Opinion ID: 2633588
Heading Depth: 1
Heading Rank: 6

Heading: May a public school district be sued under the CFCA?

Text: The Court of Appeal held that both the district and charter school defendants are persons subject to suit under the CFCA. The district defendants insist that they are not persons for purposes of this statute. For reasons that will appear, we agree with the district defendants. We apply well-settled principles of statutory construction. Our task is to discern the Legislature's intent. The statutory language itself is the most reliable indicator, so we start with the statute's words, assigning them their usual and ordinary meanings, and construing them in context. If the words themselves are not ambiguous, we presume the Legislature meant what it said, and the statute's plain meaning governs. On the other hand, if the language allows more than one reasonable construction, we may look to such aids as the legislative history of the measure and maxims of statutory construction. In cases of uncertain meaning, we may also consider the consequences of a particular interpretation, including its impact on public policy. (E.g., MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 426, 30 Cal.Rptr.3d 755, 115 P.3d 41; People v. Smith (2004) 32 Cal.4th 792, 797-798, 11 Cal.Rptr.3d 290, 86 P.3d 348.) As noted, the CFCA defines covered persons to include[ ] any natural person, corporation, firm, association, organization, partnership, limited liability company, business, or trust. (Gov.Code, § 12650, subd. (b)(5).) We observe at the outset that while this list is not necessarily comprehensive, the only words and phrases it uses are those most commonly associated with private individuals and entities. While, in the broadest sense, a school district might be considered an association or an organization, the statutory list of persons contains no words or phrases most commonly used to signify public school districts, or, for that matter, any other public entities or governmental agencies. Yet the statute makes very specific reference to governmental entities in other contexts. Thus, it provides that any person who presents a false claim to the state or [a] political subdivision is liable to such entity for two or three times the damage thereby sustained. (Gov.Code, § 12651, subds.(a), (b).) A `political subdivision is defined to include any city, city and county, county, tax or assessment district, or other legally authorized local government entity with jurisdictional boundaries. ( Id., § 12650, subd. (b)(3).) The specific enumeration of state and local governmental entities in one context, but not in the other, weighs heavily against a conclusion that the Legislature intended to include public school districts as persons exposed to CFCA liability. In other contexts, the Legislature has demonstrated that similar definitions of persons do not include public entities, and that legislators know how to include such entities directly when they intend to do so. For example, under the Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.), a `person is defined to include[ ] one or more individuals, partnerships, associations corporations, limited liability companies, legal representatives, trustees, trustees in bankruptcy, and receivers or other fiduciaries. ( Id., § 12925, subd. (d).) FEHA provides that an `[e]mployer' includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly, the state or any political or civil subdivision of the state, and cities,  except as otherwise specified. ( Id., § 12926, subd. (d), italics added.) This conceptual separation of persons from governmental entities in FEHA is an additional indication that the CFCA's definition of person does not include public entities. [14] The legislative history of the CFCA contains no explicit discussion of the scope of the word person. Nonetheless, the limited evidence available suggests there was no intent to include school districts and other public and governmental agencies. As originally introduced on March 4, 1987, Assembly Bill No. 1441 (1987-1988 Reg. Sess.) (Assembly Bill No. 1441), which in final form became the CFCA, explicitly included, as covered persons, any person, firm, association, organization, partnership, business trust, corporation, company, district, county, city and county, city, the state, and any of the agencies and political subdivisions of these entities.  (Italics added.) A substantial subsequent amendment to the bill excised the references to governmental entities, and the definition of person was changed to the form finally adopted. ( Id., as amended in Assem. (Apr. 29, 1987) § 1; see Stats. 