SAN FRANCISCO UNIFIED SCHOOL DISTRICT ex rel. MANUEL CONTRERAS et al., Plaintiffs and Appellants, v. FIRST STUDENT, INC., Defendant and Respondent.
No. A136986
First Dist., Div. Five.
Mar. 11, 2014
224 Cal.App.4th 627
Baron & Budd, Thomas M. Sims, Laura J. Baughman; April M. Strauss; Environmental Law Foundation and James Wheaton for Plaintiffs and Appellants.
Reed Smith, Jesse L. Miller, Dennis Peter Maio, James M. Neudecker and Matthew T. Peters for Defendant and Respondent.
OPINION
SIMONS, J.---California‘s False Claims Act (CFCA) (
In San Francisco Unified School Dist. ex rel. Contreras v. Laidlaw Transit, Inc. (2010) 182 Cal.App.4th 438 [106 Cal.Rptr.3d 84] (Contreras I), this court reversed the trial court‘s orders sustaining defendant‘s demurrer and dismissing the action. We concluded that, under the CFCA, a vendor impliedly certifies compliance with express contractual requirements when it bills a public agency for providing goods or services. Plaintiffs’ allegation that defendant‘s implied certifications were false with respect to its maintenance obligations was sufficient to survive a demurrer. Subsequently, the trial court granted defendant‘s motion for summary judgment. The court concluded no reasonable trier of fact could find that (1) the false implied
PROCEDURAL BACKGROUND
Defendant is a provider of student bus transportation services. Plaintiffs Padilla and Contreras are former employees of defendant. Plaintiff Environmental Law Foundation is a California nonprofit organization “dedicated to the preservation and enhancement of human health and the environment.” In May 2007, plaintiffs filed a complaint against defendant alleging violations of the CFCA. As required by the CFCA, the complaint was filed under seal to allow the District to investigate and decide whether to intervene in the action. (See
In July 2008, plaintiffs filed their second amended and operative complaint (Complaint), seeking damages and civil penalties on behalf of the District for false claims, records, and statements presented by defendant in violation of the CFCA. Plaintiffs also sought for themselves an award, as well as payment of their attorney fees, expenses, and costs of suit.
Plaintiffs alleged defendant transported District schoolchildren on buses that were “unsafe, unhealthy, did not meet all federal, state and local safety standards, and were not properly maintained and repaired as needed.” The Complaint‘s first cause of action alleged defendant violated
Plaintiffs appealed and, in Contreras I, supra, 182 Cal.App.4th 438, this court reversed. As to the first cause of action, we concluded that, under the CFCA, a vendor impliedly certifies compliance with its express contractual requirements when it bills a public agency for providing goods or services.
In March 2012, defendant moved for summary judgment on plaintiffs’ first cause of action. Plaintiffs opposed the motion. The trial court ruled in favor of defendant, concluding no reasonable trier of fact could find that defendant‘s alleged false implied certifications were material or that defendant acted with the scienter required by the CFCA. In September, the court entered judgment in favor of defendant.
This appeal followed. The California Attorney General submitted an amicus curiae brief challenging the trial court‘s analysis of the materiality issue.
FACTUAL BACKGROUND4
Defendant‘s Contract with the District
For over 20 years, defendant has provided bus transportation for District students. A contract effective in 2005 and extended in 2010 (Contract) imposed a number of requirements on defendant. Those requirements included provisions that defendant (1) provide schoolbuses meeting state and federal standards relating to pupil transportation; (2) maintain its buses in “excellent mechanical condition and appearance” and replace all vehicles “which are deemed to be unfit for providing the required service“; (3) provide buses meeting or exceeding state and federal safety standards; and (4) employ a “Fleet Maintenance Supervisor” to “establish and maintain a complete and effective preventative maintenance program with complete and accurate records on each vehicle.” The Contract states that the District seeks buses with “the highest standards of performance and safety for the educational and personal well-being of the students.”
