HB-4773, As Passed House, February 19, 2008

SUBSTITUTE FOR

HOUSE BILL NO. 4773

A bill to provide for remedies and prescribe civil sanctions

against a person who presents a false or fraudulent claim to obtain

money, property, or services from this state; to prescribe the

powers and duties of certain state and local governmental officers

and agencies; and to prohibit retaliation against a person who

pursues a remedy under this act.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the "false

claims act".

Sec. 2. As used in this act:

(a) "Claim" means a request or demand for money, property, or

services made to an employee, officer, or agent of this state or a

political subdivision in this state, or to a contractor, grantee,

or other recipient, whether under contract or not, if any portion

House Bill No. 4773 (H-2) as amended February 19, 2008

of the money, property, or services requested or demanded issued

from or was provided by this state or a political subdivision in

this state.

(b) "Knowingly" means any of the following:

(i) With actual knowledge of the relevant information.

(ii) In deliberate ignorance of the truth or falsity of the

relevant information.

(iii) In reckless disregard of the truth or falsity of the

relevant information.

association, governmental entity, limited liability company, trust,

or other legal entity.

(d) "Political subdivision" means a county, township, city,

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 legally authorized

combination of political subdivisions.

(e) "Prosecuting authority" means, for this state, the

attorney general or, for a political subdivision of this state, the

official charged with investigating, filing, and conducting civil

legal proceedings on behalf of the political subdivision.

Sec. 3. (1) A person who commits any of the following acts,

regardless of whether the person acts with the specific intent to

defraud, is liable to this state or a political subdivision of this

state for 3 times the amount of damages the state or political

subdivision sustains because of the act [,] the costs of an action

brought to recover damages or a penalty, [a civil penalty of not less

House Bill No. 4773 (H-2) as amended February 19, 2008

than $5,000.00 and not more than ]

$10,000.00 for each act:

(a) Knowingly presents or causes to be presented to an officer

or employee of the state or political subdivision a false claim for

payment or approval.

(b) Knowingly makes, uses, or causes to be made or used a

false record or statement to get a false claim paid or approved by

the state or political subdivision.

getting a false claim allowed or paid by the state or political

subdivision.

(d) 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.

(e) Is authorized to make or deliver a document certifying

receipt of property used or to be used by the state or political

subdivision and knowingly makes or delivers a receipt that falsely

represents the property used or to be used.

(f) Knowingly buys, or receives as a pledge of an obligation

or debt, public property from any person who lawfully may not sell

or pledge the property.

(g) Knowingly makes, uses, or causes 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

political subdivision.

(h) Is a beneficiary of the inadvertent submission of a false

claim to an employee, officer, or agent of this state or a

political subdivision of this state or to a contractor, grantee, or

other recipient of money of this state or a political subdivision

of this state, subsequently discovers that the claim submitted was

false, and fails to disclose the false claim to this state or the

political subdivision, as applicable, within a reasonable time

after the discovery.

(2) This act does not apply to claims, records, or statements

that are either of the following:

(a) Made under the income tax act of 1967, 1967 PA 281, MCL

206.1 to 206.532.

(b) Subject to recovery in a civil action under the medicaid

false claim act, 1977 PA 72, MCL 400.601 to 400.613.

Sec. 4. (1) If, before commencing an action under this

section, a prosecuting authority has reasonable cause to believe

that a person has information or is in possession, custody, or

control of a document or other tangible object relevant to an

investigation of conduct described in section 3(1), the prosecuting

authority may serve on the person in the manner required for

service of process in this state a written demand that the person

do 1 or more of the following:

(a) Appear and be examined under oath.

(b) Produce the document or object for inspection and copying.

(2) A demand under subsection (1) shall include all of the

following:

(a) The nature of the conduct.

(b) If applicable, a description of the document or object to

be produced with sufficient definiteness to permit it to be fairly

identified.

(d) A reasonable date and time at which the person must appear

to testify or a period of time within which the person must produce

the document or object to or answer the written interrogatories.

(e) A statement that objections to or reasons for not

complying with the demand may be filed with the prosecuting

authority on or before the date or within the time period, as

applicable, given under subdivision (d).

(f) The place where the testimony will be taken or the

document, object, or answers to interrogatories produced.

(g) A designation of the person who will be custodian of the

document or object produced.

(h) A statement that if the person objects to or otherwise

fails to comply with the written demand, the prosecuting authority

may file an action to enforce the demand as provided in subsection

(3).

(3) A prosecuting authority may file an action to enforce a

demand made under subsection (1) in the circuit court of the county

in which the person resides or maintains a principal place of

business. Notice of hearing of the action and a copy of all

pleadings shall be served on the person on whom the demand was

served. The person may appear in opposition to the action.

(4) If the court in an action under subsection (3) finds that

the demand is proper, that there is reasonable cause to believe

that conduct described in section 3(1) may have occurred or is

presently occurring and that the information sought or document or

object demanded is relevant to an investigation of the conduct, the

court shall order the person to comply with the demand, subject to

any modification the court prescribes. On motion by the person and

for good cause shown, the court may enter any order that justice

requires to protect the person from unreasonable annoyance,

embarrassment, oppression, burden, or expense.

