Knock out punch after getting public records to publicize during sunshine week

[Dwight Hines]

The states that have False Claims Acts, have a knockout punch to use
after you obtain documents through Open Records requests.
Unfortunately, states like Florida, that do not have acceptable (To
Feds) statutes for private prosecution of false claims are missing the
good financial thump that the FCA gives you to use on fraudsters.

Be sure your state has a false claims act that is validated by the feds.

Dwight

P.S.  Remember, you can get a substantial amount of the award if you
bring the complaint.






FraudMail Alert(r) No. 07-03-14

March 14, 2007



FCA Legislative Update:



(1)  False Claims Bills Introduced in Nineteen States;

(2) A Tax Proposal to Benefit Qui Tam Relators;  and

(3) Internal Report Concludes That New York City's FCA Yields Nothing So Far





State FCA Legislation



Nineteen states have introduced false claims legislation patterned
after the federal False Claims Act within the last year—the vast
majority in 2007.[1]  Although this is normally a busy time for new
legislative proposals, the rapid rate at which state legislatures are
introducing these bills indicates that most of them have been prompted
by the ten percent financial incentive promised under the Deficit
Reduction Act ("DRA") that took effect on January 1, 2007.  See
FraudMail Alert Nos. 06-02-08 and 05-10-28.  Others are designed to
respond to the recent HHS OIG Report finding that a number of state
false claims laws, while very effective in recovering money for the
state, nevertheless are not sufficiently similar to the federal law to
get whatever benefits may arise from the DRA.  See FraudMail Alert
Nos. 06-12-29 and 06-08-18.



If all of these bills are enacted, they would add to the false claims
laws already on the books in sixteen states plus the District of
Columbia, with the result that 33 state jurisdictions would have false
claims laws modeled on the federal statute.  These state laws are
likely to be essentially identical to the federal FCA due to the HHS
OIG's requirement that the state provisions must match the federal law
in order to qualify for the DRA's incentive.  In that event, the
sphere of influence governed by the federal FCA will continue its
expansion.



            The nineteen states that have recently introduced new
false claims act legislation, or amendments to existing FCA laws, are:
 Arkansas, Colorado, Connecticut, Florida, Georgia, Kansas, Minnesota,
Mississippi, Missouri, New Jersey, New Mexico, New York, North
Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South
Carolina and Texas.[2]  One of these, New Mexico, recently passed its
bill, which awaits Governor Richardson's signature.  Most of these
bills are virtually identical to the federal FCA.[3]



            The proposed changes to Florida's false claims law
illustrate the trend toward a close identity between state and federal
false claims laws.  Recently, Florida's false claims law was rejected
for the DRA's incentive by the HHS OIG as insufficiently identical to
the federal FCA.  See FraudMail Alert No. 06-12-29.  The OIG based its
rejection on two particular deviations from the federal law.  In the
bills subsequently introduced in Florida, these deviations are
amended, first, by inserting "fraudulent" in the definition of
"claims" under the statute, and second, by changing the length of the
statute of limitations to conform to the six-year period and the
three-year tolling provision contained in the federal law.



There are noteworthy differences between the state proposals and the
federal statute, however.  For example, Iowa's proposal specifies that
it applies to actions based on "activity prior to January 1, 2007"
that are within a proposed ten-year statute of limitations, thus
specifically overruling the presumption against retroactivity and
applying a ten-year limitations period to all actions, whether brought
by the state or a relator.  Whether that amendment is constitutional,
considering the punitive nature of the new law, remains to be
litigated.  In addition, the Iowa bill explicitly applies the
preponderance of the evidence burden of proof to qui tam plaintiffs.
These are expansions beyond the federal law.  Even more bizarre is the
statement in the Iowa proposal that



[t]his chapter shall . . . be construed and applied in a manner that
reflects the congressional intent behind the federal False Claims Act,
.  .  . including the legislative history underlying the 1986
amendments to the federal False Claims Act.



Other unique provisions contained in the New York proposals specify
that no action may be filed against the state or a local government.
The New York bills also provide a process by which the state attorney
general may grant permission to a local government to file an action,
and would prevent the state from being bound by a local government's
actions involving damages to the state.  These provisions apparently
reflect a compromise based on the potential for conflict between the
state law and New York City's municipal false claims ordinance.  See
FraudMail Alert Nos.  05-04-07 and 04-06-29.



Tax Code Amendment Proposal



In addition to the expanded potential for state enforcement actions
under state false claims laws, a new amendment to the Internal Revenue
Code was proposed in early March that would provide additional benefit
to relators.  See H. R. 1274, 110th Cong. 1st Sess. (March 1, 2007).
Under this bill, the Internal Revenue Code would be amended to exclude
amounts recovered by qui tam relators from gross income—a
questionable result that favors relators at the public's expense.



Relators already receive favorable tax treatment for attorney's
contingency fees under a federal law enacted in  2004 in reaction to a
circuit split over whether these fees were to be treated as income and
therefore taxable to the recipient of an award under a settlement or
judgment.  See American Jobs Creation Act of 2004, Pub. L. No.
108-357, § 703, 118 Stat. 1418 (2004).  Under this law, attorney's
fees and court costs paid in connection with qui tam or retaliation
actions under the FCA may be deducted from adjusted gross income.