The District agreed to pay defendant on a monthly basis “for services satisfactorily performed by [defendant] after receipt of properly documented invoices.” The Contract authorized the District to terminate the contract without cause on 30 days’ written notice, and to terminate or suspend the contract immediately for reasons including “[f]ailure or refusal” of defendant “to perform or do any act herein required.”
In opposing defendant‘s motion for summary judgment, plaintiffs рresented evidence that defendant committed numerous violations of the maintenance requirements, including among other things (1) disregarding a 45-day inspection requirement; (2) operating buses with defective brake linings; and (3) placing buses into service with dangerously low tire tread.5
A. 45-day Inspection Requirement
California law requires a preventative maintenance inspection (PMI) of a schoolbus every 45 calendar days or 3,000 miles (whichever occurs first), or more often if necessary to ensure safe operation of the bus. (
B. Brake Linings
Plaintiffs, quoting from the Motor Vehicle Safety Cоmpliance Handbook published by the California Highway Patrol (CHP), points out the CHP warns that ” ‘[a] truck or bus operated daily on the steep hills of San Francisco obviously will require much more frequent attention to both the service brakes and the parking brake than the same vehicle would need if operated exclusively in any of the level ground communities in California‘s central valleys.’ ” (See Dept. of the Cal. Highway Patrol, Motor Vehicle Safety Compliance Handbook (3d ed. 1992) p. 2-5 (CHP Handbook).) A number of defendant‘s buses are “Type D” buses that are required by California and federal law to have a brake lining thickness of at least one-fourth of an inch; any less renders the brakes defective. (
C. Tire Tread
Plaintiffs’ Other Evidence
A. The November 2011 Episode Involving the 45-day PMI Requirement
In September 2011, defendant met with District officials to discuss plaintiffs’ allegations. Defendant assured the District it was meeting its contractual obligations and all laws relating to student transportation. The District‘s representative made it clear the District expected that from defendant. Subsequently, defendant sent a letter to the District confirming that, starting on October 1, defendant would establish a “reporting process... to address [the District‘s] questions related to our preventative maintenance program.” Among other things, defendant agreed to provide the District a monthly report on the 45-day inspection program.
On November 13, 2011, the District wrote defendant, stating:
“First Student agreed to provide the District with certain reports on a regular basis on the maintenance and servicing of the vehicles transporting [District] students. The purpose of the reports was, in part, to demonstrate that First Student was performing all the necessary vehicle maintenance and review services mandated by State law and the contract.
“Recently, First Student submitted the first ‘45 Day Vehicle Inspection Report‘. Upon review of the report by staff, it appears that First Student has multiple vehicles in violation of the state mandated 45 day vehicle safety inspection. The report indicates that 18 [percent] (31 of 176) of the vehicles included in the report were overdue by from 1 to 47 days. Besides being in violation of a State mandated safety inspection, First Student is also exhibiting disregard for Article 8, subsection ‘d’ of our contract. The District cannot and will not accept this level of service from the contractor responsible for the safe transportation of its students.
“Therefore the District is directing First Student to, immediately and without delay, remove from service any vehicle where the 45 day inspection time is past and the District directs First Student to have this situation corrected by the next ‘45 Day Inspection Report‘, and that in the report no bus shall indicate being in operation after its inspection due date.” The District did not threaten to withhold payments or cancel the Contract.
Defendant responded in writing by assuring the District that “First Student is performing all the necessary vehicle maintenance and services mandated by state law and our contract.” Defendant‘s letter explained that none of the “overdue” buses in the report had been placed into service past the 45-day PMI interval.
