Legislature(2001 - 2002)
04/23/2001 01:15 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 145 - FALSE CLAIMS AGAINST STATE OR MUNICIPALIT Number 2000 CHAIR ROKEBERG announced that the next order of business would be HOUSE BILL NO. 145, "An Act making a civil remedy available to the state or a municipality against persons who make false claims for, or certain misrepresentations regarding, state or municipal money or other property; and providing for an effective date." Number 2014 JAMES BALDWIN, Assistant Attorney General, Governmental Affairs Section, Civil Division (Juneau), Department of Law (DOL), presented HB 145 on behalf of the administration. He noted that a similar bill was reported out of the House Judiciary Standing Committee during the last legislative session, and that the concept of HB 145 is the result of an ongoing claim against a rather large financial institution concerning unclaimed property. He explained that California found that its false claim statute was key in bringing a certain financial institution to the table to negotiate; California's false claim statute carries a treble damages clause. When [the DOL] looked at Alaska laws to see what its remedies might be, it found only a very skeletal form of a false claim statute, which is located in AS 37.10.090 and which basically says that the state can bring a claim on behalf of itself or on behalf of its municipalities if money has been illegally paid or diverted, but there is no ability to enhance the amount of damages if the prosecution is successful. MR. BALDWIN noted that [the DOL] has begun investigating a potential claim against that same financial institution, and although HB 145 may not assist the DOL in that particular instance, it could become useful in future litigation regarding unclaimed property or other situations in which a claim is brought against the state and is later proven false. He explained that HB 145 is modeled after California's unclaimed property law with the addition of a few changes that adapt it to Alaska law. A major difference between the California law and HB 145 revolves around some of the things that are excluded from coverage: Alaska would exclude any claims in an amount less than $500 because it would not be appropriate to subject those kinds of claims to the treble damages clause; and Alaska would exclude certain statutory systems (some of which are listed on pages 3-4) that already have well developed penalty provisions for submitting false claims, because they stand alone and do not need duplication. MR. BALDWIN also said that there is a fairly favorable standard of proof provided for the state to prove its case against a false claimant; it will be by a preponderance of the evidence. There is also a provision which says that if a particular individual is convicted of a crime involving misrepresentation, then that conviction can stand as prima facie proof; it can stand on its own as part of the main proof necessary to prove the civil claim under HB 145. He explained that HB 145 also has provisions for cooperation between municipal governments and state government if, in the investigation of a potential false claim, the attorney general determines that there is municipal property involved, there would be a process for either tendering the prosecution of that part of the case to a municipality, or retaining it and proceeding along with all the other aspects of the claim. He noted that these provisions are tailored to the Alaskan situation; the aforementioned case against the large financial institution involved both municipal property and state property, thus [the DOL and the municipalities] have had to find a way to work out how they would approach the case together, including how to share costs and share recovery. Number 2270 REPRESENTATIVE MEYER asked whether HB 145 would pertain to permanent fund dividend (PFD) applications. MR. BALDWIN said that HB 145 would not apply to the PFD; the PFD is paid under AS 43, and as such is listed as one of the exemptions on page 4. REPRESENTATIVE BERKOWITZ, referring to Section 3, pointed out that subsection(c) estops - prevents - the defendant from again raising the defense if there is a guilty plea or a nolo contendere plea; if someone is estoped in a civil action after making a nolo contendere plea, the intent of the nolo contendere plea is circumvented. He asked why "we" would want to do that. He also pointed out that "this is different for the government than it is for an individual citizen." MR. BALDWIN responded that to his understanding, for many purposes, a nolo contendere plea is the equivalent of a guilty plea. REPRESENTATIVE BERKOWITZ clarified that nolo contendere - no contest - merely means that the person is not fighting the charge, not that he/she agrees with the elements. He explained that this is different than a guilty plea in which the defendant acknowledges committing the elements. For example, "If you ran into a light pole and knocked it over, no contest means that you're not fighting it, but your not admitting civil liability." He opined that the current language is saying that if a person pleads no contest, he/she is essentially admitting civil liability, which is not the same for