(5) Any testimony taken, document or object produced, or

answers provided shall be kept confidential by the prosecuting

authority before commencing an action against a person under this

act for the conduct under investigation, unless 1 or more of the

following apply:

(a) Federal law requires the disclosure.

(b) Confidentiality is waived by the person being investigated

and the person who has testified, produced a document or object, or

answered interrogatories.

Sec. 5. (1) Any person may bring an action in the name of this

state or a political subdivision of this state under this section

to recover losses that this state or the political subdivision

sustains from an act described in section 3(1). A court shall not

dismiss an action filed under this section unless the prosecuting

authority for the entity on whose behalf the action was brought has

been notified and had an opportunity to appear and oppose the

dismissal. The prosecuting authority waives the opportunity to

oppose the dismissal if it is not exercised within 28 days of

receiving the complaint and disclosure under subsection (2).

(2) If a person other than the prosecuting authority initiates

an action under this section, the complaint shall be sealed and the

clerk shall not issue a summons for service on the defendant until

after the time for the prosecuting authority's election under

subsection (3) expires. At the time the complaint is filed, the

person initiating the action shall serve a copy of the complaint on

the prosecuting authority for the entity on whose behalf the action

was brought and shall disclose, in writing, substantially all

material evidence and information in the person's possession

supporting the complaint to the prosecuting authority.

(3) The prosecuting authority for the entity on whose behalf

the action was brought may elect to intervene in an action under

this section. Within 90 days after the complaint and disclosure are

served on the prosecuting authority under subsection (2) or any

extension of the 90 days granted by the court, the prosecuting

authority shall notify the court and the person initiating the

action of 1 of the following:

(a) That the prosecuting authority will take over the action

for this state and have primary responsibility for proceeding with

the action.

(b) That the prosecuting authority declines to take over the

action and the person initiating the action has the right to

proceed with the action.

(4) If an action is filed under this section, a person other

than the prosecuting authority for the entity on whose behalf the

action was brought shall not intervene in the action or bring

another action on behalf of this state or the political subdivision

based on the facts underlying the action.

(5) If the prosecuting authority elects to proceed with the

action under subsection (3) or (6), the prosecuting authority has

primary responsibility for prosecuting the action and may do all of

the following:

(a) 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.

(b) 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 held in

camera.

initiating the action. If the prosecuting authority demonstrates

that unrestricted participation by the person initiating the action

during the litigation would interfere with or unduly delay the

prosecuting authority's prosecution of the case or would be

repetitious, irrelevant, or unduly harassing, the court may do any

of the following:

(i) Limit the number of the person's witnesses.

(ii) Limit the length of the testimony of the person's

witnesses.

(iii) Limit the person's cross-examination of witnesses.

(iv) Otherwise limit the person's participation in the

litigation.

(6) If the prosecuting authority for the entity on whose

behalf the action was brought notifies the court that he or she

declines to take over the action under subsection (3), the person

who initiated the action may proceed with the action. At the

prosecuting authority's request and expense, the prosecuting

authority shall be provided with copies of all pleadings filed in

the action and copies of all deposition transcripts.

Notwithstanding the prosecuting authority's election not to take

over the action, the court may permit the prosecuting authority to

intervene in the action at any time on a showing of good cause and,

subject to subsection (7), without affecting the rights or status

of the person initiating the action.

(7) If the court determines, after a hearing conducted in

camera, that actions of the person initiating the action during

discovery would interfere with the prosecuting authority's

investigation or prosecution of a criminal or civil matter, the

court may stay the discovery for not more than 90 days. The court

may extend the stay on a further showing that the prosecuting

authority is pursuing the investigation or proceeding with

reasonable diligence and the discovery would interfere with the

ongoing investigation or proceeding.

Sec. 6. As an alternative to an action permitted under section

5, the prosecuting authority may pursue damages or a penalty for an

act described in section 3(1) through any proceeding available to

this state, including an administrative proceeding. If the

prosecuting authority pursues an alternative proceeding, a person

who initiates an action under section 5 has rights in that

proceeding equivalent to the rights that the person would have had

if the action had continued under section 5 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

under section 5. For purposes of this section, a finding or

conclusion is final if it has been finally determined on appeal to

the appropriate court, if the time for filing an appeal of the

finding or conclusion has expired, or if the finding or conclusion

is not subject to judicial review.

Sec. 7. (1) A person may bring a civil action under section 5

in any county in which venue is proper.

(2) If the attorney general elects to intervene in an action

under section 5(3) or (6) and the court grants the request, on

motion by the attorney general, the court shall transfer the action

to the Ingham county circuit court.

