The Federal False Claims Act (“FCA”) has undergone significant amendments in recent years, through the Fraud Enforcement and Recovery Act (“FERA”) in 2009 and the Patient Protection and Affordable Care Act (“PPACA”) in 2010. For states to remain eligible to receive a 10% bonus on Medicaid-related false claims recoveries, federal law requires in part that “the [state] law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims” as the FCA. 42 U.S.C. § 1396(h) (2012). On September 29, 2012, California Governor Jerry Brown signed into law Assembly Bill 2492, which aims to further align the California False Claims Act (“CFCA”) with the FCA and thus preserve bonuses for the state in connection with Medicaid-related false claims recoveries.
Among the new key provisions of the amended CFCA are the following:
1. Scope of Potential Whistleblowers: The previous version of the CFCA barred suits by a whistleblower based on publicly disclosed allegations, unless the whistleblower had “direct and independent” knowledge of the allegations and had provided the information that led to the public disclosure. The amended CFCA allows a whistleblower to proceed with a lawsuit based on allegations that had been publicly disclosed if the Attorney General opposes dismissal of the whistleblower’s claims, if the whistleblower had disclosed to the state or relevant political subdivision the information on which the lawsuit is based prior to the public disclosure, or if the whistleblower’s knowledge is independent of and “materially adds” to the public information and he or she voluntarily provided the information to the state or political subdivision before filing suit.
2. Involvement in Wrongful Conduct: The amended CFCA no longer bars recovery for whistleblowers who “actively participated in the fraudulent activity.” Instead, it now provides for a more lenient standard by granting a court discretion to determine whether to reduce recovery and then only for persons who “planned and initiated” the fraudulent conduct. Even a whistleblower who “planned and initiated” the scheme may receive up to 33% or 50% of the recovery, depending on whether the state intervenes in the action. The import of this change is best illustrated (albeit under a different statutory scheme) by Bradley Birkenfeld, a former UBS banker who provided information to the government that led to UBS entering into a deferred prosecution agreement for tax fraud charges and paying $780 million in penalties. As a result, Mr. Birkenfeld received a $104 million award under the IRS whistleblower program despite his participation in the underlying fraudulent conduct. Under the previous version of the CFCA, a whistleblower involved in the fraud would have been barred from any recovery and therefore without any monetary incentive to report fraudulent activity. Now, individuals who are actual participants in fraudulent activity have a considerable incentive to report false claims under the amended CFCA.
3. Enhanced Whistleblower Protections: The amended CFCA now provides for reinstatement of employment as an additional remedy for employees who suffered retaliation by their employers. Moreover, this protection now extends to employees who “engaged in efforts to stop one or more [false claims] violations” in addition to employees who acted “in furtherance” of a false claims action.
4. Increased Penalties: The amended CFCA increases the low and high end of the civil penalty range by $500, i.e. from $5000 – $10,500 to $5,500 – $11,000.