United States: California Court Of Appeal Holds That Disclosure Of Confidential Information Protected By Anti-SLAPP Statute

A recent California Court of Appeal decision held that the receipt, retention and dissemination of confidential information by a whistleblower's attorney is protected by the state's anti-SLAPP statute. MMM Holdings, Inc. v. Reich, 21 Cal. App. 5th 167 (2018).

Factual Background

In 2010, Jose "Josh" Valdez was promoted to president of MSO of Puerto Rico, Inc. ("MSO"), a wholly-owned subsidiary of MMM Holdings, Inc. ("MMM"). MMM offers Medicare advantage health insurance plans in Puerto Rico and contracted with the U.S. Centers for Medicare and Medicaid Services, part of the U.S. Department of Health and Human Services.

MSO and MMM ("Plaintiffs") terminated Valdez's employment six months after he became president. Valdez contended he was terminated in retaliation for his vocal opposition to Plaintiffs' alleged fraudulent overbilling practices. Plaintiffs contended Valdez was terminated for incompetence and failure to perform his job duties.

Following the termination of his employment with Plaintiffs, Valdez kept his company-owned computer containing Plaintiffs' confidential electronic documents. Valdez gave those documents to his attorney, Marc Reich. MSO demanded the return of the computer pursuant to the terms of Valdez's employment agreement, but Reich refused, alleging that the agreement was unenforceable in light of the fact that the electronic documents on the computer spoke to MSO's intent to defraud the U.S. government. Reich filed a whistleblower, or qui tam, action, regarding Plaintiffs' alleged overbilling practices but later gave Plaintiffs' lawyers a copy of the electronic documents that he received from Valdez.

Plaintiffs Sue Valdez's Attorney

Plaintiffs learned facts that they believe indicated that Reich had improperly disseminated the confidential documents he received from Valdez to other attorneys in unrelated lawsuits without express direction from Valdez. Accordingly, Plaintiffs filed a complaint against Reich in the Superior Court of Orange County alleging causes of action for claim and delivery, conversion, civil theft (receipt of stolen property—violation of Pen. Code, § 496), restitution/unjust enrichment, and unfair competition (violation of Bus. & Prof. Code, § 17200 et seq.). All the causes of action revolved around Plaintiffs' basic contention that Reich wrongfully took possession of Plaintiffs' documents, wrongfully disclosed the documents to third parties, and wrongfully refused to return them.

Reich moved to strike Plaintiffs' Complaint under California's anti-SLAPP statute, arguing that the documents at issue spoke to a common issue: that Plaintiffs engaged in unscrupulous activity for having failed to pay its non-plan providers for services rendered to plan members and, thus, such communications with these other attorneys were protected under the California anti-SLAPP statute.

In dismissing the Complaint against Reich under California's anti-SLAPP statute, the court first considered whether the challenged claims arose "from acts in furtherance of the Defendant's right of free speech or of petition." Because Plaintiffs' claims against Reich stemmed from his use of the electronic documents from Valdez, Reich's use of the documents in the qui tam action were protected.

The remaining question was more complicated: whether Reich's dissemination of the confidential information to disinterested third-party attorneys was also protected activity. Again, the court sided with Reich because he shared those documents to prove up a common issue, namely, to expose Plaintiff's alleged practices of government fraud that impacted the lives of many members of the public in Puerto Rico.

Takeaways

This case strengthens the protections for attorneys under California law in similar factual circumstances who use or disclose certain confidential documents in whistleblower related actions.

The Court in MMM Holdings found that Reich (i.e., the whistleblower former employee's attorney) did not breach any purported contractual duty to Plaintiffs, his alleged activities were not unlawful, and he owed no legally recognizable duty to Plaintiffs.

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