9/30/24
Terpin v. AT&T Mobility, LLC, 23-55375
Appeal from: C.D. Cal. (Wright, J.)
Argued & Submitted: 3/8/24
Panel: Clifton H.A. Thomas Desai (author)
Subject Matter: Federal Communications Act / California State Law
The panel affirmed the district court’s dismissal of some claims and affirmed in part and reversed in part the district court’s grant of summary judgment for mobile service provider AT&T Mobility, LLC, on the remaining claims brought by Michael Terpin after hackers gained control over his phone number through a fraudulent “SIM swap,” received password reset messages for his online accounts, and stole $24,000,000 of his cryptocurrency.
Terpin sued AT&T under the Federal Communications Act and California state law for failing to adequately secure his account. Affirming the district court’s dismissal of Terpin’s fraud claims and punitive damages claim, the panel held that he failed to state a claim for deceit by concealment because he did not allege that AT&T had a duty to disclose regarding extra security that it promised him. Terpin failed to state a claim for fraudulent misrepresentation because he did not allege that AT&T made a promise with intent to perform. And he failed to allege facts sufficient to support punitive damages.
The panel affirmed the district court’s summary judgment on Terpin’s claim for AT&T’s breach of the Privacy Policy incorporated in its Wireless Customer Agreement. Terpin sought consequential damages for the loss of his cryptocurrency to hackers, but the panel held that consequential damages were barred by the limitation of liability clause in the parties’ agreement.
Affirming the district court’s summary judgment on Terpin’s negligence claims, the panel held that these claims were foreclosed by the economic loss rule, which bars claims between contractual parties when the claims arise from or are not independent of the parties’ underlying contracts.
The panel reversed the district court’s summary judgment and remanded on Terpin’s claim under Section 222 of the Federal Communications Act, which provides that telecommunications carriers have a duty to protect “customer proprietary network information,” or “CPNI.” Declining to address whether Section 222 protects both CPNI and a broader category of customer proprietary information, or only CPNI, the panel held that Terpin created a triable issue over whether, through the fraudulent SIM swap, AT&T gave hackers access to information protected under the Act.
Mooney v. Fife, 22-16328+
Appeal from: D. Nev. (Mahan, J.)
Argued & Submitted: 3/5/24
Panel: M. Smith Bennett (author) Collins (concurring in part and in the judgment)
Subject Matter: False Claims Act
The panel reversed the district court’s summary judgment in favor of the defendants in a qui tam action under the False Claims Act and remanded for further proceedings.
Plaintiff Thomas Mooney was employed as chief operating officer for Dr. Douglas Fife, his wife Heather Fife, and Fife Dermatology, PC, d/b/a Vivida Dermatology. Mooney alleged concerns about improper billing practices at Vivida. Following a conversation between Mooney and a dermatologist belonging to another practice, Vivida terminated his employment, citing unauthorized disclosure of confidential information in violation of Mooney’s employment agreement.
The panel held that a False Claims Act retaliation claim requires proof of three elements: (1) protected conduct; (2) notice; and (3) causation. Following most of the other circuits that had considered the issue, the panel clarified that in analyzing a retaliation claim, a court must use the McDonnell Douglas burden-shifting framework, rather than the Mt. Healthy framework commonly applied to First Amendment retaliation claims. Under the McDonnell Douglas framework, once an employee has established a prima facie case of retaliation, the burden shifts to the employer to produce a legitimate, non-retaliatory reason for the employee’s termination. Then, if the employer produces such a reason, the burden shifts to the employee to show that the proffered explanation was pretextual.
