BILL ANALYSIS
AB 1196
Page 1
ASSEMBLY THIRD READING
AB 1196 (Blumenfield)
As Amended April 15, 2009
Majority vote
JUDICIARY 8-0 APPROPRIATIONS 12-4
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|Ayes:|Feuer, Brownley, Evans, |Ayes:|De Leon, Nielsen, |
| |Jones, Krekorian, Lieu, | |Ammiano, |
| |Monning, Nielsen | |Charles Calderon, Davis, |
| | | |Fuentes, Hall, John A. |
| | | |Perez, Price, Skinner, |
| | | |Solorio, Torlakson |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Duvall, Harkey, Miller, |
| | | |Audra Strickland |
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SUMMARY : Seeks to amend the California False Claim Act (CFCA)
to redefine key definitions, increase civil liability for making
false claims, strengthen government control over a qui tam
plaintiff's lawsuit, and clarify application of the statute of
limitations, all in an effort to improve the ability of state
and local authorities to recover government funds that are the
subject of a false claim. Specifically, this bill among other
things:
1)Expands the definitions of "state funds" and "political
subdivision funds" to include any money, property, or services
that were appropriated, administered, expended, or that will
be reimbursed directly or indirectly by the state or political
subdivision, respectively.
2)Expands the definition of "claim" to include any record or
statement used to conceal, avoid, or decrease an obligation to
pay or transmit money or property to the state or any
political subdivision.
3)Removes the instruction that a person's liability to the state
or political subdivision for specified false claim violations
is calculated from the amount of damages sustained by the
state or political subdivision, and instead provides that the
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person is liable for "three times the amount of damages
because of the act of that person."
4)Makes the current penalty provision mandatory rather than
discretionary, and imposes the penalty for each specified
violation of the CFCA on a "per violation" basis rather than a
"per claim" basis.
5)Expands the scope of conspiracy liability under the CFCA to
include conspiracy to commit any one of several enumerated
violations relating to the submission of a false claim,
including so-called "reverse false claims".
6)Clarifies that the Act's penalty and liability provisions do
not apply to false claims submitted to the Commissioner of
Insurance acting as Conservator for an insolvent insurer,
pursuant to Insurance Code Section 1011.
7)Requires written consent from the Attorney General (AG) or
prosecuting authority of a political subdivision for the court
to grant dismissal of a false claim civil action brought by an
individual ("qui tam plaintiff").
8)Prohibits a private person from waiving or releasing a claim
for any of several enumerated violations of the Act, except if
the action is part of a court approved settlement of a false
claim civil action.
9)Permits the state or political subdivision, upon
court-approved intervention in a qui tam plaintiff's action,
to file its own complaint in intervention or amend the
complaint of the qui tam plaintiff to clarify or add detail to
the claim in which the state or political subdivision is
intervening, and to add any additional claim with respect to
which the state or political subdivision contends it is
entitled to relief.
10)Provides that for statute of limitation purposes, any state
or political subdivision pleading shall relate back to the
filing date of the complaint of the qui tam plaintiff who
originally brought the action, to the extent that the claim of
the state or political subdivision arises out of the conduct,
transaction, or occurrence set forth in the complaint of that
person.
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11)Clarifies the statute of limitations to prohibit the filing
of a false claim civil action more than three years after the
date of discovery by the AG or prosecuting authority with
jurisdiction to act, or, in any event, not more than 10 years
after the date on which the violation of the Act was
committed.
FISCAL EFFECT : According to the Assembly Appropriations
analysis:
1)Any additional costs to the AG would be minor and absorbable.
2)Unknown additional revenues from the enhanced penalties.
COMMENTS : This bill would amend the CFCA to redefine key
definitions, increase civil liability for making false claims,
strengthen government control over a qui tam plaintiff's
lawsuit, and clarify application of the statute of limitations,
all in an effort to improve the ability of state and local
authorities to recover government funds that are the subject of
a false claim.
The CFCA closely mirrors many provisions of the federal False
Claims Act (FCA), 31 USC 3729, and thus federal judicial
authority is persuasive in interpreting parallel provisions of
the CFCA. Recent opinions by federal and state courts have
resulted in outcomes that the author believes do not or will not
give full effect to the Legislature's intent to protect state
treasury funds from false claims when it enacted the CFCA. As a
result, this bill represents an effort to legislatively address
certain concerns about the CFCA in a manner that reflects recent
jurisprudence and promotes consistency between the CFCA and the
federal FCA wherever possible.