B. Defendant‘s Reckless Disregard of Compliance with Maintenance Requirements7
Defendant‘s policies require periodic audits of facilities and vehicles to ensure the adequacy of maintenance operations. For example, a monthly shop
Plaintiffs presented evidence that defendant failed to follow those policies. Defendant‘s regional maintenance manager for San Francisco admitted, “We don‘t, per se, do monthly shop audits. They would be done on an as-needed basis.” He testified he did perform annual audits, but he admitted he did not have any e-mails related to those audits. He was not aware of anyone else performing an audit at the San Francisco location. In a June 2012 deposition, he admitted he had not perfоrmed an audit of the San Francisco facility in the last two years. Defendant‘s area general manager testified in her deposition that the way they audit is by having the drivers inspect the buses on a daily basis. She testified that, although she is responsible for ensuring compliance with defendant‘s inspection policies, she does not receive any regular reporting regarding compliance with those policies.
Defendant‘s Additional Evidence
Defendant presented evidence the CHP has subjected defendant‘s San Francisco facility and buses to annual inspections for over 20 years. The primary purpose of the CHP‘s terminal inspections is to ensure compliance with federal and state laws, including the 45-day PMI requirement. As explained in a declaration from the CHP inspector of defendant‘s facilities, the CHP inspects a “representative sample of the fleet” regarding PMI compliance, daily vehicle inspection reports, and repair records. The CHP then assigns a “compliance rating” of “satisfactory,” “unsatisfactory,” or “conditional.” Defendant‘s facilities were consistently ratеd as “satisfactory,” which meant the facilities were “in compliance with applicable laws and regulations” and any “deficiencies or defects” were “minor” and did not jeopardize “highway safety.” A checklist provided to motor carriers to assist them in preparing for CHP inspections lists “[c]riteria for assignment of a Satisfactory rating,” including (1) “Vehicle/equipment condition reflects effective preventive maintenance practices“; (2) “Vehicle records reflect compliance with... mandated inspection intervals“; (3) “Drivers’ daily vehicle inspections are performed and documented” and “[d]efects noted are corrected promptly“; and (4) “Vehicles are not operated with out-of-service conditions or defects of a long standing nature.”
DISCUSSION
Plaintiffs contend the trial court erred in granting defendant‘s motion for summary judgment on their first cause of action for violation of
I. Introduction to the CFCA
In Rothschild v. Tyco Internat. (US), Inc. (2000) 83 Cal.App.4th 488, 494-495 [99 Cal.Rptr.2d 721] (Rothschild), the court described the CFCA as follows:
“In 1987, the California Legislature enacted the [CFCA], patterned on a similar federal statutory scheme [citation], to supplement governmental efforts to identify and prosecute fraudulent claims made against state and local governmental entities. [Citation.] As relevant here, the [CFCA] permits the recovery of civil penalties and treble damages from any person who ‘[k]nowingly presents or causes to be presented [to the state or any political subdivision]... a false claim for payment or approval.’ [Citation.] To be liable under the [CFCA], a рerson must have actual knowledge of the information, act in deliberate ignorance of the truth or falsity of the information, and/or act in reckless disregard of the truth or falsity of the information. [Citation.]
“The [CFCA] authorizes the Attorney General (in the case of alleged violations involving state funds) or the prosecuting authority of a political subdivision (in the case of alleged violations relating to funds of the political subdivision) to bring a civil action for violations of its provisions. [Citation.] Subject to certain limitations, the [CFCA] permits a private person (referred to as a ‘qui tam plaintiff’ or a ‘relator‘) to bring such an action on behalf of a governmental agency. [Citation.]
“If a qui tam plaintiff files a [CFCA] complaint, he or she must file the complaint under seal and serve it, as well as a written disclosure of the material evidence and information in support of his or her claims, on the Attorney General. [Citation.] The Attorney General is required to notify local prosecuting authorities if local funds are involved. [Citation.] The action remains sealed for ‘up to 60 days’ (although the statutory рeriod is subject to extension for good cause shown) to permit the state and/or local authorities to investigate and determine whether to proceed in the action. [Citation.]
