San Francisco Unified School Dist. ex rel. Contreras v. Laidlaw Transit, Inc.

• Citation: 182 Cal.App.4th 438
• Decision Date: 26 February 2010
• Docket Number: No. A123914.,A123914.
• Court: California Court of Appeals
• Parties: SAN FRANCISCO UNIFIED SCHOOL DISTRICT ex rel. MANUEL CONTRERAS et al., Plaintiffs and Appellants, v. LAIDLAW TRANSIT, INC., et al., Defendants and Respondents.

182 Cal.App.4th 438

SAN FRANCISCO UNIFIED SCHOOL DISTRICT ex rel. MANUEL CONTRERAS et al., Plaintiffs and Appellants, v. LAIDLAW TRANSIT, INC., et al., Defendants and Respondents.

No. A123914.

Court of Appeals of California, First District, Division Five.

February 26, 2010.

Baron & Budd, Thomas Sims, Patrick O'Connell; Law Office of April Strauss, April Strauss; Environmental Law Foundation, James R. Wheaton and Lynne R. Saxton for Plaintiffs and Appellants.

Reed Smith, Todd O. Maiden, Raymond A. Cardozo and Matthew T. Peters, for Defendants and Respondents.

OPINION

SIMONS, J. —

California's False Claims Act (CFCA) (Gov. Code, § 12650 et seq.)¹ permits the recovery of civil penalties and treble damages from any person who knowingly presents a false claim for payment to the state or a political subdivision. Qui tam² plaintiffs William Padilla, Manuel Contreras, and the Environmental Law Foundation (plaintiffs) sued defendants Laidlaw Transit, Inc., and Laidlaw Transit Services, Inc. (collectively, Laidlaw), under the CFCA, seeking to recover funds on behalf of the San Francisco Unified School District (District). Plaintiffs allege Laidlaw violated the CFCA by submitting claims for payment to the District at times when Laidlaw knew it was in breach of various terms of its contract to provide student bus transportation services. The trial court sustained Laidlaw's demurrer and ultimately dismissed the action, but we reverse. Under the CFCA, a vendor impliedly certifies compliance with its express contractual requirements when it bills a public agency for providing goods or services. Allegations that the implied certification was false and had a natural tendency to influence the public agency's decision to pay for the goods or services are sufficient to survive a demurrer.

BACKGROUND³

Plaintiffs Padilla and Contreras are former Laidlaw employees. 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 Laidlaw alleging violations of the CFCA. As required by the CFCA, the complaint was filed in camera and under seal to allow the District to investigate and potentially intervene in the action. (See § 12652, subd. (c).) On January 28, 2008, the District filed a notice that it was declining to intervene, and the trial court lifted the seal.

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 Laidlaw in violation of the CFCA (§ 12651, subd. (a)(1), (2) & (7).)⁴ Plaintiffs also sought for themselves an award of a portion of the damages and penalties, as well as payment of their attorney fees, expenses, and costs of suit.

According to the Complaint, Laidlaw has for a number of years provided bus transportation services under a series of contracts with the District. The Complaint describes certain requirements imposed on Laidlaw in the contract effective between August 16, 2005, and August 15, 2010 (Contract). Those requirements include provisions that Laidlaw: (1) provide school buses 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) maintain an extra 10 percent of each type of bus as a spare fleet; (4) provide buses meeting or exceeding specified state and federal safety standards; (5) provide buses meeting a specified particulate matter emissions standard or equipped with a specified emission control device and diesel buses with a "`closed crankcase emission control system'"; (6) not authorize "`overnight park-out'" of any buses without prior authorization; and (7) employ a "`Fleet Maintenance Supervisor'" to "`establish and maintain a complete and effective preventative maintenance program with complete and accurate records on each vehicle.'" Each of those provisions is a material term of the Contract. The District agreed to provide payment on a monthly basis "for services satisfactorily performed by [Laidlaw] after receipt of properly documented invoices."

The Complaint further alleges that "Laidlaw has been in breach of one or more of these material terms throughout the term of the Contract and at the time Laidlaw has presented invoices, claims or demands for payment to [the District]." The Complaint contains numerous specific allegations describing how the buses utilized by Laidlaw were in inadequate and/or unsafe operating condition and failed to meet the pollution control requirements in the Contract. For example, Laidlaw intentionally caused tests of diesel exhaust levels to be falsified so that excessively smoking buses would pass inspection, failed to repair buses that had "[c]racked exhaust pipes which allowed diesel exhaust into the passenger compartment," and falsified safety reports required by the California Highway Patrol so that unrepaired buses could remain in service. Despite these and other breaches of the Contract, Laidlaw presented invoices to the District for payment, with knowledge that it was in breach of the Contract or acting in reckless disregard as to whether it was in breach of the Contract.

The Complaint's first cause of action alleges that Laidlaw violated section 12651, subdivision (a)(1), by knowingly presenting false "claims" to the District for payment or approval. It asserts, "[w]hen Laidlaw submitted monthly invoices for payment, [it] impliedly certified that [it] had met each and every material term of the [C]ontract." The second cause of action alleges that Laidlaw violated the CFCA by knowingly falsifying records and/or statements "in order to get false claims paid or approved by [the District]." The third cause of action alleges that Laidlaw violated former section 12651, subdivision (a)(7), by using "false record[s] or statement[s] to conceal, avoid, or decrease an obligation to pay or transmit money or property to [the District]." (Stats. 2007, ch. 577, § 5.)

Laidlaw demurred to the Complaint.⁵ The trial court sustained with leave to amend the demurrer on the first two causes of action and overruled the demurrer on the third cause of action. Plaintiffs did not amend their Complaint, but they dismissed the third cause of action. The trial court entered a judgment of dismissal and this appeal followed.

DISCUSSION

Plaintiffs contend the trial court erred in sustaining Laidlaw's demurrer to their first cause of action for violation of section 12651, subdivision (a)(1).⁶ We review the Complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory. (Aguilera v. Heiman (2009) 174 Cal.App.4th 590, 595 .) "`We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]" (Blank v. Kirwan, supra, 39 Cal.3d at p. 318; see also Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 [119 Cal.Rptr.2d 709, 45 P.3d 1171].) Because plaintiffs elected not to amend, we strictly construe the Complaint and presume plaintiffs have stated as strong a case as they can. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1091 [32 Cal.Rptr.3d 483, 116 P.3d 1162].)

I. Introduction to the CFCA

The Fourth District described the CFCA in Rothschild v. Tyco Internat. (US), Inc. (2000) 83 Cal.App.4th 488 (Rothschild):

(1) "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 person 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.]

(2) "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 period 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...