FALSE CLAIMS ACT
House Bill 4773 as passed by the House
Sponsor: Rep. Gino Polidori
Committee: Government Operations
Complete to 7-9-08
A SUMMARY OF HOUSE BILL 4773 AS PASSED BY THE HOUSE
The bill would create a new act known as the False Claims Act to establish remedies and sanctions against an individual or entity who presents a false or fraudulent claim to obtain money, property, or services from the state or a political subdivision (i.e., a local unit of government). It allows for enforcement by a "prosecuting authority" or by a private party. The bill would prohibit retaliation against someone who pursues a remedy under this new act.
(A "prosecuting authority" would be defined to mean the attorney general or an official charged with investigating, filing, and conducting civil legal proceedings on behalf of a political subdivision. A "political subdivision" includes a county, city, township, village, district, metropolitan government or authority, political body with the legal power or authority to levy taxes, or other legally authorized local governmental body, or a combination of such subdivisions.)
Damages and Penalties for False Claims. A person who commits any of the offenses described below, regardless of specific intent to defraud, is liable to the state or a political subdivision for three times the amount of damages sustained because of the offense, as well as the costs of an action brought to recover damages or a penalty, and could be liable to the state or a subdivision for a civil penalty of not less than $5,000 or more than $10,000 for each act. The bill would apply to a person (individual or entity) who:
*Knowingly presents or causes to be presented to an officer or employee of the state or a political subdivision a false claim for payment or approval.
*Knowingly makes or uses, or causes to be made or used, a false record or statement to get a false claim paid or approved.
*Conspires to defraud by getting a false claim allowed or paid.
*Has possession, custody, or control of public property or money used or to be used by the state or political subdivision and knowingly delivers or causes to be delivered less property than the amount for which the person receives a certificate or receipt.
*Is authorized to make or deliver a document certifying receipt of property used or to be used by the state or a political subdivision and knowingly makes or delivers a receipt that falsely represents the property used.
*Knowingly buys, or receives as a pledge of an obligation or debt, public property from any person who lawfully could not sell or pledge the property.
*Knowingly makes, uses, or causes to be made a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the state or a political subdivision.
*Is a beneficiary of the inadvertent submission of a false claim to an employee, officer, or agent of the state or political subdivision or other recipient of money of this state or political subdivision subsequently discovers that the claim submitted was false, and fails to disclose the false claim as applicable within a reasonable amount of time after discovery.
This act would not apply to claims, records, or statements that were made under the state's Income Tax Act or statements subject to recovery in a civil action under the Medicaid False Claim Act of 1977.
Prosecuting Authority Investigative Power. If, before beginning an action, a prosecuting authority has reasonable cause to believe that a person has information or is in possession, custody, or control of a document relevant to an investigation of conduct, the prosecuting authority may serve on the person a written demand to do one or more of the following: (a) appear and be examined under oath, (b) produce the document or object for inspection and copying, or (c) answer written interrogatories.
A prosecuting authority could file an action to enforce a demand in the circuit court of the county where the person resides or maintains a principal place of business. A notice of hearing and a copy of all pleadings would have to be served on the person on whom the demand was served. The person could appear in opposition to the action.
If the court finds that the demand is proper and there is reasonable cause to believe that conduct may have occurred (or is presently occurring) and the information sought is relevant to an investigation of the conduct, the court could order the person to comply with the demand, subject to any modification prescribed by the court. On motion by the person and for good cause shown, the court could enter any order to protect the person from unreasonable annoyance, embarrassment, oppression, burden, or expense.
Any testimony taken, document produced, or answers provided would have to be kept confidential by the prosecuting authority before beginning an action against a person for the conduct under investigation unless federal law requires the disclosure, confidentiality is waived by the person being investigated and the person who testified produced a document or answered interrogatories, or disclosure is authorized by the court.
Private Actions to Recover Losses/Intervention by Prosecuting Authority. Any person could bring an action in the name of the state or a political subdivision to recover losses sustained by the state or subdivision. A court could not dismiss such an action unless the prosecuting authority had been notified and had an opportunity to appear and oppose dismissal. If the opportunity to oppose dismissal is not exercised within 28 days, the opportunity would be considered waived.
