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EEOC Discrimination Form Facts Must Match Lawsuit Facts

In May 2015, Arno Patrick Kuigoua started working for the California Department of Veterans Affairs as a registered nurse at the Knight Veterans Home in Lancaster, California. His employment with the Department ended in October 2018. The Department fired him after determining he sexually harassed women and delivered substandard care that injured patients.

Kuigoua appealed his termination to the State Personnel Board, which, after a six-day hearing, rejected his appeal. The administrative law judge ruled Kuigoua’s dismissal was just and proper. Unsuccessful in altering this ruling were Kuigoua’s petition for rehearing, his petition for writ of mandate, his appeal of the writ denial, and his 2022 petition for review by the California Supreme Court.

Just before his State Personnel Board hearing, on April 2, 2019, Kuigoua filed an administrative charge of employment discrimination. He filed this charge concurrently with the California Department of Fair Employment and Housing and the federal Equal Employment Opportunity Commission.

Kuigoua’s Commission Form reported that, during three and a half months in 2018, someone discriminated against him on the basis of Kuigoua’s male gender. Kuigoua also suffered retaliation, apparently for reporting this discrimination. The retaliation took the form of denying him the opportunity to earn overtime pay. The Department failed to ameliorate these problems and finally discharged him altogether. Kuigoua said his direct antagonist was Julian Manalo.

An equal opportunity officer named Robert Hennig investigated these charges. Hennig found no evidence that Kuigoua had suffered discrimination because of his male gender and he was given a right-to-sue notice.

On March 5, 2020, Kuigoua sued the Veterans Department in state court on state statutory claims. This complaint asserted four causes of action and the factual allegations in this complaint cover about eight pages.

Kuigoua’s judicial complaint stated nothing about gender discrimination against males at the West Los Angeles facility. Now the site of the oppression was 60 miles north, in Lancaster. Neither was there mention of antagonist Manalo. The retaliation now was for complaining to Ancheta about harassment from Smith and Quintua: three people Kuigoua omitted from his Commission Form. The time frame was different: over the three-year interval from 2015 to 2018, rather than the three and a half months in 2018.

Defendant Veterans Department responded to Kuigoua’s lawsuit. The Department noted the lawsuit was about alleged events different from those Kuigoua alleged in his Commission Form. The Department moved for summary judgment on the basis Kuigoua had not exhausted his administrative remedies.

The trial court granted the Department’s motion. The court’s single-spaced eight-page statement of decision carefully applied the law to the disparity between Kuigoua’s factual allegations in his administrative and judicial complaints. Kuigoua appealed.

The Court of Appeal of the 2nd Appellate District affirmed the trial court in the published case of Kuigoua v. Dept. of Veteran Affairs -B323735 (April 2024).

The Court of Appeal said “Kuigoua loses this appeal because he changed horses in the middle of the stream. His agency complaint was one animal. On the far bank, however, his lawsuit emerged from the stream a different creature. Changing the facts denied the agency the opportunity to investigate the supposed wrongs Kuigoua made the focus of his judicial suit. The court rightly ruled Kuigoua failed to exhaust his administrative remedies. “

Employees like Kuigoua who wish to sue under the Fair Employment and Housing Act must exhaust the administrative remedy that statute provides. They do so by filing a complaint with the Department of Fair Employment and Housing. Filing this administrative complaint is a mandatory prerequisite to suing in court. (Guzman v. NBA Automotive, Inc. (2021) 68 Cal.App.5th 1109 at p. 1117; see Clark, supra, 162 Cal.App.5th at p. 308, fn. 21.)

Once the agency receives this complaint, it investigates the alleged unlawful practice and decides whether it can resolve the matter by conference, conciliation, and persuasion. If these measures fail, the agency may issue an accusation. If the agency decides against issuing an accusation, it issues a right-to-sue letter to the aggrieved person. (Guzman, supra, 68 Cal.App.5th at p. 1117.)

“Summary judgment is now recognized as a particularly suitable means to test the sufficiency of the plaintiff’s or defendant’s case.”

Private Equity Healthcare Bankruptcies are on the Rise

The mission of the Private Equity Stakeholder Project is to identify, engage, and connect stakeholders affected by private equity with the goal of engaging investors and empowering communities, working families, and others impacted by private equity investments. It’s vision is to bring transparency and accountability to the private equity industry and empower impacted communities.

