Decision on Objections to Fraud and Criminal Activity of Whistleblowers by New Jersey Supreme Court

Decision on Objections to Fraud and Criminal Activity of Whistleblowers by New Jersey Supreme Court

In the recent case of Chiofalo v. State, Division of State Police, the Supreme Court of New Jersey issued an important employment law decision dealing with whistleblower retaliation.

 

The Conscientious Employee Protection Act — New Jersey’s “Whistleblower” Law

New Jersey’s Conscientious Employee Protection Act, known as “CEPA,” is one of the strongest whistleblower laws in the country.  The main part of the law, section 3, provides:

34:19-3 Retaliatory action prohibited.

3. An employer shall not take any retaliatory action against an employee because the employee does any of the following:

a. Discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer, or another employer, with whom there is a business relationship, that the employee reasonably believes:

(1) is in violation of a law, or a rule or regulation promulgated pursuant to law, including any violation involving deception of, or misrepresentation to, any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity, or, in the case of an employee who is a licensed or certified health care professional, reasonably believes constitutes improper quality of patient care; or

(2) is fraudulent or criminal, including any activity, policy or practice of deception or misrepresentation which the employee reasonably believes may defraud any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity;

b. Provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into any violation of law, or a rule or regulation promulgated pursuant to law by the employer, or another employer, with whom there is a business relationship, including any violation involving deception of, or misrepresentation to, any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity, or, in the case of an employee who is a licensed or certified health care professional, provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into the quality of patient care; or

c. Objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes:

(1) is in violation of a law, or a rule or regulation promulgated pursuant to law, including any violation involving deception of, or misrepresentation to, any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity, or, if the employee is a licensed or certified health care professional, constitutes improper quality of patient care;

(2) is fraudulent or criminal, including any activity, policy or practice of deception or misrepresentation which the employee reasonably believes may defraud any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity; or

(3) is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.

 

 

The Facts of the Chiofalo Case

Frank Chiofalo was a sergeant first class in the New Jersey State Police.  He was the Sergeant Major and Assistant Administrative Officer of Troop B Headquarters in Totowa, New Jersey.  One of his jobs was to collect and track reports and other paperwork.

Chiofalo filed suit in the Superior Court of New Jersey alleging that he had been retaliated against for two objections to his supervisor about illegal conduct under section (c)(2) of CEPA.  The first objection was that he had been told to destroy internal NJSP documents about an unsanctioned, high speed escort by two Troopers on the Garden State Parkway for a collection of high end sports cars.  Chiofalo testified that his supervisor told him, “It does not exist,” which Chiofalo believed meant that the supervisor wanted him to destroy the documents.

The second act which Chiofalo claimed spurred retaliation was that he objected to this same supervisor about the supervisor taking time off without reporting it as sick time, meaning that he was getting full pay for when he was not working.  Chiafolo stated his objection as “He [Chiofalo] takes his vacation time unlike others,” meaning the supervisor.

Chiofalo alleged that the NJSP then took a series of retaliatory actions against him.  First, rather than investigating his claims of illegal activities by his supervisor, it investigated him for not properly reporting them internally.  He was then transferred to a less desirable position, which he claimed was a demotion, and being from promotion to lieutenant.  Thereafter, Chiofalo filed for retirement, allegedly because of these retaliatory action.

After discovery was over, the NJSP asked the trial judge to dismiss Chiofalo’s lawsuit on summary judgment because the statement that the documents “did not exist” was too vague to constitute an order, and because Chiofalo did not cite a specific law which it maintains violated by the supervisor’s actions.  The trial judge denied the motion for summary judgment and the case proceeded to trial.  The jury found that the NJSP had violated CEPA, and awarded Chiofalo $305,400 in compensatory damages, and $150,000 in punitive damages.

The NJSP appealed.  The Appellate Division agreed with the NJSP and decided that the trial court should have dismissed Chiofalo’s lawsuit during the summary judgment motion.  Chiofalo then appealed to the Supreme Court of New Jersey.

 

The Supreme Court’s Decision

The Supreme Court agreed with the NJSP and Appellate Division that Chiofalo’s statement that “he took his vacation time” was too vague to constitute a whistleblower objection.

However, it agreed with the trial court that the complaint disclosing and objecting to the supervisor’s order to destroy documents should not have been dismissed, and therefore reversed the Appellate Division’s order on this. Essentially, the NJSP had argued, and the Appellate Division had agreed, that plaintiffs’ in CEPA cases must specify exactly which laws they allege the employer violated.  The Supreme Court agreed that this was a requirement, particularly because the employee’s belief in a violation does not need to be accurate, it merely needs to be “reasonable.”  Therefore, a reviewing court will need to compare the belief with the alleged violation to determine the reasonableness of the employee’s belief.

However, the Court put several caveats on this requirement. First, CEPA whistleblowers do not need to be lawyers.  They do not need to identify the statute when making their objections.  Rather, it is after litigation is joined that they need to identify the legal violation.

Second, in this case the Supreme Court dealt only with criminal or fraudulent activity, not other violations, and thus section (c)(2).  The prior cases cited by the defendants and the Appellate Division dealt with Sections (c) (1) and (3).  Thus, in dicta it said that identifying the statute or regulation would be “the better practice,” it did not lay out any bright line test for the specificity needed under section (c)(2).  However, it also noted that although identification was the requirement under sections (c)(1) and (c)(3) of CEPA, no “New Jersey court [] has explicitly imposed this requirement on plaintiffs proceeding under subsection (c)(2).”

Third, often in section (c)(2) claims the criminal or fraudulent activity is so apparent that there is no difficulty on the claim’s face identifying it.

Finally, at least in section (c)(2) claims if a defendant does not ask for the section or object, then the requirement is not triggered.  The defendants will be barred on appeal from arguing that the failure by the former employee to do so should require dismissal of his claims.

In this case, Chiofalo was proceeding under section (c)(2) based on objections to criminal or fraudulent activity, ie., the destruction of the records.  While he did not identify the section in New Jersey’s Criminal Code which rendered these acts illegal or fraudulent, the defendants in their arguments accepted them as illegal.  Based on the nature of the allegations, it appears that this was apparent – indeed, the Supreme Court noted that in oral argument on the summary judgment motion the issue was not the reasonableness of Chiofalo’s belief that destroying documents was illegal, but the reasonableness of his belief that he had been ordered to do so.

 

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Our New Jersey employment attorneys represent employers and employees in whistleblower litigation under CEPA.  Call us at (973) 890-0004 to schedule an appointment with one of our attorneys.  We can help.