Filed 12/19/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
THE PEOPLE ex rel. MAHMOUD E066471
ALZAYAT,
(Super.Ct.No. INC1204627)
Plaintiff and Appellant,
OPINION
v.
GERALD HEBB et al.,
Defendants and Appellants.
APPEAL from the Superior Court of Riverside County. David M. Chapman,
Judge. Reversed.
English Lloyd & Armenta and Juan M. Armenta for Plaintiff and Appellant.
Rutan & Tucker, Duke F. Wahlquist and Proud Usahacharoenporn for Defendants
and Appellants.
1
I
INTRODUCTION
Plaintiff 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). (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.
Defendants filed motions for judgment on the pleadings contending: (1) this
lawsuit is based on allegedly false and fraudulent statements Hebb made in connection
with a workers’ compensation proceeding and is, therefore, barred by the litigation
privilege under Civil Code1 section 47, subdivision (b) (hereafter § 47(b)); and
(2) Alzayat’s claim is barred by the workers’ compensation exclusivity rule. 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.
1 All additional unspecified statutory references are to the Civil Code.
2
Alzayat appeals from the judgment, contending the litigation privilege only
applies to tort claims and not to statutory claims such as an action under the IFPA, and
the IFPA is a specific statute that prevails over the general litigation privilege.
Defendants cross-appeal, arguing that, even if Alzayat’s lawsuit is not barred by
the litigation privilege, the superior court erred by not granting judgment on the pleadings
on the ground that Alzayat’s claim is barred by the workers’ compensation exclusivity
rule.
We agree with Alzayat that his lawsuit is not barred by the litigation privilege.
The litigation privilege is broad, but it has its limits. Like any statute, Civil Code
section 47(b) is subject to the rule of statutory construction that a particular provision
prevails over a general one. (Civ. Code, § 3534; Code Civ. Proc., § 1859; Action
Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1246 (Action
Apartment).) The courts have concluded the litigation privilege does not bar an action
filed under a more specific statute when application of the privilege would render the
specific provision “significantly or wholly inoperable.” (Action Apartment, at p. 1246.)
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. Therefore, we conclude the litigation privilege does not
bar Alzayat’s claim.
We also conclude this lawsuit is not barred by the workers’ compensation
exclusivity rule. The Workers’ Compensation Act (WCA; Lab. Code, § 3200 et seq.)
3
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 trial court erred by granting judgment on the pleadings for defendants, so we
reverse the judgment.
II.
FACTS AND PROCEDURAL BACKGROUND
In conformity with the standard of review of an order granting a motion for
judgment on the pleadings, we accept as true the facts pleaded in the complaint. (Truong
v. Orange County Sheriff’s Dept. (2005) 129 Cal.App.4th 1423, 1427.)
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.
Sometime before his current injury, Alzayat suffered a work-related lumbar injury
and was later released back to work. 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-
4
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.
Alzayat was still in pain the next day, so he filled out a workers’ compensation
claim form about the incident. Some time thereafter, Hebb filled out a standard Sunline
report for work injuries that is used in determining whether to accept or deny liability for
workers’ compensation claims. In the report, Hebb wrote he did not witness Alzayat’s
injury. Alzayat alleged this statement was false, because Hebb was an active participant
in the incident.
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
5
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.2
Alzayat filed this lawsuit alleging Hebb’s false statements in relation to Alzayat’s
claim for workers’ compensation benefits constituted violations of Penal Code
section 550, and formed predicate offenses for liability under the IFPA.3 Alzayat alleged
he is an “interested person” under the IFPA, and that he had direct and independent
knowledge of the information on which the lawsuit was based within the meaning of
2 The parties agree that Alzayat eventually received workers’ compensation
benefits for his back injury.
3 In their brief, defendants contend Alzayat pleaded a predicate violation of Penal
Code section 550, subdivision (b)(3), which provides: “It is unlawful to do, or to
knowingly assist or conspire with any person to . . . [¶] . . . [¶] [c]onceal, or knowingly
fail to disclose the occurrence of, an event that affects any person’s initial or continued
right or entitlement to any insurance benefit or payment, or the amount of any benefit or
payment to which the person is entitled.” Not so. The complaint pleaded more generally
that Hebb’s misrepresentations in the Sunline report and in his deposition testimony were
“in violation of Penal Code § 550, which is a predicate offense for an action under the
Insurance Frauds Prevention Act.”
Alzayat relied on Penal Code section 550, subdivision (b)(3), in his opening brief
in an earlier appeal and in an answer to defendants’ petition for review in that proceeding.
Based on the parties’ briefs in that earlier appeal, this court addressed Penal Code
section 550, subdivision (b)(3), in the context of the specific issue presented to us, viz,
whether a self-insurance risk pool constitutes insurance for purposes of the IFPA.
(People ex rel. Alzayat v. Hebb et al. (Dec. 17, 2015, E060593) [nonpub. opn.].) This
court had no occasion whatsoever to decide whether Alzayat could state a claim based on
a predicate violation of Penal Code section 550, subdivision (b)(3), or whether Alzayat’s
IFPA lawsuit is limited to that specific predicate offense. Defendants have not argued
Alzayat is judicially estopped from asserting other predicate offenses under Penal Code
section 550, and we decline to find estoppel on our own motion. (Lee v. West Kern
Water Dist. (2016) 5 Cal.App.5th 606, 630 [equitable defense of judicial estoppel is
subject to the forfeiture doctrine].)
6
Insurance Code section 1871.7, subdivision (h)(2)(B). On behalf of the People of the
State of California, Alzayat prayed for a civil penalty against Hebb and Sunline of no less
than $5,000 and no more than $10,000, an assessment of no more than three times the
amount of his workers’ compensation claim, attorney fees, and costs.
In their first motion for judgment on the pleadings, Hebb and Sunline argued self-
insured risk pools, like Sunline’s, are not considered insurance for purposes of the IFPA.
The superior court agreed, granted the motion without leave to amend, and entered
judgment for defendants. In an unpublished opinion, we concluded self-insured risk
pools are subject to the IFPA and reversed the judgment. (People ex rel. Alzayat v.
Hebb et al., supra, E060593.)
On remand, Hebb and Sunline again moved for judgment on the pleadings. In
their separate but identical motions, defendants argued Alzayat’s lawsuit was based on
communications Hebb made in the context of a workers’ compensation proceeding and,
therefore, the lawsuit is barred by the litigation privilege under section 47(b). Defendants
also argued Alzayat’s lawsuit seeks damages for injuries that he incurred in the
workplace and is, therefore, barred by the workers’ compensation exclusivity rule. In his
opposition to Sunline’s motion, Alzayat argued his lawsuit is not barred by the litigation
privilege. Relying on Action Apartment, supra, 41 Cal.4th 1232, Alzayat argued the
IFPA is a specific statute designed to combat workers’ compensation fraud, and
permitting the general litigation privilege to immunize communications the IFPA was
designed to penalize would frustrate the purposes of the Act. Alzayat also argued his
7
claim under the IFPA is not barred by the workers’ compensation exclusivity rule.
Alzayat did not file an opposition to Hebb’s motion.
In its tentative ruling, which became the final ruling, the superior court agreed
with defendants that Alzayat’s claim is barred by the litigation privilege. The court noted
the litigation privilege is absolute, applies to quasi-judicial proceedings such as workers’
compensation actions, and immunizes communications that have some logical relation to
the proceeding and are made to achieve the objects of the litigation. Although the court
acknowledged that the general litigation privilege must yield when immunity would
render a more specific statute to be significantly or wholly inoperable, the court
concluded application of the privilege in this case would not frustrate enforcement of the
IFPA. According to the court, Penal Code section 550, which lists the predicate offenses
for liability under the IFPA, “prohibits a wide array of conduct related to the false
submission of insurance claims, most of which could arise before litigation is ever
contemplated.” The court gave two examples: causing a vehicular accident for the
purpose of filing a false insurance claim, and misrepresenting an insured’s state of
domicile when obtaining motor vehicle insurance. Citing People ex rel. Monterrey
Mushrooms, Inc. v. Thompson (2006) 136 Cal.App.4th 24 (Thompson), the court
concluded the workers’ compensation exclusivity rule does not bar an action under the
IFPA, and rejected defendant’s alternative basis for judgment on the pleadings. The
court granted judgment on the pleadings for defendants without leave to amend and
entered a judgment dismissing the lawsuit.