According to a recent report by the Project 2023 was a record year for large healthcare bankruptcies, and healthcare companies owned by private equity firms accounted for some of the largest bankruptcies: KKR’s Envision Healthcare, American Securities’ Air Methods, and American Physician Partners, owned by Brown Brothers Harriman Capital Partners, all made major headlines.

The healthcare default and bankruptcy wave is projected to continue in 2024 as companies are increasingly facing credit rating downgrades and potential defaults – and most of the companies at the highest risk are owned by private equity firms.

Bankruptcies in healthcare are more than just legal or financial events – they can lead to closures, disruption or cessation of critical healthcare services, and layoffs. Such outcomes have ripple effects on the broader healthcare infrastructure, such as overburdening healthcare providers that need to fill the gaps left by closures. In addition, Medicare, Medicaid, and other government health programs make up a significant component of revenue for many healthcare companies, which means private equity-driven bankruptcies are not just threatening healthcare infrastructure, but in many cases publicly-funded healthcare infrastructure.

There were an estimated 80 healthcare bankruptcies in 2023, and PESP found that at least 17 of those companies were backed by private equity firms. That amounts to approximately 21% of all healthcare bankruptcies last year. There were also at least 12 bankruptcies by companies with venture capital backing, accounting for another 15% of the year’s total healthcare bankruptcies.

The number of private equity healthcare bankruptcies has increased substantially in recent years. In 2019, there were 8 private equity healthcare bankruptcies, marking a 112.5% increase over the last 5 years.

Some private equity firms are repeat offenders when it comes to healthcare bankruptcies and unmanageable debt. For example, private equity firm KKR owned two major healthcare companies that filed for bankruptcy in 2023: physician staffing giant Envision Healthcare and oncology provider GenesisCare. In addition, KKR owns three other companies that are distressed and carry heightened risk for default: Covenant Physician Partners, Global Medical Response, and One Call Corporation.

In another example, H.I.G. Capital’s weight management company Jenny Craig filed for bankruptcy in 2023, its mental health company Community Intervention Services filed for bankruptcy in 2021 after one of its subsidiaries paid a four-million-dollar settlement for alleged Medicaid fraud, and its correctional healthcare company Wellpath Holdings currently has “very high credit risk.”

Moody’s Investors Service rates companies based on their probability of default. Out of 45 healthcare companies with a probability of default rating of B3 negative and lower, which is considered speculative, as of November 2023, all but three were owned by private equity firms – 93% of the most distressed healthcare companies in North America.

Managing Personnel Not Outrageous Conduct to Avoid Work Comp Exclusivity

Ferrellgas’s business is the transportation and installation of propane gas, a hazardous material regulated by the United States Department of Transportation (DOT).

Tom Faley was hired by Ferrellgas as a driver in 2016. On March 11, 2018, Faley was promoted to one of the district manager positions and in this role was directly supervised by Denise Whisman. Whisman was the general manager of Ferrellgas’s service center in San Diego (where Faley worked), and oversaw the center’s operations and employees. Two district managers reported to Whisman.

In June 2018, e-mails between Faley and Whisman document Faley’s deficiencies (primarily with customer and employee communication) and their back and forth to provide Faley with adequate training for his new role and to manage the work effectively. In August 2018, Faley underwent his first performance review as district manager with Whisman. Whisman reported that Faley was deficient in two areas, customer retention and business growth, and was meeting expectations in three others.

Performance problems continued and were well documented between Faley and Wishman for the next year. Ultimately in July 2029 . Whisman told Faley he was being terminated for performance reasons. Faley asked if he could stay on as a driver or technician, since the problems were related to his management. Whisman said no, and shortly after Faley was escorted from the premises.

Faley brought suit against Ferrellgas for retaliation under the Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.), failure to prevent retaliation under FEHA, retaliation under Labor Code section 1102.5, wrongful termination against public policy, and intentional and negligent infliction of emotional distress.

After discovery, Ferrellgas brought a successful motion for summary judgment against Faley. The trial court found that Faley failed to show that Ferrellgas’s “legitimate, documented non-retaliatory reasons” for terminating his employment were mere pretext and that no triable issue of fact was raised as to Faley’s claims for retaliation.

