BILL ANALYSIS Ó
AB 2492
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Date of Hearing: April 10, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2492 (Blumenfield) - As Introduced: February 24, 2012
SUBJECT : THE FALSE CLAIMS ACT
KEY ISSUE : IN ORDER FOR THE STATE TO REMAIN ELIGIBLE FOR
MILLIONS OF DOLLARS IN FEDERAL INCENTIVE AWARDS ON MEDI-CAL
RELATED FALSE CLAIMS RECOVERIES, SHOULD THE CALIFORNIA FALSE
CLAIMS ACT BE UPDATED TO CONFORM WITH RECENT CHANGES TO THE
FEDERAL FALSE CLAIMS ACT?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
Earlier this year, the Office of Inspector General (OIG) of the
U.S. Department of Health and Human Services notified the
California Attorney General that the state is no longer in
compliance with federal law that allows California to
potentially recover tens of millions of taxpayer dollars in
federal incentive awards on Medicaid-related false claims
recoveries. In its letter, the OIG cited a list of specific
changes to California law that, in its determination, should be
changed to assure sufficient conformity with the federal False
Claims Act for the purpose of preserving the state's eligibility
to recover these incentive funds. This bill therefore seeks to
implement a number of changes to the state False Claims Act, as
identified by the Inspector General, that are needed to conform
the state Act to its federal counterpart and preserve the
California's eligibility for this important source of federal
funds. Among other things, this bill modifies the definition of
some key terms, increases civil penalties, increases
anti-retaliation protections for employees and others who pursue
false claims actions, and clarifies application of the statute
of limitations, all consistent with federal law.
Opponents, including the Chamber of Commerce and the Civil
Justice Association, contend that the bill could expose
employers to numerous frivolous lawsuits because it effectively
eliminates the existing state restriction on private lawsuits by
qui tam plaintiffs who sue based on public facts. The opponents
also contend that the bill's provision on defendant's attorneys'
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fees is not in fact conforming to federal law, to the severe
disadvantage of defendants who may prevail in false claims
actions. Proponents, including the California Attorney General,
counter that the bill language simply reflects the minimal
changes indicated to be necessary in the Inspector General's
letter to preserve eligibility for federal incentive awards, and
opponents' objections are essentially to existing federal law
that California must choose to adopt or conform to through this
bill-- or face a potential loss of federal funds in the tens of
millions of dollars.
SUMMARY : Amends various provisions of California's False Claim
Act to conform to the Federal False Claim Act. Specifically,
this bill , among other things:
1)Expands the ability of the Attorney General and other
government prosecutors to contest dismissal of false claims
actions on the basis of public disclosure, consistent with
federal law.
2)Allows current and former government employees to file a false
claims action for Medi-Cal fraud without exhausting internal
procedures, consistent with federal law.
3)Authorizes the court to reduce the share of proceeds that a
qui tam plaintiff would otherwise receive if the court finds
that the action was brought by the person who planned and
initiated the underlying violation, in conformity with federal
law.
4)Authorizes the court to award attorneys' fees to a prevailing
defendant in an action brought by a qui tam plaintiff,
consistent with federal law, but not in an action brought by
the state or political subdivision.
5)Increases anti-retaliation protections for employees,
contractors or agents who pursue false claims actions in a
manner consistent with federal law, including reinstatement
with the same seniority status, two times the amount of back
pay plus interest, and compensation for special damages.
6)Amends the statute of limitations for filing a false claims
complaint to conform to the federal statute of limitations,
and establishes a "relation-back" clause consistent with
federal law.
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EXISTING LAW , under the False Claims Act, among other things;
1)Provides that a person who commits any one of several
enumerated acts relating to the submission of a false claim to
the state or a political subdivision for money, property, or
services shall be liable to the state or political subdivision
for three times the amount of damages which the state or
political subdivision sustains because of the act of that
person plus the costs of a civil action to recover those
damages. (Gov. Code Section 12651(a). All other references
are to this code unless otherwise noted.)
2)Provides that a person who commits any one of several
enumerated acts relating to the submission of a false claim
may be liable to the state or political subdivision for a
civil penalty between $5,000 and $10,000 for each false claim .
(Section 12651(a).)
3)Authorizes a person ("the qui tam plaintiff") to bring a civil
action for a violation of the False Claims Act for the person
and either for the State of California in the name of the
state, if any state funds are involved, or for a political
subdivision in the name of the political subdivision, if
political subdivision funds are exclusively involved.
(Section 12652(c)(1).)
4)Provides that, in cases where the state or political
subdivision has elected not to proceed with the action, the
qui tam plaintiff shall have the same right to conduct the
action as the Attorney General or prosecuting authority would
have had if it had chosen to proceed. (Section 12652(f).)
5)Provides that if the state, a political subdivision, or the
qui tam plaintiff proceeds with the action, the court may
award to the prevailing defendant its reasonable attorneys'
fees and expenses against the party that proceeded with the
action if the court finds that the claim was clearly
frivolous, clearly vexatious, or brought primarily for
purposes of harassment. (Section 12652(g)(9).)
6)Imposes a statute of limitations that prohibits the filing of
a civil action for violation of the False Claims Act more than
three years after the date of discovery by the official of the
state or political subdivision charged with responsibility to
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act in the circumstances or, in any event, no more than 10
years after the date on which the violation was committed.
