Steven Trzaska v. LOreal USA Inc
865 F.3d 155, 2017 WL 3138371, 42 I.E.R. Cas. (BNA) 169 (2017)
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Rule of Law:
An employer's directive that pressures an employee to disregard their professional ethical obligations violates a clear mandate of public policy, and terminating the employee for refusing to comply can support a claim for retaliatory discharge under New Jersey's Conscientious Employee Protection Act (CEPA).
Facts:
- Steven J. Trzaska was an in-house patent attorney for L’Oréal USA, Inc., and was bound by the Rules of Professional Conduct (RPCs) which prohibit filing frivolous patent applications.
- L’Oréal’s parent company established a global quota requiring Trzaska's team to file 40 patent applications in 2014.
- Management informed Trzaska and his team that failing to meet the quota would result in negative consequences for their careers and continued employment.
- Concurrently, L’Oréal implemented a quality improvement initiative, which led to fewer invention disclosures being submitted to the patent team for review.
- Trzaska's team concluded it could not meet the mandatory quota without filing applications for products they did not in good faith believe were patentable, which would violate their RPCs.
- Trzaska informed his superiors that he and his team would not file patent applications they believed were unpatentable to meet the quota, as doing so would violate their ethical obligations.
- Shortly after this conversation, L’Oréal offered Trzaska two severance packages, which he declined.
- After Trzaska rejected the severance offers, L’Oréal terminated his employment.
Procedural Posture:
- Steven J. Trzaska sued L’Oréal USA, Inc. and its parent, L’Oréal, S.A., in the U.S. District Court for the District of New Jersey, alleging wrongful retaliatory discharge in violation of CEPA.
- L’Oréal USA filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
- L’Oréal, S.A. filed a motion to dismiss for insufficient service of process.
- The District Court granted the motion to dismiss for L’Oréal USA, finding that the RPCs were an inadequate basis for a CEPA claim and Trzaska failed to show a reasonable belief of a violation.
- The District Court then dismissed the claim against L’Oréal, S.A. for the same substantive reasons, rendering its separate motion moot.
- Trzaska, as appellant, appealed the dismissals to the United States Court of Appeals for the Third Circuit, with both L'Oréal entities as appellees.
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Issue:
Does an employer's policy that pressures an in-house attorney to violate professional rules of conduct to meet a patent application quota, and the subsequent termination of that attorney for objecting to the policy, state a valid claim for retaliatory discharge under New Jersey's Conscientious Employee Protection Act (CEPA)?
Opinions:
Majority - Ambro
Yes, an employer's policy that pressures an in-house attorney to violate professional rules of conduct states a valid claim for retaliatory discharge under CEPA. Terminating an employee for refusing to participate in an activity they reasonably believe violates a clear mandate of public policy is prohibited. The court reasoned that such a policy contravenes a clear mandate of public policy for two reasons. First, the patent system is 'affected with a public interest' that requires the 'highest degree of candor and good faith,' and an employer's directive to disregard RPCs undermines this system. Second, New Jersey courts have consistently held that the Rules of Professional Conduct themselves constitute a clear mandate of public policy. Therefore, the basis of the CEPA claim is not that L’Oréal itself violated the RPCs, but that its instruction to its employee to disregard his ethical duties violates public policy. Trzaska's complaint, which alleged a quota policy, implicit instructions to violate RPCs, and threats of termination, was sufficient to survive a motion to dismiss because it established a reasonable belief that L'Oréal's practice was incompatible with a clear mandate of public policy.
Concurring-in-part-and-dissenting-in-part - Chagares
No, while RPCs can theoretically form the basis of a CEPA claim, Trzaska failed to plead sufficient facts to establish a cognizable claim. The dissent argues that Trzaska did not allege facts that would support an objectively reasonable belief that a violation of law or public policy had occurred or was imminent. He failed to identify a single specific defective patent application L’Oréal demanded he file, making his allegations conclusory and amounting to a mere policy disagreement, which is not protected by CEPA. Furthermore, the dissent contends that as an attorney, Trzaska is subject to a 'higher standard' under New Jersey law (Tartaglia v. UBS PaineWebber Inc.), requiring him to demonstrate that the employer's conduct actually violated an RPC, not just that he reasonably believed it would. Since Trzaska failed to allege an actual violation, his claim should fail on this independent basis as well.
Analysis:
This decision clarifies and expands the scope of New Jersey's Conscientious Employee Protection Act (CEPA), particularly for licensed professionals. It establishes that an employer policy that creates pressure to violate professional ethics can be the basis for a wrongful discharge claim, even without an explicit order to break the law. The ruling shifts the focus from the employer's direct violation of a law to the public policy implications of compelling an employee to violate their own professional duties. This precedent strengthens protections for in-house professionals like attorneys, doctors, and accountants, who may face conflicts between their employer's business objectives and their ethical obligations.
