Legislature(1999 - 2000)

03/07/2000 08:08 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 425-FALSE CLAIMS AGAINST STATE OR MUNI.                                                                                      
CO-CHAIRMAN MORGAN announced that the first order of business would                                                             
be HOUSE BILL NO. 425, "An Act relating to misrepresentation and                                                                
false claims made against the state or a municipality; and                                                                      
providing for an effective date."                                                                                               
Number 0082                                                                                                                     
JIM BALDWIN, Assistant Attorney General, Governmental Affairs                                                                   
Section, Civil Division, Department of Law, informed the committee                                                              
that "our office" [the Department of Law] requested introduction of                                                             
this legislation.  This legislation would place in the state's law                                                              
a false claims statute, which is intended to provide remedies to                                                                
state and municipal governments against persons who would file                                                                  
false claims for property or money from the state treasury or the                                                               
treasury of local municipalities.  This statute is modeled after                                                                
California's false claim statute, which is modeled after the                                                                    
federal false claim statute.  He noted that nearly all                                                                          
jurisdictions have similar types of legislation as does Alaska.                                                                 
Alaska has something similar to it in existing law, which has been                                                              
in effect since 1949.  What Alaska has is basically skeletal in                                                                 
nature and does not carry the penalties that make this type of                                                                  
statute useful in collecting amounts that may have been falsely                                                                 
claimed against the state or municipal governments.                                                                             
MR. BALDWIN pointed out that the most effective element of the bill                                                             
is that it would impose treble damages on a person who submits a                                                                
false claim against the state or municipal government.  The method                                                              
of how to establish the claims against a person is clear.                                                                       
Furthermore, the bill provides incentives for a person who may                                                                  
inadvertently make a false claim and discover the mistake after the                                                             
fact.  If the person acts within a certain amount of time, the                                                                  
amount of recovery against them could be greatly reduced if the                                                                 
person cooperates with the proceedings against the person(s) who                                                                
is really at fault.                                                                                                             
MR. BALDWIN informed the committee of how [the department]                                                                      
determined the need for this legislation and he noted that the bill                                                             
packet should include a letter outlining this.  The department was                                                              
contacted by the City of San Francisco, which was engaged in major                                                              
litigation with a major bank that had acted as a trustee for bond                                                               
debt service payments that were made by the City of San Francisco                                                               
and hundreds of other municipalities in California.  It was alleged                                                             
in this case that over the years when bond holders had failed to                                                                
collect their bond payments, the bank had held on to those monies                                                               
which were unclaimed funds.  The bank had never filed a report with                                                             
the state and thus had basically filed false reports as to the fact                                                             
that the bank was not holding unclaimed funds due to the state.                                                                 
Therefore, the bank was sued by the State of California and various                                                             
of its municipalities.  That case resulted in an approximately $200                                                             
million settlement that the bank paid to the state and the                                                                      
municipalities.  He said that in working with the attorneys that                                                                
represented the city [San Francisco] and the state [California], it                                                             
was determined that the threat of the treble damages under the                                                                  
false claim statute brought the bank to the table for a settlement.                                                             
Mr. Baldwin expressed the need to have similar types of remedies                                                                
available in Alaska.                                                                                                            
MR. BALDWIN informed the committee that [the department] has an                                                                 
ongoing case with the same bank.  He explained that Alaska and its                                                              
municipal governments had over $23 billion in debt service placed                                                               
with this bank over the course of 30-40 years.  Based on what is                                                                
known in regard to how much of that money the bank acceded to the                                                               
state government as unclaimed funds, it appears that the bank has                                                               
not returned what would be considered a reasonable amount of money                                                              
based on the knowledge of bond holder activity/behavior.  It                                                                    
appears as if this bank has paid Alaska much less than what has                                                                 
been established as the usual and customary rate.  Mr. Baldwin                                                                  
pointed out that when HB 425 was first drafted, [the department]                                                                
felt that it would be in litigation with the bank much sooner than                                                              
it now appears.  Therefore, the effective date in the original bill                                                             
was established based on the premise that HB 425 would not have                                                                 