(Section 12654(a).)
COMMENTS : Earlier this year, the Office of Inspector General
(OIG) of the U.S. Department of Health and Human Services
notified the California Attorney General that the state is no
longer in compliance with federal law that allows California to
potentially recover tens of millions of taxpayer dollars in
federal incentive awards on Medicaid-related false claims
recoveries. In its letter, the OIG cited a list of specific
changes to California law that, in its determination, should be
changed to assure sufficient conformity with the federal False
Claims Act for the purpose of preserving the state's eligibility
to recover these incentive funds.
This bill therefore seeks to implement a number of changes to
the state False Claims Act, as identified by the OIG, that are
needed to conform the Act to its federal counterpart and
preserve the state's eligibility for the federal funds. Among
other things, this bill modifies the definition of some key
terms, increases civil penalties, increases anti-retaliation
protections for employees and others who pursue false claims
actions, and clarifies application of the statute of
limitations, all consistent with federal law.
Background on federal incentives for state false claims laws.
Section 1909 of the federal Social Security Act (SSA) provides a
financial incentive for states to enact laws that establish
liability to the state for individuals that submit false or
fraudulent claims to the state Medicaid program. For a state to
qualify for this incentive, the state false claims law must meet
certain requirements enumerated under section 1909(b) of the
SSA, as determined by the Inspector General of HHS (OIG) in
consultation with the Department of Justice.
In its 2012 letter to the Attorney General, the OIG determined
that California's law no longer satisfied the incentive
requirements and methodically listed a number of specific
provisions of the California False Claims Act that fell short
because they "were not at least as effective in rewarding and
facilitating qui tam actions as the Federal False Claims Act."
According to the author, this bill is intended to make the
changes "deemed necessary by DHHS to maintain California's
eligibility for the 10% Medicaid recovery awards, as well as
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conform to other amendments to the federal law made by Congress
in 2010."
The Committee has reviewed the changes proposed by this bill and
verified that they promote conformity with the federal False
Claims Act . This bill contains a number of changes to
California law that, for the most part, are easily verifiable as
reflecting conformity with the federal False Claims Act. For
example, this bill revises or adopts several definitions of key
terms to conform with federal definitions of those terms (e.g.
"obligation" and "claim"). In addition, the bill adopts certain
provisions almost verbatim from federal law to replace existing
state law (e.g. see 31 U.S.C. § 3731(b), the federal statute of
limitations, which replaces current Gov. Code section 12654(a))
or in some cases append to existing state law (e.g. see 31
U.S.C. § 3731(c), the "relation-back" provision, that is added
as Gov. Code section 12654.5).
ARGUMENTS IN OPPOSITION : In a jointly signed letter from the
Civil Justice Association of California (CJAC), the Chamber of
Commerce, and the CA Manufacturers & Technology Association,
these opponents of the bill express concern with two major
provisions of the bill-the public disclosure bar and the award
of attorneys' fees to a prevailing defendant. With respect to
the former, they assert that the bill "eviscerates the public
disclosure bar - a limitation that prohibits private lawsuits by
qui tam plaintiffs who sue based on information already public,
which could expose employers to numerous frivolous lawsuits all
based on the same public facts. Instead, this bill would allow
the Attorney General or prosecutor for any reason to permit the
private plaintiff's lawsuit to go forward, even when it is based
on public information."
Supporters of the bill note that the public disclosure rule in
this bill (see Section 12652(d)(3)) simply reflects existing
federal law, namely 31 U.S.C. § 3730(e)(4), that the Inspector
General has indicated state law must conform to in order to
preserve California's eligibility for federal incentive awards.
In other words, opponents' objection to the public disclosure
rule in this bill appears to be an objection to existing federal
law that, if not adopted or conformed to in California, could
jeopardize access to significant federal incentive awards.
Opponents also contend that the bill's provision on prevailing
defendant's attorneys' fees is not in fact conforming to federal
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law that allows prevailing defendants to receive attorney's fees
and costs unless the court finds that the position of the
government was substantially justified or that special
circumstances make an award unjust (31 U.S.C. § 3730(g), 28
U.S.C. § 2412(d)).
Under this bill, the court may award attorneys' fees to a
prevailing defendant in an action brought by a qui tam plaintiff
(if the other conditions are met), but never in any action
brought by the state or political subdivision. The bill
contains no provision for the award of attorneys' fees to a
prevailing defendant under any conditions if the action was
brought by the state or political subdivision. Proponents
counter that the bill language on this point simply reflects the
minimal changes indicated to be necessary in the Inspector
General's letter to preserve eligibility for federal incentive
awards, in this case adopting the rule of 31 U.S.C. §
3730(d)(4). In other words, while the bill conforms to the
changes raised by the OIG needed to maintain funding
eligibility, it does not necessarily purport to conform in total
with every aspect of the federal law itself. It was not clear
at the time of this analysis whether the attorneys' fees rule
contained in 28 U.S.C. § 2412(d) (which lies outside the federal
False Claims Act) can be effectively applied within the context
of the California False Claims Act. The author has agreed to
investigate that issue further in continuing discussion with
opponents of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
California Attorney General's Office
Opposition
California Chamber of Commerce
California Manufacturers & Technology Association
Civil Justice Association of California (CJAC)
Southern California Contractors Association
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
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