“If the state and/or a local prosecuting authority elects to proceed with the action, that agency (or those agencies) have the primary responsibility for prosecuting the action, although the qui tam plaintiff has the right to continue as a party to the action. [Citation.] If no prosecuting authority decides to proceed with the action, the qui tam plaintiff has the right to do so subject to the right of the state or political subdivision to intervene in certain circumstances. [Citation.] Regardless of who prosecutes the qui tam action, if it is successful, the qui tam plaintiff is entitled to a percentage of the recovery achieved in the case. [Citation.]” (Accord, Contreras I, supra, 182 Cal.App.4th at pp. 445-446.)
“The Legislature designed the CFCA ” ‘to prevent fraud on the public treasury,’ ” and it ” ‘should be given the broadest possible construction consistent with that purpose.’ ” [Citations.] In other words, the CFCA ” ‘must be construed broadly so as to give the widest possible coverage and effect to the prohibitions and remedies it provides.’ ” [Citation.]’ [Citations.] The CFCA is intended ‘to supplement governmental efforts to identify and prosecute fraudulent claims made against state and local governmental entities.’ [Citation.] Given the ‘very close similarity’ of the CFCA to the [federal FCA] [citation], ‘it is appropriate to turn to federal cases for guidance in interpreting the [CFCA].’ [Citations.]” (Contreras I, supra, 182 Cal.App.4th at p. 446.)
II. There Are Triable Issues of Material Fact as to Plaintiffs’ Implied Certification Claim Under the CFCA
The Complaint alleges a fraud on the District, in that defendant sought payments from the District while knowingly failing to provide the services for which the District contracted to wit, student transportation on properly maintained buses. In Contreras I, supra, 182 Cal.App.4th 438, we rejected defendant‘s contention it was immune from liability under the CFCA because its invoices did not expressly assert compliance with the requirements of the Contract and because the Contract did not require certification of compliance with contractual terms as a prerequisite to payment. (Contreras I, at p. 447.) We concluded defendant‘s invoices were “claims” within the meaning of the
We discussed a number of state and federal decisions in upholding plaintiffs’ implied certification theory of violation of the CFCA. (Contreras I, supra, 182 Cal.App.4th at pp. 448-452.) We also rejected defendant‘s assertion that “plaintiffs’ construction of the CFCA ‘would enable any private party to sue based on any purported breach of any public entity‘s contract.’ ” (Contreras I, at p. 452.) In doing so, we pointed out several limitations on liability under the CFCA. Among other things, we pointed out that “the implied certification of compliance with the breached contract provision ‘must be material to the government‘s decision to pay out moneys to the claimant...’ [citations]” and “the contractor must have the requisite knowledge, rendering the failure to disclose the contractual noncompliance fraudulent.” (Contreras I, at p. 452.) In granting defendant‘s summary judgment motion, the trial court concluded that, as a matter of law, defendant‘s alleged false implied certifications were not material and defendant did not have the requisite knowledge of the alleged falsity of the implied certifications. We consider each of those elements in turn.
A. Materiality
“The CFCA does not expressly require a showing of materiality to support the imposition of a statutory penalty for the submission of a false claim. Under
In Contreras I, we concluded plaintiffs’ allegations were sufficient to satisfy the materiality requirement because defendant‘s “implied certification that it had satisfactorily performed its material obligations under the Contract,
We also noted in Contreras I that plaintiffs’ “materiality showing [was] strengthened by various provisions of the Contract... that reflect the District‘s concern with bus maintenance and safety....” (Contreras I, supra, 182 Cal.App.4th at p. 455, citation omitted.) For example, article 8(d) of the Contract provides, “All buses shall be in exсellent mechanical condition and appearance at the beginning of the Contract and shall be maintained in that condition at all times during the term of the Contract. The Superintendent and/or his designees reserves the right to inspect motor vehicle equipment at any time during the term of the Contract.” Article 12 of the Contract states, “It is the intent of the District to obtain the best quality transportation available and which incorporates the highest standards of performance and safety for the educational and personal well-being of the students.” This connection between maintenance and student safety is also reflected in the CHP Handbook: “In the CHP‘s experience, public attitudes have always supported requirements for superior maintenance and more stringent maintenance regulations for [s]chool buses, school pupil activity buses, and general public paratransit vehicles....”
