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SB-12 Workers’ Compensation Fraudulent Claims Act.(2003-2004)

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SB12:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2003–2004 4th Ext.

Senate Bill
No. 12


Introduced  by  Senator Figueroa

February 20, 2004


An act to add Division 4.9 (commencing with Section 6250) to the Labor Code, relating to workers’ compensation.


LEGISLATIVE COUNSEL'S DIGEST


SB 12, as introduced, Figueroa. Workers’ Compensation Fraudulent Claims Act.
Existing law establishes a workers’ compensation system to compensate an employee for injuries arising out of, or in the course of, employment. Existing law provides various mechanisms for investigating and preventing workers’ compensation fraud.
Existing law establishes the False Claims Act which, in part, authorizes a qui tam plaintiff to bring a civil action for damages resulting from fraudulent claims against the state or a political subdivision of the state, and to share in the recovery.
This bill would enact the Workers’ Compensation Fraudulent Claims Act to establish a system similar to the False Claims Act to, in part, authorize a qui tam plaintiff to bring a civil action for damages resulting from fraud relating to the workers’ compensation system, and to share in the recovery.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) The fair and equitable remedy to address fraud and abuse in the workers’ compensation system is to ferret out and punish fraud and abuse.
(b) It is not fair and equitable to reduce medical and disability benefits to employees who are injured and their families as a means of reducing the costs of the system, until the state has done everything it can to eliminate fraud and abuse.
(c) It is not fair and equitable to impose one-size-fits-all compensation formulas that would never be tolerated by patients in traditional health care settings, as a means of reducing the costs of the system, until the state has done everything it can to eliminate fraud and abuse.

SEC. 2.

 Division 4.9 (commencing with Section 6250) is added to the Labor Code, to read:

DIVISION 4.9. WORKERS' COMPENSATION FRAUDULENT PRACTICES ACT

Article  1. General and Scope

6250.
 (a) This division shall be known, and may be cited, as the Workers’ Compensation Fraudulent Practices Act.
(b) For purposes of this division, the following terms have the following meanings:
(1) “Claim” includes any claim for compensation, medical care, temporary disability benefits, or permanent disability benefits under Division 4 (commencing with Section 3200) or Division 4.5 (commencing with Section 6100).
(2) “Knowing” and “knowingly” does not require proof of specific intent to defraud, rather those terms 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.
(3) “Person” includes any natural person, corporation, firm, association, organization, partnership, limited liability company, business, or trust.
(4) “Qui tam plaintiff” is a person bringing an action pursuant to this division as set forth in subdivision (b) of Section 6257.

6251.
 (a) Liability under this division shall be joint and several for any act committed by two or more persons.
(b) Liability under this division does not apply to any claim involving an amount of less than five hundred dollars ($500) in value.

Article  2. Liability for Fraudulent Practices

6255.
 Any person who commits any of the following acts with regard to the workers’ compensation system shall be liable to the state or the qui tam plaintiff for three times the amount of damages determined by the court pursuant to this division. A person who commits any of the following acts shall also be liable to the state or the qui tam plaintiff for the costs of a civil action brought to recover any of those penalties or damages, and may be liable to the state or the qui tam plaintiff for a civil penalty of up to ten thousand dollars ($10,000) for each false claim:
(a) Knowingly presents or causes to be presented a false claim for payment or approval.
(b) Knowingly makes, uses, or causes to be made or used a false record or statement to unlawfully benefit from the workers’ compensation system or to get a false claim paid or approved.
(c) Conspires to defraud the insurer by getting a false claim allowed or paid.
(d) Is authorized to make or deliver a document or certificate supporting a false claim.
(e) Knowingly makes, uses, or causes to be made or used a false record or statement related to a claim.
(f) Is a beneficiary of an inadvertent submission of a false claim, subsequently discovers the falsity of the claim, and fails to disclose the false claim within a reasonable time after discovery of the false claim.
(g) Violates Section 3820.

6256.
 Notwithstanding Section 6255, the court may assess not less than two times and not more than three times the amount of damages which the insurer, employer, or both, sustain because of the act of the person described in that section, and no civil penalty, if the court finds all of the following:
(a) The person committing the violation furnished the insurer, the Attorney General, or the qui tam plaintiff, as the case may be, with all information known to that person about the violation within 30 days after the date on which the person first obtained the information.
(b) The person fully cooperated with any investigation of the violation conducted by the Attorney General or the qui tam plaintiff.
(c) At the time the person furnished the Attorney General or the qui tam plaintiff with information about the violation, no criminal prosecution, civil action, or administrative action had commenced with respect to the violation, and the person did not have actual knowledge of the existence of an investigation into the violation.