8
Alzayat timely appealed from the judgment. Defendants filed a protective cross-
appeal from the order denying judgment on the pleadings based on the workers’
compensation exclusivity rule.
III.
DISCUSSION
A. Standards of Review.
“A motion for judgment on the pleadings presents the question of whether ‘the
plaintiff’s complaint state[s] facts sufficient to constitute a cause of action against the
defendant.’ [Citation.] The trial court generally considers only the allegations of the
complaint, but may also consider matters that are subject to judicial notice. [Citation.]
‘“Moreover, the allegations must be liberally construed with a view to attaining
substantial justice among the parties.” [Citation.] “Our primary task is to determine
whether the facts alleged provide the basis for a cause of action against defendants under
any theory.”’ [Citation.] ‘An appellate court independently reviews a trial court’s order
on such a motion.’ [Citation.]” (Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248,
272.)
Interpretation of Civil Code section 47, subdivision (b), and of the IFPA is a pure
question of law that we review de novo. (Goodman v. Lozano (2010) 47 Cal.4th 1327,
1332.) When the facts are not in dispute, the question of whether a cause of action is
barred by the workers’ compensation exclusivity rule is also a question of law we review
de novo. (Melendrez v. Ameron Internat. Corp. (2015) 240 Cal.App.4th 632, 639
(Melendrez).)
9
B. 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. We agree.
1. 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. “Workers’ compensation fraud harms employers by contributing
to the increasingly high cost of workers’ compensation insurance and self-insurance and
harms employees by undermining the perceived legitimacy of all workers’ compensation
claims.” (Ins. Code, § 1871, subd. (d).) Preventing workers’ compensation fraud “may
reduce the number of workers’ compensation claims and claim payments thereby
producing a commensurate reduction in workers’ compensation costs,” and “will assist in
restoring confidence and faith in the workers’ compensation system, and will facilitate
expedient and full compensation for employees injured at the workplace.” (Id.,
subd. (e).) In addition, “[t]he actions of employers who fraudulently underreport payroll
or fail to report payroll for all employees to their insurance company in order to pay a
lower workers’ compensation premium result in significant additional premium costs and
an unfair burden to honest employers and their employees.” (Id., subd. (f).) Finally,
“[t]he actions of employers who fraudulently fail to secure the payment of workers’
10
compensation as required by Section 3700 of the Labor Code harm employees, cause
unfair competition for honest employers, and increase costs to taxpayers.” (Id.,
subd. (g).)
Any person who makes a false claim for workers’ compensation benefits, or who
presents a false or fraudulent statement in support of or in opposition to such a claim, is
guilty of a felony wobbler. (Ins. Code, § 1871.4, subd. (b).) In addition, the IFPA
provides for civil liability for various forms of workers’ compensation insurance fraud.
“Every person who violates any provision of this section or Section 549, 550, or 551 of
the Penal Code shall be subject, in addition to any other penalties that may be prescribed
by law, to a civil penalty of not less than five thousand dollars ($5,000) nor more than ten
thousand dollars ($10,000), plus an assessment of not more than three times the amount
of each claim for compensation, as defined in Section 3207 of the Labor Code[4] or
pursuant to a contract of insurance. The court shall have the power to grant other
equitable relief, including temporary injunctive relief, as is necessary to prevent the
transfer, concealment, or dissipation of illegal proceeds, or to protect the public. The
penalty prescribed in this paragraph shall be assessed for each fraudulent claim presented
to an insurance company by a defendant and not for each violation.” (Ins. Code,
§ 1871.7, subd. (b), hereafter Ins. Code, § 1871.7(b).)
Insurance Code section 1871.7, subdivision (a), makes it unlawful to use runners
and cappers to procure clients or patients for the purpose of filing claims for insurance
4 Labor Code section 3207 defines the term “compensation” for purposes of the
WCA.
11
services or benefits. Penal Code section 549 makes it a crime to knowingly, or with
reckless disregard for the truth, solicit, accept, or refer a client who intends to file a
fraudulent claim for insurance benefits. Among other things, Penal Code section 550,
subdivisions (a) and (b), criminalize making false claims for compensation or benefits
and presenting or preparing false statements in support of or in opposition to a claim for
compensation or benefits. Relevant here, Penal Code section 550, subdivision (b)(1),
provides it is unlawful to “[p]resent or cause to be presented any written or oral statement
as part of, or in support of or opposition to, a claim for payment or other benefit pursuant
to an insurance policy, knowing that the statement contains any false or misleading
information concerning any material fact.” (Italics added.) Subdivision (b)(2) of the
same section makes it a crime to knowingly “[p]repare or make” a false or misleading
statement “to be presented to any insurer or any insurance claimant in connection with,
or in support of or opposition to, any claim or payment or other benefit pursuant to an
insurance policy.” (Italics added.) Assisting or conspiring with another person to present
or prepare such a false statement in support of or in opposition to a claim for
compensation or benefits is also a crime. (Pen. Code, § 550, subd. (b).) Finally, Penal
Code section 551 criminalizes paying consideration for the referral of clients to
automotive repair shops for repairs covered by automobile insurance.
The IFPA’s civil penalties are intended to be remedial and not punitive (Ins. Code,
§ 1871.7, subd. (c)), and they are not the exclusive remedies available for insurance fraud
(id., subd. (k)). An action to recover civil penalties under the IFPA may be initiated by the
district attorney or the insurance commissioner. (Ins. Code, § 1871.7, subd. (d).) In
12
addition, any “interested person,” including an insurance company, may file such an action
in the name of the People of the State of California. (Id., subd. (e)(1).) A lawsuit filed on
behalf of the state is called a qui tam action, and the interested person is called a relator.
(People ex rel. Strathmann v. Acacia Research Corp. (2012) 210 Cal.App.4th 487, 500
(Strathmann); People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534,
538 (Weitzman).) The relator’s complaint must be served on the district attorney and the
insurance commissioner, who have 60 days to decide whether to intervene and proceed
with the lawsuit. (Ins. Code, § 1871.7, subd. (e)(2).) If the district attorney and the
insurance commissioner both decline to take over the action (id., subd. (e)(4)(A)), the
relator may proceed with the action and recover a bounty of 40 to 50 percent of the
recovered proceeds, plus reasonable expenses and attorney fees (id., subds. (e)(4)(B),
(g)(2)(A); Strathmann, at p. 500).
Relying on State of California ex rel. Metz v. Farmers Group, Inc. (2007)
156 Cal.App.4th 1063 (Metz) and State of California ex rel. Nee v. Unumprovident Corp.
(2006) 140 Cal.App.4th 442 (Nee), defendants contend the IFPA is concerned primarily
with workers’ compensation fraud by employees, and that its limited application to
fraudulent statements made by employers or other persons in opposition to employee
claims has no bearing here. Although those decisions concluded the IFPA was drafted
primarily to address fraudulent claims for workers’ compensation benefits filed by
employees (Metz, at pp. 1068-1069; Nee, at pp. 448-449; accord, State ex rel. Metz v.
CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 413), they did not hold the
IFPA is only concerned with fraudulent claims. To the contrary, Insurance Code
13
section 1871, subdivisions (f) and (g), specifically address the Legislature’s concern
about employers who fraudulently fail to comply with their obligations under the WCA.