Although we concluded in Contreras I that plaintiffs’ allegations were sufficient to survive defendant‘s demurrer, we also pointed out that the issue of materiality was ultimately a mixed question of law and fact, “and а showing in a motion for summary judgment or at trial that the alleged breach would not have affected the payment decision will defeat a CFCA claim.” (Contreras I, supra, 182 Cal.App.4th at p. 456.) To exemplify the point, we discussed a federal decision, U.S. ex rel. Berge v. Trustees of University of Alabama (4th Cir. 1997) 104 F.3d 1453 (Berge): “There, the defendants appealed from denial of their motion for judgment as a matter of law following a jury verdict finding them liable under the federal FCA. [Citation.] The defendants were funded by the National Institutes of Health (NIH) to conduct research regarding a common cause of birth defects. [Citation.] The qui tam plaintiff alleged the defendants had made false statements to the NIH in annual progress reports including, among other things, assertions about the amount of data that had been computerized. [Citation.] The Fourth Circuit reversed denial of the motion for judgment because there was no substantial evidence from which a reasonable jury could conclude the defendants’ errors
In the present appeal, defendant does not dispute that plaintiffs have presented evidence of a substantial number of maintenance failures and that the condition of defendant‘s buses is a matter of great importance to the District. Instead, defendant argues its evidence shows the alleged false implied certifications were not material because the District declined to intervene in the present action, declined to bring an action of its own for breach of contract, always paid defendant‘s monthly invoices in full, and extended the Contract in 2010. Defendant asserts, “Since [the District] in fact continued to pay, even though it knew of the alleged falsity of [defendant‘s] claims, [defendant] established that any such alleged falsity did not have any natural tendency or capability to influence [the District‘s] payment decision.” The trial court accepted this argument below, stating “It is undisputed that [the District] was aware of violations of contractual provisions via both the allegations in the lawsuit and the [November 2011] letter and despite this knowledge continued to pay on [defendant‘s] submitted invoices. This showing that the alleged breach did not affect the District‘s payment decision defeats the CFCA claim.” Defendant‘s reasoning is misplaced for several reasons.
First, defendant has not established a critical factual predicate to giving any significance to the District‘s reaction to plaintiffs’ allegations—that the District knew about the falsity of defendant‘s implied certifications. Instead, the evidence shows the District became aware of plaintiffs’ allegations, which defendant denied. Accordingly, the present case is unlike the case upon which defendant relies, U.S. ex rel. Yannacopoulos v. General Dynamics (7th Cir. 2011) 652 F.3d 818, in which the governmental entity obtained actual knowledge of the defendants’ wrongdoing. In Yannacopoulos, the defendants sold fighter jets to Greece; Greece borrowed the funds for the purchase from the United States government, which paid the defendants directly. (Id. at p. 821.) The plaintiff claimed the defendants made a number of false statements to the United States in obtaining payments. (Id. at p. 823.) As relevant here, the plaintiff alleged the defendants failed to disclose promptly to the United States its decision to delete a certain clause from a draft contract for the aircraft sale. (Ibid.) The Seventh Circuit concluded the district court properly granted summary judgment to the defendant on the claim on the ground of materiality, because the government agency took no adverse action when it “actually learned of” omission of the clause. (Id. at p. 831.) There was also evidence the clause was of no substantive importance (id. at
In the present case, there is no evidence the District had actual knowledge of defendant‘s wrongdoing—as opposed to allegations of wrongdoing—and there is no evidence the contractual maintenance requirements were unimportant to the District. Accordingly, the present case is also distinguishable from Berge, where the contracting entity ” ‘determined that the information [the plaintiff] alleged was false or misrepresented was not material to its funding decisions.’ ” (Berge, supra, 104 F.3d at p. 1460.) In sum, defendant cites no evidence suggesting the District would have considered the alleged maintenance failures immaterial, if the District knew the allegations were true.
