Legislature(2001 - 2002)

04/23/2001 01:15 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                              
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-                                                              
MR. BALDWIN  mentioned that  line 18 also  has reference  to "nolo                                                              
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                                                              
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                                                              
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                                                              

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