BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 2492
Author: Blumenfield (D)
Amended: 6/18/12 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-0, 6/12/12
AYES: Evans, Harman, Corbett, Leno
NO VOTE RECORDED: Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 5-2, 7/2/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 46-26, 5/3/12 - See last page for vote
SUBJECT : The False Claims Act
SOURCE : Author
DIGEST : This bill updates the California False Claims
Act (CFCA) to conform to the Federal False Claims Act
(FFCA) as follows: (1) expands whistleblower protections
to include contractors and agents; (2) requires the court
to dismiss an action or claim, if substantially the same
allegations or transactions alleged in the action or claim
were publicly disclosed, as specified; (3) provides a
statute of limitations for the Attorney General (AG) to
file CFCA actions from six years from the date on which the
CFCA violation is committed or three years from the date
when facts material to the right of action are known or
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reasonably should been known; (4) authorizes government
employees to file CFCA claims relating to Medi-Cal Fraud in
civil courts without having to exhaust internal claims
procedures; (5) increases the range of civil penalties for
violations of the CFCA from $5,000-$10,000 to
$5,500-$11,000; and (6) updates various defined terms.
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. (Government Code
(GOV) Section 12650 and 12651(a))
Existing law provides defined terms applicable to CFCA
actions. (GOV Section 12650.)
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 thereofÝ.]" (GOV Section 12650(b)(1).)
This bill provides that "obligation" means an established
duty, whether or not fixed, arising from an express or
implied contractual, grantor-grantee, or licensor-licensee
relationship, from a fee-based or similar relationship,
from statute or regulation, or from the retention of any
overpayment.
This bill amends the structure of the existing state law
definitions of "claim," "political subdivision of funds,"
and "state funds" to those definitions provided in the
FFCA.
Existing law provides, in addition to treble damages, that
a person who commits specified violations of the CFCA shall
be liable for a civil penalty, ranging from $5,000 to
$10,000, for each false claim. (GOV Section 12651(a))
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This bill increases these penalties, ranging from $5,500 to
$11,000, for each false claim.
Existing law provides that no court has jurisdiction over a
CFCA action based upon the public disclosure of allegations
or transactions in a criminal, civil, or administrative
hearing, in an investigation, report, hearing, or audit
conducted by or at the request of the Senate, Assembly,
auditor, or governing body of a political subdivision, or
by the news media unless the action is brought by the AG or
prosecuting authority of a political subdivision, or the
person bringing the action is an original source of the
information. (GOV Section 12652(d)(3)(A))
Existing law provides that "original source" means an
individual who has direct and independent knowledge of the
information on which the allegations are based, who
voluntarily provided the information to the state or
political subdivision before filing an action based on that
information, and whose information provided the basis or
catalyst for the investigation, hearing, audit, or report
that led to the public disclosure. (GOV Section
12652(d)(3)(B).)
This bill revises and recasts these provisions to require a
court to dismiss a CFCA action or claim, unless opposed by
the AG or prosecuting authority of a political subdivision,
if substantially the same allegations or transactions as
alleged in the action or claim were publicly disclosed in
any of the following:
a criminal, civil, or administrative hearing in which
the state or prosecuting authority of a political
subdivision or their agents are a party;
a report, hearing, audit, or investigation of the
Legislature, the state, or governing body of a political
subdivision; or
the news media.
This bill excepts from this provision an action that is
brought by the AG or prosecuting authority of a political
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subdivision, or if the person bringing the action is an
original source of the information.
This bill defines "original source" to mean an individual
who either:
voluntarily discloses, prior to a public disclosure, to
the state or political subdivision the information on
which allegations or transactions in a claim are based;
or
has knowledge that is independent of, and materially
adds to, the publicly disclosed allegations or
transactions, and has voluntarily provided the
information to the state or political subdivision before
filing an action.
Existing law provides that a person, or "qui tam
plaintiff," may bring a civil action for a violation of the
CFCA for himself or herself 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. (GOV Section 12652(c))
Existing law provides that a court does not have
jurisdiction over CFCA qui tam plaintiff actions based upon
information discovered by a present or former employee of
the state or a political subdivision during the course of
his/her employment unless that employee first, in good
faith, exhausted existing internal procedures for reporting
and seeking recovery of the falsely claimed sums through
official channels and unless the state or political
subdivision failed to act on the information provided
within a reasonable period of time. (GOV Section
12652(d)(4).)