1987, ch. 1420, § 1, p. 5238.) [15] Our past decisions note deletions from bills prior to their passage as significant indicia of legislative intent. (E.g., Sierra Club v. California Coastal Com. (2005) 35 Cal.4th 839, 852, 28 Cal.Rptr.3d 316, 111 P.3d 294; People v. Birkett (1999) 21 Cal.4th 226, 240-242, 87 Cal.Rptr.2d 205, 980 P.2d 912; but cf. American Financial Services Assn. v. City of Oakland (2005) 34 Cal.4th 1239, 1261-1262, 23 Cal.Rptr.3d 453, 104 P.3d 813.) A traditional rule of statutory construction is that, absent express words to the contrary, governmental agencies are not included within the general words of a statute. (E.g., Estate of Miller (1936) 5 Cal.2d 588, 597, 55 P.2d 491; Balthasar v. Pacific Elec. Ry. Co. (1921) 187 Cal. 302, 305, 202 P. 37.) However, plaintiffs and their amici curiae invoke a more recent exception to this principle, i.e., that government agencies are excluded from the operation of general statutory provisions only if their inclusion would result in an infringement upon sovereign governmental powers. . . . Pursuant to this principle, governmental agencies have been held subject to legislation which, by its terms, applies simply to any `person.' [Citations.] ( City of Los Angeles v. City of San Fernando (1975) 14 Cal.3d 199, 276-277, 123 Cal.Rptr. 1, 537 P.2d 1250; see also, e.g., Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 933, 101 Cal.Rptr. 568, 496 P.2d 480 ( Nestle ); Flournoy v. State of California (1962) 57 Cal.2d 497, 498-499, 20 Cal.Rptr. 627, 370 P.2d 331; Hoyt v. Board of Civil Service Commrs. (1942) 21 Cal.2d 399, 402, 132 P.2d 804.) In at least one instance, this premise was applied to a statutory definition of covered persons somewhat like that used in the CFCA. ( State of California v. Marin Mun. W. Dist. (1941) 17 Cal.2d 699, 704, 111 P.2d 651 [county held subject to statute allowing Department of Public Works to order any person to move his pipeline as necessary for public safety or highway improvement; statute defined person to include any person, firm, partnership, association, corporation, organization, or business trust, and did not expressly name governmental entities].) In LeVine I, supra, 68 Cal.App.4th 758, 80 Cal.Rptr.2d 439, the Court of Appeal held that the defendant school district was a person within the scope of the CFCA, and was thus subject to CFCA provisions prohibiting retaliation against an employee for reporting a false claim or furthering a false claims action (Gov.Code, § 12653, subd. (b)). Invoking the rule that governmental agencies are excluded from the general provisions of a statute only if their inclusion would result in an infringement upon sovereign powers, the Court of Appeal declined to find that the CFCA would cause such infringement. ( LeVine I, supra, at p. 765, 80 Cal.Rptr.2d 439.) The Court of Appeal reasoned that no government agency has the power, sovereign or otherwise, knowingly to present a false claim. ( Ibid. ) [16] In the case before us, the instant Court of Appeal employed a similar analysis. We disagree with the ultimate conclusion of LeVine I. In the first place, the premise that public entities are statutory persons unless their sovereign powers would be infringed is simply a maxim of statutory construction. While the sovereign powers principle can help resolve an unclear legislative intent, it cannot override positive indicia of a contrary legislative intent. As we have explained, the language, structure, and history of the particular statute before us the CFCAstrongly suggest that public entities, including public school districts, are not persons subject to suit under the law's provisions. On that basis alone, we are persuaded that governmental agencies, including the district defendants in this case, may not be sued under California's false claims statute. [17] Moreover, we do not agree with LeVine I's analysis of the sovereign power question. Of course school districts have no sovereign power or right to submit false claims against the public treasury. Nonetheless, we cannot accept LeVine I's determination that application of the CFCA to public school districts would infringe no sovereign powers. As we will explain, in light of the stringent revenue, appropriations, and budget restraints under which all California governmental entities operate, exposing them to the draconian liabilities of the CFCA would significantly impede their fiscal ability to carry out their core public missions. In the particular case of public school districts, such exposure would interfere with the state's plenary power and duty, exercised at the local level by