PROCEDURAL BACKGROUND
Dillard and Daniels were charged by amended information with the following:
Count 1: Conspiracy to commit grant theft by false pretenses ( Pen. Code, §§ 182, subd. (a)(1), 487, subd. (a) )
Count 2: Grand theft by false pretenses ( § 487, subd. (a) ) by unlawfully taking grant funds from HHS. This count included an allegation that the property taken exceeded $200,000 (§ 12022.6, subd. (a)(2) ).
Count 3: Making a false account of public moneys (§ 424, subd. (a)(3) ) by signing and sending false and inaccurate letters to HHS. A third co-defendant, Vivian Rahwanji, was also charged with this count. Rahwanji entered into a plea agreement with the People on the eve of trial and, as part of this agreement, testified as a prosecution witness.
Count 4: Using public moneys for a purpose not authorized by law (§ 424, subd. (a)(2) ), by improperly using over $280,000 of funds intended for a HHS grant program to fund Agency payroll and other Agency expenses.
In addition, Dillard was charged with the following:
Count 5: Appropriating public moneys to her own use (§ 424, subd. (a)(1) ), by instructing employees to work on her personal residence at below-market rates and obtaining reimbursement for improper business expenses, such as massages and expensive meals.
Count 6: Preparing false and ante-dated documentary evidence (§ 134), by preparing a memoranda regarding the residency status of Agency clients and an agenda of a seminar at a hotel.
Following a lengthy trial, the jury convicted appellants of theft by false pretenses (count 2) and making a false account of public moneys (count 3),
The Agency
ACAP was an anti-poverty agency created pursuant to a joint powers agreement between Alameda County (the County) and several cities in the County. A governing board (the Board) consisted of representatives from each of the municipalities and, among other powers, selected the Agency's executive director. Dillard was appointed the Agency's interim executive director in 2004 and its executive director in 2005. Daniels was hired as an administrative assistant at the Agency in 2004, and was promoted to grants manager the following year. Daniels and Dillard married in 2007.
The Assets for Independence Grant Program
In June 2005, the Agency sought, and was awarded, a five-year, $500,000 Assets for Independence (AFI) grant from HHS. Two HHS employees testified about the rules governing AFI grants: Katrina Morgan, an HHS grants management officer, and Anne Yeoman, a 10-year contract employee with HHS who worked primarily on the AFI program. AFI grants are awarded to organizations or agencies to fund programs that help low-income people build assets. We will refer to the organizations or agencies administering the AFI programs as "grantees," and the low-income individuals served by these programs as "savers." In an AFI program, savers deposit money in a designated individual bank account. These deposits are matched with federal AFI grant funds and an equal amount of nonfederal funds. The matched deposits can be withdrawn for approved uses, including higher education, starting a business, or buying a house.
Grantees do not receive the federal AFI money when the grant is awarded. Instead, during the five-year grant period, grantees periodically "drawdown" some or all of the federal grant funds into a dedicated bank account maintained by the grantee, called the reserve account. A grantee can only drawdown federal funds for which it has an equal amount of nonfederal funds on deposit, referred to as "matching nonfederal funds." Before each drawdown, grantees must submit to HHS a letter requesting the drawdown and a letter from the bank holding the reserve fund confirming the presence of matching nonfederal funds in that account. AFI federal grant funds must be drawn down into the reserve account within the five-year grant period, and the distribution of grant funds to savers must be completed by the end of an additional year. Grantees can spend no more than 15 percent of the drawn
The Agency's Drawdowns of Federal AFI Grant Funds
The Agency's AFI reserve account, and the hundreds of individual saver deposit accounts participating in the Agency's AFI program, were held at a Citibank branch. The reserve account was the "umbrella" account, and the individual saver accounts were attached to the reserve account. Vivian Rahwanji was the manager of that Citibank branch. Dillard was the sole signatory on the AFI reserve account, and both she and Daniels had access to the AFI account records.
The Agency's five-year AFI grant period ended on June 14, 2010; this date was the last day the Agency could drawdown federal AFI funds. As of the beginning of that month, the Agency had drawn down
Events Following the June 2010 Drawdown
In August of 2010, the Agency did not have enough funds to meet payroll and AFI federal grant funds were used for this purpose. By February 1, 2011, approximately $280,000 of the federal AFI funds had been used for payroll and approximately $40,000 had been transferred to an Agency "petty cash"
On February 2, 2011, the Board placed Dillard on administrative leave. Both appellants were subsequently terminated.
