Author: WorkCompAcademy

In 2010, the City of Los Angeles contracted with PricewaterhouseCoopers to modernize the billing system for the City’s Department of Water and Power. The rollout of the new billing system did not go smoothly. When the system went live in 2013, it sent inaccurate or delayed bills to a significant portion of the City’s population.

In March 2015, following the botched rollout, the City filed suit against PwC. In a complaint filed by the City’s attorneys and special counsel Paul Paradis, Gina Tufaro, and Paul Kiesel, the City alleged that PwC had fraudulently misrepresented its qualifications to undertake the LADWP billing modernization project.

Then, about a month later, in April 2015, attorney Jack Landskroner, representing Los Angeles resident Antwon Jones, filed a putative class action against the City on behalf of overbilled LADWP customers (Jones v. City of Los Angeles). The two lawsuits were assigned to the same trial judge. (City of Los Angeles v. PricewaterhouseCoopers, LLC (2022) 84 Cal.App.5th 466, 477 (City of L.A.).)

Instead of filing an answer to the Jones v. City of Los Angeles complaint, the City quickly entered into negotiations with Landskroner. On August 7, 2015, the parties arrived at a preliminary settlement agreement, which provided that the City would reimburse 1.6 million LADWP customers the full amount by which they were overcharged.The City publicly announced its intent to recover the full cost of the Jones v. City of Los Angeles settlement in its lawsuit against PwC.

Meanwhile, over the next five years, pretrial discovery in the PwC case would gradually reveal a more substantial connection between the two lawsuits: Counsel for the City had been behind the Jones v. City of Los Angeles lawsuit, and they had sought to engineer the litigation so that the City could definitively settle all of the claims brought by overbilled customers while passing the costs of the settlement in a suit against PwC.

One of the discovery issues was the Cities assertion of attorney client privilege. At one point the City filed a petition for writ of mandate to appeal the court’s determination that the attorney-client privilege did not apply. But before the Court of Appeal could review the writ petition, the City voluntarily dismissed with prejudice its case against PwC. As a result of the dismissal, the City did not complete its production of documents responsive to PwC’s discovery requests.

After the dismissal, federal prosecutors announced that Paul Paradis, Thomas Peters, and two other City officials had pleaded guilty to criminal charges. Paradis and Peters admitted that the City had pursued a collusive litigation strategy wherein Paradis and Kiesel would represent both Jones and the City in parallel lawsuits against PwC.

Paradis, a disbarred New York City lawyer, who simultaneously represented the Los Angeles Department of Water and Power and a ratepayer suing the City of Los Angeles in the wake of an LADWP billing debacle, was sentenced to 33 months in federal prison for accepting a kickback of nearly $2.2 million for causing another lawyer to purportedly represent his ratepayer client in a collusive lawsuit against the city, which enabled the city to settle the case on favorable terms.

After years of stonewalling discovery efforts, the City eventually turned over information revealing serious misconduct in the initiation and prosecution of the lawsuit. The trial court found that the City had been engaging in an egregious pattern of discovery abuse as part of a campaign to cover up this misconduct. The court ordered the City to pay $2.5 million in discovery sanctions which the City appealed. .

This order worked its way to the California Supreme Court. The central question before the Supreme Court was whether the trial court had the authority to issue the order under the general provisions of the Civil Discovery Act concerning discovery sanctions, Code of Civil Procedure sections 2023.010 and 2023.030.

The Court of Appeal in this case answered no. Bucking the long-prevailing understanding of these provisions, the appellate court read the Civil Discovery Act as conferring authority to sanction the misuse of certain discovery methods, such as depositions or interrogatories, but as conferring no general authority to sanction other kinds of discovery misconduct, including the pattern of discovery abuse at issue here.

The Supreme Court reversed the Court of Appeal in the Case of City of Los Angeles v. Pricewaterhousecoopers, LLP -S277211 (August 2024).

Sections 2023.010 and 2023.030 were enacted as part of the Civil Discovery Act of 1986, a comprehensive revision of the statutes governing discovery in California courts.Before 1986, discovery in civil cases was governed by the Discovery Act of 1957, which had been “the California Legislature’s first attempt to codify a comprehensive system of discovery procedures in California.”

After decades of experience under the 1957 Act revealed gaps in the statute’s coverage, a Joint Commission on Discovery of the State Bar and Judicial Council began a top-to-bottom reexamination of California’s system of civil discovery. It then made recommendations that were ultimately enacted, with some amendments, as part of the 1986 Act.

“Before the Court of Appeal’s decision in this case, courts frequently cited sections 2023.010 and 2023.030 as sources of authority to impose sanctions for discovery misuse.” The Court of Appeal in this case acknowledged cases reflecting this prevailing understanding of sections 2023.010 and 2023.030. But as the court correctly noted, none of these cases carefully considered the language of the provisions in their broader statutory context. (City of L.A., supra, 84 Cal.App.5th 466.).

