Luckily for us, Tony Munter had the chance to sit down with esteemed California False Claims Act attorney Mark Kleinman. They discuss the California False Claims Act as a state law, as well as in comparison to the Federal False Claims Act. Here is a broad State-by-State Guide of False Claims Act laws in the United States.
Here is a list of the topics they discuss:
- Difference in Federal and California False Claims Recovery Amounts
- The Alternative Remedy Provision
- Working With the California Attorney General on False Claims Cases
- Bringing False Claims Actions on Behalf of Political Subdivisions and Local Governments
- California False Claims Cases That Don’t Involve the Federal Government (e.g., Private Prisons)
Tony: This is a call to interview Mark Kleiman about the Federal False Claims Act versus the California False Claims Act and anything else you’d like to tell us about it…And I appreciate your taking the time to do this especially since you’re under the weather. What would you consider to be a major difference between the two acts? I noticed the recovery amounts are a little different. So, that might be one thing.
Mark: The recovery amounts in theory are different. The California statute supposedly provides for a richer relator share. Where the federal statute establishes a range of 15 to 25 percent for cases in which the government has intervened and 25 to 30 in cases in which the whistleblower proceeds without the government,the California statute is a bit more generous. In a declined case, when the federal situation starts at a floor of 25% and goes to 30% California can go up potentially to 50%, which is much richer.
But this is a difference more in theory than in practice. In cases involving both federal and state false claims prosecutions, the U.S. Department of Justice often takes the lead and the state attorney general’s office will remain in lock-step, or vary only minimally from whatever USDOJ is willing to concede the whistleblower is entitled to.
Number two, there is a natural brake on the higher end ratio in a declined case, which is that this still has to be approved by the court. Because of the ongoing transfer of wealth in California from the poor and the middle class to the wealthy, we have now had nearly 40 years of tax limitation and the state and local governments are starved. Unsurprisingly, state court judges know that they are starved and it would be a pretty extraordinary circumstance, i.e., perhaps where you’ve been all the way to trial that a state court judge would approve a 50% share of the recovery going to the whistleblower.
Tony: So, the whistleblower shouldn’t pursue a case on the theory that they’re going to collect half under the California False Claims Act. That would be in your view an extraordinarily rare result I take it.
Mark: It would indeed. You’ve got a good argument about it where you’ve gone through a month-long trial to prove the claims, but absent that kind of extraordinary circumstance, probably not.
The other really interesting difference is is a provision in the federal statute and is in every state statute except California and Florida’s. It’s called the Alternate Remedy Provision. The Alternate Remedy Provision in the federal statute says that if you file a false claims case and the government acts on your allegations, but uses some means other than your false claims case to achieve the same or similar result, you’ve got a right to show up in court and say, “Judge, the government has tried to dodge us and is using this as an alternate remedy and we’re entitled to a share of that as well.” This is in the federal statute. It’s been in the federal statute since 1986. It’s not in the California statute.
Now, the last three California Attorneys General have agreed that the state would not go out of its way to take advantage of that hole in the law and deprive a relator of what she’s entitled to. I can’t say that that’s true for Florida. No. In at least one case in Florida a backroom deal s have been cut with a defendant for the specific purposes of throwing a bone to a politically connected defendant, and also to cut the whistleblower out and making sure the whistleblower gets nothing.
So that– It’s a danger in California. It is yet to be used, but one of these days we’ll see it I’m sure.
Tony: I take it this is more a matter of practice of the attorney general’s office rather than case precedent. Given that there’s no statute, the attorney general has discretion to handle this type of situation any way they would like it sounds like.
Mark: That’s right. And what California has articulated to the whistleblower bar has been that they think of us as the geese that lay the golden eggs and they really don’t want to wring our necks as much as they might be tempted at times when they’re frustrated.
Tony: That’s good news though.
Mark: Yeah. That is good news.