This bill exempts from this provision actions involving
Medi-Cal claims.
Existing law provides that, if a CFCA action is one that
the court finds to be based primarily on information from a
present or former employee who actively participated in the
fraudulent activity, the employee is not entitled to any
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minimum guaranteed recovery from the proceeds. The court,
however, may award the qui tam plaintiff any sums from the
proceeds that it considers appropriate, but in no case more
than 33% of the proceeds if the state or political
subdivision goes forth with the action or 50% if the state
or political subdivision declines to go forth, taking into
account the significance of the information, the role of
the qui tam plaintiff in advancing the case to litigation,
the scope of the present or past employee's involvement in
the fraudulent activity, the employee's attempts to avoid
or resist the activity, and all other circumstances
surrounding the activity. (GOV Section 12652(g)(5))
This bill revises and recasts this provision to conform it
to that provided by the FFCA.
Existing law provides that, if the state, a political
subdivision, or the qui tam plaintiff proceeds with the
action, the court may award to the defendant its reasonable
attorney's fees and expenses against the party that
proceeded with the action if the defendant prevails in the
action and the court finds that the claim was clearly
frivolous, clearly vexatious, or brought primarily for
purposes of harassment. (GOV Section 12652(g)(9))
This bill provides these same attorney's fees provisions
separately as applied to a qui tam plaintiff and a
government entity plaintiff.
Existing law prohibits an employer from preventing an
employee from disclosing information to a government agency
or from acting in furtherance of a false claims action.
(GOV Section 12653(a))
Existing law prohibits an employer from taking adverse
employment actions, as specified, against an employee
because of lawful acts done by the employee on behalf of
himself or herself or others in disclosing information to a
government agency in furtherance of a false claims action.
(GOV Section 12653(b))
Existing law requires an employer who violates these
provisions to be liable for all relief necessary to make
the employee whole, including reinstatement with the same
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seniority status that the employee would have had but for
the discrimination, two times the amount of back pay,
interest on the back pay, compensation for any special
damage sustained as a result of the discrimination, and,
where appropriate, punitive damages. In addition, the
employer is required to pay litigation costs and reasonable
attorneys' fees of the employee. (GOV Section 12653(c))
Existing law also provides these remedies to an employee
against whom an adverse employment action, as specified,
was taken because of participation in conduct which
directly or indirectly resulted in a false claim being
submitted to the state or a political subdivision shall be
entitled to the remedies if, and only if, both of the
following occur:
the employee voluntarily disclosed information to a
government or law enforcement agency or acted in
furtherance of a false claims action, including
investigation for, initiation of, testimony for, or
assistance in an action filed or to be filed; and
the employee had been harassed, threatened with
termination or demotion, or otherwise coerced by the
employer or its management into engaging in the
fraudulent activity in the first place. (GOV Section
12653(d))
This bill revises and recasts these whistleblower
protections and extend these protections to a contractor,
or agent.
This bill repeals whistleblower protections provided to an
employee who participated in the false claim but
voluntarily reported the misconduct and was forced by the
employer to engage in the fraudulent conduct.
This bill provides a statute of limitations for
whistleblowers of three years from the date the retaliation
occurs.
Existing law provides a statute of limitations on CFCA
actions, which may not be filed more than three years after
the date of discovery by the AG or prosecuting authority
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or, in any event, not more than 10 years after the date on
which the CFCA violation was committed. (GOV Section
12654(a))
This bill provides a statute of limitations of six years
after the date the CFCA violation was committed, or within
three years after the date when facts material to the right
of action are known or reasonably should have been known by
the AG or prosecuting authority, but in no event more than
10 years after the date on which the violation is
committed, whichever occurs last.
This bill provides that, for statute of limitations
purposes under the CFCA, any pleading filed by the AG or
prosecuting authority 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,
transactions, or occurrences set forth, or attempted to be
set forth, in the prior complaint of that person.