The trial court also found Faley’s claims for intentional and negligent infliction of emotional distress were not actionable because nothing in the record gave “rise to the sort of ‘outrageous, or ‘despicable’ conduct” necessary to support those causes of action and that they were barred by the exclusivity provisions of the Workers’ Compensation Act.

The Court of Appeal affirmed the dismissal of his case in the unpublished case of Faley v. Ferrellgas -D081184 (April 2024).

On appeal, Faley asserts the court erred because triable issues of fact remain as to whether Ferrellgas had a retaliatory motive for his termination. He also contends the court used the wrong legal standard for his retaliation claim under Labor Code section 1102.5, requiring reinstatement of that cause of action. Finally, with respect to his emotional distress claims, Faley asserts they are not barred by workers’ compensation exclusivity, and that triable issues of fact remain with respect to the claims.

The Court of Appeal rejected each of Faley’s arguments and affirm the judgment in favor of Ferrellgas, as it discussed its reasoning for each of the issues raised.

A cause of action for intentional infliction of emotional distress exists when there is ‘(1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff’s suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct.

A defendant’s conduct is “outrageous” when it is so extreme as to exceed all bounds of that usually tolerated in a civilized community. And the defendant’s conduct must be “intended to inflict injury or engaged in with the realization that injury will result.” (Hughes v. Pair (2009) 46 Cal.4th 1035, 1050-1051.)

Further,an essential element of an Intentional Infliction of Emotional Distress claim is a pleading of outrageous conduct beyond the bounds of human decency.

Managing personnel is not outrageous conduct beyond the bounds of human decency, but rather conduct essential to the welfare and prosperity of society. A simple pleading of personnel management activity is insufficient to support a claim of intentional infliction of emotional distress, even if improper motivation is alleged. If personnel management decisions are improperly motivated, the remedy is a suit against the employer for discrimination. (Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55, 80)

Omaha National Acquires California Work Comp Carrier

Omaha National Group Inc., offers AM Best A- (Excellent) rated workers’ compensation coverage through more than 2,500 agencies. Since its marketing launch in 2017, the company has grown to more than 250 employees and is approaching $200 million of in-force premium.

Omaha National announced that it has acquired Sutter Insurance Company, a California domiciled insurance carrier that has been renamed Omaha National Casualty Company. Omaha National also owns Omaha National Insurance Company, which is domiciled in Nebraska.

“The acquisition of a carrier licensed in California, which is our largest market, is a major step forward in operating as a national full-stack carrier,” CEO Reagan Pufall said.

“Since inception, our plan has been to combine strong growth with exceptional underwriting results and that’s what we’ve achieved. We’re approaching $200 million in-force premium while at the same time our loss ratio, including allocated loss adjustment expenses, has been below 60% every year we’ve been in operation.”

We are now licensed to issue policies in 37 states and continue to expand toward nationwide coverage,” Omaha National General Counsel Jim Hempel said. “We enjoy excellent relationships with our fronting partners but writing on our own paper immediately enhances our underwriting results and allows us to better serve our policyholders and broker partners.”

In another milestone, Omaha National is now implementing Oncore Underwriting, the company’s proprietary underwriting and policy management application.

“One of our core strategic principles is that we design and develop our own operational software entirely in-house,” said Bryan Connolly, Omaha National’s Chief Operating Officer.

When we implemented Oncore Claims in 2021 it generated remarkable improvements in our claims results, and we expect Oncore Underwriting to have a similarly profound impact. When Oncore CRM is implemented in 2025 all key functions within the company will be performed within a single proprietary application.”

Chiropractor Peyman Heidary to Serve 54 Years for $150M Comp Fraud

Former chiropractor Peyman Heidary owned and oversaw a network of medical clinics to generate fraudulent billings to workers’ compensation and insurance carriers.

As a non-attorney, he also allegedly controlled the day-to-day operations of various law firms, including California Injury Lawyers.He allegedly controlled or directed hiring and firing, legal decision making, and income flow to and from the law firm. Codefendants Cary Abramowitz, a lawyer, and Ana Solis allegedly assisted Heidary in these operations.

