July 05, 2018
California’s False Claim Act (California Government Code §§ 12650-12656) imposes civil liability on any contractor presenting a false claim for money to a governmental entity or representative. Any person who violates the Act will be liable for three times the amount of damages sustained by the government, and a civil penalty of up to $10,000 for each false claim.
Prohibited Acts – Cal. Gov. Code § 12651(a) Prohibited under the False Claims Act are broadly defined to include the following:
(1) False claim—“Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval.”
(2) False record—“Knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim.”
(3) Conspiracy—“Conspires to commit a violation of” the Act.
(4) Delivery of less property—Possessing government money or property and delivering less than all of the money or property.
(5) Issuing a false receipt—Having authorization to make or deliver a document certifying receipt of property used or to be used by the state or by any political subdivision and knowingly making or delivering a receipt that falsely represents the property used or to be used;
(6) False purchase—Knowingly buying or receiving, as a pledge of an obligation or debt, public property from any person who lawfully may not sell or pledge the property;
(7) Reverse false claim—Knowingly making, using or causing to be made or used a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the state or to any political subdivision; and
(8) Inadvertent beneficiary—Being a beneficiary of an inadvertent submission of a false claim to the state or a political subdivision, subsequently discovering the falsity of the claim, and failing to disclose the false claim to the state or the political subdivision within a reasonable time after discovery
Examples of Construction False Claims
1. Claims For Materials/Services Not Supplied and Overcharged Costs
a. Premature payment applications/front-end loadin
b. Cost proposals without appropriate credits for deductive work; however proposed change order are not claims or false claims. Fassberg Const. Co. v. Housing Auth. Of L.A., 151 Cal. App. 4th 267 (2007)
c. Extra compensation requests for delays or disruptions where the delay or loss of productivity costs are misrepresented or the impacts or durations are overstated;
d. Applications for progress payments, change order requests, invoices, or other claims that are contract containing unit charges for labor or material, site overhead, home office overhead, bonding and insurance costs, equipment rental costs, mark-ups over actual costs, for unincurred or yet unpaid expenses, at rates unauthorized or for work not provided;
e. Any supporting documentation of a through d above, including the fabricated fees, scheduled documentation, reimbursable expenses or other costs.
2. Certifications Of Entitlement Which Are False, Including:
a. For payment for knowingly substandard or defective work
b.For payment for an obligation known to have been previously satisfied;
c. For additional payments for work or services known to be required under the original scope of work specified by the contract;
d. For delay damages or loss of productivity costs for delays or disruptions not solely caused by the public agency;
e. For time extensions remission of liquidated damages for known excusable delays or the delays not caused by the public agency;
f. For the release of retention known to be subject to contractually appropriate back charges or set-offs;
g. Knowledge of the making, using or causing to be made or use false record, statement or receipt to support any of the above entitlements (a) through (f) above; and
h. Conspiring to have a false claim allowed or paid by a public agency.
3. Knowledge Of An Inappropriate/Unconsented Substitution Of Less Than Specified Quality Material, Product Or Performance:
4. Failing To Disclose A False Claim Or False Pass Through Claim Within A Reasonable Amount Of Time After Its Discovery.
5. Rigging Bids.
Knowledge Required – Cal. Gov. Code § 12650(b(3)
The Act requires that the fraudulent conduct be committed “knowingly,” meaning that the person have:
- Actual knowledge; or
- Deliberate ignorance of truth or falsity; or
- Reckless disregard for the truth or falsity
Treble Damages and Civil Penalties – Cal. Gov. Code § 12651
A person who is liable under false claims act is liable to government entity for three times the amount of actual damages, as well as the costs of a civil action. A person can also be held for a civil penalty of up to $10,000 for each false claim.
In construction context, each time that an overstated cost appears in an invoice or payment request, it could be considered a separate false claim and therefore could be basis for separate penalty of up to $10,000. See Fassberg Const. Co. v. Housing Auth. L.A., 151 Cal. App. 4th 267 (2007).
Third Party / Agency Liability – Cal. Gov. Code § 12651(a)
The broad language of the prohibited acts may allow liability to attach to anyone who assists in the preparation of a “false” claim—it is a violation to “cause to be presented” a false claim. Cal. Gov. Code § 12651(a)(1).
Joint and Several Liability – Cal. Gov. Code § 12651(c)
Liability under the False Claims Act is joint and several for any act committed by two or more persons. Thus, defendants in such an action may be sued together or either one may be sued individually for full satisfaction of damages and penalties under the Act.
Excluded Claims — Cal. Gov. Code § 12651(d)-(g)
Not all false claims against government entities fall within the realm of the False Claims Act. In general, the following types of claims are excluded from the False Claims Act:
(1) Amounts in controversy less than $500.
(2) Claims pursuant to the California Tort Claims Act. If a defendant’s fraudulent act involves a claim, record, or statement made pursuant to the California Tort Claims Act (Government Code §§810-996.6), the False Claims Act will not apply.
(3) Claim pursuant to Worker’s Compensation Law. If a defendant’s fraudulent act involves a claim made under the law of worker’s compensation and insurance, the False Claims Act will not apply.
(4) Claim pursuant to Tax Law. If the defendant’s fraudulent act involves a claim made under the Revenue and Taxation Code, the False Claims Act will not apply.
(5) Allegations subject of pending civil suit. A party initiating a False Claims Action as a qui tam plaintiff may not bring an action that is based on allegations or transactions that are the subject of a civil suit or an administrative civil money penalty proceeding in which the State or political subdivision is already a party.
Who May Brink An Action on a False Claim
An action on a false claim may be brought by: (1) the state attorney general; (2) the prosecuting authority of a political subdivision; or (3) a qui tam plaintiff.