much effect on this litigation.  However, it appears that this                                                                  
litigation is now being set back as mediation this winter became                                                                
protracted.  Now it appears that mediation will not occur until                                                                 
late this summer.  Therefore, Mr. Baldwin requested that the                                                                    
committee consider moving the effective date up to July 1, 2000 and                                                             
then HB 425 would become a factor in negotiations with the bank.                                                                
He pointed out that the effective date change would require the                                                                 
specified date in the bill to be changed to July 1, 2001 on page 4,                                                             
line 18, and page 5, line 16.                                                                                                   
Number 0657                                                                                                                     
REPRESENTATIVE DYSON moved that the committee adopt the following                                                               
     Page 4, line 18,                                                                                                           
          Delete "January 1, 2001"                                                                                              
          Insert "July 1, 2000"                                                                                                 
     Page 5, line 16                                                                                                            
          Delete "January 1, 2001"                                                                                              
          Insert "July 1, 2000"                                                                                                 
There being no objection, it was so ordered and the amendment was                                                               
REPRESENTATIVE DYSON commented that HB 425 is barely in the purview                                                             
of this committee.  Unless there are some cities or communities                                                                 
that would adversely be affected, HB 425 should be waived from this                                                             
committee or forwarded on to the next committee of referral, the                                                                
House Judiciary Committee.                                                                                                      
REPRESENTATIVE JOULE inquired as to the definition of "person" on                                                               
page 1, line 5.  He noted agreement with Representative Dyson that                                                              
this legislation is probably best dealt with in the House Judiciary                                                             
MR. BALDWIN informed the committee that Title 1 has a definition of                                                             
"person" which includes a corporation or a partnership.                                                                         
Number 0825                                                                                                                     
REPRESENTATIVE KOOKESH inquired as to the definition of a                                                                       
"municipality"; what statute would that be?                                                                                     
MR. BALDWIN specified that a municipality would be a general law or                                                             
home rule municipality.  That definition can be found in Title 29.                                                              
REPRESENTATIVE DYSON asked why [HB 425] would not allow any second                                                              
class city or [disorganized area] under Title 29 to do this.                                                                    
MR. BALDWIN directed the committee to AS 37.10.090(a) which in part                                                             
says, "A person is civilly liable to the state or a municipality".                                                              
He explained that those specified entities would have the remedy                                                                
available in HB 425.  Further on in the bill, it provides that if                                                               
there is an investigation and there is a determination that                                                                     
municipal property is involved, the state is required to provide                                                                
the city with notice that it has property involved.  He specified                                                               
that it would [apply to] a general law or home rule municipality.                                                               
In the case of a second class city that does not have a regular                                                                 
city attorney, the state would proceed on their behalf and amounts                                                              
recovered attributable to them would be paid to that second class                                                               
city.  This is the process followed now.  For a larger city such as                                                             
Anchorage, Fairbanks or Juneau with a city attorney, the                                                                        
investigation could be tendered over to the city to take over.                                                                  
REPRESENTATIVE DYSON asked if this false claims [statute] would                                                                 
apply to other entities organized under state law besides                                                                       
municipalities.  He asked if this would apply to a borough or a                                                                 
second class city.                                                                                                              
MR. BALDWIN stated that the false claims statute would only apply                                                               
to municipalities at this point.  He specified that this would                                                                  
apply to a borough or a second class city.                                                                                      
REPRESENTATIVE DYSON surmised then that this false claims statute                                                               
would apply to any civil government that is recognized in Title 29.                                                             
MR. BALDWIN agreed and specified that it would apply to any                                                                     
municipal corporation recognized in Title 29, which would include                                                               
a city and a borough.                                                                                                           
CO-CHAIRMAN MORGAN asked if there is anyone who would like to                                                                   
testify.  There being no one, he closed the public testimony.                                                                   
Number 1077                                                                                                                     
REPRESENTATIVE DYSON moved to report HB 425 as amended out of                                                                   
committee with individual recommendations and the zero fiscal note.                                                             
There being no objection, it was so ordered and CSHB 425(CRA) was                                                               
reported from committee.                                                                                                        

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