California Assembly Votes to Amend State False Claims Act

Written by Brian Dunphy and Carrie Roll

On August 16, 2012, the California Assembly passed a bill (AB 2492) amending California’s False Claims Act, Cal. Gov’t Code §§ 12650-12656 (“CA FCA”), which must be signed into law by Governor Jerry Brown.  The amendments largely conform the CA FCA to the federal False Claims Act (“FCA”) by expanding liability under the CA FCA and the rights of qui tam plaintiffs (called relators).  States have a financial incentive to enact state false claims laws that are at least as effective as the FCA in rewarding and facilitating relator’s lawsuits for false claims to the state Medicaid program.  By doing so, states qualify under the federal Deficit Reduction Act of 2005 (“DRA”) for an additional 10 percent share of the amount recovered using the state law.

Amendments to the FCA in the past several years will require states to amend their false claims laws to remain consistent with the FCA.  The FCA has been amended by the Fraud Enforcement and Recovery Act of 2009 (“FERA”), the Patient Protection and Affordable Care Act (“ACA”), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  As a result, the Office of Inspector General (“OIG”), which reviews and certifies whether state false claims laws qualify for incentives under the DRA, has determined that nearly all state false claims laws, including the CA FCA, are no longer “at least as effective” as the FCA.  The OIG gave these states a grace period until August 13, 2013 to amend their false claims laws to remain eligible for financial incentives.  Several other states, including Massachusetts (in July 2012), have amended their state false claims laws, and we anticipate that more states will follow.

Key Amendments to the CA FCA (if signed by the Governor)

• Increases penalties.  Penalties will be increased to $5,500 to $11,000 for each false claim.
• Broadens the definition of “claim.”  The definition would include claims submitted 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 . . . .”
• Defines “obligation.”  The CA FCA would incorporate the federal FCA's definition of an “obligation.”  An obligation includes retention of an overpayment, thereby giving rise to liability under the CA FCA for retention of an overpayment.
• Amendments favorable to relators.  Several amendments are helpful to relators, which will likely encourage more relators to bring suits under the CA FCA.  With these amendments, the CA FCA would:
  • make relators eligible for an award even if they planned and initiated the violation upon which the CA FCA action was based; 
  • eliminate the requirement that a claim must have been presented to an officer, employee, or agent of the state;
  • clarify that the CA FCA’s anti-retaliation provisions apply when relators are discriminated against for furthering an action under the CA FCA or for trying to stop a violation of the CA FCA (currently, these provisions apply only after a relator disclosed information about the false claim to the government);
  • expand the anti-retaliation provisions to include contractors and agents in addition to employees; and
  • grant relief to relators who are discriminated against, including reinstatement with the same seniority status, twice the amount of back pay plus interest, and compensation for special damages.
• Allows the Attorney General to override the public disclosure bar.  The CA FCA would permit the California Attorney General (“AG”) to prevent dismissal of a CA FCA claim based on publicly disclosed information by “opposing” dismissal.  And a CA FCA action may not be dismissed if the relator is the “original source” of the information. 
• Expands the definition of “original source.”  The CA FCA definition of an “original source” would broaden to include individuals who have voluntarily disclosed to the state the information upon which a claim is based, or have knowledge that is independent of, and “materially adds” to, publicly disclosed allegations of false claims.
• Statute of limitations/relation back.  The CA FCA would provide that, for statute of limitations purposes, if the AG files a complaint in intervention, it will relate back to the filing date of the relator’s complaint.  The amendments also conform to the statue of limitations provisions in the federal FCA.
• Defendant can recover attorneys’ fees.  The amendments would clarify an existing provision allowing defendants to recover attorneys’ fees if the defendant prevails in a CA FCA case and the court finds that the claim was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.  If the AG has intervened in the case, then the attorneys’ fees are assessed to the government.  If the AG declined to intervene, and the relator proceeded with the case, then the attorneys’ fees are assessed against the relator.

The importance of these amendments is not limited to individuals and entities doing business in California.  Twenty-nine states and the District of Columbia have enacted state false claims acts.  Many of these states will have to amend their false claims acts, as California and Massachusetts have done, to continue to qualify for the incentive recoveries.  Thus, more states will likely amend their state false claims acts before August 13, 2013 to make them consistent with the federal FCA—and more favorable to relators.

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