Acs v. Allied Mold & Die, Inc.

• Decision Date: 21 December 2001
• Docket Number: No. C036505.,C036505.
• Court: California Court of Appeals Court of Appeals
• Parties: AMERICAN CONTRACT SERVICES, Plaintiff and Appellant, v. ALLIED MOLD & DIE, INC., Defendant and Respondent; Bill Lockyer, as Attorney General, etc., Intervener and Respondent.

114 Cal.Rptr.2d 773

94 Cal.App.4th 854

AMERICAN CONTRACT SERVICES, Plaintiff and Appellant, v. ALLIED MOLD & DIE, INC., Defendant and Respondent Bill Lockyer, as Attorney General, etc., Intervener and Respondent.

No. C036505.

Court of Appeal, Third District.

December 21, 2001.

Review Denied March 13, 2002.

Dauer & Thompson, Paul F. Dauer, Sacramento, and Jennifer L. Dauer, for Plaintiff and Appellant.

Law Offices of Richard G. Anderson, Richard G. Anderson for Defendant and Respondent.

Bill Lockyer, Attorney General, Christopher Ames, Senior Assistant Attorney General, Larry Raskin, Supervising Deputy Attorney General, Denise J. Fischer, Deputy Attorney General, for Intervener and Respondent.

HULL, J.

The False Claims Act (hereafter sometimes referred to as the Act) (Gov.Code, § 12650 et seq.) imposes treble damage liability on one who, among other things, "[k]nowingly presents or causes to be presented to an officer or employee of the state or of any political subdivision thereof, a false claim for payment or approval." (Gov.Code, § 12651, subd. (a)(1).) Where the Attorney General initiates litigation under the Act, or intervenes in an action initiated by a private party, the Attorney General may move to dismiss the case on a showing of "good cause." (Gov.Code, § 12652, subd. (e)(2)(A).)

In this matter, we conclude good cause for dismissal exists where the Attorney General establishes that the False Claims Act cause of action is without merit. We further conclude that the submission of a claim for payment on a contract allegedly entered into in violation of state contracting laws, where the state was fully aware of and instigated the alleged violations, does not contravene the Act.

FACTS AND PROCEDURAL HISTORY

In August 1998, the Procurement Division of the Department of General Services (DGS/PD) issued an invitation for bids to obtain 500,000 infant training cups for use in the state's Women and Infant Children (WIC) program administered by the Department of Health Services. Included with the invitation was a detailed set of specifications for the cup, including a size of six ounces, a resealable twist cap, three holes in the top of the spout and neon colors for the caps. Attachment 1 set forth requirements for disabled veteran business enterprise (DVBE) participation. Among other things, it specified a three percent participation goal and indicated "[b]idders must meet DVBE Participation Program requirements to be viewed as a responsive bidder and considered for contract award."

DGS/PD received three bids, one from plaintiff American Contract Services (ACS), one from defendant Allied Mold & Die, Inc. (Allied), and one from a business named Comade. The low bidder was Comade, at $325,000. However, DGS/PD concluded Comade's bid was not responsive to the invitation, because the cup design was not in accordance with the specifications provided. Allied was the next lowest bidder, at $350,000. That bid indicated it was in compliance with the technical requirements, except that caps for the training cups did not come in neon colors. Allied's bid also did not comply with attachment 1, the DVBE requirement. ACS submitted a bid of $465,000, which indicated ACS planned to obtain the cups from either Allied, or a company named El Nino Products. ACS's bid complied with attachment 1.

Rather than accept any of the bids, DGS/PD cancelled its solicitation and contracted directly with Allied as the "sole source" of a conforming product. Allied thereafter delivered the 500,000 training cups and submitted an invoice for payment of $350,000, plus tax. DGS/PD paid the invoice amount.

ACS initiated this action against Allied for violation of the False Claims Act. The Attorney General intervened on behalf of the state. Allied demurred to the complaint, and the Attorney General submitted a statement of nonopposition. On January 13, 2000, the trial court sustained the demurrers with leave to amend until January 24.

On January 24, 2000, ACS submitted a first amended complaint, which included claims against the state for violation of bidding requirements and waste of public funds. Allied again demurred, and the Attorney General submitted a statement of nonopposition on the False Claims Act cause of action. Following supplemental briefing, the trial court entered an order striking ACS's amended complaint. The court concluded ACS did not have authority to file the amended complaint, because the litigation was under the control of the Attorney General. According to the court: "Once the demurrer was sustained with leave to amend, the AG should have either filed an amended complaint or filed a motion to dismiss. The AG cannot merely file statements of non-opposition and allow the complaint to be dismissed without filing the required motion." The court ordered the Attorney General to file either an amended complaint, or a motion to dismiss.

