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Whistlerblower Lawsuits in Qui Tam Actions under the California False Claims Act

Qui Tam or Whistleblower Lawsuits for Fraud on the Government under the California False Claims Act, and California Law on the Statute of Limitations The California False Claims Act, like the Federal False Claims Act, allows governmental entities - or private whistle-blowers or ?Qui Tam? plaintiffs - to bring an action to recover treble damages and civil penalties against persons contracting with State and local government agencies who have defrauded or cheated the government out of ?money, property or services?, whether on a government contract by asking for payment where the work was not performed per contract requirements or is defective, accepting over payments, not paying the government money owed to it (other than for taxes), and similar wrongs.

The private whistle-blowers or ?Qui Tam? plaintiffs may recover a share - up to as much as 50% - of the money recovered on behalf of the government in a lawsuit brought by the whistleblower, whether at trial or in a settlement, subject to the approval of the Court. The California law also provides that private whistleblowers or Qui Tam plaintiffs may bring an action as a relator on behalf of the State or its political subdivisions, if local funds are involved in the False Claims. Gov. Code § 12652( c).

The California False Claims Act, like the Federal Law, creates a right or basis for suit in favor of a public entity against any person who ?knowingly? presents a false claim, or knowingly uses a false record or statement, to induce a public entity to pay a claim, and provides for a civil penalty of up to $ 10,000 for each false claim, triple any damages sustained by the entity, and litigation costs. Gov. Code §12651(a)(1), (2) & (8).

It allows suit against anyone who, among other things: (1) Knowingly presents or causes to be presented to an officer or employee of the state or of any political subdivision thereof, a false claim for payment or approval. (2) Knowingly makes, uses, or causes to be made or used a false record or statement to get a false claim paid or approved by the state or by any political subdivision. . . . (8) Is a beneficiary of an inadvertent submission of a false claim to the state or political subdivision, subsequently discovers the false claim, and fails to disclose the false claim to the state or political subdivisions within a reasonable time after discovery of the false claim. (Emphasis added) "?As a statute obviously designed to prevent fraud on the public treasury, [the False Claims Act ] plainly should be given the broadest possible construction consistent with that purpose.? (Southern Cal. Rapid Transit Dist, supra, 30 Cal.App.4th at p. 725, italics added.)?State of California v. Altus Finance (2005) 36 Cal. 4th 1284, 1299 (emphasis added). See also, Gov. Code § 12555( c).

A "claim" under the Act ?includes any request or demand for money, property, or services made to any employee, officer, or agent of the state or any political subdivision . . . ." Gov. Code § 12650 (b)(1); Fassberg Construction. v. Housing Authority (2007) 151 Cal. App. 4th 267, 281.

The fraud need only be a material part of a transaction that eventually leads to a claim for government payment. San Francisco Bay Area Rapid Transit Dist, supra at p. 50 (false statement as to eligibility for DBE status, a condition to award of the contract); Fassberg Construction, supra 151 Cal. App. 4th at 287.

Even in cases where "the work . .. was . . . performed to specifications at the price agreed," false claims act liability may still attach "because of the fraud surrounding the efforts to obtain the contract or benefit status, or the payments thereunder."

Thus, even if the public received the benefits of the contract, this does not shield defendants from liability for false statements made in securing that contract or payments thereon. The Act is "intended to reach all types of fraud, without qualification? United States v. Neifert-White Co., supra, 390 U.S. at 232.

Thus if misrepresentations were made to obtain a government contract, all requests for payment on that contract can be considered ?False Claims?, even if there was no problem with the work performed under the contract. The California False Claims Act provides greater incentives to bring Qui Tam cases than the Federal provision, as it provides for the award to a relator of a potentially significantly larger percentage of the proceeds than does the Federal law. Compare Gov. Code § 12652(g)(2) & (3) to 31 U.S.C. § 3730(d)(1) & (2).

Furthermore, California adopted broader and more extensive provisions protecting Qui Tam employee whistleblower relators and others who bring or assist in California False Claim Act cases against or based on the conduct of their employers [Gov. Code § 12653], than does the Federal law, 31 U.S.C § 3730(h).