Following appellants' termination, an independent audit determined the Agency was in financial disarray and the Board decided to dissolve it. The interim executive director in charge of overseeing the Agency's dissolution determined that out of the nearly $500,000 in drawn down federal AFI funds, the Agency either lacked nonfederal matching funds for or had used for non-AFI purposes approximately $435,000. The County informed HHS of this and HHS demanded the Agency return these funds. The Agency had approximately $117,000 left in the AFI reserve account and this amount was paid back to the federal government, leaving a remaining liability of approximately $317,000.
Facts Relevant to Count 6 (Preparing False Documentary Evidence)
Count 6 alleged Dillard prepared two ante-dated documents. The first related to reimbursed expenses. On August 26, 2010, Dillard paid for meals, drinks, and massages for herself and the Agency's deputy director at a local hotel and spa, and was subsequently reimbursed by the Agency for these expenses. On February 3, 2011, the day after she was placed on administrative leave, Dillard emailed her assistant asking for "copies of all my expenses that have been submitted." The following day,
The second document related to an Agency program called CREW, which provided job training and employment to eligible participants living in the County. Dillard's nephew and his friend were participants in the CREW program but their June 2010 Agency paperwork stated they lived outside the County. In February 2011, the day after Dillard was placed on administrative leave, she emailed her assistant asking if she could "get a hold of the client
Dillard admitted both documents were prepared after the fact and ante-dated, but claimed they were recreations of contemporaneously-prepared documents.
DISCUSSION
I. Preemption
Appellants argue the prosecutions of counts 2 and 3-theft by false pretenses and false accounting of public moneys, both based on the representation to HHS that the Agency had matching nonfederal funds in its AFI reserve account-were preempted by federal law. We agree.
A. Legal Standard
" 'The supremacy clause of the United States Constitution establishes a constitutional choice-of-law rule, makes federal law paramount, and vests Congress with the power to preempt state law.' [Citations.] ... Preemption is foremost a question of congressional intent: did Congress, expressly or implicitly, seek to displace state law? [Citations.] [¶] We have identified several species of preemption. Congress may expressly preempt state law through an explicit preemption clause, or courts may imply preemption under the field, conflict, or obstacle preemption doctrines.[
Appellants do not identify any explicit preemption clause, nor do they contend conflict preemption-present "when simultaneous compliance with
We focus instead on appellants' obstacle preemption argument. "Obstacle preemption permits courts to strike state law that stands as 'an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' [Citations.] It requires proof Congress had particular purposes and objectives in mind, a demonstration that leaving state law in place would compromise those objectives, and reason to discount the possibility the Congress that enacted the legislation was aware of the background tapestry of state law and content to let that law remain as it was. Ultimately, 'what constitutes a "sufficient obstacle [for a finding of implied preemption] is a matter of judgment, to be informed by examining the federal statute as a whole and identifying its purpose and intended effects." ' " ( Quesada, supra,
One of the primary cases relied on by appellants is Buckman Co. v. Plaintiffs' Leg. Com. (2001)
The high court discussed the federal statutory scheme governing medical devices, set forth in the Federal Food, Drug, and Cosmetic Act (FDCA),
Buckman first considered whether there was a presumption against preemption: "Policing fraud against federal agencies is hardly 'a field which the States have traditionally occupied' [citation], such as to warrant a presumption against finding federal pre-emption of a state-law cause of action. To the contrary, the relationship between a federal agency and the entity it regulates is inherently federal in character because
Buckman concluded the plaintiffs' claims were preempted because "the federal statutory scheme amply empowers the FDA to punish and deter fraud against the Administration, and that this authority is used by the Administration to achieve a somewhat delicate balance of statutory objectives. The balance sought by the Administration can be skewed by allowing fraud-on-the-FDA claims under state tort law." ( Id. at p. 348,