In 2009, Congress amended 31 U.S.C. § 3730(h) to provide that, in addition to protecting lawful acts done by the employee, the False Claims Act also protects employees from being discharged because of efforts to stop violations of the Act. Prior to this amendment, this court held that, under the Moore test, protected conduct had both a subjective and an objective component. Thus, an employee engaged in protected activity where (1) the employee in good faith believed, and (2) a reasonable employee in the same or similar circumstances might believe, that the employer was possibly committing fraud against the government. In U.S. ex rel. Hopper v. Anton, 91 F.3d 1261 (9th Cir. 1996), this court also held that the employee must be investigating matters that were calculated, or reasonably could lead, to a viable action under the False Claims Act. Agreeing with the Eleventh Circuit, the panel held that Hopper’s “investigating” requirement does not apply when the employee alleges that he was discharged because of efforts to stop violations of the Act. The panel further held that the Moore test continues to apply following the 2009 amendment.
Applying this post-2009 amendment test, the panel concluded that, at the summary judgment stage, Mooney engaged in protected conduct that satisfied the first element of a retaliation claim. Viewing the evidence in the light most favorable to Mooney, he subjectively and objectively believed that Vivida was possibly committing fraud against the government.
The panel concluded that Mooney also met the notice requirement of a prima facie case, which requires a showing that the employer must have known that the employee was engaging in protected conduct. Disagreeing with other circuits, the panel held that it was irrelevant that Mooney had a job duty to ensure compliance with billing regulations and to report irregularities.
Vivida did not challenge causation, the third element of a prima facie case, and so the burden shifted to Vivida to produce a legitimate, non-retaliatory reason for Mooney’s termination. The panel held that Mooney established genuine issues of material fact whether the reasons proffered by Vivida were pretextual. The panel therefore reversed the district court’s grant of summary judgment as to Mooney’s claim for False Claims Act retaliation and remanded that claim for trial.
The panel also reversed the district court’s grant of summary judgment on Mooney’s claims for breach of contract and breach of the implied covenant of good faith and fair dealing.
Concurring in part and in the judgment, Judge Collins wrote that he concurred in the court’s opinion except for its holding that the subjective and objective components for protected activity, adopted in Moore with respect to the prior version of the False Claims Act, also apply in determining whether an employee engaged in protected conduct in the form of efforts to stop violations of the False Claims Act. Judge Collins wrote that this amended language seems to suggest a stronger objective component than the one described in Moore. Nonetheless, even assuming arguendo that Mooney had to show that Vivida was likely engaged in False Claims Act violations that he made efforts to stop, Judge Collins thought his evidence was sufficient to raise a triable issue of fact on that score.
Bennett v. Isagenix International LLC, 23-16082
Appeal from: D. Ariz. (Campbell, J.)
Argued & Submitted: 3/5/24
Panel: M. Smith Bennett (dissenting) Collins (author)
Subject Matter: Preliminary Injunction / Arizona Contracts Law
The panel vacated the district court’s preliminary injunction barring Isagenix International LLC from terminating a business relationship with plaintiffs Jay and Siv Bennett.
Plaintiffs were contracted to be associates with Isagenix. In May 2023, Isagenix informed plaintiffs that it had decided not to renew their accounts.
The panel noted that the only question before the panel was whether plaintiffs had shown that they were likely to succeed on the merits of their claims under the preliminary injunction Winter factors. Whether they will succeed on the merits remains to be determined in the parties’ arbitration. The plaintiffs’ claims ultimately hinged on whether the contracts at issue were validly modified to include the new provisions converting their contracts to ones that Isagenix could elect, at its sole discretion, not to renew.
Applying Arizona law concerning the modification of contracts, the panel held that if a contract is bilateral, then its terms cannot be modified absent an additional offer, acceptance, and consideration; but if the contract is unilateral, a business can change its standard contract terms if consumers receive reasonable notice of the change with an opportunity to opt out without penalty. The panel concluded that the contracts at issue here were likely bilateral, and the plaintiffs were likely to succeed in establishing that the Arizona requirements for modifying such a contract have not been satisfied. The panel agreed with the district court’s conclusion that the plaintiffs had shown the requisite likelihood of success to support preliminary injunctive relief.
Next, the panel turned to the question of irreparable harm. The panel held that a bargained-for limitation on otherwise available legal relief did not give rise to “irreparable harm” for purposes of equity. The panel held that the district court erred in treating the parties’ contractual limitation on consequential damages as a basis for finding irreparable harm. Because the district court did not address plaintiffs’ other theories of irreparable injury, the panel vacated the preliminary injunction and remanded for further proceedings.