The Metz and Nee courts held that the defendants in those cases—insurance
companies and insurance company agents, affiliates, and exchanges—were not subject to
criminal liability under Penal Code section 550 and, therefore, were not proper defendants
under Insurance Code section 1871.7, subdivision (b). (Metz, supra, 156 Cal.App.4th at
pp. 1070-1071; Nee, supra, 140 Cal.App.4th at pp. 450-452.) Nee concluded “the class of
persons who violate [Penal Code sections 549, 550, or 551] are those who submit false or
fraudulent claims to insurers.” (Nee, at p. 450, fn. omitted.) By way of example, the court
said Penal Code section 550, subdivisions (a)(1) through (a)(9) and (b)(3) and (b)(4)
“specifically refer to the presentation of false or fraudulent claims for compensation or
benefits,” conduct the defendant insurer in that case was not alleged to have engaged in.
(Nee, at p. 450; see Metz, at p. 1069.) At least one appellate court has concluded Nee’s
limitation of Penal Code section 550 to the class of persons who file insurance claims is
unpersuasive dictum.5 (People v. Butler (2011) 195 Cal.App.4th 535, 540.) We need not
decide whether Nee correctly interpreted the scope of Penal Code section 550. As stated,
5 A number of courts have made statements regarding the elements for a violation
of Penal Code section 550 that, if taken out of context, might support the suggestion in
Nee that only persons who file claims for benefits are liable under that statute. (See, e.g.,
People ex rel. Government Employees Ins. Co. v. Cruz (2016) 244 Cal.App.4th 1184,
1193 [“The elements generally necessary to find a violation of Penal Code section 550
are (1) the defendant’s knowing presentation of a false claim, (2) with the intent to
defraud.”].) Those courts had no occasion to determine whether Penal Code section 550,
subdivision (b)(3), can be violated by anyone other than a person who submits a claim for
benefits under an insurance policy and, therefore, do not support the dictum in Nee.
14
ante, in footnote 2, we do not read Alzayat’s complaint as being limited to the predicate
offense of concealment in violation of Penal Code section 550, subdivision (b)(3). When
reviewing a judgment on the pleadings, it is our duty to determine whether the complaint
states a cause of action under any theory. (Jacks v. City of Santa Barbara, supra,
3 Cal.5th at p. 272.)
As defendants must concede, Nee concluded, albeit in dicta, that Penal Code
section 550, subdivision (b)(1) and (b)(2), “extend liability to persons other than those
who actually file the suspect claim” for workers’ compensation benefits. (Nee, supra,
140 Cal.App.4th at p. 450; see Metz, supra, 156 Cal.App.4th at p. 1070.) “These
provisions might apply, for example, to a doctor who submits false documentation in
support of an employee’s claim for benefits under a workers’ compensation policy, or an
employer who makes a false statement in opposition to such a claim, or to a person who
files a false statement in support of an insured’s claim under a disability policy, and
extends as well to anyone who knowingly assists or conspires to do any of these things.”
(Nee, at p. 450, italics added; see Metz, at p. 1070.)
We conclude the latter bit of dicta from Nee is well considered and persuasive.
(Cf. PGA West Residential Assn., Inc. v. Hulven Internat., Inc. (2017) 14 Cal.App.5th
156, 171.) A false report submitted by or prepared to be submitted by an employer in
response to a claim for workers’ compensation insurance benefits, fraudulently disputing
liability for the claimed injury, is a false oral or written statement “in support of or
opposition to” a claim for benefits within the meaning of Penal Code section 550,
subdivision (b)(1) and (b)(2). That is exactly what Alzayat alleged in his complaint.
15
Therefore, we conclude Alzayat pleaded predicate offenses under Penal Code
section 550, subdivision (b)(1) and/or (b)(2).
Finally, relying on State ex rel. Wilson v. Superior Court (2014) 227 Cal.App.4th
579 (Wilson), defendants argued for the first time at oral argument that civil penalties
under Insurance Code section 1871.7(b) are only available to remedy the filing of
fraudulent claims for compensation. Arguments made for the first time at oral argument
are generally waived. (Bonfigli v. Strachan (2011) 192 Cal.App.4th 1302, 1311, fn. 4.)
In any event, we do not agree with such a cabined reading of the statute.
Insurance Code section 1871.7(b) has three sentences. The first sentence provides
that a “civil penalty” of no less than $5,000 and no more than $10,000, plus an assessment
of no more than three times the amount of the underlying claim for compensation, “shall”
be imposed on “[e]very person who violates any provision of this section or Section 549,
550, or 551 of the Penal Code.” As noted, ante, sections 549 through 551 of the Penal
Code criminalize various forms of insurance fraud, including but not limited to the filing
of a fraudulent claim. The second sentence of Insurance Code section 1871.7(b) provides
that the superior court also has the power to grant equitable or injunctive relief as
necessary to protect the public from insurance fraud. Finally, the third sentence provides
that the “civil penalty” mentioned in the first sentence “shall be assessed for each
fraudulent claim presented to an insurance company by a defendant and not for each
violation.”
Defendants argue that, notwithstanding the incorporation of all predicate
violations of Penal Code sections 549 through 551 into the first sentence of Insurance
16
Code section 1871.7(b), the third sentence limits penalties to the sole predicate violation
of filing a fraudulent claim, and that the only available remedies for other predicate
violations is the equitable and injunctive relief mentioned in the second sentence. But
“[t]he meaning of a statute may not be determined from a single word or sentence; the
words must be construed in context, and provisions relating to the same subject matter
must be harmonized to the extent possible. [Citation.]” (Lungren v. Deukmejian (1988)
45 Cal.3d 727, 735; accord, Weitzman, supra, 107 Cal.App.4th at p. 544.) The most
reasonable reading of Insurance Code section 1871.7(b), which harmonizes all three
sentences, is that the “civil penalty” mentioned in the first sentence may only be assessed
once per underlying claim for compensation regardless of how many predicate violations
occurred, and the equitable and injunctive remedies mentioned in the second sentence are
supplementary to the civil penalty. In other words, rather than limiting the IFPA’s
statutory penalties to one type of predicate violation, the most reasonable reading of
Insurance Code section 1871.7(b) is that it limits the number of penalties that can be
imposed for insurance fraud violations related to a single claim.
If the Legislature had intended the IFPA’s civil penalties to be limited to
defendants who present false claims to insurance companies, as defendants contend, it
could have made the point more clearly by amending the first sentence of Insurance Code
section 1871.7(b) to only incorporate the predicate offense of filing a fraudulent claim in
violation of Penal Code section 550, subdivision (a). Other changes to the statute that
would more clearly express an intent to limit penalties to fraudulent claims would
include: (1) amending the second sentence of Insurance Code section 1871.7(b) to
17
expressly provide that equitable and injunctive relief is the sole remedy for insurance
fraud in violation of Penal Code sections 549, 550, subdivision (b), and 551, but is a
supplementary remedy for filing a fraudulent insurance claim in violation of Penal Code
section 550, subdivision (a); and (2) amending the third sentence to clearly state that the
civil penalties mentioned in the first sentence are only available to remedy the filing of a
fraudulent claim in violation of Penal Code section 550, subdivision (a). The Legislature
did neither of those things, and the structure of the paragraph as a whole simply does not
support the interpretation given to it by defendants.
