Can I threaten to expose False Claims Act fraud to get a settlement (or bigger settlement) on non-whistleblower claims, or would that be False Claims Act Extortion? A recent California appellate court decision shows how a pre-litigation threat to reveal FCA violations during early negotiations can be recast as Civil Extortion. In Stenehjem v. Sareen, 226 Cal. App. 4th 1405 (June 13, 2014), the Court of Appeal of California, Sixth Appellate District, held that an email which contained vague threats to report a former employer for violating the False Claims Act in connection with a Department of Defense contract –if the ex-employee’s demand to settle his potential claims of defamation and wrongful termination were not met– was an act of civil extortion as a matter of law. There, the ex-employee had repeatedly sought without success to obtain a large settlement payment via negotiations between his counsel and the former employer’s attorney. In apparent desperation after his own attorney resigned, the ex-employee wrote an email directly to the former employer’s lawyer trying to resolve his employment claims in a “gentlemanly” manner and noted that he did not want to involve the US Attorney General, US Department of Justice or DOD, or turn the matter into a “federal case.” The fired employee’s email also mentioned “false billing practices” and alluded to the term “Qui Tam” and the possibility of retaining a Qui Tam Attorney, but did not make any specific threats to go to the authorities or demand any specific amount of money in exchange for silence. Nevertheless, the appellate court found the email on its face to be an unprotected extortionate demand. In so ruling, the court denied the ex-employee’s motion under California’s anti-SLAPP statute to summarily dismiss the former employer’s civil extortion counterclaim, which had been filed in opposition to the ex-employee’s claim for defamation and wrongful termination.
Practical take away: A settlement demand to resolve an individual’s employment or other personal claims should never include any reference to possible Qui Tam, False Claims Act or other whistleblower matters. Additionally, the amount of any settlement demand should fairly reflect the actual damages for the individual’s claims and not be increased substantially to include any benefit to the employer for buying a “gag” provision in a settlement agreement.
