BILL ANALYSIS
AB 1196
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1196 (Blumenfield)
As Amended September 2, 2009
Majority vote
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|ASSEMBLY: |53-23|(June 1, 2009) |SENATE: |28-12|(September 8, |
| | | | | |2009) |
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Original Committee Reference: JUD.
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 :
1)Expands the definition of "claim" to mean any request or
demand, whether under a contract or otherwise, for money,
property, or services, that either: a) is presented to an
officer, employee, or agent of the state or of a political
subdivision; or, 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, as provided.
2)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
person is liable for "three times the amount of damages
because of the act of that person."
3)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.
4)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".
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5)Clarifies that CFCA's penalty and liability provisions do not
apply to false claims submitted to the Insurance Commissioner
acting as Conservator for an insolvent insurer, pursuant to
Insurance Code Section 1011.
6)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").
7)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.
8)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.
The Senate amendments :
1)Revise definitions of certain terms, including "state funds"
and "political subdivision funds" to mean funds that are the
subject of a claim presented to an officer, employee, or agent
of the state or political subdivision, or where the state or
political subdivision provides, has provided, or will
reimburse any portion of the money, property, or service
requested or demanded.
2)Remove provisions authorizing the state to file its own
complaint in intervention or amend the qui tam plaintiff's
complaint where such pleading would "relate back" to the
filing date of the original complaint.
3)Authorize a court to award a defendant reasonable attorney's
fees and expenses when the court finds the claim was brought
primarily, rather than solely, for purposes of harassment.
4)Provide that the AG or the prosecuting authority of a
political subdivision has a duty to investigate specific
violations of the False Claims Act.
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AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
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
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
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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 has amended the bill to define the terms "state funds"
and "political subdivision funds" to mean funds that are the
subject of a claim presented to an officer, employee, or agent
of the state or political subdivision, or where the state or
political subdivision provides, has provided, or will reimburse
any portion of the money, property, or service requested or
demanded. The new language is intended to ensure that 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. The author has expressed intent to
continue working with supporters and opponents of the bill on a
precise definition that addresses the discrepancy under
Fassberg, but is narrow enough to exclude an inadvertent
underpayment to a state or political subdivision.
The bill also amends Government Code Section 12654(a) to clarify
that only the Attorney General's knowledge of the false claim
triggers the statute of limitations to begin running against the
government because only the Attorney General 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 qui tam civil action may be dismissed only with the
written consent of both the court and the AG or prosecuting
authority. In addition, no legal claim for any false claim
violation may be waived or released by any private person,
unless as specified.
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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: 0002897