Amendments to California False Claims Act Expand Potential Exposure to Government Investigations and Litigation
On September 27, 2012, Governor Jerry Brown signed into law Assembly Bill 2492 (AB 2492), which amends the California False Claims Act (CFCA).1 These amendments closely align the CFCA with the federal False Claims Act (FFCA).2 The CFCA allows the state attorney general (AG), local prosecutors, and individuals to file civil suits and recover treble damages against anyone who knowingly makes or uses a false record to obtain money or property from the state, or avoids paying or transmitting money or property to the state. In addition to providing recovery against people who submit false claims, the CFCA also provides financial incentives and anti-retaliation protection for employees who report fraudulent claims made by their employers in connection with work performed for the state and its political subdivisions.
The AB 2492 amendments to the CFCA took effect on January 1, 2013. The text and legislative history of AB 2492 indicate that there will be no retroactive application of the amendment. California companies that contract with the state, or its political subdivisions, need to be aware of these amendments and update their internal procedures to ensure compliance with the CFCA.
California adopted a false claims act in 1987 based on the FFCA.3 The CFCA, like the FFCA, was designed to protect against fraud on the public fisc.4 In general, the CFCA makes it unlawful for entities and persons to knowingly present or cause to be presented, "a false or fraudulent claim for payment or approval," or knowingly make, use, or cause "to be made or used a false record or statement material to a false or fraudulent claim."5 To violate the CFCA an individual must have "actual knowledge of the information," act "in deliberate ignorance of the truth or falsity of the information," or act "in reckless disregard of the truth or falsity of the information."6
Under the CFCA, the AG, local prosecutors and individuals can initiate actions to recover damages, penalties and costs when entities defraud the government.7 Individuals who bring these CFCA suits in the name of the government are known as "relators," "whistleblowers," or "qui tam" plaintiffs. The relator must initially file the case under seal and serve the AG with the complaint. The AG investigates the allegations and decides whether the state will intervene and prosecute the action, or decline to intervene and allow either the prosecuting authority or the relator to prosecute the action.8
In some instances, civil actions may be filed up to 10 years after the occurrence of a violation of the CFCA.9 Courts finding violations can assess treble damages, costs to recover damages, and a penalty for each violation, among other potential recoveries against the defendant.10
CFCA Amendments Expand Liability, Increase Penalties and Further Protect Relators
Supporters of AB 2492 claimed that California needed to amend the CFCA to closely conform to the FFCA in order to preserve the state's ability to receive federal incentive money from Medicaid-related false claims recoveries.11 Because of numerous amendments to the FFCA, including 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, the CFCA no longer paralleled the FFCA, and thus millions of dollars of potential incentive money was at risk for the state.
Key AB 2492 amendments to the CFCA include:
- The definition of "claim" has been expanded to include submissions 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’s behalf or to advance a state or political subdivision’s program or interest ... ."12
- The CFCA will incorporate the FFCA definition of "obligation," which includes potential liability for "retention of any overpayment."13
- If the AG files a complaint in intervention, the statute of limitations period will relate back to the filing date of the relator's complaint.14
- The AG or prosecuting authority will be able to override the public disclosure bar by opposing dismissal of an action in the same manner as the FFCA.15 Under the public disclosure bar courts dismiss cases based upon publicly disclosed information, unless the relator is the "original source" of the information. Publicly disclosed information includes allegations or transactions that are substantially similar to information previously disclosed in various judicial and governmental proceedings, or in the news media.16
- The CFCA definition of "original source" has been expanded to include individuals who have "knowledge that is independent of, and materially adds to, the publicly disclosed allegations" of false claims, and individuals who have voluntarily disclosed to the state the information upon which a false claim is based.17 This expansion allows relators, who have independent and additional material knowledge, to avoid dismissal by a court based on the public disclosure bar.
- Civil penalties have been increased to between $5,500 and $11,000 for each false claim.18
- Even relators "who planned and initiated" the false claim upon which the CFCA action is based will be potentially eligible for a significant award.19
- A relator who has been retaliated against in the form of termination, demotion, or other retaliation will be able to seek relief, including reinstatement with the same seniority status, double damages for back pay, interest on back pay, special damages, punitive damages, attorneys' fees and court costs.20These anti-retaliation measures will apply when relators are discriminated against for acts done in furtherance of a CFCA action, or acts done to stop violations of the CFCA.21
Companies Should Ensure Procedures Are Compliant with the AB 2492 Amendments
The increase in civil penalties and expanded anti-retaliation protections found in AB 2492 will increase incentives for relators to bring civil lawsuits against companies contracting with the government. Companies who deal with governmental entities should revisit their compliance programs with the CFCA amendments in mind. Companies should maintain open lines of communication with their employees in order to recognize issues early and deal effectively with potential problems promptly. When issues arise, a comprehensive investigation should be conducted, and the alleged violations should be monitored and handled with appropriate vigilance.
To ensure compliance programs align with the amendments, it is recommended that companies speak with an attorney in order to avoid violations. Furthermore, contact an attorney immediately whenever there is a potential CFCA claim that might be filed.
1 California Assembly Bill 2492; Cal. Gov't Code §§12650-56.
2 31 U.S.C. §§3729-33.
3 In 1863 the FFCA was enacted to combat fraud perpetrated against the government during the Civil War.
4 See S.F. Unified Sch. Dist. v. Laidlaw Transit, Inc., 182 Cal. App. 4th 438, 446 (2010). Courts will interpret this statute broadly. See id. (stating "the CFCA ... should be given the broadest possible construction consistent" with the purpose of "prevent[ing] fraud on the public treasury[.]").
5 Cal. Gov't Code §12651(a)(1)-(2).
6 Cal. Gov't Code §12560(b)(3). "Proof of specific intent to defraud is not required." Cal. Gov't Code §12560(b)(3).
7 Cities and counties in the state of California may also file suit. Cal. Gov't Code §12650(b)(6)-(8).
8 Cal. Gov't Code §12652(c).
9 Cal. Gov't Code §12654(a).
10 Cal. Gov't Code §12651.
11For states to remain eligible to receive bonuses on Medicaid-related false claims recoveries under section 1909 of the Social Security Act, federal law requires, in part, that "the [state] law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims" as the FFCA. 42 U.S.C. §1396(h).
12 California Assembly Bill 2492 (amending Cal. Gov't Code §12650(b)(1)(B)).
13 California Assembly Bill 2492 (amending Cal. Gov't Code §12650(b)(5)).
14 California Assembly Bill 2492 (amending Cal. Gov't Code §12654.5).
15 California Assembly Bill 2492 (amending Cal. Gov't Code §12652(d)(3)(A)).
16 California Assembly Bill 2492 (amending Cal. Gov't Code §12652(d)(3)(A)).
17 California Assembly Bill 2492 (amending Cal. Gov't Code §12652(d)(3)(C)).
18 California Assembly Bill 2492 (amending Cal. Gov't Code §12651(a)).
19 California Assembly Bill 2492 (amending Cal. Gov't Code §12652(g)(5)).
20 California Assembly Bill 2492 (amending Cal. Gov't Code §12653).
21 California Assembly Bill 2492 (amending Cal. Gov't Code §12653(a)).
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