California Appellate Court Takes Dim View of Whistleblower Threats

The False Claims Act is a means for helping the government combat fraud.  Although violations of the False Claims Act can result in millions – sometimes billions – of dollars in liability for the offending company, a California appellate court held that an employee cannot use the False Claims Act as an “extortionate” pre-litigation settlement tactic.

Details of Stenehjem v. Sareen

The details of the Stenehjem decision began upon the termination of Mr. Stenehjem from his position at San José-based Akon, Inc. – a company in the business of supplying microwave products. The details surrounding his termination suggest that he was involved in an assaultive exchange with a female co-worker, and the CEO of the company spread this information to other employees. Thereafter, Stenehjem threatened to initiate a defamation lawsuit against the CEO and Akon, Inc. – unless it was willing to settle the matter.

After demanding $675,000 from Akon, Inc. to settle his allegations of defamation – and being flatly denied – Stenehjem decided to preemptively email the entire company with allegations of misconduct and unlawful activity. The email, complete with the succinct subject line of “Qui Tam,” threatened to expose the company’s activities in a False Claims Act case – promising to involve “the United States Attorney General, the Department of Justice, or the DOD.”

Akon, Inc. failed to respond to the threat, and Stenehjem continued with his defamation and wrongful termination lawsuit. In a counterclaim, Akon contended it was the victim of attempted extortion. Thereafter, the plaintiff instituted another claim, stating that Akon’s attempts to silence him were in violation of California’s anti-SLAPP (Strategic Lawsuit Against Public Participation) Statute, which prohibits any attempt by a litigant to suppress the opponent’s rights to free speech.

Court Sides With Akon, Inc.

Despite Stenehjem’s assertion that his threats to file a qui tam lawsuit were not backed by any actual filing, the court determined that his promise to expose Akon’s alleged criminal misconduct to federal authorities amounted to unlawful criminal extortion and could not be supported by the court as a proper pre-litigation settlement tactic. The court found Stenehjem’s attempts to invoke False Claims Act allegations – which were unsupported by any actual evidence of wrongdoing – to be an illegal attempt to settle a civil matter and promptly dismissed the plaintiff’s claims under the SLAPP Act.

Considering a False Claims Act Lawsuit? Call an Attorney First.

If you are aware of possible misconduct against the federal or state government, the best first step is to speak with a reputable and experienced qui tam attorney about the information you have gathered. For more information about the whistleblower lawsuit process under the False Claims Act, contact Berger Montague today!