BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1196|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 1196
Author: Blumenfield (D)
Amended: 7/23/09 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-2, 7/14/09
AYES: Corbett, Florez, Leno
NOES: Harman, Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 53-23, 6/1/09 - See last page for vote
SUBJECT : The False Claims Act
SOURCE : Author
DIGEST : This bill revises and clarifies significant
aspects of the California False Claims Act (CFCA). Among
other provisions, this bill ensures that those who
knowingly defraud the government are held liable regardless
of whether the fraud was conducted through an intermediary.
This bill also reorganizes existing state law provisions
to conform to the structure of federal law. Further, this
bill ensures that false claim lawsuits are not dismissed
without the written consent of the government. Finally,
this bill requires that civil penalties be imposed for each
violation of the CFCA, in order to deter and punish those
inclined to defraud the government.
CONTINUED
AB 1196
Page
2
ANALYSIS : Existing law establishes the CFCA, which
provides that a person who commits any one of several
specified acts relating to the submission of a false claim
to the state or a political subdivision shall be liable to
the state or political subdivision for triple the amount of
damages sustained by the government as well as the costs of
the civil action to recover the damages. (Section 12651(a)
of the Government Code)
Existing law defines a claim as "any request or demand for
money, property, or services made to any employee, officer,
or agent of the state or of any political subdivision, or
to any contractor grantee, or other recipient, whether
under contract or not, if any portion of the money,
property, or services requested or demanded issued from, or
was provided by the state ? or by any political subdivision
thereof[.]" (Section 12650(b)(1) of the Government Code)
This bill amends the structure of the existing state law
definition of claim to more closely parallel that which is
provided in the federal False Claims Act (FFCA).
Specifically, for purposes of this bill, the following
definitions apply:
1. "Claim" means any request or demand, whether under a
contract or otherwise, for money, property, or services,
and whether or not the state or a political subdivision
has title to the money, property, or services that meets
either of the following conditions:
A. Is presented to an officer, employee, or agent of
the state or of a political subdivision.
B. Is made to a contractor, grantee, or other
recipient, if the money, property, or service is to
be spent or used on a state or any political
subdivision program or interest, and if the state or
political subdivision meets either of the following
conditions:
(1) Provides or has provided any portion of the
money, property, or service requested or demanded.
(2) Reimburses the contractor, grantee, or other
AB 1196
Page
3
recipient for any portion of the money, property,
or service that is requested or demanded.
2. "Claim" does not include requests or demands for money,
property, or services that the state or a political
subdivision has paid to an individual as compensation
for employment with the state or political subdivision
or as an income subsidy with no restrictions on that
individual's use of the money, property, or services.
3. "Knowing" and "knowingly" mean that a person, with
respect to information, does any of the following:
A. Has actual knowledge of the information.
B. Acts in deliberate ignorance of the truth or
falsity of the information.
C. Acts in reckless disregard of the truth or falsity
of the information.
Proof of specific intent to defraud is not required.
4. "Material" means having a natural tendency to influence,
or be capable of influencing, the payment or receipt of
money, property, or services.
5. "Political subdivision" includes any city, city and
county, county, tax or assessment district, or other
legally authorized local governmental entity with
jurisdictional boundaries.
6. "Political subdivision funds" means funds that are the
subject of a claim presented to an officer, employee, or
agent of a political subdivision or where the political
subdivision provides, has provided, or will reimburse
any portion of the money, property, or service requested
or demanded.
7. "Prosecuting authority" refers to the county counsel,
city attorney, or other local government official
charged with investigating, filing, and conducting civil
legal proceedings on behalf of, or in the name of, a
particular political subdivision.
8. "Person" includes any natural person, corporation, firm,
AB 1196
Page
4
association, organization, partnership, limited
liability company, business, or trust.
9. "State funds" mean funds that are the subject of a claim
presented to an officer, employee, or agent of the state
or where the state provides, has provided, or will
reimburse any portion of the money, property, or service
requested or demanded.