Heidary also allegedly formed and controlled several health clinics in Southern California. Each was staffed by front and back room support staff for scheduling and basic medical services .

Included were chiropractors operating as primary treating physicians, allegedly providing blanket, cookie-cutter services to each patient at Heidary’s direction and making as many medical specialist referrals as possible. Despite their qualifications, they also wrote medical legal reports using Heidary’s templates, the most expensive report in workers’ compensation.

Medical doctors, or specialists, allegedly provided blanket treatment and medlegals on Heidary’s orders. Billings were made in each provider’s name, and payments were made to their accounts. However, Heidary required fee-splitting and he was the only one allowed to withdraw funds. Heidary also had the doctors sell their accounts-receivables (AR) to him, which he then sold to third parties.

Under the alleged fraud scheme, injured workers appeared at the law firm, which would fill out boilerplate paperwork and, on Heidary’s order, direct the workers to one of his clinics to begin treatment. At the clinic, the workers underwent treatments, regardless of need, such as massage, chiropractic, acupuncture, psychiatric and other services. After the maximum number of visits, they were discharged regardless of medical status.

A Riverside County grand jury returned an indictment against Heidary and his codefendants Cary Abramowitz, Ana Solis, and Gladys Ross. The criminal defendants filed a demurrer, and later a motion to dismiss this indictment, challenging in part whether they had received notice of the charges and whether the indictment improperly aggregated multiple acts into single counts. The trial court denied both requests. Heidary appealed.

The Court of Appeal summarily denied the petition on August 8, 2017. On October 11, 2017, the California Supreme Court intervened directing the Court of Appeal to address these issues. After this ordered review, the trial court ruling was affirmed by the Court of Appeal in the published case of Heidary v Superior Court.

Heidary, is described in court records as a chiropractor and suspected architect of a “massive, fully integrated criminal enterprise” designed to commit workers’ compensation insurance fraud. According to the indictment, Heidary went by the aliases Brian Heidary, Number One and The Godfather. Heidary owned or ran numerous businesses, including law firms and health clinics, and relied on other people to disguise his involvement and create a complex and illegal ownership structure, according to court records.

The criminal activity dates back to at least 2009, according to investigators. Heidary was originally charged in July 2014, but an indictment filed in Riverside County Superior Court expands the case and named new co-conspirators.

Heidary was convicted by a Riverside County jury in January 2024 of 68 counts of insurance fraud, conspiracy, money laundering, and various other charges.

Although originally charged with $98 million in fraud, evidence presented at trial, including Heidary’s testimony, revealed that the actual damage was about $150 million. During the sentencing hearing on April 12, 2024, Judge Charles Koosed noted that Heidary possessed deep knowledge of the workers’ compensation system, stating, “’[Heidary] took advantage of that knowledge based on greed.”

On April 12, 2024, Heidary was sentenced to 54 years, eight months in state prison and ordered to pay more than $23 million in fines for his role in orchestrating a massive workers’ compensation fraud scheme totaling $150 million.

“The California workers’ compensation system is designed to help injured workers get back on their feet without ruining them financially,” said Riverside County District Attorney Mike Hestrin. “Sophisticated criminals like Mr. Heidary don’t just steal money, they take advantage of innocent patients. The sentence handed down today sends a strong message that these types of offenses will not be tolerated in Riverside County.”

Heidary used the sham law firm to recruit thousands of legitimately injured patients, referring them to his network of clinics to create unnecessary billing. One of the injured workers, Denise Rivera, slipped and fell while working as a certified nurse assistant for special needs children. Ms. Rivera testified that she was recruited into Heidary’s scheme, but never received any effective treatment.

“[Heidary’s employees] released me,” Rivera told jurors. “They told me – basically I was okay. My knee was okay.” When asked during the trial if her knee actually was OK, she simply responded, “No.”

SCOTUS Revisits Scope of Arbitration Exemption for Transportation Workers

In 2022 the United States Supreme Court issued its opinion in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022), a closely watched employment law case involving arbitration clauses in employment contracts. The opinion was a divergence from the Court’s tendency in recent years to favor arbitration. Instead of a company or industry wide exemption for mandatory arbitration, courts must instead use a fact-specific test focused on actual job duties of employees.

