California was the first state to adopt a False Claims Act, and it has been in place for over 25 years. The California False Claims Act was first enacted in 1987 as Ca. Govt. Code §§ 12650 to 12656. Section 12651(a) of the Act describes when civil liability is triggered, including when an individual knowingly presents or causes to be presented a false or fraudulent claim, conspires to do so, or engages in other fraudulent activity specified by law. California is rather unique in that persons or entities are potentially liable if they are a beneficiary of an inadvertent submission of a false claim to the state or if they subsequently discover that a false claim was submitted and they failed to disclose it to the state within a reasonable amount of time. Unlike the federal FCA, California’s False Claims Act does not apply to claims of less than $500, claims against public entities and employees, claims related to workers’ compensation, or claims related to records or statements made under California’s Revenue and Taxation Code. Furthermore, the state Act does not establish a minimum amount for penalties, although it imposes a maximum per claim penalty at $10,000.
The California False Claims Act contains a qui tam mechanism which permits a relator award ranging from 15% to 33%. If the state government has chosen not to intervene, the whistleblower may receive up to 50 percent of the available recovery. Potential relators can preserve their rights and obtain original source status by consulting an attorney, timely filing a case, and making a disclosure to the California state government pursuant to Ca. Govt. Code §§ 12652(d)(3)(B). While the state Act endeavors to protect whistleblowers from employer retaliation, it contains exceptions. Specifically, an employee is not protected under the Act if he or she directly or indirectly participated in the fraudulent conduct which subsequently led to the submission of a false claim to the state of any of its political subdivisions unless that employee:
· Voluntary disclosed information about a fraud to a state law enforcement agency or acted pursuant to an ongoing false claims action; and
· Has been threatened with demotion or termination, harassed, or otherwise coerced by an employer or management into participating in the fraudulent conduct.
With its notorious budget deficit and increased public scrutiny of government spending, California has not been hesitant to pursue claims under its False Claims Act.
In May 2011, Quest Diagnostics, Inc. agreed to settlement with the state of California for $241 million to resolve allegations that it overcharged the state’s Medi-Cal program. One of Quest’s competitors, Hunter Laboratories, LLC, filed the lawsuit in 2005. In particular, Hunter asserted that Quest used an illegal kickback scheme to overcharge California by up to six times for laboratory tests that enabled Quest to undercharge its private customers and obtain referrals of patients eligible for Medi-Cal. This settlement is believed to be the largest secured by an individual state.
California is currently engaged in a False Claims Act lawsuit against State Street Bank and Trust. The Attorney General accused State Street of overcharging two state pension funds since 2001 by using an artificially high exchange rate which cost the state $56 million. The state contends that each overcharge constitutes a separate claim under the state’s FCA, and it is seeking a statutory penalty of $10,000 for each one.