the individual districts, to provide the free public education mandated by the Constitution. The People, by initiative, have put all agencies of government, including school districts, on a strict fiscal diet by adding provisions to the California Constitution that limit their power to tax and spend. Article XIII A, section 1, places a general ceiling on the ad valorem property taxes which may be levied on behalf of local governments and school districts. [Citation]. ( Butt v. State of California (1992) 4 Cal.4th 668, 691, 15 Cal.Rptr.2d 480, 842 P.2d 1240, fn. 17 ( Butt ).) Article XIII A also bans other new local taxes levied by, or for the specific benefit of, school and other special districts except as approved by a two-thirds majority of the voters. (Cal. Const., art. XIII A, § 4; see Rider v. County of San Diego (1991) 1 Cal.4th 1, 13-15, 2 Cal.Rptr.2d 490, 820 P.2d 1000; Hoogasian Flowers, Inc. v. State Bd. of Equalization (1994) 23 Cal.App.4th 1264, 1282-1284, 28 Cal.Rptr.2d 686.) At the state level, article XIII A forbids the enactment of any new ad valorem real property tax, and prohibits all increases in state taxes except by a two-thirds vote of each House of the Legislature. (Cal. Const., art. XIII A, § 3.) Article XIII B generally limits the annual appropriations of state and local governments to the prior years' appropriations as adjusted for the cost of living. (Cal. Const., art. XIII B, § 1.) Under this constitutional provision, these limits may be changed only by vote of the affected electorate. ( Id., § 4.) [18] Public school districts face an additional restriction on their ability to tax and spend for their educational mission. Because disparities in school funding levels based on the comparative wealth of local districts violate the equal protection clause of the California Constitution (see Serrano v. Priest (1976) 18 Cal.3d 728, 135 Cal.Rptr. 345, 557 P.2d 929; Serrano v. Priest (1971) 5 Cal.3d 584, 96 Cal.Rptr. 601, 487 P.2d 1241), the Legislature has adopted a strict system of equalized funding (Ed.Code, § 42238 et seq.), under which, as noted above, the amount of property tax revenues a district can raise, with other specific local revenues, [is] coupled with an equalization payment by the state, thus bringing each district into a rough [per student] equivalency of revenues. (56 Cal.Jur.3d, supra, Schools, § 7, p. 198, fns. omitted.) In obedience to Serrano principles, the current system of public school finance largely eliminates the ability of local districts, rich or poor, to increase local ad valorem property taxes to fund current operations at a level exceeding their [s]tate-equalized revenue per average daily attendance. [Citation.] ( Butt, supra, 4 Cal.4th 668, 691, fn. 17, 15 Cal. Rptr.2d 480, 842 P.2d 1240.) School districts must use the limited funds at their disposal to carry out the state's constitutionally mandated duty to provide a system of public education. The Constitution requires, and makes the Legislature responsible for providing, a system of common schools by which a free school shall be kept up and supported in each district . . . . (Cal. Const., art. IX, § 5.) The Legislature has chosen to implement this fundamental guarantee through local school districts with a considerable degree of local autonomy, but it is well settled that the state retains plenary power over public education. ( Butt, supra, 4 Cal.4th 668, 680-681, 15 Cal.Rptr.2d 480, 842 P.2d 1240.) Hence, there can be no doubt that public education is among the state's most basic sovereign powers. Laws that divert limited educational funds from this core function are an obvious interference with the effective exercise of that power. Were the CFCA applied to public school districts, it would constitute such a law. If found liable under the CFCA, school districts, like other CFCA defendants, could face judgmentspayable from their limited funds  of at least two, and usually three, times the damage caused by each false submission, plus civil penalties of up to $10,000 for each false claim, plus costs of suit. Such exposure, disproportionate to the harm caused to the treasury, could jeopardize a district financially for years to come. It would injure the districts' blameless students far more than it would benefit the public fisc, or even the hard-pressed taxpayers who finance public education. [19] The Legislature is aware of the stringent revenue, budget, and appropriations limitations affecting all agencies of governmentand public school districts in particular. Given these conditions, we cannot lightly presume an intent to force such entities not only to make