On June 9, 2000, the Attorney General filed a motion to dismiss. Over ACS's opposition, the trial court granted the motion and entered judgment of dismissal.

DISCUSSION

I The False Claims Act

The False Claims Act was enacted in 1987 and is patterned largely on similar federal legislation (31 U.S.C.A. § 3729 et seq.). (Rothschild v. Tyco Internal (US), Inc. (2000) 83 Cal.App.4th 488, 494, 99 Cal.Rptr.2d 721.) The Act is designed "to supplement governmental efforts to identify and prosecute fraudulent claims made against state and local governmental entities" by authorizing private parties (referred to as qui tams or relators) to bring suit on behalf of the government. (Id. at pp. 494-495, 99 Cal.Rptr.2d 721.) The ultimate purpose of the Act is to protect the public fisc. (LeVine v. Weis (1998) 68 Cal.App.4th 758, 765, 80 Cal. Rptr.2d 439.)

Under the Act, treble damages may be imposed on one who, among other things, "[k]nowingly presents or causes to be presented to an officer or employee of the state or of any political subdivision thereof, a false claim for payment or approval." (Gov.Code, § 12651, subd. (a)(1); all subsequent undesignated section references are to the Government Code.) A "claim" within the meaning of the Act includes "any request or demand for money, property, or services made to any employee, officer, or agent of the state or any political subdivision ...." (§ 12650, subd. (b)(1).) "`Knowing'" and "`knowingly'" are defined to mean "that a person, with respect to information, does any of the following: [¶] (A) Has actual knowledge of the information. [¶] (B) Acts in deliberate ignorance of the truth or falsity of the information, [¶] (C) Acts in reckless disregard of the truth or falsity of the information. [¶] Proof of specific intent to defraud is not required." (§ 12650, subd. (b)(2).)

The Attorney General is required to investigate any violations of the Act that involve claims for state funds and may bring a civil action against an offending party. (§§ 12651, 12652, subd. (a)(1).) Where local funds are involved, actions may be brought on behalf of any political subdivision of the state by the local prosecuting authority. (§ 12652, subd. (b)(1).) Private parties may also initiate False Claims Act proceedings, in which copy of the complaint must be served on the Attorney General. (§ 12652, subd. (c)(3).) The Attorney General may, within 60 days, "intervene and proceed with the action." (§ 12652, subd. (c)(4).) If the Attorney General does so, "the action shall be conducted by the Attorney General ..." (§ 12652, subd. (c)(6)(A)), who has primary responsibility for prosecuting it. However, the qui tam plaintiff "shall have the right to continue as a full party to the action." (§ 12652, subd. (e)(1).)

Where the Attorney General has intervened in a False Claims Act proceeding, he "may seek to dismiss the action for good cause notwithstanding the objections of the qui tam plaintiff if the qui tam plaintiff has been notified by the state ... of the filing of the motion and the court has provided the qui tam plaintiff with an opportunity to oppose the motion and present evidence at a hearing." (§ 12652, subd. (e)(2)(A), italics added.)

II Good Cause for Dismissal

In this matter, the Attorney General elected to intervene and thereby assume control of the litigation. Following Allied's successful demurrer to the complaint, ACS sought to file an amended complaint, which the trial court rejected. The court concluded the decision to file an amended complaint was in the hands of the Attorney General and directed the Attorney General to file either an amended complaint, or a motion to dismiss. The Attorney General chose the latter.

ACS argues the Attorney General failed to establish good cause for dismissal. According to ACS, good cause requires consideration of the best interests of the parties and the public purposes behind the act, whereas the Attorney General relied on a purported lack of merit in the False Claims Act cause of action. ACS argues the primary purpose underlying the Act— protection of the public fisc—is not furthered by dismissal of the action.

The question of what is meant by "good cause" under the Act is a matter of statutory interpretation, which we consider de novo. (See Rail-Transport Employees Assn. v. Union Pacific Motor Freight (1996) 46 Cal.App.4th 469, 473, 54 Cal. Rptr.2d 713.) ACS's argument is based on section 12652, subdivision (c)(1), which reads: "A person may bring a civil action for a violation of this article for the person and either for the State of California in the name of the state, if any state funds are involved, or for a political subdivision in the name of the political subdivision, if political subdivision funds are exclusively involved. The person bringing the action shall be referred to as the qui tam plaintiff. Once filed, the action may be dismissed only with the written consent of the court, taking into account the best interests of the parties involved and the public purposes behind this act." (Italics added.)

Allied...