision (b)] is to afford litigants and witnesses the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort action. The law places upon litigants the burden of exposing during trial the bias of witnesses and the falsity of evidence, thereby enhancing the finality of judgments and avoiding an unending roundelay of litigation, an evil far worse than an occasional unfair result.

Claims Under The IFPA For Insurance Fraud Are An Exception To The Litigation Privilege.

Insurance Code section 1871.7 is a more specific statute than the litigation privilege. The litigation privilege is implicated in all judicial and quasi-judicial proceedings, but the IFPA is limited to a small subset of those proceedings.

Application of the litigation privilege would thwart rather than promote the legislative purpose behind the IFPA. The court of appeal concluded that the application of the litigation privilege would render the IFPA significantly inoperable.  Alzayat’s claims under the IFPA are not barred by the litigation privilege, and the trial court erred by granting judgment for defendants based on the privilege.

The Workers’ Compensation Exclusivity Rule Does Not Apply to Alzayat’s Claims Under the IFPA.

With respect to the IFPA, the Act was intended to encompass fraudulent claims for workers’ compensation benefits and specifically provides for civil penalties for claims for compensation under Labor Code section 3207, which is part of the WCA. Lest there be any residual confusion over the authority to proceed.

By definition, a qui tam lawsuit vindicates an injury to the government, not an injury to the relator. A qui tam statute effectively assigns part of the government’s interest to a relator so that the relator has standing to assert an injury suffered by the government. A qui tam relator is essentially a self-appointed private attorney general, and his recovery is analogous to a lawyer’s contingent fee.

Because a qui tam relator does not sue based on his or her own injuries, we conclude an IFPA claim filed by an employee against an employer is not barred by the workers’ compensation exclusivity rule.

DISPOSITION

The court of appeal agreed with Alzayat that his lawsuit is not barred by the litigation privilege. The litigation privilege is broad, but it has its limits.  The IFPA is a more specific statute than the litigation privilege, and application of the litigation privilege to claims under the IFPA—which in many cases will be based on communications that are otherwise privileged under Civil Code section 47(b)—would in large measure nullify the Act.

This lawsuit is not barred by the workers’ compensation exclusivity rule. The Workers’ Compensation Act provides exclusive remedies for injuries to a worker arising out of his or her employment. Like any qui tam lawsuit, Alzayat’s claim under the IFPA is based on an injury suffered by the People, not based on any injury he himself suffered. Therefore, the exclusivity rule is inapplicable.

The appellate court concluded that the trial court erred by granting judgment on the pleadings for defendants.

ZALMA OPINION

The IFPA is designed to stop fraud and a qui tam suit should not be used as a means to avoid the exclusivity of workers’ compensation or punish those who accuse a worker of fraud. This case is limited. It found Alzayt sufficiently pleaded a case. It does not have anything to do with the facts nor is it a finding that the employer lied. The decision, in my opinion, went too far since the defendants should be protected from this type of litigation by testifying that a person was not entitled to workers’ compensation benefits. Alleging the employer lied gets past a motion to dismiss but is not proof that he lied.


© 2017 – Barry Zalma

This article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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