In the 2022 case, Latrice Saxon, was a ramp supervisor for Southwest Airlines at Chicago Midway International Airport. SCOTUS ruled that Saxon belongs to a “class of workers engaged in foreign or interstate commerce” to which the Federal Arbitration Act §1’s exemption applies. However, the Supreme Court rejected the contention that all airline workers are exempt from the FAA and instead used a fact-specific test focused on actual job duties.

California is home to over 1.5 million transportation workers. Of these workers, about 312,080 are truck drivers in a variety of industries, and many of these workers are directly related to the movement of goods, even if they do not directly work for a trucking company.  For these many California transportation workers, this week’s unanimous United States Supreme Court decision in the case of Bissonnette v. LePage Bakeries Park St., LLC, et al., clarified the scope of the exemption under the FAA will have a substantial impact on employment law litigation with many of these transportation workers. .

In this new case SCOTUS reversed the Court of Appeals for the Second Circuit and held that transportation workers do not need to work in the transportation industry to be exempt from the Federal Arbitration Act’s (FAA) arbitration requirements.

The employer in this case is Flowers Foods, Inc., is a multibillion-dollar producer and marketer of baked goods. that are distributed nationwide. It is the second-largest producer and marketer of packaged bakery foods in the United States It employs approximately 9300 workers. One of its flagship products is Wonder Bread,

Flowers also makes and markets other baked goods such as tortillas, bagels, Butterscotch Krimpets, and Jumbo Honey Buns in more than 40 bakeries located in 19 States. From there, these products are distributed across the country. Some of its subsidiaries use a direct-store-delivery” system in which franchisees buy the rights to distribute Flowers products in particular geographic territories. Those distributors purchase the baked goods from Flowers and then market, sell, and deliver them to retailers.

Neal Bissonnette and Tyler Wojnarowski were franchisees who owned the rights to distribute Flowers products in certain parts of Connecticut. Flowers baked the bread and buns and sent them to a warehouse in Waterbury. Bissonnette and Wojnarowski picked them up and distributed them to local shops. They allegedly spent at least forty hours a week delivering Flowers products in their territories. But their jobs extended beyond carrying the products from Point A to Point B. They also found new retail outlets, advertised, set up promotional displays, and maintained their customers’ inventories by ordering baked goods from Flowers, stocking shelves, and replacing expired products.

To purchase the rights to their territories, Bissonnette and Wojnarowski signed Distributor Agreements with Flowers. Those contracts incorporate separate Arbitration Agreements that require “any claim, dispute, and/or controversy” to be arbitrated under the Federal Arbitration Act.

In 2019, Bissonnette and Wojnarowski brought a putative class action claiming that Flowers had underpaid them in violation of state and federal law. Flowers moved to dismiss or to compel arbitration under the FAA, arguing that the contracts required the distributors to arbitrate their claims individually. The District Court dismissed the case in favor of arbitration. The Second Circuit Court of Appeals affirmed on the aground that Bissonnette and Wojnarowski” are in the bakery industry” and not the transportation industry. And under Circuit law, the panel explained, §1 of the FAA exempts only ” ‘workers involved in the transportation industries.’ “

A month after the Second Circuit decided the appeal in Flowers, SCOTUS decided Southwest Airlines Co. v. Saxon, 596 U. S. 450 (2022). In that case, SCOTUS determined that a ramp supervisor who “frequently load[ed] and unload[ed] cargo” from airplanes belonged to a “class of workers engaged in foreign or interstate commerce.” Id., at 463. It held that a “class of workers” is properly defined based on what a worker does for an employer, “not what [the employer] does generally.” Id., at 456.

The Second Circuit granted panel rehearing in the Flowers case – in light of Saxon – but adhered to its prior decision.

In the present Flowers case, SCOTUS again was asked to consider the scope of the FAA §1 exclusion clause as it did in Saxon, where it expressly declined to adopt an “industry wide” approach of the sort Flowers advances here.

It concluded “A transportation worker need not work in the transportation industry to fall within the exemption from the FAA provided by §1 of the Act. The Second Circuit accordingly erred in compelling arbitration on the basis that petitioners work in the bakery industry.”

