Although the New Jersey Conscientious Employee Protection Act, N.J.S.A. § 34:19-1, et seq. ("CEPA"), is considered one of the most expansive whistle blowing laws in the country, its reach has limits. In Madera v. Horizon Blue Cross Blue Shield of N.J., 2011 N.J. Super. Unpub. LEXIS 990 (App. Div. Apr. 25, 2011), a plaintiff alleged that her former employer violated CEPA by discharging her in retaliation for resisting instructions from her supervisor to alter internal reports. In affirming the trial court's dismissal of the claim, the Appellate Division explained that, in the absence of criminal or fraudulent conduct, CEPA does not protect an employee who objects to activity regarding an internal document with no potential impact on the public.
Defendant Horizon Blue Cross Blue Shield of New Jersey ("Horizon"), a health insurance company, employed plaintiff Kim Madera from March 1985 until it terminated her employment in June 2005. Madera joined the company as a technical claims analyst and rose through the ranks to become the Director of Compliance in the Service Division.
As Director of Compliance, Madera was responsible for forecasting "prompt pay penalties," which are interest payments that Horizon was required to make when it failed to pay claims within a designated statutory time period. Madera also prepared monthly reports regarding these prompt pay penalties.
According to Madera, in 2004 and 2005, Patrick Geraghty, a Senior Vice President of the Service Division, "asked her to adjust her forecasted results because he felt her projections of increasing penalties was unfavorable to the Service Division." Madera contends that she objected to the requests, but "reexamined the analyses and made changes where appropriate."
In May 2005, at the direction of Horizon's CEO, Madera drafted a report "for internal use" analyzing the cause of customer and healthcare provider complaints about the company. In the report, Madera concluded that the performance of Horizon's Service Division prompted most of the complaints about Horizon. She also concluded that 80% of the prompt pay penalties were attributable to the Service Division.
Madera alleged that Geraghty was upset that the report blamed the Service Division. According to Madera, Geraghty insisted that her conclusions were wrong and directed her to re-examine her findings. Madera reviewed but did not alter her conclusions. Madera "had no idea what became of the report."
On June 27, 2005, Horizon terminated Madera's employment. According to Horizon, it fired her for failing to properly supervise a subordinate, Dave Morton, who operated his own travel agency from his Horizon desk. Madera conceded that she had been aware of Morton's travel agency and even booked trips through it, but maintained that her supervision of Morton was a pretext for her discharge. According to Madera, "many Horizon employees, including some in upper management, utilized Morton's services."
Madera filed a lawsuit against Horizon and individual supervisors asserting, among other things, claims for retaliatory termination in violation of CEPA.
CEPA bars an employer from retaliating against an employee for, among other things, objecting to or refusing to participate in any "activity, policy or practice which the employee reasonably believes:" (1) "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" (N.J.S.A. § 34:19-3(c)(2)); or (2) "is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment" (N.J.S.A. § 34:19-3(c)(3)).
The Trial Court
Following discovery, defendants filed a motion for summary judgment, seeking dismissal of Madera's CEPA claims. The trial court granted the motion. According to the trial court, Madera's reports were "internal documents" and, therefore, suggesting that they be altered was not fraudulent or illegal conduct harmful to the public. The court concluded that Madera could not establish a CEPA claim because "the complained of activity had no public ramifications, but was instead a private dispute between employer and employee." Madera appealed.
The Appellate Division
On appeal, the Appellate Division set forth the elements that a plaintiff must establish in order to demonstrate a prima facie violation of CEPA for "fraudulent or criminal" conduct under N.J.S.A. § 34:19-3(c)(2). Specifically, a plaintiff must establish: (1) the plaintiff "reasonably believed his or her employer's conduct was fraudulent or criminal"; (2) the plaintiff engaged in a "whistle-blowing activity"; (3) the employer took an "adverse employment action" against the plaintiff; and (4) a "causal connection exists between the whistle-blowing activity and the adverse employment action."
According to the Court, a plaintiff need not demonstrate that the employer actually engaged in fraud, just that the plaintiff reasonably believed that the conduct was fraudulent. Also, a plaintiff asserting this type of CEPA claim is not required to show that the employer's action implicated a matter of public interest.
The Court explained that a prima facie case of a "public policy" CEPA claim pursuant to N.J.S.A. § 34:19-3(c)(3), has "nearly identical" elements, but the plaintiff must "establish an employer's retaliatory discharge resulting from the employee's decision not to perform an act which he or she believes involves a violation of a 'clear mandate of public policy.'" The Court further explained that the "parameters of public policy are not susceptible to hard and fast rules" and are determined by courts on a "case-by-case" basis. The Court emphasized, however, that "[c]omplaints of private harm do not trigger CEPA's protections."
In arguing for reversal of the trial court's judgment, Madera contended that a CEPA claim under the "fraudulent or criminal" conduct section requires only a showing of misrepresentation. The Court rejected this argument, asserting that "[t]he clear statutory mandate requires proof of fraudulent activity."
Next, Madera argued that Horizon engaged in fraud by asking her to modify the findings in her report to downplay the Service Division's shortcomings. The Court rejected this argument, explaining that Madera's reports "contained subjective conclusions" and that a supervisor's disagreement with subjective conclusions does not constitute fraud. In any event, according to the Court, Madera's objections did not amount to protected activity, because the employer's conduct did not violate a law, regulation, or public policy and was not otherwise fraudulent or criminal.
The Court explained that, even if Geraghty's request that Madera change her findings could be characterized as fraudulent, her claim would still fail because she cannot show that she reasonably believed that modifying the reports would "defraud any shareholder, investor, client, patient, customer, employee, former employee, retiree or pensioner of the employer or any governmental entity." To the contrary, the "reports were solely for internal use, likely to improve efficiency and customer service by reducing executive complaints and prompt pay penalties." According to the Court, the "absence of any public ramifications defeats plaintiff's claim of a prima facie CEPA case."
Madera argued that she could establish a claim under N.J.S.A. § 34:19-3(c)(3), because Horizon's actions were "incompatible with a clear mandate of public policy." The Appellate Division disagreed. According to the Court, a plaintiff must show more than a "vague, controversial, unsettled, and otherwise problematic public policy." Instead, a plaintiff must show a "substantial nexus between the complained-of conduct and the ... public policy identified by the court or the plaintiff."
Here, Madera relied upon the Prompt Pay Act (which requires health insurance companies to pay healthcare providers by certain deadlines) in arguing that Horizon's conduct implicated a matter of public policy. The Court rejected this contention, stating that no evidence existed that "false or fraudulent information" was transmitted to a public entity and the reports at issue were solely for Horizon's internal use. Madera maintained that altering the internal reports would undermine Horizon's compliance with the Prompt Pay Act, but the Court disregarded this argument as "mere speculation."
Agreeing with the trial court that the conduct that Madera complained about was simply a private dispute between an employer and an employee, the Appellate Division affirmed the dismissal of her CEPA claims.
- Bottom Line
The Madera case is significant in that it helps define the boundaries of CEPA's coverage. Although CEPA is an expansive statute, it recognizes the difference between conduct that is fraudulent, criminal or harmful to the public, and a mere private dispute between an employer and an employee.
Click here for a link to the Madera decision.