Article  3. Enforcement Actions

6257.
 (a) The Attorney General shall diligently investigate violations under Section 6255. If the Attorney General finds that a person has violated or is violating Section 6255, the Attorney General may bring a civil action under this section against that person.
(b) (1) Any person, as a qui tam plaintiff, may bring a civil action for a violation of this division on his or her own behalf and in the name of the state. 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 division.
(2) A complaint filed by a qui tam plaintiff under this subdivision shall be filed in superior court in camera and may remain under seal for up to 60 days. No service shall be made on the defendant until after the complaint is unsealed.
(3) On the same day as the complaint is filed pursuant to paragraph (2), the qui tam plaintiff shall serve by mail with “return receipt requested” the Attorney General with a copy of the complaint and a written disclosure of substantially all material evidence and information the qui tam plaintiff possesses.
(4) Within 60 days after receiving a complaint and written disclosure of material evidence and information alleging violations, the Attorney General may elect to intervene and proceed with the action.
(5) The Attorney General may, for good cause shown, move the court for extensions of the time during which the complaint shall remain under seal. The motion may be supported by affidavits or other submissions in camera.
(6) Before the expiration of the 60-day period or any extensions obtained under paragraph (5), the Attorney General shall do either of the following:
(A) Notify the court that it intends to proceed with the action, in which case the action shall be conducted by the Attorney General and the seal shall be lifted.
(B) Notify the court that it declines to proceed with the action, in which case the seal shall be lifted and the qui tam plaintiff shall have the right to conduct the action.
(7) The defendant shall not be required to respond to any complaint filed under this section until 30 days after the complaint is unsealed and served upon the defendant pursuant to Section 583.210 of the Code of Civil Procedure.

6258.
 (a) When a qui tam plaintiff brings an action under this division, no other qui tam plaintiff may bring a related action based on the facts underlying the pending action.
(b) A qui tam plaintiff may not bring an action that is based upon allegations or transactions that are the subject of a civil suit or an administrative civil money penalty proceeding in which the state is already a party.
(c) (1) A qui tam plaintiff may not bring an action that is based upon allegations or transactions that are based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in an investigation, report, hearing, or audit conducted by or at the request of the Senate, Assembly, auditor, or governing body of a political subdivision of the state, or by the news media, unless the qui tam plaintiff is an original source of the information.
(2) For purposes of this subdivision, “original source” means an individual who has direct and independent knowledge of the information on which the allegations are based, who voluntarily provided the information to the state or political subdivision before filing an action based on that information, and whose information provided the basis or catalyst for the investigation, hearing, audit, or report that led to the public disclosure.
(d) No court shall have jurisdiction over an action brought by a qui tam plaintiff based upon information discovered by a present or former public employee of an agency of government having jurisdiction, in part, over investigating or preventing fraud unless that employee, in good faith, first exhausted existing internal procedures for reporting and seeking action to remedy the fraud and the governmental entity failed to act within a reasonable period of time on the information provided.
(e) No court shall have jurisdiction over an action brought by an employer or employer representative under this division that seeks damages from a current employee unless the current employee is alleged to have violated Section 3820.

6259.
 (a) (1) If the Attorney General proceeds with the action pursuant to subparagraph (A) of paragraph (6) of subdivision (b) of Section 6257, the Attorney General shall have the primary responsibility for prosecuting the action. The qui tam plaintiff shall have the right to continue as a full party to the action.
(2) The Attorney General 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.
(3) The Attorney General may settle the action with the defendant notwithstanding the objections of the qui tam plaintiff if the court determines, after a hearing providing the qui tam plaintiff an opportunity to present evidence, that the proposed settlement is fair, adequate, and reasonable under all of the circumstances.
(b) (1) If the Attorney General elects not to proceed with the action, pursuant to subparagraph (B) of paragraph (6) of subdivision (b) of Section 6257, the qui tam plaintiff shall have the same right to conduct the action as the Attorney General would have had if it had chosen to proceed. If the Attorney General so requests, and at state expense, the Attorney General shall be served with copies of all pleadings filed in the action and supplied with copies of all deposition transcripts.
(2) Upon timely application, the court may permit the Attorney General to intervene in an action with which it had initially declined to proceed if the interests of the state are not being adequately represented by the qui tam plaintiff.
(3) If the court permits the Attorney General to intervene under paragraph (2), the qui tam plaintiff shall retain principal responsibility for the action.