a private individual. "If I ran into your car and was charged with assault, and [I] plead no contest, you'd still have to prove the case against me in a civil context." MR. BALDWIN explained that this provision is based on the California law, which was used as model. CHAIR ROKEBERG pointed out that many times people might choose nolo contendere to avoid the expense of litigation; if he/she is estoped from asserting a defense in a civil case, it destroys one of the advantages of pleading nolo contendere. Number 2450 REPRESENTATIVE BERKOWITZ made a motion to adopt Amendment 1, which would strike "or nolo contendere" from page 4, lines 14- 15. MR. BALDWIN mentioned that line 18 also has reference to "nolo contendere". REPRESENTATIVE COGHILL asked what affect Amendment 1 would have on the July 1, 2001, date referred to in the last sentence on lines 17-18 of page 4. REPRESENTATIVE BERKOWITZ cautioned that there is some question about what is going on with no contest pleas. It is not always clear, he said, sometimes a nolo contendere plea can be an admission, but he could not recall what the parameters are. TAPE 01-72, SIDE B Number 2485 MR. BALDWIN, in response to Representative Coghill, explained that the last sentence in lines 17-18 of page 4 merely prevents subsection (c) from being applied retroactively. CHAIR ROKEBERG pointed out that this language reads "a guilty verdict upon a plea of nolo contendere", and does not refer to anything else. MR. BALDWIN, still referring to page 4, offered that if reference to "nolo contendere" is removed from lines 14-15, then the last sentence on lines 17-18 should also be removed. Number 2383 CHAIR ROKEBERG asked whether there were any objections to Amendment 1. There being no objection, Amendment 1 was adopted. Number 2365 REPRESENTATIVE COGHILL made a motion to adopt Amendment 2, which would remove the last sentence from subsection (c) on page 4, lines 17-18. There being no objection, Amendment 2 was adopted. REPRESENTATIVE BERKOWITZ, referring to the provision on page 4 regarding limitation of actions, said that to his recollection, most civil actions are limited to within three years of discovery. Unless there is a very compelling reason to allow the state twice as long to pursue an action, he said, it seems inappropriate that the state has more time than a private litigant. MR. BALDWIN noted that this provision is merely mirroring the California statute. He said that he is not so sure that three years is the overriding time limit; there is a six-year [statute of limitations] applicable to some claims, for example. Given the complexity of some of the cases the state litigates, he opined, six years is not unreasonable. REPRESENTATIVE BERKOWITZ said he agrees with that point, but he merely favors consistency. CHAIR ROKEBERG mentioned that some of the cases faced by the state could involve unclaimed property. MR. BALDWIN noted that this provision provides for a special limitation period for false claims. REPRESENTATIVE BERKOWITZ, referring to Sections 1 and 2, opined that at first glance, "you could incur civil liability to the state if you, for example, asserted a claim that you were owed money and then it turned out not to be true, or ... made a denial after the state made a claim against you." MR. BALDWIN explained that the language in Sections 1 and 2 is very similar to the false claim statute provisions in many other states and the federal government; this type of language is not unusual. If there is a problem of proof, he added, then that's the state's problem and it will have to prove by a preponderance of the evidence that there has been presentation of such a claim. He opined that it is unusual that a state such as Alaska doesn't already have the kinds of statutes as would be added via HB 145; HB 145 will allow the state to protect the public treasury from the assertion of false claims. Number 2141 REPRESENTATIVE COGHILL recounted that during litigation between himself and his municipality, the municipality asserted that he had done something falsely, when, instead, he was merely unaware of the regulations regarding that particular action. MR. BALDWIN, on the topic of penalties, explained that Section 2 of HB 145 provides for a $10,000 penalty for each act, and that there could then be interest and damages added to that. He noted that one of the main areas in which the statute was altered, via Section 1, is in the area of contract claims; if contractors who have done business with the state submit claims for additional costs and expenses for the work done, and the claims turn out to be false, Section 1 would provide a remedy in dealing with such contractors. He went on to explain that in the area of unclaimed property, if, for example, a financial institution holds money that it should pay out, but is instead merely filing reports that this money is being properly paid out, these claims by the financial institution would fall under [HB 145] with regard to making a false claim. He also pointed out that before an individual can file a lawsuit against the state, he/she has to go through a claims process under AS 44.77; he/she has to submit an administrative claim against the state, and if that claim turns out to be