Even if we were to agree with defendants that the third sentence of Insurance Code
section 1871.7(b) could be read to limit the civil penalties mentioned in the first sentence
to the filing of fraudulent claims, such a reading would render the statute ambiguous
because, as already noted, ante, on its face the first sentence more broadly provides for
civil penalties to remedy all forms of insurance fraud proscribed by Penal Code
sections 549 through 551. Normally, we only look no further than the plain language of a
statute when determining the Legislature’s intent. (Nolan v. City of Anaheim (2004)
33 Cal.4th 335, 340.) However, “[i]f we find the statutory language ambiguous or
subject to more than one interpretation, we may look to extrinsic aids, including
legislative history or purpose to inform our views. [Citation.]” (John v. Superior Court
(2016) 63 Cal.4th 91, 96.)
The available legislative history supports our reading of the statute. Since 1995,
the first sentence of Insurance Code section 1871.7(b) has incorporated Penal Code
sections 549 through 551 in toto. (Stats. 1995, ch. 574, § 2, p. 4427.) The third sentence
18
was added to section 1871.7(b) in 1999, when the Legislature adopted a number of
amendments to the IFPA. (Stats. 1999, ch. 885, § 2, p. 6345.) One of the main purposes
of those amendments was to change the distribution of penalties recovered in civil actions
filed by insurance companies, but taken over by the Attorney General, the district
attorney, or the Insurance Commissioner. (Assem. Com. on Insurance, Analysis of
Assem. Bill No. 1050 (1999-2000 Reg. Sess.) as amended Apr. 19, 1999, p. 1.)6
An early version of the bill to amend the IFPA would have added a new
subdivision (g)(1)(B) to Insurance Code section 1871.7, to provide that insurance company
relators would be entitled to “receive at least 75 percent but not more than 85 percent of the
proceeds of the action or settlement of the claim depending upon the extent to which the
insurer substantially contributed to the prosecution of the action.” (Assem. Bill No. 1050
(1999-2000 Reg. Sess.) § 2, p. 9, as amended Apr. 19, 1999, italics omitted.)7 Along the
same lines, the same version of the bill would have amended the first sentence of section
1871.7(b) to read: “Every person who violates any provision of this section or Section 549,
550, or 551 of the Penal Code shall be subject, in addition to any other penalties that may
be prescribed by law, to a civil penalty for each violation of not less than five thousand
dollars ($5,000) nor more than ten thousand dollars ($10,000), plus an assessment of not
6 Available at (as of Dec. 19, 2017). On our
own motion, we take judicial notice of the legislative history materials mentioned in this
opinion related to Assembly Bill No. 1050 (1999-2000 Reg. Sess.), which amended
Insurance Code section 1871.7. (Evid. Code, §§ 452, 459.)
7Available at (as of Dec. 19, 2017).
19
more than three times the amount of each claim for compensation, as defined in Section
3207 of the Labor Code or pursuant to a contract of insurance.” (Assem. Bill No. 1050
(1999-2000 Reg. Sess.), supra, § 2, pp. 4-5, as amended Apr. 19, 1999.) Note that the
proposed amendment to the first sentence spoke of civil penalties for “each violation,” and
not for “each fraudulent claim.”
Clearly such a proposed distribution of the civil penalty to insurance companies
was seen as too generous, because as Assembly Bill No. 1050 proceeded through further
amendments, the provision specifically addressing distribution of penalties to insurance
companies was eliminated entirely. In its place, the amended bill more modestly
increased the distribution of penalties to any person who initiated a civil lawsuit under
the IFPA that was taken over by the government. (Assem. Bill No. 1050 (1999-2000
Reg. Sess.) § 2, as amended May 19, 1999.)8 At the same time, the bill was amended to
eliminate a windfall to relators by limiting the civil penalty to one per claim, rather than
one per predicate violation. It was at this point that the third sentence of Insurance Code
section 1871.7(b), with its reference to “each fraudulent claim,” was introduced. (Assem.
Bill No. 1050 (1999-2000 Reg. Sess.), supra, § 2, p. 5, as amended May 19, 1999.) That
language remained unchanged in the final bill signed by the Governor (Stats. 1999, ch.
885, § 2, p. 6345), and it has not been amended since. (See Stats. 2010, ch. 400, § 26.)
Nothing in the legislative history to the 1999 amendments to Insurance Code
section 1871.7 suggests that the Legislature intended to limit the assessment of penalties
8Available at (as of Dec. 19, 2017).
20
to persons who fraudulently file insurance claims. To repeat, if that was its intent the
Legislature could have easily amended the first sentence of section 1871.7(b) to limit the
incorporation of predicate offenses. Because the addition of the third sentence to the
statute related specifically to the Legislature’s intent to adopt a proper distribution of the
penalties recovered, and not to any intent to limit the type of predicate violation that
would give rise to penalties in the first place, we decline to read section 1871.7(b) as
narrowly as defendants suggest. Therefore, we respectfully disagree with the court in
Wilson, which held the addition of the third sentence to section 1871.7(b), did limit
penalties to persons who file fraudulent claims with insurance companies. (Wilson,
supra, 227 Cal.App.4th at pp. 595-597.)
2. The litigation privilege.
Defendants contend that, even if Alzayat pleaded predicate offenses under Penal
Code section 550 for purposes of civil liability under the IFPA, those offenses were based
on communications that are absolutely privileged under Civil Code section 47(b).
“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.’ (Silberg v. Anderson (1990) 50 Cal.3d 205, 216 . . . .) ‘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.’ (Id. at p. 212.) The privilege ‘is not limited to statements made during a
21
trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.’
(Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1057 . . . .)” (Action Apartment, supra,
41 Cal.4th at p. 1241.)
“‘The principal purpose of [Civil Code] section [47, subdivision (b)] is to afford
litigants and witnesses [citation] the utmost freedom of access to the courts without fear
of being harassed subsequently by derivative tort actions.’ (Silberg v. Anderson (1990)
50 Cal.3d 205, 213 . . . .) Additionally, the privilege promotes effective judicial
proceedings by encouraging ‘“open channels of communication and the presentation of
evidence”’ without the external threat of liability (ibid.), and ‘by encouraging attorneys to
zealously protect their clients’ interests.’ (Id. at p. 214.) ‘Finally, in immunizing
participants from liability for torts arising from communications made during judicial
proceedings, 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.’ (Ibid.)” (Flatley v. Mauro (2006) 39 Cal.4th 299, 321-322.)
In the trial court and in their briefs on appeal, defendants argue this court’s
decision in Harris v. King (1998) 60 Cal.App.4th 1185 (Harris) is dispositive and
mandates dismissal of Alzayat’s suit. The plaintiff in Harris sued a physician alleging he
submitted false and defamatory medical reports to the State Compensation Insurance
Fund, which resulted in the temporary termination of the plaintiff’s disability and
rehabilitation benefits. (Id. at pp. 1186-1187.) The plaintiff alleged causes of action for
22
general negligence, fraud, and libel, and prayed for general and punitive damages. (Id. at
p. 1187.)
On appeal, this court concluded the trial court properly sustained a demurrer to the
complaint without leave to amend because the plaintiff’s claims were barred by the
litigation privilege. “[Section 47(b)] creates a privilege for the report prepared by King.
That section provides that ‘A privileged publication . . . is one made: [¶] . . . [¶] (b) In
any . . . (2) judicial proceeding . . . .’ That privilege is absolute [citation], and applies to
communications involving quasi-judicial proceedings, including workers’ compensation
proceedings. [Citation.] [¶] Harris alleged he was receiving workers’ compensation
benefits as the result of a work-related injury. In connection with that proceeding, King
communicated his report to the workers’ compensation insurance carrier. King’s
communication satisfies the requirements for application of the litigation privilege
because it was made in a quasi-judicial proceeding, by participants authorized by law to
achieve the objects of the litigation, and the communication had a logical relation to that
proceeding. [Citation.] The King report is therefore absolutely privileged and is not
actionable even if prepared and communicated maliciously and with knowledge of its
falsity. [Citation.]” (Harris, supra, 60 Cal.App.4th at pp. 1187-1188.)