Existing law provides, in addition to treble damages, that
a person who commits specified violations of the CFCA may
be liable for a civil penalty, ranging from $5,000 to
$10,000, for each false claim. (Section 12651(a) of the
Government Code)
This bill specifies that each of the specified acts in
violation of the CFCA is a separate violation for purposes
of the existing civil penalty and that violators shall be
liable for a civil penalty for each violation.
Existing law provides that it is a violation of the CFCA to
knowingly present or cause to be presented to an officer or
employee of the government, a false claim for payment or
approval. (Section 12651(a)(1) of the Government Code)
This bill deletes the requirement that the false claim be
presented to an officer or employee of the government, thus
ensuring that those who knowingly submit false claims
through an intermediary can be held liable under the CFCA.
Existing law provides that it is a violation of the CFCA to
knowingly make, use, or cause to be made or used a false
record or statement to get a false claim paid or approved
by the government. (Section 12651(a)(2) of the Government
Code)
This bill amends this provision to clarify that it is a
violation to knowingly use a false record or statement that
is material to the decision to pay a false or fraudulent
claim with government money, regardless of whether the
government paid the claim through an intermediary.
Existing law provides that it is a violation of the CFCA to
conspire to defraud the government by getting a false claim
AB 1196
Page
5
allowed or paid by the government. (Section 12651(a)(3) of
the Government Code)
This bill specifies that conspiracy to commit a fraud on
the government through any one of the specified violations
of the CFCA is itself a violation.
Existing law provides that it is a violation of the CFCA to
knowingly deliver or cause to be delivered less property or
money to the government than the amount for which the
person receives a certificate or receipt. (Section
12651(a)(4) of the Government Code)
This bill deletes the requirement that the person receive a
certificate or receipt.
Existing law provides that it is a violation of the CFCA to
knowingly make, use, or cause to be made or used a false
record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the
government. (Section 12651(a)(7) of the Government Code)
In colloquial terms, this is known as a "reverse false
claim."
This bill makes technical changes to the definition of a
reverse false claim to mirror the structure of its
counterpart in the FFCA. This bill also makes it a
violation of the CFCA to knowingly conceal or knowingly and
improperly avoid, or decrease an obligation to transmit
money or property to the government, regardless of whether
a false record or statement was used.
Existing law specifically excludes application of the CFCA
to claims statements relating to workers' compensation and
tax law. (Section 12651(e)-(f) of the Government Code)
This bill adds an exception to the CFCA for specified
claims relating to the assets of an insurance company held
in trust by the Insurance Commissioner, which codifies the
holding in State of Cal. v. Altus Finance et al . (2005) 36
Cal.4th 1284. This bill also excludes compensation for
government employment and income subsidies from the
definition of "claim."
AB 1196
Page
6
Existing law requires the Attorney General and local
prosecuting authorities to diligently investigate CFCA
violations. (Section 12652(a), (b) of the Government Code)
If it is determined that a person has violated the CFCA,
the Attorney General and/or the local prosecutor may file
suit against the person. (Id.) As a general matter, if
the alleged violations involve any state funds, the
Attorney General is entitled to control the action in its
entirety. (Id. at (a)(2), (b)(3))
Existing law provides that a person, referred to as a "qui
tam plaintiff," may file a false claims action for the
person and either in the name of the state, if any state
funds are involved, or in the name of a political
subdivision, if political subdivision funds are exclusively
involved. (Section 12652 (c)(1) of the Government Code)
Existing law requires that a qui tam plaintiff's lawsuit be
filed under seal with the court and served on the Attorney
General. (Section 12652(c)(2)-(3) of the Government Code)
If the complaint involves any state funds, the Attorney
General has the right to intervene and lead the prosecution
of the action. (Id. at (c)(6)(A), (c)(8)(D)(i)) If the
complaint involves a mixture of state and local funds, the
local prosecuting authority has the right to intervene and
lead the prosecution of the action, unless the Attorney
General elects to intervene. (Id. at (c)(8)(D)(i)-(ii))
If the complaint exclusively involves local funds, the
local prosecuting authority has the right to intervene and
lead the prosecution of the action. (Id. at (c)(7)(D)(i))
If neither the Attorney General nor the local prosecutor
exercise their right to intervene, the qui tam plaintiff is
entitled to lead the prosecution of the action. (Id. at
(c)(6)(B), (c)(7)(D)(ii), (c)(8)(D)(iii))
Existing law provides that once an action is filed, it may
only be dismissed with the written consent of the court
taking into account the best interests of the parties
involved and the public purposes behind the CFCA. (Section
12652(c)(1) of the Government Code)
This bill requires that written permission also be obtained
from the Attorney General or local prosecutor, or both as
the case may be, before an action can be dismissed.