6260.
 (a) If the Attorney General initiates an action under subdivision (a) of Section 6257, or if within the initial 60-day period, the Attorney General assumes control of an action initiated by a qui tam plaintiff under subparagraph (A) of paragraph (6) of subdivision (b) of Section 6257, the office of the Attorney General shall receive a fixed 33 percent of the proceeds of the action or settlement of the claim, which shall be used to support its ongoing investigation and prosecution of workers’ compensation fraud.
(b) If after the 60-day period the Attorney General is permitted to intervene in an action brought by a qui tam plaintiff, the Attorney General and the qui tam plaintiff shall, subject to subdivisions (d) and (e), receive at least 15 percent but not more than 33 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the Attorney General and the qui tam plaintiff substantially contributed to the prosecution of the action as determined by the court.
(c) If the Attorney General does not proceed with or intervene in an action initiated by a qui tam plaintiff, the qui tam plaintiff shall, subject to subdivisions (d) and (e), receive an amount that the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than 33 percent and not more than 60 percent of the proceeds of the action or settlement and shall be paid out of the proceeds.
(d) If the action is one provided for under subdivision (d) of Section 6258, the present or former employee of the state or political subdivision is not entitled to any minimum guaranteed recovery from the proceeds. The court, however, may award the qui tam plaintiff those sums from the proceeds as it considers appropriate, but in no case more than 33 percent of the proceeds if the Attorney General goes forth with, or intervenes in, the action or 50 percent if the Attorney General declines to go forth or to intervene, taking into account the significance of the information, the role of the qui tam plaintiff in advancing the case to litigation, and the scope of, and response to, the employee’s attempts to report and gain recovery of the fraudulently claimed compensation through official channels.
(e) If the action is one that the court finds to be based primarily on information from a person who actively participated in the fraudulent activity, the person is not entitled to any minimum share in the proceeds of the recovery. The court, however, may award the qui tam plaintiff any sums from the proceeds that it considers appropriate, but in no case more than 33 percent of the proceeds if the Attorney General goes forth with, or intervenes in, the action or 50 percent if the Attorney General declines to go forth or to intervene, taking into account the significance of the information, the role of the qui tam plaintiff in advancing the case to litigation, the scope of the person’s involvement in the fraudulent activity, the person’s attempts to avoid or resist the activity, and all other circumstances surrounding the activity.
(f) (1) The portion of the recovery not distributed pursuant to subdivisions (a) to (e), inclusive, shall be utilized to make the insurer whole, with the remainder, if any, to be deposited into the Workers’ Compensation Fraud Account within the Insurance Fund, established pursuant to Section 1872.83 of the Insurance Code, to be expended upon appropriation by the Legislature for the purposes of the reducing or eliminating workers’ compensation fraud.
(2) For purposes of this section, “proceeds” include civil penalties as well as double or treble damages.

6261.
 (a) If the Attorney General or the qui tam plaintiff prevails in or settles any action under this division, the qui tam plaintiff shall receive an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable costs and attorney’s fees. All expenses, costs, and fees shall be awarded against the defendant.
(b) If the defendant prevails, the court may award to the defendant his or her reasonable attorney’s fees and expenses against the party or parties that proceeded with the action if the court finds that the claim was clearly frivolous, clearly vexatious, or brought solely for purposes of harassment.

6262.
 (a) The court may stay discovery by the qui tam plaintiff for a period of not more than 60 days if the Attorney General or the local prosecuting authority shows that the discovery would interfere with an investigation or a prosecution of a criminal or civil matter arising out of the same facts, regardless of whether the Attorney General or local prosecuting authority proceeds with the action. This showing shall be conducted in camera. The court may extend the 60-day period upon a further showing in camera that the Attorney General or local prosecuting authority has pursued the criminal or civil investigation or proceedings with reasonable diligence and any proposed discovery in the civil action will interfere with the ongoing criminal or civil investigation or proceedings.
(b) Upon a showing by the Attorney General or local prosecuting authority that unrestricted participation during the course of the litigation by the qui tam plaintiff initiating the action would interfere with or unduly delay the Attorney General’s or local prosecuting authority’s prosecution of the case, or would be repetitious, irrelevant, or for purposes of harassment, the court may, in its discretion, impose limitations on the qui tam plaintiff’s participation, including any of the following:
(1) Limiting the number of witnesses the qui tam plaintiff may call.
(2) Limiting the length of the testimony of the witnesses.
(3) Limiting the qui tam plaintiff’s cross-examination of witnesses.
(4) Otherwise limiting the participation by the qui tam plaintiff in the litigation.