If a person other than the prosecuting authority initiates an action, the complaint would be sealed and the clerk could not issue a summons for service on the defendant until the prosecuting authority decides whether or not to take over the action. When the complaint is filed, a copy must to be served on the prosecuting authority, along with disclosure in writing of substantially all material evidence and information supporting the complaint.
Within 90 days after receiving the complaint and disclosure, the prosecuting authority would be required to notify the court and the person initiating the action of one of the following: (1) that he or she will take over the action and have primary responsibility for proceeding with the action or (2) that he or she declines to take over the case and the person initiating the action has the right to proceed.
If the prosecuting authority elects to proceed with an action through initiation or intervention, he or she would have primary responsibility for prosecuting the action and could do all of the following:
* Agree to dismiss the action, notwithstanding the objection of the person initiating the action, but only if that person has been notified of and offered the opportunity to participate in a hearing on a motion to dismiss.
*Settle the action, notwithstanding the objection of the person initiating the action, but only if that person has been notified of and offered the opportunity to participate in a hearing on the settlement and if the court determines that the settlement is fair, adequate, and reasonable under the circumstances. On a showing of good cause, the settlement hearing may be heard in camera (in the judge's chambers).
*Request that the court limit the participation of the person initiating the action. If the prosecuting authority demonstrates that unrestricted participation by the person initiating the action would interfere with or unduly delay the prosecution of the case, or it would be repetitious, irrelevant, or unduly harassing, the court could limit the number of the person's witnesses, limit the length of witness testimony, limit the person's cross-examination of witnesses, or otherwise limit the person's participation in the litigation.
If the prosecuting authority notifies the court that he or she declines to take over the action, the person who initiated the action could proceed with it. However, the prosecuting authority, at his or her request and expense, could be provided with copies of all pleadings filed in the action and copies of all deposition transcripts. In spite of an election not to take over the action, the court may permit the prosecuting authority to intervene at any time on a showing of good cause without affecting the rights or status of the person initiating the claim.
However, if the court determines, after a hearing in camera, that the actions of the person initiating the claim during discovery would interfere with the prosecuting authority's investigation or prosecution of a criminal or civil matter, the court could stay the discovery for more than 90 days. The court could extend the stay on a further showing that the prosecuting authority is pursuing the investigation or proceeding with reasonable diligence and that the discovery would interfere with the ongoing investigation.
Alternative Action by Prosecuting Authority. As an alternative, the prosecuting authority could instead pursue damages or a penalty for an act through any proceeding available to the state government, including an administrative proceeding. If the prosecuting authority pursues an alternative proceeding, a person who initiates an action has rights in that proceeding equivalent to the rights the person would have had if the original action had continued, to the extent that those rights are consistent with the law governing the proceeding. Findings of fact and conclusions of law that become final in an alternative proceeding are conclusive on the parties to an action.
Private Party Intervention. A person could bring a civil action in any county in which venue is proper. If the attorney general elects to intervene in an action and the court grants the request, on motion by the attorney general the court would be required to transfer the action to the Ingham County circuit court. If the prosecuting authority for a political subdivision elects to intervene in an action pending in a judicial circuit or district that is not located in the political subdivision and the court grants the request, on motion of the prosecuting authority, the court must transfer the action to the circuit or district in which the political subdivision is located, as applicable.
Burden of Proof. In actions to reclaim losses, the plaintiff would have the burden of proving all essential elements of the cause of action, including damages by a preponderance of the evidence. The defendant would be estopped from denying the essential elements of a criminal offense of which the defendant was found guilty, whether by verdict after trial or by plea of guilty or nolo contendere, if the criminal offense included elements of false statement or fraud and if the action involves the same transaction.
Award to Prevailing Private Party. If a person other than the prosecuting authority prevails in an action that person initiates, the court would be required to award the person necessary expenses, costs, reasonable attorney fees, and the following percentages of monetary proceeds resulting from the action or settlement of the claim: if the prosecuting authority intervenes, 15 to 25 percent; if the prosecuting authority does not intervene, 25 to 30 percent.