AB 1196
Page
7
This bill also provides that no claim for any violation of
the CFCA may be waived or released by a qui tam plaintiff
except pursuant to a court approved settlement of the false
claims action.
Existing law provides that a false claims action may not be
filed more than three years after discovery by the
government official "with responsibility to act in the
circumstances[.]" (Section 12654(a) of the Government
Code)
This bill clarifies that the three-year statute of
limitations runs from the date of discovery by the Attorney
General or local prosecuting authority with jurisdiction to
act under the CFCA.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/19/09)
California Inspector General
California State Association of Counties
Consumer Attorneys of California
Office of the Attorney General
OPPOSITION : (Verified 8/19/09)
California Chapter of the American Fence Contractors'
Association
California Fence Contractors' Association
Engineering Contractors' Association
Flasher/Barricade Association
Marin Builders' Association
Southern California Contractors Association
ARGUMENTS IN SUPPORT : The author writes:
"California is among more than 20 states that have enacted
a false claims act modeled after federal statute providing
one of the biggest weapons in combating fraud against
taxpayers perpetrated by government contractors, vendors
and others who contract with the government.
AB 1196
Page
8
"The law provides civil penalties and treble damages for
defrauding the government. It encourages private persons
to come forward and aid the government in pursuing waste
and fraud by providing a reward of between 15 to 50 percent
of the total funds received.
"The CFCA has proven effective in the fight against fraud
in California. Indeed, the state Attorney General's Office
reports that since 1999 more than $1 billion has been
recovered by the state as a result of false claims actions.
"The recently enacted federal economic stimulus package
will mean billions of dollars in new government contracts
and increased potential for fraudulent claims by government
contractors. AB 1196 seeks to strengthen the ability of
state and local governments to protect treasury assets and
fight fraud through improvements in the California False
Claims Act."
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Bill Berryhill,
Blumenfield, Buchanan, Caballero, Charles Calderon,
Carter, Chesbro, Coto, Davis, De La Torre, De Leon, Eng,
Evans, Feuer, Fong, Fuentes, Furutani, Galgiani, Hall,
Hayashi, Hernandez, Hill, Huber, Huffman, Jones,
Krekorian, Lieu, Bonnie Lowenthal, Ma, Mendoza, Monning,
Nava, Nielsen, John A. Perez, V. Manuel Perez,
Portantino, Price, Ruskin, Salas, Saldana, Skinner,
Smyth, Solorio, Swanson, Torlakson, Torres, Torrico,
Tran, Yamada, Bass
NOES: Adams, Anderson, Tom Berryhill, Blakeslee, Conway,
DeVore, Duvall, Emmerson, Fletcher, Fuller, Gaines,
Garrick, Gilmore, Hagman, Harkey, Jeffries, Knight,
Logue, Miller, Niello, Silva, Audra Strickland, Villines
NO VOTE RECORDED: Block, Brownley, Cook, Nestande
RJG:mw 8/19/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
AB 1196
Page
9