(3) If the prosecuting authority for a political subdivision

elects to intervene under section 5(3) or (6) in an action that is

pending in a judicial circuit or district other than a circuit or

district in which the political subdivision is located and the

court grants the request, on motion by the prosecuting authority,

the court shall transfer the action to the circuit or district, as

applicable, in which the political subdivision is located.

Sec. 8. (1) The plaintiff in an action brought under section 5

has the burden of proving all essential elements of the cause of

action, including damages, by a preponderance of the evidence.

(2) The defendant in an action under section 5 is 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

under section 5 involves the same transaction.

Sec. 9. (1) Subject to subsections (2) and (3), if a person

other than the prosecuting authority prevails in an action that the

person initiates under section 5, the court shall award the person

necessary expenses, costs, reasonable attorney fees, and, based on

the amount of effort involved, the following percentage of the

monetary proceeds resulting from the action or any settlement of

the claim:

(a) If the prosecuting authority intervenes, 15% to 25%.

(b) If the prosecuting authority does not intervene, 25% to

30%.

(2) If the court finds an action under section 5 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 in a state or

federal department or agency, a legislative report, hearing, audit,

or investigation, or the news media, and the prosecuting authority

proceeds with the action, the court shall award the person bringing

the action no more than 10% of the monetary recovery in addition to

reasonable attorney fees, necessary expenses, and costs.

(3) If the court finds that the person bringing an action

under section 5 planned, initiated, or participated in the conduct

on which the action is brought, then the court may reduce or

eliminate, as it considers appropriate, the share of the proceeds

of the action that the person would otherwise be entitled to

receive. A person who is convicted of a crime arising from the

conduct on which an action under section 5 is brought shall not

initiate or remain a party to the action and is not entitled to

share in the monetary proceeds resulting from the action or any

settlement of the claim.

(4) A person other than the prosecuting authority shall not

bring an action under this section that is based on allegations or

transactions that are already the subject of a civil action, a

criminal investigation or prosecution, or an administrative

investigation or proceeding to which this state or the federal

government is already a party. The court shall dismiss an action

brought in violation of this subsection.

(5) If the court in an action under section 5 determines that

the action is 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 court shall dismiss the action unless 1 or more of the

following apply:

(a) The action was commenced by the prosecuting authority.

(b) The prosecuting authority has intervened in the action

under section 5(3) or (6).

source of the information on which the allegations or transactions

are based. The person is the original source if he or she had

direct and independent knowledge of the information and voluntarily

provided the information to the prosecuting authority before filing

an action based on that information under this section.

(6) This state or a political subdivision and the prosecuting

authority are not liable for any expenses, costs, or attorney fees

that a person incurs in bringing an action under section 5. Any

amount awarded to a person initiating an action to enforce this act

is payable solely from the proceeds of the action or settlement.

(7) If a person proceeds with an action under section 5 after

being notified that the prosecuting authority has declined to

intervene and the court finds that the claim was frivolous, as

defined in section 2591 of the revised judicature act of 1961, 1961

PA 236, MCL 600.2591, the court shall award the prevailing

defendant actual and reasonable attorney fees and expenses and, in

addition, shall impose a civil fine of not more than $10,000.00 on

the person who initiated the action. The civil fine shall be

deposited into the general fund of this state or the political

subdivision, as applicable.

(8) The prosecuting authority may recover all costs this state

or the political subdivision incurs in the litigation and recovery

of restitution under this act, including the cost of investigation

and attorney fees.

(9) With the exception of money recovered for restitution,

court and investigation costs, and reasonable attorney fees, the

prosecuting authority shall immediately deposit all recovered money

received by the prosecuting authority into the general fund of this

state or the political subdivision.

Sec. 10. (1) An employer shall not discharge, demote, suspend,

threaten, harass, or otherwise discriminate against an employee in

the terms and conditions of employment because the employee

initiates, assists in, or participates in a proceeding or court

action under this act or because the employee cooperates with or

assists in an investigation under this act. This prohibition does

not apply to an employment action against an employee if the court

finds that 1 or more of the following apply:

(a) The employee brought a frivolous claim under this act, as

defined in section 2591 of the revised judicature act of 1961, 1961

PA 236, MCL 600.2591.

(b) The employee planned, initiated, or participated in the

conduct on which the action is brought.

an act described in section 3(1).

(2) An employer who violates this section is liable to the

employee for all of the following:

(a) Reinstatement to the employee's previous position without

loss of seniority.

(b) Two times the amount of lost back pay.

(d) Compensation for any special damages.

(e) Any other relief necessary to make the employee whole.

Sec. 11. (1) A civil action under section 5 may not be filed

more than 3 years after the official of the state or political

subdivision charged with responsibility to act in the circumstances

discovers the act on which the action is based or more than 10

years after the act was committed, whichever is later.

(2) An action under section 5 may be brought for conduct that

occurred prior to the effective date of this act if the action is

filed within the time limitation in subsection (1).

Sec. 12. (1) The remedies provided by this act are not

exclusive and are provided in addition to any other remedies

provided in any other law or available under common law.

(2) This act shall be liberally construed and applied to

promote the public interest.