Second, as the Attorney General argues in her amicus curiae brief, even assuming the District were aware defendant had failed to comply with the contractual maintenance requirements, the District‘s reaction would not be dispositive. The materiality determination turns on whether the alleged false statement was such that it had a natural tendency to influence or was capable of influencing government action. (Contreras I, supra, 182 Cal.App.4th at p. 454.) We agree with the decisions under the federal FCA that have concluded the materiality test “focuses on the potential effect of the false statement when it is made, not on the actual effect of the false statement when it is discovered.” (U.S. ex rel. Harrison v. Westinghouse Savannah River Co. (4th Cir. 2003) 352 F.3d 908, 916–917 (Harrison); accord, U.S. ex rel. A+ Homecare, Inc. v. Medshares Management Group, Inc. (6th Cir. 2005) 400 F.3d 428, 445 (Medshares); see U.S. v. Rogan (7th Cir. 2008) 517 F.3d 449, 452; U.S. ex rel. El-Amin v. George Washington University (D.D.C. 2008) 533 F.Supp.2d 12, 22 (El-Amin); U.S. ex rel. Oliver v. The Parsons Corp. (C.D.Cal. 2006) 498 F.Supp.2d 1260, 1289–1290.)
Thus, the government contracting entity‘s actual reaction upon learning of a false claim is not dispositive of the issue of materiality. If a false statement was clearly material when it was made, the fact that the contracting entity did not treat the falsity as material upon discovering it would not preclude a claim under the CFCA. This is consistent with the important remedial purposes of the CFCA and our obligation to construe the law broadly. (Contreras I, supra, 182 Cal.App.4th at p. 446.) As the materiality requirement itself is a judicially created restriction on the scope of the law‘s application (id. at p. 454), the requirement should not be construed as immunizing conduct the CFCA sought to sanction. The CFCA, like the federal FCA, is ” ‘intended to reach all types of fraud, without qualification, that might result in financial loss to the [g]overnment.’ [Citation.]” (U.S. ex rel. Hendow v. University of Phoenix (9th Cir. 2006) 461 F.3d 1166, 1170
This focus on materiality at the time a false claim was presented finds further support in the proposition that a party can be subject to liability under the CFCA even if a false claim does not actually result in a loss to the government, ” ‘for example, where the government discovers that a claim is false before it makes payment.’ ” (McVeigh v. Recology San Francisco (2013) 213 Cal.App.4th 443, 459 [152 Cal.Rptr.3d 595], quoting U.S. ex rel. Sanders v. American-Amicable Life, Texas (3d Cir. 2008) 545 F.3d 256, 259; see Altus Finance, supra, 36 Cal.4th at p. 1299 [“the CFCA authorizes civil penalties for attempts to misappropriate public funds that were not in fact completed by payment from the treasury...“]; Medshares, supra, 400 F.3d at pp. 445-446; Rivera, supra, 55 F.3d at p. 709.) If a violation of the CFCA is complete with the submission of a false claim for payment, then the government‘s actual response to the claim cannot be dispositive on the issue of materiality.
Third and finally, although defendant does not appear to dispute the general proposition that a contracting agency‘s response is not legally dispositive of the issue of materiality, defendant nevertheless argues the District‘s response constitutes evidence that determines the issue of materiality in its favor as a matter of law. We disagree. Accepting that the District‘s actual reaction has some relevance to the materiality determination, the trial court erred in concluding a reasonable trier of fact could only infer a lack of materiality from the District‘s response to plaintiffs’ allegations—including its decisions not to intervene, not to bring its own suit for breach of contract, to continue to make payments on the Contract, and to extend the Contract.