The court continued: "State-law fraud-on-the-FDA claims inevitably conflict with the FDA's responsibility to police fraud consistently with the Administration's judgment and objectives. As a practical matter, complying with the FDA's detailed regulatory regime in the shadow of 50 States' tort regimes will dramatically increase the burdens facing potential applicants-burdens not contemplated by Congress in enacting the FDCA and the MDA. Would-be applicants may be discouraged from seeking § 510(k) approval of devices with potentially beneficial off-label uses for fear that such use might expose the manufacturer or its associates (such as petitioner) to unpredictable civil liability. ... [¶] Conversely, fraud-on-the-FDA claims would also cause applicants to fear that their disclosures to the FDA, although deemed appropriate by the Administration, will later be judged insufficient in state court. Applicants would then have an incentive to submit a deluge of information that the Administration neither wants nor needs, resulting in additional burdens on the FDA's evaluation of an application." ( Buckman, supra, 531 U.S. at pp. 350-351,
The California Supreme Court proceeded to consider the defendant's obstacle preemption argument. The court highlighted the express purposes of the Organic Foods Act: " 'to establish national standards governing the marketing of' " organic food, " 'to assure consumers that organically produced products meet a consistent standard,' " and " 'to facilitate interstate commerce in' " organic food. ( Quesada, supra,
B. AFI Legislation and Regulations
We turn now to the federal statutory and regulatory scheme governing the AFI program. The Assets for Independence Act (hereafter, AFI Act or the Act) was enacted in 1998 and codified as a note to
To this end, the Act authorizes HHS to approve demonstration projects designed to help low-income, low-net worth individuals accumulate assets for specified purposes, including postsecondary education and buying a home. (AFI Act, §§ 404, 405, 408.) The demonstration projects may be administered by nonprofit organizations, state or local government agencies, tribal governments, or certain credit unions and financial institutions. (Id. , § 404.)
For approved projects, the grantee "shall establish a Reserve Fund" and deposit in it "all funds ... from any public or private source in connection with the demonstration project." (AFI Act, § 407(a), (b)(1)(A).)
The Act requires grantees to submit annual progress reports including the
The Act provides that grantees shall "have sole authority over the administration of the project. [HHS] may prescribe only such regulations or guidelines with respect to demonstration projects conducted under [the Act] as are necessary to ensure compliance with the approved applications and the requirements of [the Act]." (AFI Act, § 411.) However, this administrative authority is expressly subject to HHS's sanction authority set forth in the Act. (Id. , §§ 411, 413.) The Act provides that if HHS determines a grantee "is not operating a demonstration project in accordance with the entity's approved application ... or the requirements of [the Act] (and has not implemented any corrective recommendations directed by [HHS] ), [HHS] shall terminate such entity's authority to conduct the demonstration project," take control of the grantee's reserve fund, and attempt to identify another entity to take over the demonstration project. (Id., § 413.)
HHS has other sanctions available for the failure to comply with requirements regarding the reserve funds. AFI regulations provide that grantee reserve funds must comply with HHS's uniform administrative requirements. (
We turn first to whether the presumption against preemption applies in this case. As highlighted in Buckman , the inquiry is whether the state regulation occurs in " 'a field which the States have traditionally occupied.' " ( Buckman, supra,
For purposes of the presumption against preemption, Buckman characterized state law tort claims as claims involving "[p]olicing fraud against federal agencies," where the defendant's "dealings with the FDA were prompted by [a federal statute], and the very subject matter of [the defendant's] statements were dictated by that statute's provisions." ( Buckman, supra, 531 U.S. at pp. 347-348,
Commonwealth's Motion to Appoint Counsel (3d Cir. 2015)
The federal court of appeals considered whether the presumption against preemption applied. The state argued the authority for the removal was a state constitutional provision authorizing the state Supreme Court to prescribe rules governing the practice and procedure of the state courts. ( Commonwealth's Motion, supra,
We find this case akin to Buckman and Commonwealth's Motion, and unlike Quesada. In Quesada, the state laws "regulat[ed] deceptive food labeling," which the California Supreme Court found to be "quintessentially a matter of longstanding local concern." ( Quesada, supra, 62 Cal.4th at pp. 313, 314,
We now return to obstacle preemption and consider whether the prosecution of counts 2 and 3 is preempted by the AFI Act. As discussed in part I.B, ante , the purpose of the AFI Act was to establish asset-building demonstration projects and determine the various effects and impacts of asset-based policies. (AFI Act, § 403.) We conclude that permitting state criminal prosecutions based on grantees' representations to HHS made pursuant to the AFI Act would undermine these Congressional objectives.