6263.
 (a) A civil action under this division may not be filed more than three years after the date of discovery by the Attorney General or the qui tam plaintiff, and no more than 10 years after the date on which the violation is committed.
(b) A civil action under this division may be brought for activity prior to effective date of the act that added this division if the limitations period set in subdivision (a) has not lapsed.
(c) In any action brought under this division, the Attorney General or the qui tam plaintiff shall be required to prove all essential elements of the cause of action, including damages, by a preponderance of the evidence.
(d) Notwithstanding any other provision of law, a guilty verdict rendered in a criminal proceeding charging false statements or fraud, whether upon a verdict after trial or upon a plea of guilty or nolo contendere, except for a plea of nolo contendere made prior to the effective date of the act adding this division, shall estop the defendant from denying the essential elements of the offense in any action which involves the same transaction as in the criminal proceeding.

6264.
 (a) Subdivision (b) of Section 47 of the Civil Code shall not be applicable to any claim subject to this division.
(b) This division is not exclusive, and the remedies provided for in this division shall be in addition to any other remedies provided for in any other law or available under common law.
(c) If any provision of this division or the application thereof to any person or circumstance is held to be unconstitutional, the remainder of the division and the application of the provision to other persons or circumstances shall not be affected thereby.
(d) This division shall be liberally construed and applied to promote the public interest.

6265.
 (a) If a violation of this division is alleged or the application or construction of this division is in issue in any proceeding in the Supreme Court of California, a state Court of Appeal, or the appellate division of a superior court, the qui tam plaintiff that commenced that proceeding shall serve a copy of the notice or petition initiating the proceeding, and a copy of each paper, including briefs, that the person or political subdivision files in the proceeding within three days of the filing, on the Attorney General.
(b) Timely compliance with the three-day time period is a jurisdictional prerequisite to the entry of judgment, order, or decision construing or applying this article by the court in which the proceeding occurs, except that within that three-day period or thereafter, the time for compliance may be extended by the court for good cause.
(c) The court shall extend the time period within which the Attorney General is permitted to respond to an action subject to this section by at least the same period of time granted for good cause pursuant to subdivision (b) to the person or political subdivision that commenced the proceeding.

Article  4. Whistle-Blower Protection

6277.
 (a) No employer shall make, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency or from acting in furtherance of a fraud action, including investigating, initiating, testifying, or assisting in an action filed or to be filed under this division.
(b) No employer shall discharge, demote, suspend, threaten, harass, deny promotion to, or in any other manner discriminate against, an employee in the terms and conditions of employment because of lawful acts done by the employee on behalf of the employee or others in disclosing information to a government or law enforcement agency or in furthering this division, including investigation for, initiation of, testimony for, or assistance in, an action filed or to be filed under this division.
(c) An employer who violates subdivision (b) shall be liable for all relief necessary to make the employee whole, including reinstatement with the same seniority status that the employee would have had but for the discrimination, two times the amount of back pay, interest on the back pay, compensation for any special damage sustained as a result of the discrimination, and, where appropriate, punitive damages. In addition, the defendant shall be required to pay litigation costs and reasonable attorneys’ fees. An employee may bring an action in the appropriate superior court of the state for the relief provided in this subdivision.
(d) An employee who is discharged, demoted, suspended, harassed, denied promotion, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of participation in conduct which directly or indirectly resulted in a fraudulent claim shall be entitled to the remedies under subdivision (c) if, and only if, both of the following occur:
(1) The employee voluntarily disclosed information to a government or law enforcement agency or acted in furtherance of a fraudulent claims action, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed.
(2) The employee had been harassed, threatened with termination or demotion, or otherwise coerced by the employer or its management into engaging in the fraudulent activity in the first place.