Furthermore, the District‘s decision to continue to make payments could reflect acceptance of defendant‘s representations of compliance, the expense and difficulty of investigating the allegations of wrongdoing, fear of litigation with defendant, or concerns about the possibility of disrupting services. (See Harrison, supra, 352 F.3d at p. 917 [“we can foresee instances in which a government entity might choose to continue funding the contract despite earlier wrongdoing by the contractor“]; U.S. ex rel. Gillespie v. Kaplan University (S.D.Fla., May 21, 2012, No. 09-20756-CIV) 2012 WL 1852085, p. *4 [government‘s continued payments did not defeat materiality showing where defendants entered into agreement to correct their noncompliance].) Finally, the District‘s decision to extend the contract could reflect a judgment that, regardless of whatever past maintenance problems existed, defendant is now complying with its contractual obligations.8 Although none of those suggested inferences favorable to plаintiffs’ claims are supported by direct evidence, neither is defendant‘s suggested inference that the District‘s restrained response shows the implied false certification was not material.
In addition, a reasonable trier of fact could infer that the District‘s reaction to what it believed to be an admission of noncompliance by defendant showed it considered the maintenance requirements in the Contract to be of great importance. Thus, when in November 2011 the District received information from defendant that it believed showed defendant had committed multiple violations of the 45-day PMI requirement in October, the District immediately notified defendant in writing that the District “cannot and will
In sum, the record shows a triable issue of material fact as to materiality. A conclusion that the alleged false implied certification was material is supported by common sense, by the language of the Contract, and by reasonable inferences from the District‘s reaction when presented with evidence of potential violations of the PMI requirement in late 2011. On the other hand, a conclusion that the alleged false implied certification was not material is supported by competing inferences from the District‘s response to plaintiffs’ allegations and the late 2011 incident. The conflicting evidence and inferences precluded grant of summary judgment on the ground that plaintiffs could not demonstrate materiality as a matter of law. (Cohen v. Five Brooks Stable (2008) 159 Cal.App.4th 1476, 1497 [72 Cal.Rptr.3d 471] [” ’ “Only when the inferences are indisputable may the court decide the issues as a matter of law.” ’ “].)
B. Knowledge
The trial court also concluded that, as a matter of law, defendant did not have the requisite knowledge of the falsity of its implied certifications of contract compliance. As noted previously, the CFCA is violated by a person who “[k]nowingly presents or causes to be presented a false or fraudulent claim for payment or approval.” (
The definition of “knowingly” in the federal FCA is the same as the definition in the CFCA, and, in adopting the federal FCA definition, “... Congress attempted ‘to reach what has become known as the “ostrich” type situation where an individual has “buried his head in the sand” and failed to make simple inquiries which would alert him that false claims are being submitted.’ [Citation.] Congress adopted ‘the concept that individuals and contractors receiving public funds have some duty to make a limited inquiry so as to be reasonably certain they are entitled to the money they seek.’ [Citations.]” (U.S. v. Bourseau (9th Cir. 2008) 531 F.3d 1159, 1168; see Gulf Group General Enterprises Co. W.L.L. v. U.S. (Ct.Cl. 2013) 114 Fed.Cl. 258, 314 [“The standard was designed to address ‘the problem of the “ostrich-like” refusal to learn of information which an individual, in the exercise of prudent judgment, had reason to know.’ [Citation.] Thus, the [federal FCA] covers not just those who set out to defraud the government, but also those who ignore obvious deficiencies in a claim.“]; U.S. ex rel. Ervin & Associates, Inc. v. Hamilton Securities Group, Inc. (D.D.C. 2005) 370 F.Supp.2d 18, 42 [“[t]he standard of reckless disregard... was designed to address the refusal to learn of information which an individual, in the exercise of prudent judgment, should have discovered“]; but see U.S. ex rel. Hefner v. Hackensack University Medical Center (3d Cir. 2007) 495 F.3d 103, 109 [“Congress specifically expressed ‘its intention that the act not punish honest mistakes or incorrect claims submitted through mere negligence.’ “].) Among other things, “A failure to make a minimal examination of records can constitute deliberate ignorance or reckless disregard, and a contractor that deliberately ignores false information submitted as part of a claim can be found liable under the” federal FCA. (Gulf Group, at p. 315.) The plain language of the CFCA reflects similar legislative intent. (See Thompson Pacific Construction, Inc. v. City of Sunnyvale (2007) 155 Cal.App.4th 525, 548 [66 Cal.Rptr.3d 175] (Thompson) [reckless disregard standard in federal FCA and CFCA “indistinguishable“].)9