At first blush, Harris would appear to support defendants’ contention that, because
Hebb’s alleged misrepresentations were made in the context of a workers’ compensation
insurance proceeding, Alzayat’s lawsuit is barred by the litigation privilege. Alzayat
argues, however, our decision in Harris does not compel dismissal of his IFPA claim
because: (1) the litigation privilege applies to common law tort causes of action and not
23
to claims under remedial statutory schemes, and (2) application of the general litigation
privilege is inappropriate when it will render a more specific statute to be wholly or
significantly inoperable. Alzayat’s first argument is dubious at best,9 but we need not
address it further because we conclude the IFPA is an exception to the privilege.
3. Exceptions to the litigation privilege.
As defendants point out, Alzayat cited no authority in his briefs for the proposition
that the litigation privilege does not apply when it is inconsistent with, and would render
ineffective, a more specific statute.10 In their brief, defendants contend they are unaware
of any controlling authority that supports Alzayat’s argument and raise the stakes by
boldly asserting “[t]here is not a single potential cause of action that could conceivably”
be exempt from the litigation privilege. Quite to the contrary, there is ample published
authority for the proposition that the general litigation privilege must yield when its
application will render a more specific law to be wholly or significantly inoperable.
In Begier v. Strom (1996) 46 Cal.App.4th 877 (Begier), while a couple were in the
midst of a marital dissolution action, the wife filed a police report falsely accusing her
9 The litigation privilege “has . . . been interpreted to preclude constitutional and
statutory causes of action. [Citation.]” (People v. Persolve, LLC (2013) 218 Cal.App.4th
1267, 1274 (Persolve).)
10 “Each brief must: [¶] . . . [¶] State each point under a separate heading or
subheading summarizing the point, and support each point by argument and, if possible, by
citation of authority.” (Cal. Rules of Court, rule 8.204(a)(1)(B).) Issues not supported by
citation to legal authority are subject to forfeiture. (Needelman v. DeWolf Realty Co., Inc.
(2015) 239 Cal.App.4th 750, 762.) Because the issue of whether the litigation privilege
preempts the IFPA is a pure question of law, and because Alzayat cited Action Apartment
(discussed post) in his opposition to Sunline’s motion in the trial court, we exercise our
discretion to address it despite Alzayat’s noncomplying brief.
24
husband of sexually abusing their young daughter and repeated the false accusation within
the dissolution proceeding. (Id. at p. 881.) The husband thereupon sued his former wife
for malicious prosecution and intentional infliction of emotional distress, and the wife
successfully demurred to the emotional distress claim contending it was based on
privileged communications and was, therefore, barred by section 47(b). (Begier, at
p. 881.) On appeal, the husband conceded the wife’s false accusations made in the context
of the dissolution proceeding were privileged, but he argued the false police report was
not privileged. (Id. at p. 882.) Without deciding whether false police reports are
absolutely privileged, the court held the litigation privilege was preempted in that case by
the Child Abuse and Neglect Reporting Act (CANRA; Pen. Code, § 11164 et seq.).
(Begier, at pp. 882-883.)
The purpose of CANRA is to protect children from abuse or neglect, and to that
end it requires certain classes of individuals (mandatory reporters) to report known or
suspected child abuse or neglect to a child protective agency. (Pen. Code, § 11166.)
Failure to report known or suspected child abuse or neglect by a mandatory reporter is a
misdemeanor. (Id., subd. (c).) Mandatory reporters are absolutely immune from criminal
or civil liability for making a false report of child abuse or neglect. (Pen. Code, § 11172,
subd. (a).) Nonmandatory reporters are entitled to qualified immunity for making a false
report unless it is proven the reporter knew the report was false or made the report with
reckless disregard for the truth or falsity of the report, in which case they are liable for
damages caused by the false report. (Ibid.)
25
Begier agreed with the husband that “the Legislature’s direction in Penal Code
section 11172 that a person who knowingly makes a false report of child abuse ‘is liable
for any damages caused’ creates a limited exception to the privilege.” (Begier, supra,
46 Cal.App.4th at p. 884.) The court “discern[ed] within [CANRA] a legislative effort to
balance, on the one hand, the public interest in ferreting out cases of child abuse so that
the child victims can be protected from harm and, on the other hand, the policy of
protecting the reputations of those who might be falsely accused. [Citation.] The
Legislature has struck that balance by withholding immunity from those who knowingly
make false reports of child abuse.” (Begier, at p. 885, fn. omitted.) Application of the
litigation privilege to knowingly made false reports of child sexual abuse, the court noted,
“would essentially nullify the Legislature’s determination that liability should attach.”
(Ibid.) Mindful of its duty “to read statutes with reference to the whole system of law and
to avoid rendering a statute meaningless and ineffective,” the Begier court held “that the
statutory privilege of Civil Code section 47, subdivision (b), does not immunize a party
who would otherwise be liable under Penal Code section 11172, subdivision (a).”
(Begier, at p. 885; see Siam v. Kizilbash (2005) 130 Cal.App.4th 1563, 1577 [reaffirming
the Begier holding that liability under CANRA for false reports of child sexual abuse
preempts litigation privilege].)
26
In Action Apartment, the plaintiff argued a tenant harassment ordinance enacted by
the City of Santa Monica, which established criminal and civil liability for maliciously
serving an eviction notice or filing an unlawful detainer action without a reasonable
factual or legal basis, was preempted by the litigation privilege. (Action Apartment,
supra, 41 Cal.4th at pp. 1239-1240.) Although our Supreme Court stated the litigation
privilege is broad, the court acknowledged the privilege “is not without limit[s]” and
cited claims for malicious prosecution, certain criminal prosecutions and regulatory
enforcement proceedings, as examples of actions that are exempt from the litigation
privilege. (Id. at pp. 1242, 1245-1246.) Those exceptions “involved suits brought under
state laws, each of which makes clear that the Legislature did not intend its enforcement
to be barred by the litigation privilege.” (Id. at p. 1245; see id. at p. 1247 [“the
Legislature remains free to create exceptions to the litigation privilege”].) “[R]ecognition
of these exceptions to the litigation privilege,” the court continued, “has been guided by
the ‘rule of statutory construction that particular provisions will prevail over general
provisions.’ [Citations.] [¶] Each of the above mentioned statutes is more specific than
the litigation privilege and would be significantly or wholly inoperable if its enforcement
were barred when in conflict with the privilege.” (Id. at p. 1246.) Because local
governments lack the authority to create their own exceptions to general state laws, the
court declined to find an exception to the litigation privilege for the city’s ordinance.
(Id. at p. 1247.)
27
The plaintiff in Komarova v. National Credit Acceptance, Inc. (2009)
175 Cal.App.4th 324 (Komarova) sued alleging the defendant engaged in harassing and
illegal debt collection practices in violation of the Rosenthal Fair Debt Collection
Practices Act (Rosenthal Act; § 1788 et seq.), when it tried to collect a debt the plaintiff
never incurred. (Komarova, at pp. 330-335.) On appeal, the defendant argued its
conduct in attempting to collect the debt was privileged under section 47(b). (Komarova,
at p. 337.) The Court of Appeal held “the privilege cannot be used to shield violations of
the [Rosenthal] Act.” (Ibid.)
Citing Action Apartment, supra, 41 Cal.4th 1232, Komarova stated our Supreme
Court had already recognized exceptions to the litigation privilege for “statutes that
(1) are ‘more specific’ than the privilege, and (2) would be ‘significantly or wholly
inoperable’ if the privilege applied.” (Komarova, supra, 175 Cal.App.4th at p. 339,
citing Action Apartment, at p. 1246.) The defendant argued, however, that the litigation
privilege was more specific than the Rosenthal Act “because the privilege ‘only applies
to communications related to litigation,’ while the [Rosenthal] Act ‘prohibits a broad
range of practices in the context of debt collection,’ ‘whether in litigation or not.’”