“In other words, any exempt worker ‘must at least play a direct and ‘necessary role in the free flow of goods’ across borders.- 596 U. S., at 458 (quoting Circuit City, 532 U. S., at 121). These requirements “undermine[] any attempt to give the provision a sweeping, open-ended construction,” instead limiting §1 to its appropriately “narrow” scope. Id., at 118. * *

“The judgment of the Second Circuit is vacated, and the case is remanded for further proceedings consistent with this opinion.”

April 8, 2024 – News Podcast


Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Failure to Comply With WCAB Rules Precludes Newly Discovered Evidence. Federal Judge Vacates New NLRB Joint Employer Rule. Arbitration Agreement Does Not Extend to Re-Employment Case. Emergency Ambulance Employees May Remain On-Call During Rest Breaks. Tesla-Freemont to Face Hostile Work Environment Claims in Multiple Forum. Bakersfield Sting Operation Cites 12 Unlicensed Contractors. More SoCal Poultry Processors Accused of Using Illegal Child Labor. DOL Issues New Rule on Employee Representation During OSHA Inspection. NSC Releases New Report on Safety Hazards in Crane Industry. WCIRB Reports on Impacts of Employee Tenure on Claim Frequency.

Solano County Contractor Pleads Guilty to $382K SCIF Premium fraud

Kent Bo Fridolfsson, 67, of Benicia, pleaded guilty to six charges of insurance fraud and grand theft after a joint investigation with the California Department of Insurance, Solano County District Attorney’s Office and the Employment Development Department (EDD) revealed he underreported payroll by nearly $1 million to illegally save on workers’ compensation insurance and taxes.

Fridolfsson was placed on formal probation, ordered to pay over $725,000 in restitution, and ordered to surrender his contractor’s license.

The joint investigation began after one of Fridolfsson’s employees sustained a work-related injury and contacted State Compensation Insurance Fund (State Fund), who provided insurance coverage to Fridolfsson’s business. Fridolfsson was the former president and owner of the construction company Diversified Specialists and had been a licensed contractor in California since 1986.

Fridolfsson had insurance coverage with State Fund from 2010 to 2021 and was required to report payroll during each policy period. From 2010 to 2019 Fridolfsson reported zero payroll to State Fund; however, in January 2019 one of his employees contacted State Fund after sustaining a work-related injury. After being contacted by State Fund, the Contractors State License Board conducted a site inspection of Fridolfsson’s business and interviewed a number of his employees.

The joint investigation found that Fridolfsson underreported his payroll by $989,823. The failure to report employee payroll resulted in the illegal reduction of workers’ compensation insurance premiums, leading to approximately $382,104 in premium owed to State Fund.

The underreported payroll also resulted in an unpaid payroll tax to Employment Development Department of approximately $347,520.

Fridolfsson was convicted on April 5, 2024. This case was prosecuted by the Solano County District Attorney’s Office.

Final Defendants Sentenced in $65 Million TRICARE Fraud

The final two members of a massive conspiracy to bilk TRICARE, the military’s healthcare program, out of more than $65 million have been sentenced in federal court.

Former U.S. Marine Joshua Morgan and former U.S. Navy Sailor Kyle Adams were sentenced to 21 months and 15 months, respectively, and ordered to pay millions in restitution and forfeit the fruits of their criminal activity.

Morgan and Adams have admitted that they recruited fellow servicemembers and their dependents to receive expensive prescription compounded drugs, while others in the conspiracy wrote bogus prescriptions and filled out duplicitous paperwork to process fraudulent insurance reimbursements, resulting in at least $65 million in losses to TRICARE.

Both the defendants were working for Jimmy and Ashley Collins, a married couple living in Birchwood, Tennessee, who quarterbacked the scheme. Jimmy Collins received a 10-year prison sentence; Ashley Collins was sentenced to 18 months in home confinement. To account for all the fraud, the couple was ordered to pay $65,679,512.71 in restitution to Defense Health Agency and TRICARE. Other patient recruiters, including Daniel Castro, Jeremy Syto and Bradley White were previously sentenced to custody.

According to plea agreements, the servicemembers that Morgan and Adams recruited agreed to receive the pricey compounded medications in return for a monthly kickback of approximately $300. For young Sailors and Marines-turned-straw-beneficiaries, this money was equivalent to a significant portion of their monthly paycheck. Morgan noted that “it took very little work to sign people up to receive free money.”