Plaintiffs also argue a finding defendant acted in reckless disregard of the truth of its implied certifications of contractual compliance is supported by the evidence of widespread and persistent violations of contractual maintenance requirements. Among other things, plaintiffs presented evidence the 45-day PMI requirement was missed for every bus at least once every year, and they assert their evidence showed over 200 instances of illegally thin brake linings on buses between 2006 and 2011. Defendant does not dispute plaintiffs’ evidence of widespread maintenance failures, other than to argue that one exhibit quantifying violations of the PMI requirement was properly ruled inadmissible by the trial court.11 We agree the frequency of the maintenance failures provides further basis for a reasonable inference that defendant acted in reckless disregard of the truth of its implied certifications of compliance with the Contract. (See U.S. v. Cabrera-Diaz (D.P.R. 2000)
The present case is analogous to U.S. ex rel. Compton v. Midwest Specialties, Inc. (6th Cir. 1998) 142 F.3d 296, 304, where the court held the “reckless disregard” aspect of the knowledge element of a federal FCA claim was satisfied whеre a military supplier sought payment for Jeep brakeshoes even though the shoes had not been tested as required under the contract. (See Laymon v. Bombardier Transp. (Holdings) USA, Inc. (W.D.Pa., Mar. 23, 2009, No. 05-169) 2009 WL 793627, p. *12 [defendant failed to take steps to ensure the accuracy of cost reports submitted to government]; U.S. v. Raymond & Whitcomb Co. (S.D.N.Y. 1999) 53 F.Supp.2d 436, 447 [defendant failed to investigate whether mailings qualified for nonprofit status].) Similarly, plaintiffs have presented evidence that defendant failed to comply with its own policies requiring regular audits that could have disclosed the maintenance failures at issue in the present case.
On appeal, defendant cites some limited evidence it conducted inspections and maintenance on particular buses in its fleet, but it does not dispute plaintiffs’ evidence of defendant‘s overall failure to take reasonable steps to ensure compliance with the Contract‘s specific maintenance requirements. Instead, defendant relies on language in the Contract that the District was obligated to pay “monthly in arrears for services satisfactorily performed by [defendant] after receipt of рroperly documented invoices.” Defendant then asserts, “[t]he evidence showed that [defendant] had a reasonable belief that it had satisfactorily performed the services covered by each invoice.” In support of that assertion, it points to evidence the CHP has subjected defendant‘s San Francisco facility and buses to annual inspections for over 20 years, in order to ensure compliance with federal and state laws. After each terminal inspection, the CHP assigned its “compliance rating” of “satisfactory” to defendant‘s facilities. “Satisfactory” was the highest available rating, and it meant the facilities were “in compliance with applicable laws and regulations” and any “deficiencies or defects” were “minor” and did not jeopardize “highway safety.” The trial court essentially treated the CHP inspections as dispositive, stating “It is undisputed that [defendant] consistently received the highest rating possible from the CHP after inspections. It is also undisputed that the CHP inspections included assurances and certifications that [defendant] was in comрliance with all applicable laws and regulations. This showing that [defendant] did not have the scienter required under the CFCA defeats the CFCA claim.”
Although the CHP inspections may have been enough to satisfy defendant‘s burden of making a prima facie showing in moving for summary
For the above reasons, the trial court erred in concluding, as a matter of law, that plaintiffs could not establish the knowledge element of their CFCA claim.
The trial court‘s judgment is reversed. Costs on appeal are awarded to plaintiffs.
Jones, P. J., and Needham, J., concurred.
A petition for a rehearing was denied April 9, 2014, and respondent‘s petition for review by the Supreme Court was denied June 25, 2014, S217943.