Phillips & Cohen, a firm in the business of representing whistleblowers, is seeking to throw out a New Jersey suit by a company that a jury found defrauded numerous government entities.
The suit, filed in February, alleges the firm induced its client to hack into his company’s computer system to gather evidence for the False Claims Act case in which the company, J-M Manufacturing Co., was found liable last year.
The firm, in its motion to dismiss filed Monday, argues there’s a well-recognized public policy against claims that would punish whistleblowers.
“The courts that have addressed this issue make clear that if, as here, the relator had access to the computer system through his employment and in fact accessed the computer system in furtherance of a qui tam action, there is nothing unlawful about the computer access,” wrote Phillips & Cohen’s lawyer, Brian Molloy of Wilentz, Goldman & Spitzer in Woodbridge.
“In other words, while ‘hacking’ is prohibited, an employee’s use of his employer’s computer system to gather information about the fraud that the company is perpetuating against the government is not unlawful,” he said.
John Hendrix was hired in 2002 in Livingston as an engineer in the product assurance division of Los Angeles-based J-M, which makes piping for municipal waterworks. He allegedly found J-M’s PVC pipe fell short of industry standards and was fired in 2005 after pressing the issue with management.
Prior to his discharge, Hendrix collaborated with Mary Inman and Eric Havian of Phillips & Cohen, who directed him to copy information from J-M’s files, court documents say. J-M alleges Hendrix also secretly recorded conversations with fellow employees.
In January 2006, Hendrix was the relator in a federal False Claims Act qui tam suit in California, alleging J-M sold substandard piping that failed and had to be replaced at great cost.
Last November, a jury in Los Angeles, after a two-month trial, found J-M defrauded government clients in 26 waterworks projects over a 10-year period, according to court documents.
Separate damages trials on behalf of several state and local governments and other public agencies are pending, according to Phillips & Cohen spokeswoman Deborah Duffy. The firm estimates the damages in the billions.
Another defendant, Formosa Plastics of Taiwan, which owned J-M from 1982 until 2005, agreed to settle claims for $22.5 million last November.
On Feb. 21, J-M sued Phillips & Cohen in Middlesex County, alleging unauthorized access of the company’s computer network in violation of the Computer-Related Offenses Act, N.J.S.A. 2A:38A-3c.
Hendrix signed an employee secrecy agreement when hired and Phillips & Cohen’s conduct “cannot be mistaken for, or excused as, simple legal advice” but participation in a “pilfering scheme,” said the suit, which seeks compensatory and punitive damages.
In moving for dismissal, Phillips & Cohen argued that the firm’s and Hendrix’s actions are protected by law and pointed out that J-M handed over, in response to a subpoena, the same documents it claimed Hendrix stole.
The firm claimed J-M, in the California case, repeatedly raised the same points as its New Jersey lawsuit—calling the information gathering theft, breach of contract, conspiracy and fraud—but to no avail. The company also attempted to disqualify Phillips & Cohen but failed, according to the brief.
J-M “tried its luck with one judge, and having failed, now seeks to try its luck in this court,” Molloy wrote, calling it “a blatant attempt to undermine the California court’s adjudication of those evidentiary disputes” and a “clear case of impermissible forum shopping.”
Phillips & Cohen said the complaint failed to lay out an actionable computer-hacking claim because it did not allege that Hendrix stole passwords or otherwise entered areas to which he normally wouldn’t have access.
New Jersey’s version of the FCA prohibits an employer from enforcing any restriction that would stifle the production of evidence in furtherance of a FCA action. Every federal court to consider the issue in an FCA suit has agreed, Phillips & Cohen argued.
Federal case law also prohibits J-M from seeking indemnification or contribution for damages incurred as a result of FCA liability, and the FCA preempts any contrary state law, the firm said.
The firm also argued that aiding and abetting and conspiracy claims can’t be proven because Hendrix’s communications with the law firm are protected by attorney-client privilege.
Molloy called J-M’s racketeering charge “absurd” and its tortious interference claims deficient because there were no underlying wrongful acts.
The matter is assigned to Superior Court Judge Douglas Wolfson.
Molloy said in an interview that he filed a frivolous claims notice but J-M declined to withdraw the suit, and Phillips & Cohen will pursue sanctions if the dismissal motion is granted.
“Our take is, they’re recycling the same arguments that were rejected in California,” Molloy said. “It’s not uncommon at all for the fraudster to lash out and to sue the relator and the firm representing them.”
J-M’s lawyer, Robert Assuncao of Ansa Assuncao in East Brunswick, said the defendants “misapply what they think is the privilege.”
“We have evidence that both Hendrix and Phillips & Cohen violated New Jersey law,” Assuncao added. “We don’t believe whistleblower immunity is limitless and certainly does not protect their actions in this instance.”
J-M also lodged a defamation suit in California state court over Phillips & Cohen’s characterization of its products as “substandard” in a press release. A motion to strike by the firm is pending in that suit, according to Duffy.
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