A recent court ruling has reversed a previous judgment in favor of an IT director who claimed he was wrongfully terminated for whistleblowing. The Court of Appeal of the State of California, Second Appellate District, Division Five, issued its decision on June 20, 2024, in the case filed by Matthew Flanigan against Rheumatology Diagnostics Laboratory, Inc. (RDL).
Matthew Flanigan initially filed his complaint on January 5, 2018, in the Superior Court of Los Angeles County. He accused RDL of retaliation under Labor Code section 1102.5 and wrongful termination in violation of public policy after he reported what he believed to be illegal conduct by another employee and refused to sign a false declaration supporting RDL’s defense in a shareholder lawsuit.
Flanigan's allegations date back to April 2017 when he discovered that Kristine Azarraga, an RDL employee, had imported proprietary information from her former employer into RDL’s network using a thumb drive. Believing this action violated HIPAA regulations, Flanigan reported it to senior management. In August 2017, former employees Samuel Morris and Richard Kazdan filed a derivative lawsuit against RDL’s CEO Allan Metzger and others for mismanagement and misappropriation of corporate assets. Flanigan was asked by Metzger and RDL’s attorney to sign a declaration defending against these claims but refused due to its false content.
Instead, Flanigan signed a declaration supporting the shareholders' claims and disclosed confidential communications from his meeting with Metzger and the attorney. Following this disclosure, Flanigan was placed on leave and subsequently terminated on September 12, 2017.
At trial, Flanigan argued that his termination was retaliatory for reporting Azarraga's HIPAA violation and refusing to commit perjury. The jury ruled in his favor awarding him $1.68 million in damages plus attorney fees amounting to $769,365. However, RDL appealed the decision arguing that Flanigan's actions were not protected under Labor Code section 1102.5 due to his disclosure of privileged attorney-client communications.
The appellate court agreed with RDL's argument stating that the crime-fraud exception did not apply as there was no evidence suggesting that legal services were sought to commit or plan a crime or fraud. Consequently, the court reversed the judgment favoring Flanigan and vacated his award for attorney fees.
Representing RDL were Jamie L. Keeton and Joel L. Williams from Schlichter Shonack & Keeton while Edward Y. Lee represented Matthew Flanigan from the Law Offices of Edward Y. Lee. The case was presided over by Judge Terry A. Green with Case ID B318831 c/w B320941.