whole the fellow agencies they defrauded, but also to pay huge additional amounts, often into the pockets of outside parties. Such a diversion of limited taxpayer funds would interfere significantly with government agencies' fiscal ability to carry out their public missions. [20] We note that `[t]he ultimate purpose of the [CFCA] is to protect the public fisc.' ( State v. Altus Finance (2005) 36 Cal.4th 1284, 1297, 32 Cal.Rptr.3d 498, 116 P.3d 1175.) Given that school district finances are largely dependent on and intertwined with state financial aid (see Belanger v. Madera Unified School District (9th Cir. 1992) 963 F.2d 248, 251-252 ( Belanger )), the assessment of double and treble damages, as well as other penalties, to school districts would not advance that purpose. Of course, where liability otherwise exists, public entities must pay legal judgments from their limited revenues and appropriations, even if they cannot exceed their tax or appropriations ceilings to do so and must therefore cut spending in other areas. (See Gov.Code, § 970 et seq.; Ventura Group Ventures, Inc. v. Ventura Port Dist. (2001) 24 Cal.4th 1089, 1098-1100, 104 Cal.Rptr.2d 53, 16 P.3d 717.) This obligation, in and of itself, does not infringe their sovereign powers. But we may consider the effect on sovereign powers when we are determining whether the Legislature intended, by mere implication, to expose a public entity to a particular statutory liability. For the reasons we have detailed, we conclude the Legislature did not intend to subject financially constrained school districtsor any agency of state or local governmentto the treble-damages-plus penalties provisions of the CFCA. We conclude that such entities are not persons subject to suit under that statute. We disapprove LeVine I, supra, 68 Cal. App.4th 758, 80 Cal.Rptr.2d 439, and LeVine II, supra, 90 Cal.App.4th 201, 108 Cal.Rptr.2d 562, to the extent they hold otherwise. Our analysis is not affected by two United States Supreme Court decisions construing the federal false claims statute (FFCA; 31 U.S.C. § 3729 et seq.)the model for California's law. In Stevens, supra, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836, the high court majority held that the several states (including agencies of state governments) are not persons subject to qui tam actions under the FFCA. On the other hand, a different majority later concluded in Cook County v. United States ex rel. Chandler (2003) 538 U.S. 119, 123 S.Ct. 1239, 155 L.Ed.2d 247 ( Chandler ) that certain local governmental entities, including cities and counties, are persons subject to such suits. The parties hotly dispute whether California school districts are state agencies as to which Stevens might be persuasive, or local governmental entities that should fall, by analogy, under the rule of Chandler. However, we find little in either case of direct relevance to the issue before us. Both decisions construe a federal statute which, in respects material here, is distinct from its California counterpart. Moreover, both cases apply federal principles of statutory construction that differ from those used in this state. The FFCA was originally adopted in 1863 to confront massive contractor fraud during the Civil War. ( Stevens, supra, 529 U.S. 765, 781, 120 S.Ct. 1858, 146 L.Ed.2d 836.) As enacted and since amended, the federal statute, like California's, makes persons liable for submitting false claims to the government (31 U.S.C. § 3729), but, unlike the California statute, the federal version includes no definition of covered persons. In Stevens, the majority noted that the statute had never indicated it applied to states. Thus, the majority applied a longstanding interpretive presumption, for purposes of federal law, that `person' does not include the sovereign. [Citations.] ( Stevens, supra, at p. 780, 120 S.Ct. 1858.) Further, the Stevens majority pointed to a separate section of the FFCA  one also with no California parallelallowing the Attorney General to serve civil investigative demands upon persons. (31 U.S.C. § 3733(a)(1).) As the majority observed, persons were defined, for purposes of that section, to include the state ( id., § 3733( l )(4)), thus suggesting states were excluded for other purposes. ( Stevens, supra, 529 U.S. 765, 783-784, 120 S.Ct. 1858, 146 L.Ed.2d 836.) The majority also cited a similar federal law, the Program Fraud Civil Remedies Act of 1986 (PFCRA), which was adopted just prior to the substantial 1986 amendments to the federal false claims act, and carried lesser penalties. As the majority noted, the PFCRA contains a definition of persons that does not