 In view of the highly favorable tax treatment under the 2004 Act of
the very significant monetary rewards that relators receive for FCA
settlements, additional favorable tax treatment under the proposed
amendment to the Code is unnecessary and excessive.  In light of the
recent bounties received by Ven-A-Care relators ($40 million from the
National Medical Care settlement alone, in addition to settlements
with other pharmaceutical companies) and the relators in the Serono
settlement ($51.8 million), removing these huge amounts from taxation
would result in excessive give-aways to relators at taxpayers'
expense.



A Slow Start in New York City



According to an annual report summarizing the results of actions taken
under New York City's relatively new false claims ordinance passed in
2005, only four proposed civil complaints were received in 2006 and
one in 2005.  See Letter from Corporation Counsel M. Cardozo to Mayor
Bloomberg and City Council, New York City False Claims Act, at 2-3
(Feb. 28, 2007).  No enforcement actions were commenced by the
Corporation Counsel or by qui tam plaintiffs, although two cases were
still under investigation.  This is remarkably little activity under a
law that was touted at its passage by the City Council as addressing
false claims that have "considerable impact upon the city's treasury
through the loss of untold amounts of public dollars," and by a
council member's estimate that it could bring in more than $30 million
for the city.  See New York City False Claims Act, Intro. No. 630 §1
(May 11, 2005) (Legislative Findings and Intent of City Council),
reprinted in N.Y.C. Admin. Code § 7-801 (2005); S. Gaskell, Bill Would
Let You Sue For The City, The New York Post, at 12 (Feb. 16, 2005).



 Two cases were declined for very good reasons.  These cases involved
Medicaid allegations, and, under state law, any recoveries would be
paid to the state, but relators' awards would be paid out of the
city's treasury.  Allowing qui tam suits to be brought in these cases
would have saddled the city with both the awards and litigation costs
without any gain.  Moreover, actions had already been filed by the
state and federal governments under the federal FCA.



 ________________________________






[1]Seventeen states already have some form of false claims law. Eleven
states, plus the District of Columbia, have "general" laws applicable
to all types of alleged fraud against the state.  These are:  D.C.,
California, Delaware, Florida, Hawaii, Illinois, Indiana,
Massachusetts, Montana, Nevada, Virginia, and Tennessee.  Five other
states--Louisiana, Michigan, New Hampshire, New Mexico, and
Texas--have false claims laws directed solely at health care fraud.


[2]  See H.B. 2600, 86th Gen. Assem., Reg. Sess. (Ark. 2007);  H.B.
1144, 66th Gen. Assem., 1st Reg. Sess. (Colo. 2007);  S.B. 1128, Gen.
Assem., Jan. Sess. (Conn. 2007);  S.B. 1428, Gen. Assem., Jan. Sess.
(Conn. 2007);  S.B. 2312, 109th Reg. Sess. (Fla. 2007);  H.B. 1595,
109th Reg. Sess. (Fla. 2007);  H.B. 551, 149th Gen. Assem. (Ga. 2007);
 H.B. 631, 82nd Gen. Assem., 1st Sess. (Iowa 2007);  H.B. 483, 85th
Legis. Sess. (Minn. 2007);  S.B. 2279, 2007 Reg. Sess. (Miss. 2007);
S.B. 1244, 93rd Gen. Assem., 2d Reg. Sess. (Mo. 2006);  H.B. 770, 48th
Legis., Reg. Sess. (N.M. 2007);  A.B. 4308, 230th Legis. Sess. (N.Y.
2007);  S.B. 2108, 230th Legis. Sess. (N.Y. 2007);  S.B. 179, 2007
Gen. Assem. (N.C. 2007);  S.B. 2126, 60th Legis. Assem. (N.D. 2007);
S.B. 589, 51st Legis., 1st Sess. (Okla. 2007);  S.B. 889, 51st Legis.,
1st. Sess. (Okla. 2007);  H.B. 329, 190th Gen. Assem., Reg. Sess. (Pa.
2007);  H.B. 5582, Gen. Assem., Jan. Sess. (R.I. 2007);  S.B. 82,
117th Gen. Assem., 1st Reg. Sess. (S.C. 2006);  S.B. 1309, 80th Legis.
(Tex. 2007);  H.B. 2690, 80th Legis. (Tex. 2007);  H.B. 2925, 80th
Legis. (Tex. 2007).


[3] Most of the bills provide for a penalty range of between five and
ten thousand dollars.  Some depart from the federal law on  the
relator's share percentage.  The Colorado bill, for example, allows
not less than 20 percent nor more than 30 percent if the state does
not proceed with an action.  The Colorado bill also adds an eighth
area of liability for failure to disclose a false claim for an
inadvertent submission of a false claim that is subsequently
discovered, a provision found in several existing state false claims
laws.  Some of the bills enlarge upon the federal statute of
limitations.  The Colorado and Iowa bills, for example, would both
allow all actions to be commenced up to ten years after the violation.

John T. Boese
Fried, Frank, Harris, Shriver & Jacobson LLP
Washington, D.C.

(c) 2007 Fried, Frank, Harris, Shriver & Jacobson LLP

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