(Komarova, at p. 339.) The court was not persuaded. “[T]he privilege is implicated in all
judicial and quasi-judicial proceedings and the [Rosenthal] Act is implicated in only the
small subset of those proceedings that involve collection of consumer debts. We note
that the Legislature specifically prohibited certain litigation related activity when it
passed the Rosenthal Act in 1977, presumably aware of the extant broad litigation
privilege in section 47.” (Komarova, at pp. 339-340.)
28
The court recognized, however, that whether application of the litigation privilege
would render the Rosenthal Act significantly inoperable was “a closer question.”
(Komarova, supra, 175 Cal.App.4th at p. 340.) The defendant argued there was no need
to find an exception to the litigation privilege for Rosenthal Act claims because “‘[t]he
majority of debt collection attempts have nothing to do with litigation,’” “‘[o]nly a small
percentage of debts are ever litigated,’ [and] the [Rosenthal] Act ‘will still provide broad
protection to consumers from improper attempts to collect debts even if all litigation
related communications are excluded from [its] reach . . . .’” (Komarova, at p. 340.)
Assuming for purposes of its decision that a significant percentage of debts are not
litigated, the court nonetheless concluded application of the litigation privilege would
render the Rosenthal Act significantly inoperable. “We must . . . be mindful of the ease
with which the [Rosenthal] Act could be circumvented if the litigation privilege applied.
In that event, unfair debt collection practices could be immunized merely by filing suit on
the debt.” (Komarova, at p. 340.) After acknowledging its duty to interpret remedial
statutes broadly to effectuate their purpose, the court concluded the privilege would
render the Rosenthal Act significantly inoperable and held the plaintiff’s claims were not
barred.11 (Komarova, at p. 340.)
11 The lower federal courts have uniformly followed Komarova, supra,
175 Cal.App.4th 324 and rejected application of the litigation privilege to claims under
the Rosenthal Act. (E.g., Holmes v. Electronic Document Processing, Inc. (N.D. Cal.
2013) 966 F.Supp.2d 925, 935-937 [adopting Komarova holding that Rosenthal Act
claims are not barred by litigation privilege, and noting that since issuance of Komarova
“not ‘a single federal court has found Rosenthal Act claims to be barred by the litigation
privilege’”].)
29
Relying on the analysis in Komarova, 175 Cal.App.4th 324, the Court of Appeal
in Persolve held an action filed by the People under the unfair competition law (Bus. &
Prof. Code, § 17200), based on communications that allegedly violated specific
provisions of the Rosenthal Act and the Fair Debt Collection Practices Act (FDCPA;
15 U.S.C. § 1692 et seq.), was not barred by the litigation privilege. (Persolve, supra,
218 Cal.App.4th at pp. 1275-1277.) “Applying the privilege to unlawful practices based
on specific violations of the [Rosenthal Act] and the [FDCPA] would effectively render
the protections afforded by those acts meaningless. . . . Civil statutes for the protection of
the public should be interpreted broadly in favor of their protective purpose.
Accordingly, the People’s unfair competition law claims that are based on [the Rosenthal
Act] and/or the [FDCPA] are not barred by the litigation privilege.” (Persolve, at pp.
1276-1277, citing Komarova, at pp. 339-340.)
The question before the court in Banuelos v. LA Investment, LLC (2013)
219 Cal.App.4th 323 (Banuelos) was whether a claim for retaliatory eviction was barred
by the litigation privilege. A landlord who files an unlawful detainer action in retaliation
for the tenant lawfully organizing or participating in a tenant’s association, or in
retaliation for the tenant’s lawful and peaceable exercise of her rights under law, is liable
for damages. (§ 1942.5, subds. (c), (f); Banuelos, at p. 328.) The defendant argued “that
insofar as section 1942.5 purports to allow a tenant to sue a landlord for ‘bring[ing] an
action to recover possession[,]’ it is trumped by the ‘litigation privilege’ provision of
section 47, subdivision (b).” (Banuelos, at p. 330.)
30
The court concluded section 1942.5, subdivisions (c) and (f), satisfied “both
prongs” of the test under Action Apartment, supra, 41 Cal.4th 1232 for an exception to
the litigation privilege. (Banuelos, supra, 219 Cal.App.4th at p. 332.) “The statute’s
reference to a landlord’s liability ‘in a civil action’ for bringing ‘an action to recover
possession’ in retaliation for a tenant’s exercise of rights coupled with the provision
recognizing a good faith defense ‘at the trial or other hearing’ demonstrates that the
Legislature intended to create a cause of action for retaliatory eviction that is not barred
by the litigation privilege. If the litigation privilege trumped a suit for retaliatory
eviction under section 1942.5 the privilege would ‘“effectively immunize conduct that
the [statute] prohibits”’ (Komarova v. National Credit Acceptance, Inc., supra,
175 Cal.App.4th at p. 338) thereby encouraging, rather than suppressing, ‘“the mischief
at which it was directed. [Citation.]”’ (Barela v. Superior Court [(1981)] 30 Cal.3d
[244,] 251.)” (Banuelos, at p. 332.) In addition, the court noted “the right of tenants to
be free from eviction actions brought by their landlords because the tenants ‘lawfully
and peaceably exercised [their] rights under the law’ (§ 1942.5, subd. (c)) would be
‘significantly or wholly inoperable if its enforcement were barred [by the litigation
privilege].’” (Banuelos, at p. 332, quoting Action Apartment, at p. 1246.)
31
Therefore, the court held the Legislature intended that section 1942.5 not be nullified by
the litigation privilege.12 (Banuelos, at p. 335.)
More recently, a court found no exception for the litigation privilege where applying
the privilege would advance rather than frustrate the purpose of a more specific statute.
The plaintiff in McNair v. City and County of San Francisco (2016) 5 Cal.App.5th 1154
(McNair) had a commercial driver’s license and was employed as a bus driver. A
physician employed by the San Francisco Department of Public Health sent a letter to the
12 The Banuelos court declined to follow two decisions of the Court of Appeal
that concluded the litigation privilege barred retaliatory eviction claims under
section 1942.5. (Banuelos, supra, 219 Cal.App.4th at p. 333.) The plaintiff in Feldman
v. 1100 Park Lane Associates (2008) 160 Cal.App.4th 1467 (Feldman) alleged his
landlord filed an unlawful detainer action in violation of a city ordinance. Relying on
Action Apartment, the appellate court concluded the retaliatory eviction claim was barred
by the litigation privilege. (Feldman, at p. 1486.) As Banuelos noted, “the [Feldman]
court did not discuss the distinction between a tenant suing under a city ordinance, as in
Action Apartment, and a tenant suing under the authority of coequal state statute, nor did
it analyze section 1942.5 to determine whether it ‘makes clear’ that it is not barred by the
litigation privilege.” (Banuelos, at p. 333, citing Action Apartment, supra, 41 Cal.4th at
p. 1246.)
The court in Wallace v. McCubbin (2011) 196 Cal.App.4th 1169 (Wallace)
similarly held claims for retaliatory eviction under section 1942.5 were barred by the
litigation privilege. (Wallace, at p. 1213, disapproved on another ground in Baral v.
Schnitt (2016) 1 Cal.5th 376, 396, fn. 11.) “Like Feldman, the court [in Wallace] cited
but did not discuss or analyze Action Apartment and the litigation privilege[,] nor did it
distinguish between a city ordinance and a state statute when resolving the conflict
issue.” (Banuelos, supra, 219 Cal.App.4th at p. 333.)