The analysis in Commonwealth's Motion, finding preemption of the state's attempt to disqualify the federal public defender's office for violating the terms of its federal grant, is instructive. " 'Sanctions are drawn not only to bar what they prohibit but to allow what they permit, and the inconsistency of sanctions [may] undermine[ ] the congressional calibration of force.' [Citation.] This is especially so when a federal agency is afforded the discretion to apply those sanctions or stay its hand. [Citations.] [¶] Here, Congress has delegated supervisory authority over [Criminal Justice Act] grants to the AO. The AO has the power to 'reduce, suspend, or terminate, or disallow payments ... as it deems appropriate' if the Federal Community Defender does not comply with the terms of its grants. [Citation.] But if the [state] could sanction noncompliance, the AO could be hindered in its ability to craft an appropriate response. ... After all, as the District Court noted ..., 'the [AO's] usual remedies, such as recoupment of distributed funds, are more consistent with the CJA's objectives because they mitigate the disruption to the existing attorney-client relationships.' [Citation.] Allowing the Commonwealth to attach consequences to the Federal Community Defender's relationship with the AO would 'exert an extraneous pull on the scheme established by Congress' in a manner that conflicts with federal objectives. Buckman,
Significantly, the Act depends on grantees' interest in participating in the AFI program. The threat of state criminal prosecution could deter potential grantees from applying for an AFI grant. (See Buckman,
We find it notable that the only sanction for noncompliance set forth in the AFI Act itself is termination of the grantee's authority to conduct the demonstration project. (AFI Act, § 413(a).) It is also notable that the section of the Act setting forth sanctions includes detailed requirements that HHS attempt to identify another entity to operate the project and transfer the project to that entity. (AFI Act, § 413(b)(1)-(5).) This underscores Congress's purpose in enacting the AFI Act to conduct and support asset-building demonstration projects, and suggests Congress believed that punitive measures for noncompliance might often conflict with that purpose.
Indeed, HHS's response to grantee noncompliance has conformed to this understanding. HHS employee Yeoman testified that when HHS becomes aware of problems with a grantee's administration of an AFI grant, "generally speaking, we sort of take the position of go and sin no more. That is, okay, you screwed up. ... Here's how you need to do it. Do it right from now on. ... [¶] We don't want to stop a program and stop the individuals from getting the benefit of it if we can find another way to get it right." If AFI grant money had been spent inappropriately, Yeoman testified, "[w]e would first figure out can we, can we make this right? It might, it might involve the grantee paying back funds, paying back money, into the grant from some other source...." Morgan similarly testified that if HHS learned a grantee drew down federal AFI grant money without matching nonfederal funds on deposit, "we would try our best to work with the grantee to help them be successful in correcting such a problem without having to do some disciplinary action. So, we would probably try and we would, you know, talk to our legal counsel, again, in the office of general counsel for HHS, and try to work it out with them, if we could," although "once a grant project period is over, ... it really would be difficult to
This obstacle-the potential of the state law to deter applicants critical to the federal law's purpose-was entirely absent in Quesada, where the
The People cite several cases rejecting preemption challenges to state criminal prosecutions for fraud against the federal government. We find these cases distinguishable. Three involve prosecutions based on the defendants' theft of federal benefits. ( State v. Jones (Utah Ct.App. 1998)
In the two remaining cases relied on by the People, the defendants argued their state prosecutions were preempted by federal criminal statutes penalizing the same conduct. ( Carter v. Commonwealth (1997)
Finally, the People rely on remarks by the bill's author that the bill "recognizes the limits of government and the fact that many of our worst social problems will never be solved by government alone." (Remarks of Sen. Coats, 144 Cong. Rec. S11868 (Oct. 8, 1998).) The People argue this indicates Congress's intent to delegate responsibility to the local level and "permits no implication" that state prosecutions of grantees could be preempted. However, the remark was not limited to the federal government, and appears to be directed at local government as well. Moreover, the sentence quoted by the People was immediately followed by: "We are beginning to recognize that there are people and institutions, families, churches, synagogues, parishes, community volunteer organizations, faith-based charities, that are able to communicate societal ideals and restore individual hope, and we need to allow those organizations to compete to provide services, and we have done so in each of the programs I have described." (Ibid .) The full statement thus underscores a Congressional understanding that the success of the AFI Act depends on the willingness of organizations and entities to apply for AFI grants and become grantee organizations. The threat of state criminal prosecution could significantly dampen this willingness, thereby posing an obstacle to the objectives of the AFI Act. (See Buckman,
We conclude the prosecutions of counts 2 and 3 were preempted by federal law. We emphasize the narrowness of our holding, which is limited to state law liability for grantees' representations to HHS made pursuant to the AFI Act. This holding does not extend to criminal liability for conduct by savers participating in the AFI program. It also does not include theft prosecutions where an employee of the grantee took the federal AFI funds for
E. Forfeiture of Preemption Claim as to Count 3
Finally, we turn to the People's argument that appellants forfeited their preemption claim as to count 3. Appellants concede they raised this argument in the trial court only as to counts 1 and 2, but contend preemption is not forfeitable.