However, if the court finds an action to be based primarily on disclosure of specific information that was not provided by the person bringing the action, such as information from a criminal, civil, or administrative hearing, a legislative report, an audit or investigation, or from the news media, and the prosecuting authority proceeds with the action, the court could award the person bringing the action no more than 10 percent of the monetary recovery in addition to reasonable attorney fees, necessary expenses and costs
Reduction of Award to Complicit Private Party. If the court finds that the person bringing the action planned, initiated, or participated in the conduct on which the action is brought, then the court could reduce or eliminate the share of the proceeds the person otherwise would be entitled to receive. A person who is convicted of criminal conduct arising from a violation of this act could not initiate or remain a party to an action under the act and is not entitled to share in the monetary proceeds resulting from the action or any settlement of the claim.
A person other than the prosecuting authority could not bring an action based on allegations or transactions that are already the subject of a civil action, a criminal investigation or prosecution, or an administrative proceeding to which the state or federal government is already a party. The court would be required to dismiss an action brought in violation of this section.
No Private Action Based on Public Disclosure. Unless that person is the original source of the information, a person other than the prosecuting authority could not initiate an action based on the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a state or federal legislative, investigative, or administrative report, hearing, audit, or investigation, or from the news media. The person is the original source if he or she had direct and independent knowledge of the information on which the allegations are based and voluntarily provided the information to the attorney general before filing an action based on the information.
State Not Liable for Fees of Private Parties. This state and the prosecuting authority general are not liable for any expenses, costs, or attorney fees that a person incurs in bringing an action under this section. Any amount awarded to a person initiating an action to enforce this act would be payable solely from the proceeds of the action.
Award to Defendant. If a person proceeds with an action after being notified that the prosecuting authority has declined to intervene, and the court subsequently finds the claim to be frivolous, the court could award the prevailing defendant actual and reasonable attorney fees and expenses and, in addition, impose a civil fine of up to $10,000 on the person who initiated the action. The civil fine would be deposited in the state's General Fund.
Recovery of Costs by the State. The prosecuting authority could recover all costs the state or a political subdivision incurs in the litigation and recovery of restitution under the act, including the cost of investigation and attorney fees. The prosecuting authority would deposit the amount received from activities under the act into the General Fund of the state or political subdivision, excluding amounts for restitution, court costs, and fines.
Employer Prohibitions and Sanctions. An employer could not discharge, demote, suspend, threaten, harass, or otherwise discriminate against an employee in terms and conditions of employment because the employee initiates, assists in, or participates in a proceeding or court action or because the employee cooperates with or assists in an investigation. This prohibition does not apply to an employment action against an employee if the court finds one or more of the following apply: (1) the employee brought a frivolous claim; (2) the employee planned, initiated, or participated in the conduct on which the action is brought; or (3) the employee is convicted of criminal conduct.
An employer who violates this section is liable to the employee for all of the following: (1) reinstatement without loss of seniority, (2) two times the amount of lost back pay, (3) interest on the back pay, (4) compensation for any special damages, and (5) any other relief necessary to make the employee whole.
Civil Action Limitations. A civil action could not be filed more than three years after the official of the state or political subdivision charged with responsibility to act discovers the act on which the action is based, or more than 10 years after the act was committed, whichever is later.
An action may be brought for conduct that occurred prior to the effective date of the bill, if the action is filed within the time specified.
Remedies. The remedies provided by the new act are not exclusive and are provided in addition to other remedies provided in any other law or available under common law. The new act is to be liberally construed and applied to promote the public interest.
FISCAL IMPACT:
The bill could increase court costs if caseloads increased due to allowing individuals to bring action in cases of false claims against the state.
POSITIONS:
The Department of the Attorney General supports the bill. (2-12-08)
Michigan Municipal League is neutral on the bill. (2-12-08)
Michigan Infrastructure and Transportation Association opposes the bill. (2-12-08)
Association of General Contractors of America testified in opposition to the bill. (2-12-08)
Fiscal Analyst: Bethany Wicksall
■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.