Banuelos also rejected the defendant’s suggestion that the California Supreme
Court’s decisions in Ribas v. Clark (1985) 38 Cal.3d 355 and Rubin v. Green (1993)
4 Cal.4th 1187 mandated application of the litigation privilege. “[B]oth addressed
statutes that cover a broad spectrum of conduct, none of which specifically relates to
litigation. It was only because the facts that gave rise to the causes of action in those
cases happened to involve litigation activities that the privilege was implicated. Neither
statute ‘would be significantly or wholly inoperable if its enforcement were barred when
in conflict with the privilege.’” (Banuelos, supra, 219 Cal.App.4th at p. 335, quoting
Action Apartment, supra, 41 Cal.4th at p. 1246.)
32
Department of Motor Vehicles (DMV) expressing her concern that, due to the plaintiff’s
medical history and cognitive deficits, he posed a risk to public safety. In response, the
DMV revoked the plaintiff’s commercial driver’s license. (Id. at pp. 1157-1160.) In his
lawsuit, the plaintiff alleged a cause of action for breach of contract and tort claims based
on violation of the Confidentiality of Medical Information Act (CMIA; § 52 et seq.). The
defendants successfully argued in the trial court that the tort claims were barred by the
litigation privilege. (McNair, at pp. 1160-1161.)
The Court of Appeal easily concluded the plaintiff’s tort claims, based on the
physician’s letter to the DMV, were barred by the litigation privilege. (McNair, supra,
5 Cal.App.5th at pp. 1163-1164.) The plaintiff, however, relied on a number of the cases
discussed, ante, for the proposition that the general litigation privilege does not apply
when it conflicts with a more specific statute. “Under [that] line of cases, application of
the litigation privilege has been deemed inappropriate where the specific statute ‘would
be significantly or wholly inoperable if its enforcement were barred when in conflict with
the privilege.’” (Id. at p. 1164, citing Action Apartment, Komarova, Begier, & Siam v.
Kizilbash.) The McNair court rejected the assertion that application of the litigation
privilege “would eliminate safeguards governing disclosures of medical information that
the Legislature sought to protect in the CMIA and would therefore render the CMIA
‘significantly or wholly inoperable.’” (McNair, at p. 1165.)
“The CMIA ‘was originally enacted . . . “to provide for the confidentiality of
individually identifiable medical information, while permitting certain reasonable and
limited uses of that information.” [Citation.]’” (McNair, supra, 5 Cal.App.5th at p. 1165,
33
quoting Heller v. Norcal Mutual Ins. Co. (1994) 8 Cal.4th 30, 38.) Section 56.10,
subdivision (c)(14), part of the CMIA, is a “catchall provision,” which permits disclosure
of confidential medical information when specifically authorized by law. (McNair, at
p. 1165, quoting Shaddox v. Bertani (2003) 110 Cal.App.4th 1406, 1414 (Shaddox).)
“‘It legitimizes a myriad of situations the Legislature may not have cared to spell out, by
establishing the principle of permissive disclosure when specifically authorized by law.’”
(McNair, at p. 1165, quoting Shaddox, at p. 1414.) “[B]ecause California has a policy of
encouraging reports regarding suspected unsafe drivers,” the McNair court concluded the
catchall provision of section 56.10, subdivision (c)(14), “must be construed in a way that
will not impede voluntary reports of the type generated by [a doctor], ‘reports whose
importance is already recognized and immunized by [the official proceeding privilege
under] section 47, subdivision (b)(3).’” (McNair, at p. 1166, quoting Shaddox, at
p. 1418.)
“[A] voluntary disclosure of confidential medical information falls within the reach
of [section 56.10,] subdivision (c)(14) if a public policy exists encouraging such disclosure;
the disclosure involves issues of public safety; and it is a communication which would
otherwise be immunized by the litigation privilege. In this case, California clearly has a
policy of encouraging, and sometimes even mandating, reports regarding suspected unsafe
drivers. . . . The [DMV’s] proposed decision to revoke or suspend a person’s driver’s
license is subject to an evidentiary hearing and decision by an administrative officer or
body, as well as review by the courts. (Veh. Code, § 14100 et seq.)’ [Citation.] In
addition, [the doctor’s] letter clearly implicated issues of public safety, as she was
34
disclosing a problem that could impair [plaintiff’s] ability to perform the public safety
duties entrusted to him as a bus driver. Finally, this is a situation where the importance of
the report has already been recognized and immunized by the litigation privilege.”
(McNair, supra, 5 Cal.App.5th at pp. 1167-1168.) The court concluded the physician’s
disclosure was authorized by, and not in violation of, the CMIA and held that application
of the litigation privilege would not render the CMIA significantly or wholly inoperable.
(McNair, at p. 1168.)
4. Claims under the IFPA for insurance fraud are an exception
to the litigation privilege.
We conclude the litigation privilege does not bar Alzayat’s claim under the IFPA.
First, we have no difficulty concluding Insurance Code section 1871.7 is a more specific
statute than the litigation privilege.13 The litigation privilege “is implicated in all judicial
and quasi-judicial proceedings” (Komarova, supra, 175 Cal.App.4th at p. 339, italics
added), but the IFPA is limited to a “small subset of those proceedings” (Komarova, at
p. 339), viz, actions to recover civil penalties for fraud related to claims for insurance
benefits. (Ins. Code, § 1871.7, subd. (b).)
Nor do we have any doubt that application of the litigation privilege would thwart
rather than promote the legislative purpose behind the IFPA. Whereas in McNair
13 Defendants do not address whether the IFPA is a more specific statute than the
general litigation privilege, and instead focus their argument on whether application of
the privilege will render the IFPA “wholly inoperable.” We need not decide whether
applying the litigation privilege would completely render the IFPA inoperable because
we conclude, post, that the privilege would render it significantly inoperable. (Action
Apartment, supra, 41 Cal.4th at p. 1246.)
35
application of the litigation privilege supported the public policy of encouraging
unfettered disclosures of confidential medical information in the interest of public safety
(McNair, supra, 5 Cal.App.5th at pp. 1167-1168), applying the privilege to fraudulent
communications made in support of or in opposition to a claim for insurance benefits
would frustrate the remedial purpose of the IFPA. Civil statues enacted for the protection
of the public are to be construed broadly in favor of their protective purpose. (Pineda v.
Williams-Sonoma Stores, Inc. (2011) 51 Cal.4th 524, 530; People ex rel. Lungren v.
Superior Court (1996) 14 Cal.4th 294, 313.) The Legislature was “presumably aware of
the extant broad litigation privilege in section 47” (Komarova, supra, 175 Cal.App.4th at
p. 340) when it enacted the IFPA to provide civil liability for fraudulent communications
related to claims for insurance benefits, including liability for communications that are
otherwise at the core of the privilege. This strongly suggests the Legislature balanced the
public interest in preventing insurance fraud with the interest in encouraging free and
unfettered communications in litigation, and “struck that balance” in favor of preventing
insurance fraud. (Begier, supra, 46 Cal.App.4th at p. 885.) Applying the privilege here
would “encour[age] rather than suppress[]” (Banuelos, supra, 219 Cal.App.4th at p. 332)
the type of fraud the IFPA was designed to combat and would upset the legislative
balance enshrined in the Act.
Last, we conclude application of the litigation privilege would render the IFPA
significantly inoperable. In its ruling, the trial court cited two examples of automobile
insurance fraud that would not necessarily involve contemplated litigation and, therefore,
would not trigger the litigation privilege. We agree there may be various ways of violating
36
Penal Code section 550, and incurring liability under the IFPA, that do not involve actual
or contemplated litigation. But we need not conclude that the litigation privilege would
render the IFPA wholly inoperable before finding an exception to the privilege. A
significant amount of fraud governed by the IFPA will occur during or in contemplation of
litigation. Relevant here, false statements made by an employer, witness, or physician,
casting doubt on the validity of a legitimate claim for workers’ compensation benefits, are
made in the context of a quasi-judicial proceeding and absent an exception would be
subject to the litigation privilege. (Harris, supra, 60 Cal.App.4th at pp. 1187-1188.) It is
not difficult to imagine other types of insurance fraud that would potentially trigger the
protections of the litigation privilege. Applying the privilege to such acts of fraud, in a
remedial action under the IFPA, “would effectively render the protections afforded by [the
Act] meaningless.” (Persolve, supra, 218 Cal.App.4th at p. 1277.) Therefore, we conclude
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.