We need not decide whether appellants' preemption argument can be forfeited because we exercise our discretion to excuse any forfeiture. The issue is one of law and does not involve any disputed facts. ( People v. Rosas (2010)
F. Conclusion
In sum, we find the prosecution of counts 2 and 3 preempted by federal law. We will reverse the convictions on those counts. This conclusion renders moot a number of appellants' additional arguments, which we need not and do not resolve. However, it does not impact Dillard's conviction on count 6, preparing false documentary evidence, and we consider Dillard's remaining arguments relevant to that count.
II.-IV.
Appellants' convictions on counts 2 and 3 are reversed. The matter is remanded to the trial court for resentencing. The judgments are otherwise affirmed.
We concur.
JONES, P.J.
NEEDHAM, J.
Notes
All undesignated section references are to the Penal Code.
The parties presented evidence of emails and telephone calls leading up to this June 10 email; we omit these facts as unnecessary to our resolution of the appeal.
Dillard, Daniels, and Rahwanji all testified they believed the savers' deposits could be counted as "non-federal match funds." The combined individual saver accounts contained less than $200,000. Daniels testified he relied on Rahwanji to verify the amount before she signed the letter. Rahwanji testified she attempted to so verify but abandoned the cumbersome task, believing based on an "eyeball" assessment that the figures were about right.
Dillard testified she believed this use of the funds was permissible as long as all of the money was returned when the AFI grant closed out, and she intended to return the funds so used to the Citibank AFI reserve account. As noted above, the jury acquitted appellants of improperly using AFI funds.
" 'The categories of preemption are not "rigidly distinct." ' [Citations.] We and the United States Supreme Court have often identified only three species of preemption, grouping conflict preemption and obstacle preemption together in a single category. [Citations.] As conflict and obstacle preemption are analytically distinct and may rest on wholly different sources of constitutional authority, we treat them as separate categories here." (Viva! Intern. Voice for Animals v. Adidas Promotional Retail Operations, Inc. (2007)
Appellants also rely on two other United States Supreme Court cases. Arizona v. U.S. (2012)
(Pub. L. 105-285 (Oct. 27, 1998)
The Act excludes state and local government grantees from the requirement to establish a reserve fund. (AFI Act, § 407(a).) However, the Agency's AFI grant award obligated it to establish a reserve fund.
With exceptions not relevant here, "whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully-[¶] (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; [¶] (2) makes any materially false, fictitious, or fraudulent statement or representation; or [¶] (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; [¶] shall be fined under this title, imprisoned not more than 5 years ..., or both." (
The federal defender claimed only private funds were used for work on state proceedings, unless that work was preparatory for a federal proceeding. (Commonwealth's Motion, supra,
The People argue that state theft prosecutions "can deter misuse of federal funds" and thus further the purpose of the AFI Act, but appellants were acquitted of misusing the AFI funds. The challenged prosecutions were based solely on appellants' misrepresentations to HHS.
The People also point to the AFI Act's section entitled "Local Control Over Demonstration Projects" (AFI Act, § 411), and argue it would be "incongruous to mandate local control but preclude local response to malfeasance." However, the local control referred to in the Act is the control of grantee organizations-not local government-and is expressly subject to HHS's sanction authority provided for in the Act. (AFI Act, § 411 ["A qualified entity [grantee] ... shall, subject to the [sanctions provision of the Act], have sole authority over the administration of the project."].)
See footnote *, ante .