Judge Bennett dissented. He agreed with the majority that the district court failed to properly analyze whether the plaintiffs faced irreparable harm absent an injunction. But because he believed that Demase v. ITT Corp., 984 P.2d 1138 (Ariz. 1999) (evaluating bilateral agreements under Arizona law), did not resolve the contract analysis here, and the majority’s reading of the case was too broad, he would reverse the district court's grant of a preliminary injunction as the plaintiffs failed to show a likelihood of success on the merits.
United States v. Solakyan, 22-50023
Appeal from: S.D. Cal. (Bashant, J.)
Argued & Submitted: 10/17/23
Panel: Tashima Collins Sanchez (author)
Subject Matter: Criminal Law
The panel (1) affirmed Sam Sarkis Solakyan’s conviction for (a) conspiracy to commit honest-services mail fraud and health-care fraud and (b) honest-services mail fraud and aiding and abetting; (2) vacated the district court’s restitution order; and (3) remanded for further proceedings, in a case arising from a workers’ compensation fraud that generated $263 million in claims.
Solakyan, the owner and operator of multiple medical-imaging companies, routed unsuspecting patients from complicit physicians and medical schedulers to his companies for superfluous magnetic resonance imagery (“MRI”) scans and other medical services.
Reviewing for plain error Solakyan’s claim that his indictment was legally defective because the honest-services fraud statute does not extend to doctor-patient relationships, the panel held that honest-services mail fraud, as proscribed by 18 U.S.C. §§ 1341 and 1346, encompasses bribery and kickback schemes that deprive patients of their intangible right to the honest services of their physicians.
Reviewing de novo Solakyan’s claim that the district court erred in failing to instruct the jury that honest-services fraud requires the government to prove that the patient-victims suffered some kind of tangible harm, the panel held that actual or intended tangible harm is not an element of honest-services fraud.
Solakyan contended that the indictment failed to allege the requisite willfulness for health-care fraud as an object of the charged conspiracy. The panel did not resolve a dispute as to the applicable standard of review, concluding that even under de novo review, the indictment, which signaled that Solakyan acted with a bad purpose, sufficiently informed Solakyan of the conspiracy charge predicated on health-care fraud as one of the objects of the conspiracy.
The panel held that the district court did not abuse its discretion in the formulation of its jury instructions regarding the health-care object of the conspiracy. A general mens rea instruction was not misleading or inadequate to guide the jury’s deliberations because the jury was separately instructed on each object of the conspiracy, each with its own delineated mens rea requirement. The jury would have understood that it should apply the “willfully” instruction to the health-care fraud object and apply “knowingly” as to the honest-services mail fraud object.
The panel held that the district court did not abuse its discretion by including a “reasonably foreseeable” standard for use of the mails in its conspiracy instruction.
The panel reviewed for plain error Solakyan’s claim that the district court’s inclusion of an attempt instruction constituted a “constructive amendment” to the charges and created a duplicity error that deprived him of his constitutional right to a unanimous verdict. The panel held that even assuming the district court erred in failing to give a unanimity instruction, Solakyan did not demonstrate that such error affected his substantial rights or seriously affected the fairness, integrity, or public reputation of the judicial proceedings.
The panel held that the district court did not err in ordering a restitution amount that is distinct from the loss amount calculated for purposes of sentencing. A court’s leniency on the loss calculation for sentencing purposes does not hamstring its discretion to impose a larger restitution order in an amount fully borne by a defendant’s victims.
The panel held that the district court abused its discretion in failing to make specific findings as to why it did not deduct from the $27,937,175 restitution amount payments the insurers would have made for medically necessary MRIs in the absence of fraud. The panel therefore vacated the restitution order and remanded for the district court to determine whether the total loss amount should be reduced, at least in part, by the cost of reimbursement for medically necessary MRIs the insurers would have incurred had Solakyan acted lawfully.
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