C. The Workers’ Compensation Exclusivity Rule Does Not Apply to Alzayat’s
Claims Under the IFPA.
In their cross-appeal, defendants argue the trial court should have granted
judgment on the pleadings on the alternative theory that Alzayat’s IFPA lawsuit is barred
by the workers’ compensation exclusivity rule. According to defendants, Thompson,
supra, 136 Cal.App.4th 24, on which the trial court relied when rejecting defendant’s
alterative theory, does not apply to an IFPA claim filed by an employee. We conclude
the trial court correctly rejected defendant’s alternative argument.
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The WCA “‘provides an employee’s exclusive remedy against his or her employer
for injuries arising out of and in the course of employment.’ [Citation.] The exclusive
remedy provision of the act provides, in part, that ‘“[w]here the conditions of
compensation set forth in Section 3600 concur, the right to recover compensation is . . .
the sole and exclusive remedy of the employee or his or her dependents against the
employer” (Lab. Code, § 3602, subd. (a)), and that “[i]n all cases where the conditions of
compensation set forth in Section 3600 do not concur, the liability of the employer shall
be the same as if this division had not been enacted” (Lab. Code, § 3602, subd. (c)). The
legal theory supporting this exclusive remedy provision “is a presumed ‘compensation
bargain,’ pursuant to which the employer assumes liability for industrial personal injury or
death without regard to fault in exchange for limitations on the amount of that liability.
The employee is afforded relatively swift and certain payment of benefits to cure or
relieve the effects of industrial injury without having to prove fault but, in exchange, gives
up the wider range of damages potentially available in tort.” [Citations.]’” (Melendrez,
supra, 240 Cal.App.4th at pp. 638-639.)
In Thompson, supra, 136 Cal.App.4th 24, a self-insured employer filed a relator
action alleging various physicians participated in a scheme to file false claims for
workers’ compensation benefits on behalf of the relator’s employees, in violation of the
IFPA. (Thompson, at p. 27.) On appeal from a judgment finding them liable, the
defendants argued the relator’s claims were barred by the workers’ compensation
exclusivity rule. (Thompson, at pp. 27-28.) The defendants argued the relator’s claim
was basically a complaint of overbilling, and that Labor Code section 3820 already
38
provided civil penalties for fraudulent practices. (Thompson, at p. 29.) The court was not
persuaded. “[I]n [Labor Code section 3820] the Legislature expressly acknowledged that
other penalties may exist, and it stated that the penalty set forth in subdivision (d) may be
imposed ‘in addition to any other penalties that may be prescribed by law.’ And in
subdivision (a) of Labor Code section 3820 the Legislature expressly recognized ‘that the
conduct prohibited by this section is, for the most part, already subject to criminal
penalties pursuant to other provisions of law.’” (Thompson, at pp. 28-29, fn. omitted.)
With respect to the IFPA, the court noted 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.” (Thompson, supra, 136 Cal.App.4th at p. 30.) “Lest there be any residual
confusion over the authority to proceed,” the court noted, “Insurance Code section
1871.7, subdivision (k), makes it clear that the remedies it provides are ‘in addition to any
other remedies provided by existing law.’” (Ibid.) “The express inclusion of workers’
compensation claims thus demonstrates the Legislature’s intention to allow civil actions
under Insurance Code section 1871.7 arising from fraudulent acts made unlawful by
Penal Code section 550, notwithstanding applicability of the WCA.” (Id. at p. 31.)
Defendants contend Thompson is limited to the facts in that case, and the holding
there has no application to an IFPA claim filed by an employee. We need not decide
whether Thompson is so limited. The workers’ compensation exclusivity rule only limits
liability “against an employer for any injury sustained by his or her employees arising out
of and in the course of the employment . . . .” (Lab. Code, § 3600, subd. (a), italics
39
added.) Because this lawsuit is based on an injury allegedly suffered by the People of the
State of California, and was not filed for the purpose of remedying an injury suffered by
Alzayat, the exclusivity rule simply does not apply.
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. [Citation.]” (Stalley ex rel. U.S. v. Catholic Health Initiatives (8th Cir.
2007) 509 F.3d 517, 521, second italics added.) “‘A qui tam relator is essentially a self-
appointed private attorney general, and his recovery is analogous to a lawyer’s contingent
fee. The relator has no personal stake in the damages sought—all of which, by definition,
were suffered by the government.’ [Citation.] A qui tam action ‘is a type of private
attorney general lawsuit’ [citation], in which ‘the qui tam plaintiff stands in the shoes of
the state or political subdivision’ [citation]. ‘[A]lthough qui tam actions allow individual
citizens to initiate enforcement against wrongdoers who cause injury to the public at
large, the Government remains the real party in interest in any such action.’ [Citation.]”
(Strathmann, supra, 210 Cal.App.4th at pp. 500-501.)
As a true qui tam provision, Insurance Code section 1871.7 does not mandate that
the relator has suffered his or her own injury. In addition to a lawsuit by the district
attorney or insurance commissioner, “[a]ny interested persons” may bring a lawsuit “for
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the person[14] and for the State of California,” alleging insurance fraud. (Ins. Code,
§ 1871.7, subd. (e)(1).) “The action shall be brought in the name of the state.” (Ibid.) The
superior court has jurisdiction over a relator action as long as the allegations or transactions
underlying the claim are not already the subject of a proceeding in which the People are a
party (Ins. Code, § 1871.7, subd. (h)(1)) and, if the lawsuit is based on allegations or
transactions that were previously disclosed in another proceeding or by the media, the
interested person is an “original source” of the information (id., subd. (h)(2)(A), (h)(2)(B)).
In his complaint, Alzayat did not allege that he was personally harmed by the
misrepresentations made by Hebb and adopted by Sunline.15 Instead, he alleged he is an
“interested person” and an “original source” acting on behalf of the People of the State of
California, and he prays for civil penalties to be paid to the People.
Taken to its logical conclusion, defendants’ position would mean that whenever
the district attorney or insurance commissioner takes over an IFPA lawsuit filed by an
employee who alleges workers’ compensation insurance fraud, those officials would also
be forced to pursue civil penalties before the Workers’ Compensation Appeals Board. In
addition, defendants’ argument would mean that a third party whistleblower who files a
14 The fact that an IFPA qui tam lawsuit is brought on behalf of the relator and
the People does not change our analysis. The successful relator is entitled to a percentage
of the penalties ultimately recovered on behalf of the People, as a bounty for bringing the
action, so by definition the lawsuit is brought on his or her behalf as well. It does not
follow that the lawsuit seeks to remedy a direct harm to the relator, such that the workers’
compensation exclusivity rule would require the relator to pursue penalties before the
Workers’ Compensation Appeals Board.
15
As noted, ante, in footnote 2, Alzayat concedes he was already fully
compensated for his back injury.
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qui tam lawsuit on behalf of the People, based on fraud in the grant or denial of workers’
compensation benefits, would similarly be required to pursue civil penalties before the
board. We are not convinced that the Legislature intended the workers’ compensation
exclusivity rule to work such mischief.
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.
IV.
DISPOSITION
The judgment is reversed. Mahmoud Alzayat shall recover his costs on appeal.
CERTIFIED FOR PUBLICATION
McKINSTER
Acting P. J.
We concur:
CODRINGTON
J.
SLOUGH
J.
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