The question in the following case was whether a California employee’s refusal to challenge his termination under the city of Montebello’s administrative procedures barred his subsequent lawsuit claiming he was terminated because he was a whistleblower.
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Complaint and Termination
Jose Bazua began working for the city of Montebello as an administrative analyst in 1996. He rose through several promotions to become the acting director of economic development in July 2008 and the director of economic development in March 2009.
In March 2008, Montebello entered into an agreement with a developer for a housing project. In May, Michael Huntley, Montebello’s director of community development, directed the city attorney to prepare a draft owner participation agreement (OPA). In June, Montebello’s city council approved a resolution designating $1.3 million in federal housing funds for a development project and authorized an escrow account to hold the funds.
According to Bazua, this disbursement of funds violated U.S. Department of Housing and Urban Development (HUD) regulations because it occurred before there was a signed OPA between Montebello and the developer. In February 2009, Montebello entered into a “HOME Program Loan Agreement” with the developer and advised Bazua that this was an acceptable alternative to an OPA.
In July 2010, HUD’s Office of Inspector General conducted an audit and discovered that someone in Montebello had given HUD an OPA with fraudulent signatures. Montebello accused Bazua of creating the fraudulent OPA and placed him on administrative leave in January 2011. Bazua subsequently filed a complaint with the California State Controller’s Office claiming that Huntley was responsible for the alleged misuse of redevelopment funds. Montebello terminated Bazua in May 2011.
Montebello’s administrative policies provided for a posttermination review by the city administrator, and Bazua requested such a hearing. The city’s HR director informed him that the hearing would be presided over by an attorney in the city attorney’s law firm who had advised him regarding the creation of an OPA. Bazua claimed the attorney couldn’t act as a neutral fact finder so the hearing didn’t conform with the city’s administrative policies.
The city then advised Bazua that it would provide an alternative evidentiary hearing at which Montebello would bear the burden of proof to justify his termination and he would have the right to cross-examine witnesses. Bazua declined to participate, claiming the hearing procedure would be futile and didn’t appear in any administrative policies.
Bazua sued Montebello, alleging that it fired him in retaliation for complaining about its misuse of federal housing funds. He alleged defamation and a violation of Labor Code Section 1102.5, which prohibits an employer from retaliating against an employee for engaging in certain whistleblower activities, and he sought penalties under the Labor Code Private Attorneys General Act (PAGA).
The trial court dismissed Bazua’s Section 1102.5 and defamation claims because it ruled he had failed to exhaust his administrative remedies provided by the city. In addition, it dismissed the PAGA claim on the grounds that Bazua was seeking only individual relief and had failed to allege any basis for a representative claim under the PAGA.
Read on for more details on the case and its outcome.