Overview of the State Statute. California enacted its civil False Claims Act (CFCA) in 1987 to establish a cause of action for false claims for payment submitted to the State of California. The state statute was modeled after the 1986 amended version of the federal False Claims Act (FCA). The CFCA provides that the Attorney General, the “prosecuting authority” of a political subdivision or a private citizen may prosecute cases under the Act.
Comparison with FCA. The CFCA is very similar to the federal False Claims Act, and as discussed below, was amended effective January 1, 2013 to match changes to the FCA between 2009 and 2010. However, the CFCA still differs from the FCA in several minor respects. For example:
- Unlike the FCA, the CFCA does not grant authority to the Attorney General or other prosecuting authority to issue Civil Investigative Demands. See 31 U.S.C. § 3733(a).
- Both statutes impose liability on any individual who “knowingly buys, or receives as a pledge of an obligation or debt, public property,” from someone who is not able to sell or pledge the property, but differ as to the source of the public property. Under the CFCA, the property may be received from “any person.” Cal. Gov’t Code § 12651(a)(6). Under the FCA, the property must be received from “from an officer or employee of the Government, or a member of the Armed Forces.” 31 U.S.C. § 3729(a)(1)(F).
- The CFCA imposes liability on “passive” beneficiaries who have benefitted from an inadvertent submission of a false claim, discover the claim was false, and fail to disclose the claim’s falsity to the government after a reasonable period of time. Cal. Gov’t Code § 12651(a)(8). The FCA does not include such provision.
- The CFCA imposes joint and several liability for any act committed by two or more persons. Cal. Gov’t Code § 12651(c). The FCA does not include such a provision.
- Unlike the FCA, the CFCA requires that the controversy exceed $500 in value. Cal. Gov’t Code § 12651(d).
- The CFCA provides that a relator may recover from 15 to 33 percent of the proceeds if either the Attorney General or the prosecuting authority intervenes and may recover 25 to 50 percent of the proceeds if neither government entity intervenes. Cal. Gov’t Code § 12652(g)(2)-(3). Under the FCA, a relator may recover between 15 and 25 percent of proceeds if the government intervenes and between 25 and 30 percent if the government does not intervene. 31 U.S.C. § 3730(d)(1)-(2).
- The CFCA allows relators who actively participated in the alleged fraudulent activity to share in the recovery, but the court retains discretion to limit their share and specifically prohibits the court from awarding such relators more than 33 percent of the proceeds if the state pursues the action or 50 percent if the state declines to pursue the action. Cal. Gov’t Code § 12652(g)(5). The FCA does not so limit such relators’ recoveries. See 31 U.S.C. § 3730(d)(3).
- The CFCA allows the government to dismiss the action over the relator’s objections only if the state has good cause and the court gives the relator an opportunity to oppose the dismissal and present evidence at a hearing. Cal. Gov’t Code § 12652(e)(2)(A). By contrast, the FCA allows the Government to dismiss the action even without good cause if the relator has been notified and given an opportunity to be heard. 31 U.S.C. § 3730(c)(2)(A).
- The CFCA requires government employees to exhaust internal reporting procedures before bringing a CFCA suit, except in CFCA actions involving California’s Medicaid Program. Cal. Gov’t Code § 12652(d)(4). The FCA does not impose such a requirement.
Recent Amendments to the California False Claims Act
Since 2005, states have been eligible to receive an additional 10% recovery in Medicaid-related false claims actions if, among other things, the state has a false claims act that is deemed by the HHS OIG to match or exceed the effectiveness of the federal False Claims Act (FCA). See 42 U.S.C. § 1396h. In 2008, California’s civil False Claims Act (CFCA) was determined by the HHS OIG to meet this standard, thereby qualifying the state for the additional 10% recovery.
However, between 2009 and 2010, Congress enacted three successive amendments to the FCA in the Fraud Enforcement and Recovery Act of 2009 (FERA), the Patient Protection and Affordable Care Act of 2010 (ACA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. These changes to the federal FCA meant that California, as well as other states, were no longer eligible for the additional recovery. In 2011, the HHS OIG formally determined that the CFCA no longer met the required standard, and offered California a grace period until August 31, 2013 to enact changes to the CFCA that would bring it into compliance.
On September 27, 2012, California’s Governor, Jerry Brown, signed Assembly Bill 2492, which is designed to align the CFCA with the amended version of the FCA The principal amendments to the CFCA are described below. In each instance, the changes to the CFCA are identical to the changes to the federal FCA, except where noted.
- Broader Liability: The amended CFCA defines the term “obligation” to create liability for retention of overpayments.
- Protection for More Whistleblowers: The amended CFCA protects contractors and agents – as well as employees – who “engaged in efforts to stop one or more [false claims] violations” or who acted “in furtherance” of a false claims action. It also includes a three-year statute of limitations for retaliation actions.
- Ability to Relate Back: The amended CFCA provides that a complaint filed by the Attorney General relates back to the filing date of a relator’s complaint.
- More Ways to Avoid Dismissal for Previous Public Disclosure: California narrowed the types of public disclosures that require dismissal of a CFCA suit and gave the Attorney General the opportunity to oppose the dismissal. The amended CFCA also expands the definition of an “original source” to include individuals who either previously disclosed the violation or possessed independent knowledge about the violation that materially added to public information and was disclosed to the government prior to the public disclosure.
- Increase in Civil Penalties: California increased the civil penalties for a CFCA violation to a minimum of $5,500 and a maximum of $11,000.
- No Limit on Types of Funds: The CFCA previously limited false claims act suits to those involving funds were the subject of a claim submitted to state officers, employees, or agents or that had been committed for reimbursement of such a claim. The amended CFCA now allows false claims act suits concerning any funds “that are the subject of a claim,” which, like the federal FCA, avoids any unintended limits on the types of funds that may serve as the subject of a claim.
- Recovery for Relators Who Participated in the Fraud: The CFCA previously refused any minimum guaranteed recovery to a relator who actively participated in the alleged fraudulent activity. The amended CFCA provides that such relators may share in the recovery, but the court retains discretion to limit their share. Here, the CFCA departs from the federal FCA to the extent that it prohibits the court from awarding such a relator more than 33 percent of the proceeds if the state pursues the action or 50 percent if the state declines to pursue the action.
- Attorneys’ Fees Awards: The amended CFCA specifically provides that a court may award attorneys’ fees against the relator only if the government does not proceed in the action.
- Longer Statue of Limitations: California replaced the CFCA’s original three-year statute of limitations, which ran from the date of the violation’s discovery, with a new timetable that allow actions to be filed no more than six years after the violation or no more than three years after the date when material facts became or should have become known. The amended CFCA continues to prohibit actions brought ten or more years after the violation, as does the federal FCA.
- Fewer Administrative Hoops: The CFCA previously required government employees to exhaust internal reporting procedures before bringing a CFCA suit. In response to the OIG’s recommendation to eliminate this requirement, California eliminated the requirement in CFCA actions involving California’s Medicaid Program, but retained the requirements in other actions. It is unclear whether the OIG will find this amendment acceptable as it is not identical to the federal FCA.
- Broader Definition of Claims: Though not specifically prompted by the OIG, California amended the CFCA’s definition of “claim” to include claims spent or used on the government’s “behalf or to advance” the government’s programs or interests.