For recruiting bogus patients, defendants Morgan and Adams were paid an illegal kickback of between 3 and 7 percent of the total TRICARE reimbursement paid to the pharmacy for the drugs sent to their recruits. By the time this fraud scheme was in full swing, the average cost for these compounded drugs was over $13,000 for a 30-day supply, peaking at around $25,000 for individual drugs.

Over the course of the conspiracy, those illegal kickbacks amounted to at least $2,633,942.69 for Morgan, which, in recognition of his role as the top-level recruiter in this multi-level marketing scheme, was more than twice as much as the next nearest patient recruiter. Meanwhile, Adams earned more than $1 million for his efforts.

To fund these kickbacks, based on false pretenses and representations, TRICARE paid at least $11,490,654.00 in insurance reimbursements for compounded medications prescribed to straw beneficiaries directly recruited by defendant Adams. During the same period, TRICARE paid at least $4,418,709 for compounded medications prescribed to straw beneficiaries directly recruited by defendant Morgan, although that amount underrepresents the severity of his criminal conduct due to his role as a top-level recruiter responsible in part for the losses to TRICARE caused by various sub-recruiters.

The doctors, Carl Lindblad and Susan Vergot, and a nurse practitioner, Candace Craven, who wrote the fraudulent prescriptions and filled out other duplicitous paperwork, were previously sentenced.  The pharmacy that filled the fraudulent prescriptions, CFK, Inc., also previously pleaded guilty.

According to the pleadings, the sharp increase in the number of bogus prescriptions for compounded drugs was the result of multiple fraud schemes, including this one, that popped up around the country.  As a result, the TRICARE program faced a $2 billion explosion in liability for compounded prescription drugs.

During the course of the investigation, authorities seized numerous items and properties purchased by the Collinses and others with the proceeds of the fraud, including an 82-foot yacht; multiple luxury vehicles, including two Aston Martins; a multimillion-dollar investment annuity; gold and silver bars; cashier’s checks; dozens of pieces of farm equipment and tractor-trailers; and three pieces of Tennessee real estate.

“NCIS will not stand by as individuals shamelessly attempt to disrupt the lives of those who have and continue to serve our country, and steal from what they rightfully earned,” said Director Omar Lopez, Naval Criminal Investigative Service. “This case highlights NCIS’ investigative capabilities and our commitment to collaborate with our law enforcement partners in detecting and dismantling these criminal acts of fraud.”

“Today’s sentencing demonstrates the Defense Criminal Investigative Service’s (DCIS) unwavering commitment to hold accountable those individuals who commit TRICARE fraud and imperil our military healthcare system,” said Kelly Mayo, Director DCIS.  “The outstanding work of the investigative team ensured the perpetrators were held criminally accountable.  I want to thank the U.S. Attorney’s Office and the Naval Criminal Investigative Service for their continuing dedication to the pursuit of justice.”

Two Year Statute of Limitations Bars Workers Fraudulent Concealment Claim

NuSil Technologies manufactures silicone and resins. NuSil utilized hazardous chemicals in the production and manufacture of products at its facility in Bakersfield, California. NuSil posted material safety data sheets with information about dangerous chemicals used at the facility.

Kevin O’Bryan worked for NuSil from 2006 to May 2016 at its facility in Bakersfield. O’Bryan’s work duties necessitated exposure to hazardous chemicals. NuSil provided training to O’Bryan about the chemicals he worked with and the use of personal protective equipment. Those trainings did not address formaldehyde. None of the material safety data sheets provided by NuSil mentioned formaldehyde.

In 2009, O’Bryan expressed concern to his supervisor about being exposed to chemicals. Around 2011 or 2012, O’Bryan again expressed concern about exposure to chemicals and was issued a full-face respirator. In 2013, O’Bryan’s doctor diagnosed him with “problems” that caused O’Bryan to be concerned about his workplace exposure. Around 2013, O’Bryan complained to the manufacturing supervisor about swelling and numbness in his hands, as well as extreme fatigue.

At some time between 2013 and May 11, 2016, O’Bryan complained to the site manager, that he believed formaldehyde was being generated by the distillation column on process at the facility. O’Bryan assumed there was formaldehyde because the smell was like “at the mortuary.