include states. It would be anomalous, the majority concluded, for Congress to subject statesgenerally considered immune from punitive damagesto the greater false-claims penalties but not the lesser ones provided by the PFCRA. ( Stevens, supra, at pp. 786-787, 120 S.Ct. 1858.) In Chandler, a qui tam plaintiff brought a federal false claims action against the county owner-operator of a hospital, alleging that the hospital submitted falsified compliance documents to obtain federal research funds. The county moved to dismiss, asserting it was not a person covered by the FFCA. On authority of Stevens, the district court agreed and dismissed the action. The court of appeals reversed, concluding that Stevens did not apply to the county. The United States Supreme Court affirmed the court of appeals. In distinguishing Stevens, as had the court of appeals, the Chandler majority applied a different presumption of federal statutory constructionone also in effect since the Civil War inception of the FFCA. This presumption, the majority explained, is that, where not specifically defined, the word person encompasses artificial persons such as corporations ( Chandler, supra, 538 U.S. 119, 125-126, 123 S.Ct. 1239, 155 L.Ed.2d 247), including both full-fledged municipal corporations, such as towns and cities, that were incorporated at the request of their inhabitants, and quasi-corporations, such as counties, that were created unilaterally by the state ( id. at p. 127, fn. 7, 123 S.Ct. 1239). The Chandler majority acknowledged that the 1986 amendments had added treble-damage and penalty provisions to the Civil War-era statute, and also conceded the presumption against subjecting government entities to punitive damages. However, the Chandler majority observed, there were remedial, nonpunitive aspects to the 1986 damage and penalty provisions. In any event, the majority concluded, given the strong presumption against repeal by implication, the modern addition of arguably punitive damages to the FFCA could not be considered a silent reversal of the historical assumption that this statute includes municipalities. ( Chandler, supra, 538 U.S. 119, 129-134, 123 S.Ct. 1239, 155 L.Ed.2d 247.) As noted above, when the issue is whether government entities are persons covered by a particular statutory scheme, California courts apply interpretive principles somewhat different from those detailed in Stevens and Chandler. Under California law, absent contrary indicia of legislative intent, statutory persons are deemed to include governmental entities, both state and local, unless such inclusion would infringe the entities' exercise of their sovereign powers and duties. California's false claims statute, unlike the federal version, defines covered persons, and does so in a way that suggests an intent not to include government entities. Other indicia of legislative purpose also support this conclusion. And for reasons we have detailed, application of the CFCA's treble-damages-plus-penalties requirement to public school districts would place severe and disproportionate financial constraints on their ability to provide the free education mandated by the Constitutiona result the Legislature cannot have intended. Nothing in Stevens or Chandler changes our conclusions in this regard. Equally beside the point are federal and California decisions holding that California school districts are arms of the state, and thus enjoy the state's sovereign immunity, under the Eleventh Amendment, from suits in federal court. (E.g., Belanger, supra, 963 F.2d 248, 250-251 [civil rights action under 42 U.S.C.A. § 1983]; Kirchmann v. Lake Elsinore Unified School District (2000) 83 Cal.App.4th 1098, 1100-1102, 1105-1115, 100 Cal.Rptr.2d 289 [entity with Eleventh Amendment immunity also enjoys immunity from state court suits under 42 U.S.C. § 1983]; also cf. U.S. ex rel. Ali v. Daniel, Mann, Johnson (9th Cir.2004) 355 F.3d 1140, 1147 [five-pronged arm of the state test is appropriate for determining whether government entity enjoys immunity from federal false claims liability under Stevens ].) When we decide whether the California Legislature intended a California statute to include or exclude California government entities, we are not concerned with issues of federalism, constitutional or statutory. Nothing in decisions addressing such issues precludes us from holding, for the reasons we have explained, that there was no legislative intent to apply the CFCA to public school districts. We conclude that neither such districts, nor any other agencies of state and local government, are persons subject to suit under the CFCA. [21]