Background
The CFCA, enacted more than 20 years ago, is widely
regarded as the most effective tool available to detect,
deter, and punish those who defraud the government of
public money. In addition to making it unlawful to
intentionally commit specified acts - or false claims -
against the government, the CFCA is best known for two key
components: (1) it encourages private citizens to report
fraud by providing a right to share in any recovery; and
(2) it imposes treble damages on violators.
California's law is modeled after its federal counterpart,
the FFCA, which was first enacted during the Civil War,
reportedly for the purpose of combating fraud against the
federal government by suppliers to the Union Army. Over
the years, both Acts have been instrumental in recovering
billions of dollars in fraudulently obtained public money.
The CFCA permits private citizens to initiate and prosecute
false claims actions on behalf of the state or local
government entity whose funds are at issue. Unlike most
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"private attorney general" statutes, which usually provide
for an award of reasonable attorney's fees when private
litigants prevail in actions brought in the public
interest, private suits under the CFCA are permitted as
"qui tam" actions, in which prevailing private litigants
are entitled to a percentage of the proceeds recovered as
payment for their efforts in successfully prosecuting
fraudulent claims against the government.
In May of 2009, President Barack Obama signed the Fraud
Enforcement and Recovery Act, which included amendments
designed to strengthen the FFCA. In order to make similar
improvements to the CFCA, California enacted AB 1196
(Blumenfield), Chapter 277, Statutes of 2009. The FFCA
subsequently was updated further by the Fraud Enforcement
and Recovery Act of 2009, the Patient Protection and
Affordable Care Act, and the Dodd-Frank Wall Street Reform
and Consumer Protection Act.
Pursuant to the federal Deficit Reduction Act, California
receives a ten percent federal bonus on all
Medicaid-related false claims recoveries because California
has enacted the CFCA. The AG reports that, since 2008,
California has recovered almost $95 million in additional
federal incentive awards on Medicaid-related false claims
recoveries. Overall, the AG's office states that it "has
recovered more than $1 billion taxpayer dollars, on all
types of CFCA recoveries since 1999."
However, given the recent updates to the FFCA, the AG has
been advised by the Inspector General of the U.S.
Department of Human and Health Services that California is
in danger of losing its 10% federal bonus on
Medicaid-related false claims recoveries because the CFCA
is out of date and out of compliance with the Deficit
Reduction Act.
This bill conforms the CFCA to the minimum standards of the
FFCA in order to maintain the federal bonus.
Prior legislation . AB 1196 (Blumenfield), Chapter 277,
Statutes of 2009, passed the Senate Floor (28-12) on
9/8/09.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Enacting conforming changes to the CFCA preserves the
state's qualification for federal financial incentive
awards related to recoveries of Medicaid false claims.
Since 2009, annual federal incentive awards received
have been in the range of $20 million to $40 million,
which are deposited in the Health Care Deposit Fund and
the False Claims Act Fund.
Minor, absorbable costs to the Department of Justice
Medi-Cal Fraud Control Unit and the Department of Health
Care Services Medical Review Branch internal claims
processes and investigations.
Potential ongoing costs in the range of $23,000 to
$76,000 (General Fund) to the Judicial Branch to the
extent there is an increase in the number of limited
and/or unlimited civil filings under the CFCA, offset to
a degree by increased civil penalty revenues.
SUPPORT : (Verified 7/5/12)
California Attorney General
California Employment Lawyers Association
Consumer Attorneys of California
ASSEMBLY FLOOR : 46-26, 05/03/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bradford, Brownley, Buchanan, Butler,
Charles Calderon, Campos, Carter, Cedillo, Chesbro,
Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Gatto,
Gordon, Hayashi, Hill, Huber, Hueso, Huffman, Lara,
Bonnie Lowenthal, Ma, Mendoza, Mitchell, Monning, Pan,
Perea, V. Manuel Pérez, Portantino, Skinner, Solorio,
Swanson, Torres, Wieckowski, Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Valadao,
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Wagner
NO VOTE RECORDED: Bonilla, Fletcher, Furutani, Galgiani,
Hall, Roger Hernández, Smyth, Williams
RJG:k 7/5/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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