Tony: I mean, that argues in favor of bringing cases in California and it argues for working with the California Attorney General’s office and while I realize the attorney general is an elected official, it’s a large enough office that if the professionals there have that opinion on a daily basis you would think that would carry over generally speaking from attorney general to attorney general. I realize I’m being hopeful. I hope I’m not being overly hopeful, but you’re saying there’s a culture of supporting a whistleblower out there.
Mark: The California statute also allows you to file False Claims cases on behalf of political subdivisions such as cities and counties, and the thousands of school districts, fire districts, water districts, hospital districts, etc. Those are all government entities and they all have a right to recover under the California False Claims Act, so whistleblowers have a right to pursue cases on their behalf. But this is where I worry about the cooperative model established by our AGs breaking down. There is a much greater risk that sooner or later County Counsel or a City Attorney’s office somewhere will realize that this is a loophole and drive a large truck through it. And remember, I mean, we’ve got– I mean, Los Angeles County has over 10 million people in it. We’re bigger than 43 states. So, the potential recovery from a local government in California can really be very, very large.
Tony: So, it’s almost a whole extra field of the practice in a sense that California being very large individual cities and counties in California being huge, these cases are obviously worth bringing if it involves California local claims in addition to whether or not it’s a federal claim. You would think there would be more California attorneys getting into local False Claims Act practice. Are you seeing any of that?
Mark: We’re seeing a very slow uptake. It’s still a really esoteric area of practice.
Second, there are a lot of people who are interested in the False Claims Act, but are either uninterested or unprepared to shoulder the burden of major commercial litigation if a case is declined. These cases are very, very expensive and can eat up the resources of a small or medium-sized office pretty quickly.
As a consequence, there’s still some hesitance to dive into the water.
Tony: Fair enough I suppose. Are there particular types of claims that might be something you would file in California that you might not be able to file federally? Are there federal claims that work well in the federal, you know, U.S. Attorney’s Offices in California or is it, you know, pretty much the same between the federal and the state? You just won a good case of fraud.
With rare exceptions obviously, securities fraud is a type of case where one could bring to the SEC, but generally, the federal government isn’t directly harmed under a False Claims Act theory whereas the California State pension plan and I imagine cities and towns would be wide open for such fraud and, you know, home securities across the board, but I don’t know if there are other types of fraud claims that one could only bring in California versus– or at least one could bring in California that one could not bring federally.
Mark: Well, it’s really– I don’t know if it’s a type of claim so much as a type of payment stream. It’s really a question of who is writing the check.
I mean, there is so much federal funding that goes to support state and local activities. It’s challenging to find state programs or city programs that are exclusively locally funded. And it often requires unpeeling layers of grants and trying to find the stream of money. One area that is state specific or predominantly state specific that a number of us are looking at are false claims against private prison contractors.
The California Department of Corrections and a number of the county jails have contracted out parts of these activities. What’s attractive about using the State False Claims Act in that situation is that– I mean, not only is money being stolen from the taxpayers who simply are not getting what they’ve paid for, but the conditions in some of these private prisons or the conditions in private medical clinics operated in public prisons are just truly abominable. And since there’s so much animosity toward prisoners, this is an interesting way to address policy questions around prisoner’s rights while wrapping still recouping money for the taxpayer.
I mean, there are some areas where state funding is really specific and idiosyncratic.
Tony: Well, I think that is really exciting. Overall, I suppose you would say California is a no more or less a victim of fraud as others States and therefore it’s a good thing there’s a false claims act. Is that a fair statement to make?
Mark: Sadly, it is a very fair statement especially true in the healthcare area where so much of the Medicaid population is being shunted into HMOs. In Medicaid of course, half of the money is state money, so you’ve got to pursue that under the State False Claims Act as well as the Federal if you want to get that money back. There are a number of people who are convinced that HMO does not stand for Health Maintenance Organization, but in fact stands for Hand the Money Over.
Leaving the poor without coverage and the rich with more money. You know, it’s the perfect solution to all of our problems.
Tony: Well, Mark, I thank you very much. I could go on for hours and hours with you. I’m a little afraid we might lose our connection. I’m also a little afraid of taking up your time since you seem a little under the weather, but–
Mark: Thank you.