The California Act also establishes a procedure in Qui Tam cases for notification to the California Attorney General and the local authorities secretly when filing a lawsuit, so that they may decide whether to intervene in a Qui Tam action and take over its prosecution, seek to settle or dismiss it for ?good cause?, or allow the Qui Tam relator to prosecute it. Gov. Code § 12652( c)(4) - (8), & (e)(1) & (2), (f)(1) & (2); Laraway v. Sutro & Co., Inc. (2002) 96 Cal.App.4th 266, 273-274.

And the State statute, unlike the FFCA, allows the Attorney General or local prosecutor to later intervene in a Quit Tam case up to the time of judgment, even if they previously declined to do so. Gov. Code §12652(f)(2)(A). The Statute of Limitations in the Federal Law differs, as it begins to run when the violation was "known or reasonably should have been known", whereas the limitations period under California Gov. Code § 12654(a) commences upon "discovery." Debro v. L.A. Raiders (1st Dist. 2001) 92 Cal. App. 4th 940, 949. The California Statute of Limitations is thus another manner in which the General Assembly adopted statutory provisions differing somewhat from the Federal Act: ?(a) A civil action under Section 12652 may not be filed more than three years after the date of discovery by the Attorney General or prosecuting authority with jurisdiction to act under this article or, in any event, not more than 10 years after the date on which the violation of Section 12651 was committed.? (Emphasis added) Gov Code § 12654.

Prosecuting authority refers to the county counsel, city attorney, or other local government official charged with investigating, filing, and conducting civil legal proceedings on behalf of, or in the name of, a particular political subdivision.? (Emphasis added) Gov Code § 12650(b). See also, State ex rel. Harris v. Pricewaterhouse Coopers, LLP(2006) 39 Cal. 4th 1220, 1227-1228. The Legislative History of section 12654 indicates that this phrase was intended to apply to a public official such as the Attorney General, who has responsibility to protect the public from false claims. State of California ex rel. Hindin v. Hewlett-Packard Co., supra, at 314-315. The Attorney General and City, County or District Attorneys and the like are also the only public officials who are empowered to investigate and prosecute False claims cases, other than private whistleblowers. Gov. Code § 12652 (a) & (b). This is in accord with case precedents under the Federal False Claims Act. (31 U.S.C. § 3731(b)(2)). There, the language means a law enforcement official with authority to prosecute the false claims, such as a U.S. Attorney. U.S. v. Tech Refrigeration (N.D. Ill. 2001) 143 F.Supp.2d 1006, 1009. (However, the Federal Limitations period begins when ?facts material to the right of action? were known or ?reasonably should have been known?.) The California False Claims Act, by contrast, requires a responsible official to actually discover the violation of the CFCA itself. It thus does not matter when the Qui Tam or whistleblower plaintiff discovered the claim, as the Statute of Limitations only begins to run when the Attorney General or local City Attorney, County Counsel, etc. discover the fraud on the government, which may be long after the whistleblower discovers it. Finally, to protect the public agencies, any settlement or dismissal of the Qui Tam?s case must be approved by the Court, and such cases thus cannot be settled privately between the parties, like most civil cases. Gov. Code § 12652( c)(1). Gov. Code § 12652( c)(1). This latter provision was also very much strengthened in 2009 by AB 1196, in that the approval of both the Court and also the Attorney General or local prosecuting authority are now required to dismiss a False Claims case, even if the public entity has elected not to intervene in the case. Nor can a private relator agree to the waiver or release of a False Claims Act violation, except under a Court-approved settlement. Upon entry of judgment or approval of any settlement, the Court also itself - and not the parties - decides what percentage of the recovery will be awarded to the whistleblower/Qui Tam plaintiff, and what share goes to the government. ___________________________________ N.B. This article DOES NOT constitute legal advice or create an attorney/client relationship with the reader, and YOU MAY NOT rely on it without retaining a competent California government contracts or False Claims Act lawyer to consult and advise you regarding your particular situation. Facts and contracts vary greatly and the law is constantly changing and evolving. For further information on the subject of this article or for legal questions on subcontractor substitutions, California public works or government contracts, or private construction contracts, issues, defects or disputes and litigation please call us at (415)788-1881, x 222, or Contact Us via email, or see www.wolfflaw.com.

Additional resources provided by the author

California Government Code section 12650--12656.

United States v. Univ. of Phoenix (9th Cir. 2006) 461 F.3d 1166, 1170-1171, cert. den. (2007).

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