The Supreme Court concluded: “Under the general sanctions provisions of the Civil Discovery Act, Code of Civil Procedure sections 2023.010 and 2023.030, the trial court had the authority to impose monetary sanctions for the City’s pattern of discovery abuse. The court was not limited to imposing sanctions for each individual violation of the rules governing depositions or other methods of discovery.”

In response to the Federal Trade Commission’s promulgation of the Non-Compete Rule (16 C.F.R. § 910) on April 23, 2024, Ryan LLC initiated a lawsuit against the FTC on the same day in the United States District Court for the Northern District of Texas Dallas Division.

Ryan and the Plaintiff-Intervenors filed motions to stay and preliminary enjoin the FTC from enforcing the Rule. Because the Court concluded that there was a substantial likelihood that Plaintiffs would succeed on the merits – including the conclusions that (i) the FTC exceeded its statutory authority and (ii) the Rule is arbitrary and capricious – and that the Rule would cause irreparable harm, the Court preliminarily enjoined implementation and enforcement of the Rule as to the named Plaintiffs on July 3, 2024.

Both Plaintiffs and the FTC then moved for summary judgment. Ryan and Plaintiff-Intervenors’ Motions for Summary Judgment were granted on August 20, 2024. Additionally, for the reasons the Court granted Plaintiffs’ Motions for Summary Judgment, the Court denied the FTC’s Motion for Summary Judgment. The Non-Compete Rule, 16 C.F.R. § 910.1-.6, was set aside “and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter” in the closely watched case of Ryan LLC v Federal Trade Commission filed in the United States District Court for the Northern District of Texas Dallas Division – Civil Action No. 3:24-CV-00986-E.

This is a dispute over the FTC’s rulemaking authority concerning the enforceability of employer/employee non-compete agreements. These agreements are restrictive covenants that prohibit an employee from competing against the employer. Ryan, LLC was the first party to challenge the lawfulness of the Non-Compete Rule. A group of trade associations led by the United States Chamber of Commerce intervened in the case to challenge the Rule as well.

Regarding the prevalence of non-compete agreements, the Parties’ joint appendix provides: [T]he Commission finds that non-competes are in widespread use throughout the economy and pervasive across industries and demographic groups, albeit with some differences in the magnitude of the prevalence based on industries and demographics. The Commission estimates that approximately one in five American workers – or approximately 30 million workers – is subject to a non-compete.

In 2018, the FTC began to study non-competes through public hearings and workshops; invitations for public comment; and a review of academic studies.Three years later, the FTC initiated several investigations into the use of non-competes to determine whether they constitute unfair methods of competition. On January 19, 2023, the FTC proposed the Non-Compete Rule – which would “prohibit employers from entering into non-compete clauses with workers starting on the rule’s compliance date” and “require employers to rescind existing non-compete clauses no later than the rule’s compliance date.” On April 23, 2024, the FTC adopted the final Non-Compete Rule.

Plaintiffs assert the Commission’s claimed statutory authority in promulgating the Rule – Section 6(g) of the FTC Act – does not authorize substantive rulemaking. The question to be answered is not what the Commission thinks it should do but what Congress has said it can do.

“The judiciary remains the final authority with respect to questions of statutory construction and must reject administrative agency actions which exceed the agency’s statutory mandate or frustrate congressional intent.”

The Court concluded that “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition, under Section 6(g).”

Also a court must “hold unlawful and set aside agency action, findings and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).

“The record does not support the Rule. In enacting the Rule, the Commission relied on a handful of studies that examined the economic effects of various state policies toward non-competes. The record shows no state has enacted a non-compete rule as broad as the FTC’s Rule.” Second, “the record shows the FTC failed to sufficiently address alternatives to issuing the Rule.”

“In sum, the Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action. See 5 U.S.C. § 706(2).”

The court’s summary judgment order applies nationwide. Attorneys representing Ryan LLC said that the FTC may appeal the ruling to the Fifth Circuit. The FTC has not yet indicated whether or when it may appeal.

California Highway Patrol (CHP) investigators arrested a former CHP officer on suspicion of workers’ compensation insurance fraud and theft, pursuant to an arrest warrant issued by the Sacramento County District Attorney’s Office for the following charges:

– – 1871.4(a)1 IC – False statement to fraudulently obtain compensation
– – 550(b)(1) PC – Present false statement regarding insurance claim or benefit
– – 550(b)(3) PC – Conceal or fail to disclose event affecting benefits
– – 118(a) PC – Perjury
– – 20 VC – False statements to DMV or CHP

Jordan Lester, 44, was arrested without incident in Quincy and was booked into the Plumas County Jail in Plumas County. The arrest resulted from an extensive, multi-year investigation by the CHP’s Workers’ Compensation Fraud Investigations Unit based at CHP’s Headquarters in Sacramento.

Lester filed a workers’ compensation insurance claim on July 12, 2021, and was placed off work by his physician in January 2022. While off work, an anonymous tip was received by the CHP’s Workers’ Compensation Fraud Investigations Unit, and an investigation was initiated.