false, HB 145 would provide the state with a remedy. MR. BALDWIN, in response to questions, explained that under current statutory language, someone submitting a false contract claim must reimburse all sums paid on the claim, for all costs attributable to review of the claim, and for a civil penalty equal to the amount by which the claim is misrepresented. By contrast, under HB 145, a person submitting a false claim would be liable for to up to three times the amount of the claim, a civil penalty of up to $10,000 for each act for which liability is found, and attorney's fees and costs. He noted, however, that there are other provisions in HB 145 that say the court may reduce the amount of the damages to an amount not less than two times the amount of damages sustained and may waive entirely the civil penalties if the person committing any of the acts gives the officials of the state (or of the municipality) information known to that person about the violation within 30 days after the date in which the person first obtained the information. In essence this means that if the person cooperates with the state (or municipality), he/she gets the damages reduced; it becomes an incentive to help the state (or municipality). MR. BALDWIN, in response to questions regarding his earlier reference to a certain financial institution under investigation, explained that this financial institution was acting as a fiscal paying agent, or trustee for various forms of general obligation debt, revenue bond debt, and special obligation debt, and was therefore responsible for making payments to bondholders. It was subsequently discovered that in a small percentage of cases, the bondholders of these instruments were not claiming their coupon payments, but the financial institution was keeping the money rather than returning it to the governmental entities that issued the debt service. Number 1890 MR. BALDWIN noted that only one small element of HB 145 might have a bearing on the state's ongoing investigation of this financial institution. He then referred to page 2, [paragraph] (8), which says, "is a beneficiary of an inadvertent submission of a false claim to the state or a municipality, subsequently discovers the falsity of the claim, and fails to disclose the false claim to the state or the municipality within a reasonable time after discovery of the false claim." He pointed out that since statutes only work prospectively, [paragraphs] (1)-(7) would not apply to the financial institution currently under investigation, unless it knows it has a history of these kinds of activity and does not disclose this information to the state or municipality. MR. BALDWIN, in response to questions about California's case against the financial institution, said that a settlement was reached in which California was paid $188 million in damages for unspecified purposes, and was paid $40 million as an unclaimed property settlement. He noted that in this example, the financial institution kept very poor records, and thus the parties had to resort to a statistical analysis of the records in order to establish damages and determine what amount should have been escheated to the state. Mr. Baldwin explained that [the DOL] was investigating this same financial institution under the theory that since it is the issuer of some of those debt obligations, it is entitled to some of that settlement, whereas the financial institution is working under the theory that since it is domiciled in California, the funds escheated belong to California. He mentioned that [the DOL] is hoping to successfully conclude its case regarding these funds. REPRESENTATIVE BERKOWITZ, referring to the damages section on page 3, said that essentially treble damages are going to be awarded - that's three times the amount of actual damages - except if [subsection] (c) applies. Then the damages may be reduced to twice the amount of damages and the civil penalty may be waived. He pointed out, however, that this provision precludes the court from using a sliding scale with regard to damages and civil penalties. He noted that he did not like taking discretion away from the courts; the more discretion the courts have, he offered, the easier it can be to craft a solution for a given problem. Number 1662 REPRESENTATIVE BERKOWITZ made a motion to adopt Amendment 3, which would delete "of this section to an amount not less than two times the amount of the damages sustained" from page 3, lines 7-8. The result would leave the courts with the discretion of moving between treble damages and zero damages if all the conditions for such a waiver are met. He also noted that the language pertaining to these conditions is conjunctive; a person must meet all of them, not just one. MR. BALDWIN said he did not have a problem with leaving the decision regarding the reduction of damages and civil penalties to the discretion of the court. Number 1452 CHAIR ROKEBERG asked whether there were any objections to Amendment 3. There being no objection, Amendment 3 was adopted. Number 1435 REPRESENTATIVE BERKOWITZ moved to report HB 145, as amended, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 145(JUD) was reported from the House Judiciary Standing Committee.