Summary of The People ex rel. Mahmoud Alzayat v. Gerald Hebb et al.

On December 19, 2017, the California Court of Appeal filed its opinion in the case of The People ex rel. Mahmoud Alzayat v. Gerald Hebb et al. The court published its decision, meaning that it is now binding precedent and may be cited and relied upon by other courts and parties.

Summary of The People ex rel. Mahmoud Alzayat v. Gerald Hebb et al.

Plaintiff Mahmoud Alzayat, on behalf of the People of the State of California, filed a qui tam action against his employer, Sunline Transit Agency, and his supervisor, Gerald Hebb. Alzayat alleged defendants violated the Insurance Frauds Prevention Act (IFPA). (Ins. Code § 1871 et seq.)

Alzayat’s job was to maintain bus stop infrastructure. He had previously suffered an industrial injury to his lumbar spine and was released back to work. On the specific date at issue, Alzayat needed concrete to anchor posts at a bus stop. To avoid reinjuring his back, Alzayat asked Hebb for permission to break down a 90-pound bag of concrete into lighter bags or to have another employee help him lift the 90-pound bag. Hebb refused his requests and ordered Alzayat to lift the 90-pound bag. Alzayat immediately felt pain in his lumbar spine and partially collapsed as he dropped the bag. Hebb asked Alzayat why he had dropped the bag and Alzayat complained that he had injured his back.

The following day, Alzayat filled out a workers’ compensation claim form. Hebb also filled out a report that Sunline used in making compensability decisions. In his report and subsequent deposition, Hebb denied both his conversation with Alzayat and that he witnessed Alzayat injure himself. Sunline, in relying upon Hebb’s representations, denied Alzayat’s claim.

Alzayat alleged that his supervisor’s false statements in his report and later deposition constituted a violation of Penal Code section 550 and formed predicate offenses for liability under the IFPA. Alzayat argued that his supervisor’s statements were material because a reasonable insurance carrier would consider them in its determination of whether to accept or deny a claim. Defendants argued that Sunline, a self-insured company, is not considered “insurance” for purposes of the IFPA. The Superior Court agreed and entered judgment for the defendants. The Court of Appeal reversed and held that self-insured risk pools are subject to the IFPA.

On remand, defendants argued that Alzayat’s lawsuit was barred based on the litigation privilege as Hebb’s statements were made in the context of a workers’ compensation proceeding. In addition, defendants argued that Alzayat’s lawsuit was barred by the exclusivity rule. Alzayat argued that the purpose of the IFPA was to combat workers’ compensation fraud. Accordingly, Alzayat argued that to permit the litigation privilege to immunize communications would frustrate the purpose of the IFPA. Alzayat also argued that the exclusivity rule did not bar his action under the IFPA. The Superior Court again agreed with defendants and dismissed Alzayat’s lawsuit.

Alzayat again appealed. On appeal, the Court of Appeal reversed and found in favor of Alzayat and held that the IFPA is an exception to the litigation privilege. To hold otherwise would potentially render the IFPA inoperable. The court recognized that a large amount of fraud under the IFPA will occur during or in contemplation of litigation. The court also held that the exclusivity rule does not apply to claims under the IFPA. The court found that civil actions arising from fraud and made unlawful by the Penal Code are allowable, notwithstanding the exclusivity rule. Moreover, the exclusivity rule was found to not apply as this case was brought as a qui tam lawsuit.

What is a “qui tam” action?

“Qui tam” is a phrase most commonly associated with whistleblower actions. In a qui tam action, the government is the real party in interest. In a nutshell, the action allows a private citizen to initiate an enforcement action against wrongdoers who cause injury to the public at large.

Penal Code section 550 and the IFPA

The IFPA was enacted to prevent workers’ compensation fraud.

Penal Code section 550 criminalizes making false claims for compensation or benefits including statements in support of or in opposition to a claim for benefits. An employer’s false report submitted in opposition to a claim for workers’ compensation benefits falls within the scope of Penal Code section 550.

What This Means for You

This case creates a new avenue of litigation for workers’ compensation applicant attorneys and plaintiffs’ civil litigation attorneys to seek substantial civil remedies arising out of normal workers’ compensation claims. Because of the potential monetary recovery available it would not be surprising to now see the expansion of litigation against employers whose employees believe that they were defrauded by employers that deny the compensability of their claims.

Consequently it is paramount that employers, whether insured or self-insured, their investigators and their claims administrators be extremely careful to make sure that investigations of work related injury claims are conducted fairly and without bias against employees making the claim. Although it was not an element of the facts in the Alzayat case, to prevent employer-side fraud it is perhaps wise for employers to consider whether or not to offer incentives to their management for not having work related injury claims although safety measures should always be encouraged and enforced.

Please contact GMK if you have any questions or need any guidance with regard to this new case.

Arin Scapa, Esq.