The investigation revealed Lester committed worker’s compensation fraud by engaging in activities, while on injury leave, inconsistent with limitations and restrictions given by his medical providers. During the investigation, CHP investigators also discovered that Lester committed perjury and made false statements to the Department of Motor Vehicles when he fraudulently misrepresented the purchase price of a vehicle he purchased.

Lester, a 16-year veteran of the Department, was assigned to the Quincy CHP Area.

The CHP wants to assure the public that it takes all allegations of employee misconduct very seriously. When allegations of misconduct by an employee are suspected, the Department takes swift and appropriate action to investigate the allegations. Additional questions regarding the criminal case should be directed to the Sacramento County District Attorney’s Office.

The CHP’s Workers’ Compensation Fraud Investigations Unit is a specialized team that investigates allegations of workers’ compensation fraud. Allegations of workers’ compensation fraud may be reported by calling a toll-free Fraud Reporting Hotline (1-866-779-9237) or at https://www.chp.ca.gov/notify-chp/workers-comp-fraud

Large, self-insured employers are beginning to face lawsuits from their workers over claims of mismanaging health and pharmaceutical benefits and violating their fiduciary duties under the Employee Retirement Income Security Act.

ERISA subjects anyone with discretionary authority over an employee- benefits plan to fiduciary duties derived from the law of trusts. ERISA’s “duty of prudence” requires fiduciaries to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).

In the most recent example, Wells Fargo was sued by employees in a July class action for allegedly paying inflated prices to its contracted pharmacy benefits manager, Express Scripts.

Plaintiffs Sergio Navarro, Theresa Gamage, Dayle Bulla, and Jane Kinsella, individually, on behalf of all others similarly situated, and on behalf of the Wells Fargo & Company Health Plan, filed a federal class action in the United States District Court for the District of Minnesota (case 24-cv-3043) under 29 U.S.C. § 1132 against Wells Fargo & Company, along with other defendants, for breaches of fiduciary duties and engaging in prohibited transactions under the Employee Retirement Income Security Act (“ERISA”),

This case involves alleged mismanagement of prescription-drug benefits. Over the past several years, Plaintiffs claim “Defendants breached their fiduciary duties and mismanaged Wells Fargo’s prescription-drug benefits program, costing their ERISA plan and their employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher out-of-pocket costs, and lower wages or limited wage growth.”

“Defendants’ mismanagement is evident from, among other things, the prices it agreed to pay one of its vendors – its Pharmacy Benefits Manager (“PBM”) – for many generic drugs that are widely available at drastically lower prices.”

“For example, someone with a 90-unit prescription for the generic drug fingolimod (the generic form of Gilenya, used to treat multiple sclerosis) could fill that prescription, without even using their insurance, at Wegmans for $648, ShopRite for $677.68, Rite Aid for $891.63, Walmart for $895.63, or from Cost Plus Drugs online pharmacy for $875.09.”

“Defendants, however, agreed to make the Plan and its participants/beneficiaries pay $9,994.37 for each 90-unit fingolimod prescription. The burden for that overpayment falls on both the Plan and its participants/beneficiaries.”

An in another class action example reported by the Minnesota Reformer, a worker at Mayo Clinic’s Arizona hospital filed a proposed class action lawsuit against the health system and insurer Medica in federal court last April , alleging they were saddled with enormous health care bills after their claims were “systemically underpaid.”

Mayo Clinic employees said they racked up more than $10,000 in health care costs a year while others said they avoided going to the doctor for fear of what it would cost, all while working for one of the world’s most prestigious health care organizations.

The lawsuit filed in the United States District Court for the District of Minnesota (:24-cv-01124-JMB-JFD) alleges Medica, which administers Mayo Clinic’s self-insured plan, uses “deceptive, misleading, arbitrary” pricing methods that leave plan members in the dark about health costs and allow for inconsistent reimbursement rates, in violation of federal law and Medica’s fiduciary responsibilities.

And in a third example, Lockton reports reports a class action lawsuit was filed in February against drug manufacturer Johnson & Johnson (J&J) in its capacity as an employer and plan sponsor.

The suit alleges that J&J breached its fiduciary duties by not taking proper measures to ensure its plan costs were reasonable as well as failing to exercise prudence in selecting its pharmacy benefit manager (PBM) and agreeing to undesirable contract terms. Specifically, the suit accuses J&J of mismanaging its employees’ drug benefits, resulting in employees significantly overpaying for certain drugs.

According to Fisher Phillips plaintiffs’ attorneys are turning their eyes to group health plan fiduciaries in light of the Consolidated Appropriations Act of 2021 (CAA-21), which has ushered in a new wave of ERISA excessive fee litigation.

The CAA-21 and the Transparency in Coverage (TiC) Rule comprise the most comprehensive health plan legislation and reforms since the Affordable Care Act. They place new obligations on group health plans and health insurance companies for plan fee disclosures and pricing transparency. Notably, these laws may contribute to new class action lawsuits against health plan fiduciaries.

Fisher Phillips points out the Johnson & Johnson case as an example of this emerging trend.