21 Cal. App. 5th 1205
Cal. Ct. App. 5th2018Background
- Dillard (executive director) and Daniels (grants manager) ran ACAP, an AFI grantee administered under HHS rules; they were convicted after a jury trial of theft by false pretenses (count 2) and making a false account of public moneys (count 3); Dillard was also convicted for preparing false documentary evidence (count 6).
- AFI grants require grantees to maintain a reserve account containing nonfederal matching funds before drawing down federal AFI funds; grantees must submit bank-confirmation letters to HHS to support drawdowns.
- On June 10, 2010, a Citibank letter (signed by a bank manager at appellants' request) represented approximately $426,874 in nonfederal match funds; HHS released federal AFI funds to ACAP; the reserve actually held far less.
- Later AFI funds were used for payroll and other Agency needs; an audit found large shortfalls and HHS sought recoupment; appellants were prosecuted based on their representations to HHS, not on personal use of the funds.
- Appellants argued counts 2 and 3 were preempted by federal law governing the AFI program; the trial court rejected the defense on some counts; on appeal the court considered whether federal law impliedly preempts state criminal prosecutions tied to AFI representations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state criminal prosecutions for grantee representations to HHS are preempted by federal law | People: State theft and false-account statutes validly punish fraud on HHS and deter misuse of federal funds | Dillard/Daniels: Prosecution is preempted because AFI federal scheme occupies the regulatory field or federal interests would be obstructed | Reversed convictions on counts 2 and 3: prosecutions preempted under obstacle preemption as applied to AFI drawdown representations |
| Whether presumption against preemption applies | People: State law traditionally regulates fraud/criminality; presumption applies | Defendants: Relationship to HHS is inherently federal; no presumption | No presumption applies; the relationship is governed by federal law so Buckman-style analysis controls |
| Whether federal enforcement mechanisms (HHS sanctions, 18 U.S.C. § 1001) make state prosecution duplicative/conflicting | People: Federal remedies do not preclude state prosecution; states can supplement deterrence | Defendants: Allowing state prosecutions would interfere with HHS's calibrated remedial scheme and deter grantees from participating | Court: Federal sanctions regime and AFI objectives show state prosecutions would pose an obstacle to congressional purposes; preemption warranted |
| Forfeiture of preemption claim as to Count 3 | People: Appellants forfeited preemption for count 3 because not raised at trial | Defendants: Preemption is non-forfeitable or may be heard | Court: Excused any forfeiture and addressed preemption on the merits because it was purely legal and not prejudicial to People |
Key Cases Cited
- Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341 (preemption of state-law fraud-on-federal-agency claims to protect federal regulatory balance)
- Quesada v. Herb Thyme Farms, Inc., 62 Cal.4th 298 (Cal. 2015) (presumption against preemption applies to state consumer-protection suits where federal role is peripheral)
- Commonwealth's Motion to Appoint Counsel, 790 F.3d 457 (3d Cir. 2015) (federal supervision of grant funds can preempt state proceedings that would intrude on federal agencies' remedial discretion)
- Arizona v. United States, 567 U.S. 387 (2012) (States may not impose penalties that conflict with federal enforcement priorities and scheme)
- Wisconsin Dept. of Industry v. Gould Inc., 475 U.S. 282 (States may not supplement a comprehensive federal regulatory scheme in a way that undermines Congress's integrated scheme)