In June 2008, the U.S. Supreme Court in Allison Engine v. U.S.
ex rel Sanders, 553 U.S. __(2008), considered provisions of the
federal False Claims Act that impose civil liability on a person
who knowingly uses a "false record or statement to get a false
or fraudulent claim paid or approved by the Government "
(emphasis added), 31 U.S.C. 3729(a)(2). The Court held that a
plaintiff asserting a claim under 3729(a)(2) must prove that
the defendant intended that the false record or statement be
material to the government's decision to pay or approve the
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false claim.
Thus, Allison Engine may preclude prosecutions under the CFCA in
cases where state funds are disbursed to fund a construction
project, and the contractor then pays a false claim with
"government funds" received from the government. This unwanted
result may occur because the false claim was not technically
"paid or approved by the Government."
In 2005, the California Supreme Court held that the "state
funds" subject to protection under the CFCA "only includes funds
that are in some sense part of the public treasury, the
diminution of which harms or would harm taxpayers." (State of
California v. Altus Finances, S.A. (2005) 36 Cal.4th 1284,
1302.)
To address the concerns raised by these two court decisions, the
author of this bill seeks to amend the existing definitions of
"state funds" and "political subdivision funds" to include
money, property, or services that were appropriated,
administered, expended, or that will be reimbursed directly or
indirectly by the state or political subdivision, respectively.
The expanded language is aimed at ensuring CFCA protections
apply to billions of dollars of government funds disbursed to
contractors and other organizations that administer state or
local programs.
In 2007, the Court of Appeal in Fassberg Construction Co. v.
Housing Authority of City of Los Angeles, 152 Cal.App.4th 720,
736-37, held that certain violations of the CFCA are not "false
claims" subject to penalty under the CFCA because they are
defined differently than a "claim" in Section 12650(b)(1).
Under Fassberg, a person who uses a reverse false claim to
defraud the government would not be subject to the penalties
provided by the CFCA.
To eliminate this discrepancy, the author seeks to expand the
definition of "claim" to include the definition of reverse false
claim from Section 12651(a)(7) ("any record or statement used to
conceal, avoid, or decrease an obligation to pay or transmit
money or property to the state or any political subdivision") so
that reverse false claims are treated as "false claims" for all
purposes under the statute.
In cases where the state or political subdivision intervenes in
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a qui tam civil action, this bill authorizes the prosecuting
authority to file its own complaint in intervention or amend the
qui tam complaint to clarify or add detail to the claim in which
the state or political subdivision is intervening. The bill
also authorizes the prosecuting authority to add any additional
claim with respect to which the state or political subdivision
contends it is entitled to relief.
The bill also provides that, for statute of limitation purposes,
any state or political subdivision pleading shall relate back to
the filing date of the complaint of the person who originally
brought the action, to the extent that the claim of the state or
political subdivision arises out of the conduct, transaction, or
occurrence set forth in the complaint of that person.
Supporters and opponents of the bill concede that unless the
statute of limitations for any additional causes of action
relates back to the date of the filing of the qui tam complaint,
the prosecuting authority may be precluded from bringing those
additional causes of action. Although it is a fair criticism
that the government was already allowed at least 60 days to
investigate the alleged fraud at the center of the lawsuit, it
is possible that diligent investigation of the matter may not
reveal, until later, sufficient evidence of an important claim
that arose out of the original transaction or occurrence. In
those situations, it is reasonable to not automatically bar the
addition of such claims to the existing lawsuit if they truly
relate back to the qui tam plaintiff's claims.
The bill also amends Government Code Section 12654(a) to clarify
that only the AG's knowledge of the false claim triggers the
statute of limitations to begin running against the government
because only the AG has the authority to investigate and
prosecute false claims violations involving state funds.
With respect to a qui tam plaintiff's right to dismiss the
action and waive or release a claim for any violation of the
CFCA, the author has amended the bill to provide that: 1) the
qui tam civil action may be dismissed only with the written
consent of both the court and the AG or prosecuting authority;
and, 2) no legal claim for any false claim violation may be
waived or released by any private person, unless as specified.
Although this amendment appears to further restrict the already
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limited rights of the qui tam plaintiff at the expense of the
state or political subdivision, at least one group closely
affiliated with qui tam plaintiffs supports this proposal.
Taxpayers Against Fraud writes that this bill "would prevent
companies from bullying their employees or former employees into
dismissing suits which have been brought in the public interest,
to recover public money." The bill prioritizes the public
interest in protecting public funds over the qui tam plaintiff's
personal interest in obtaining a favorable settlement or, as is
often the case, a severance agreement from a former employer.
Finally, the bill codifies the California Supreme Court's
decision in Altus Finance, S.A. to exclude assets of an
insolvent insurer pursuant to Insurance Code Section 1011.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0000614