On May 11, 2016, O’Bryan took a disability leave of absence from work due to health symptoms he attributed to chemical exposure in the workplace at NuSil.O’Bryan filed a workers’ compensation claim against NuSil on June 27, 2016, alleging a cumulative trauma injury through May 10, 2016, to his hands, head, joints, respiratory system, central nervous system, and circulatory system from “exposure to toxic chemicals.”

At some point, O’Bryan filed a complaint about NuSil to California’s Division of Occupational Safety and Health. In its report, OSHA cited NuSil based on its finding that employees worked with formaldehyde in manufacturing rooms at the facility. O’Bryan was unaware of the presence of formaldehyde at the facility prior to OSHA’s report and learned of the presence of formaldehyde in approximately “May[ or] June” of 2017.

On September 18, 2018, O’Bryan settled his workers’ compensation claim for $235,000 by compromise and release which “does not resolve (or affect) any civil action (or right) applicant (may bring forth against NuSil) regarding this claim.”

On January 17, 2019, the O’Bryans filed a complaint against NuSil alleging two causes of action: fraudulent concealment on behalf of O’Bryan and loss of consortium on behalf of Tiffany O’Bryan. NuSil raised several affirmative defenses in its answer including that the claims were barred by the statute of limitations.

The parties stipulated and the trial court agreed to bifurcate the issues and try NuSil’s statute of limitations defense in a bench trial before trying the remaining issues. On July 1, 2022, “[p]hase 1” of the bench trial was conducted on the sole issue of the statute of limitations.The O’Bryans’ counsel conceded during closing argument that the applicable statute of limitations for the fraudulent concealment claim is two years.

On July 27, 2022, the trial court entered judgment for NuSil against the O’Bryans on “all claims in Plaintiffs’ Complaint in its entirety.” The Court of Appeal affirmed the trial court in the unpublished case of O’Bryan v. NuSil Technology -F084899 (April 2024).

An employee injured during the course of employment is generally limited to remedies available under the Workers’ Compensation Act. Certain types of injurious employer conduct bring the employee outside the compensation bargain. One exception to the exclusive remedy rule was identified by our Supreme Court in Johns-Manville Products Corp. v. Superior Court (1980) 27 Cal.3d 465.

The fraudulent concealment exception outlined in Johns-Manville was codified in 1982 as Labor Code section 3602, subdivision (b)(2). This statutory subdivision allows a civil suit “[w]here the employee’s injury is aggravated by the employer’s fraudulent concealment of the existence of the injury and its connection with the employment, in which case the employer’s liability shall be limited to those damages proximately caused by the aggravation.” (Lab. Code, § 3602, subd. (b)(2).).

A fraudulent concealment claim under Labor Code section 3602, subdivision (b)(2) requires the employee show three conditions: “(1) the employer must have concealed ‘the existence of the injury’; (2) the employer must have concealed the connection between the injury and the employment; and (3) the injury must have been aggravated following the concealment.” (Jensen v. Amgen Inc. (2003) 105 Cal.App.4th 1322.)

The parties agree the statute of limitations for the O’Bryans’ fraudulent concealment claim is two years pursuant to Code of Civil Procedure section 335.1. The question of when a “cause of action accrued is a mixed question of law and fact.” The O’Bryans filed their initial complaint on January 17, 2019. Thus, the O’Bryans’ cause of action was time-barred if all the elements of their fraudulent concealment claim accrued prior to January 17, 2017, absent an applicable exception to the general rule of accrual.

Here, O’Bryan suspected NuSil’s alleged wrongful conduct had injured him well before filing his civil complaint. By at least May 11, 2016, O’Bryan knew his health had been damaged by toxic chemical exposure at NuSil and suspected this exposure included formaldehyde, a chemical that was purportedly not being produced at the facility. At multiple times before May 11, 2016, O’Bryan expressed concern that his health was at risk from chemical exposure during his employment at NuSil.

The Court of Appeal rejected the O’Bryans’ contentions they could not assert their cause of action until the May 30, 2017 OSHA report confirmed the presence of formaldehyde at NuSil’s facility. This argument misapprehends the necessary facts to assert a cause of action. “A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim; that is a process contemplated by pretrial discovery.”