Opinion ID: 723865
Heading Depth: 2
Heading Rank: 2

Heading: claim of regulatory violations

Text: 15 Hopper's first two contentions originate from her assertion that LAUSD's regulatory violations create a viable cause of action under the FCA. Hopper contends that the School District committed actionable fraud against the government by annually submitting J-50 and J-380 forms to the CDOE indicating the number of special education students in the district. Hopper argues that because the School District was not in regulatory compliance, submission of these forms constitutes an actionable false claim. She also contends that by cashing checks received from CDOE, LAUSD was committing actionable fraud because the School District was not in compliance with IDEA regulations. 16 In granting summary judgment, the district court found that Hopper had not met the FCA's scienter and false claim requirements, stating: 17 It appears to the court that the plaintiff is operating under a fundamental misconception as to the reach and scope of the FCA. It is not the case that any breach of contract, or violation of regulations or law, or receipt of money from the government where one is not entitled to receive the money, automatically gives rise to a claim under the FCA. Plaintiff assumes that if Los Angeles Unified School District (LAUSD) has violated regulations or law governing the Individuals with Disabilities Education Act (IDEA), it is automatically subject to suit under FCA. The FCA is far narrower. It requires a false claim. Thus, some request for payment containing falsities made with scienter (i.e., with knowledge of the falsity and with intent to deceive) must exist. This does not mean that other types of violations of regulations, or contracts, or conditions set for the receipt of moneys, or of other federal laws and regulations are not remediable; it merely means that such are not remediable under the FCA or the citizen's suit provisions contained therein. 18 We agree with the district court's analysis of plaintiff's claims. The FCA was enacted during the Civil War with the purpose of forfending widespread fraud by government contractors who were submitting inflated invoices and shipping faulty goods to the government. U.S. v. Rivera, 55 F.3d 703, 709 (1st Cir.1995). In furthering this goal, the Act attaches liability, not to underlying fraudulent activity, but to the claim for payment. Id. What constitutes the FCA offense is the knowing presentation of a claim that is either fraudulent or simply false. United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir.1991). 19 The archetypal qui tam 7 FCA action is filed by an insider at a private company who discovers his employer has overcharged under a government contract. See, e.g., United States ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir.1995), cert. denied, --- U.S. ----, 116 S.Ct. 2550, 135 L.Ed.2d 1069 (1996). However, FCA actions have also been sustained under theories of supplying substandard products or services (see, e.g., United States v. Aerodex, 469 F.2d 1003 (5th Cir.1972)); false negotiation, including bid rigging and defective pricing (see, e.g., United States v. Ehrlich, 643 F.2d 634 (9th Cir.), cert. denied, 454 U.S. 940, 102 S.Ct. 474, 70 L.Ed.2d 247 (1981)); and false certification (see, e.g., United States v. Hibbs, 568 F.2d 347 (3d Cir.1977)). Hopper claims FCA liability as a result of false certification of compliance with federal law. 20 John T. Boese explained the theory of false certification in his text on the False Claims Act: 21 False certification cases differ from mischarging and false negotiation cases. In these cases, parties avail themselves of benefits of some type, such as loan guarantees or agricultural supports, through false statements which create eligibility that otherwise would not exist. Two major questions relating to liability in these cases are: (1) whether the false statement is the cause of the Government's providing the benefit; and (2) whether any relation exists between the subject matter of the false statement and the event triggering Government's loss. 22 John T. Boese, Civil False Claims and Qui Tam Actions 1-29 to 1-30 (1995). 23 In this instance, the School District did not make a certification which could constitute a false claim under the Act, much less a false statement which caused the United States to provide an improper benefit. A brief review of the federal government's mechanism for funding special education illustrates this. Each year, the federal government allocates IDEA funds to California and other states for special education programs to ensure a free appropriate public education for children with disabilities. 20 U.S.C. § 1400(c) (1994). Federal money for special education is assigned to the states on a per-student basis. 20 U.S.C. § 1411(a) (1994). However, California apportions the money among its school districts based upon other information, including the number of special education personnel and other factors, rather than on solely a per-student basis. This information is listed in the J-50 form every district must submit to the CDOE four times a year. At the end of the year, each district submits to the CDOE a form J-380 either to request reimbursement for money spent in excess of budget or to pay back excess money received to which it is not entitled. 24 As the district court observed, Hopper misinterprets the breadth of the Act. Violations of laws, rules, or regulations alone do not create a cause of action under the FCA. It is the false certification of compliance which creates liability when certification is a prerequisite to obtaining a government benefit. See United States ex rel. Fallon v. Accudyne Corp., 880 F.Supp. 636, 638 (W.D.Wis.1995) (false certification of compliance with environmental laws states FCA claim); X Corp. v. Doe, 816 F.Supp. 1086, 1093 (E.D.Va.1993) (The heart of fraud is an intentional misrepresentation. A violation of a regulatory provision, in the absence of a knowingly false or misleading representation, does not amount to fraud.). In the J-50 and J-380 forms, the School District made no such false certification. The forms do not contain any certification concerning regulatory compliance. In fact, the IDEA does not require funding recipients to certify their compliance with federal laws and regulations. 25 Hopper also argues that the School District has made an actionable false claim by accepting federal funds when it was not in compliance with IDEA. This contention suffers from the same fatal defect: lack of a false claim. Mere regulatory violations do not give rise to a viable FCA action. This is particularly true here where regulatory compliance was not a sine qua non of receipt of state funding. There are administrative and other remedies for regulatory violations. Hopper knows this. She has pursued many of them. However, absent actionable false certifications upon which funding is conditioned, the False Claims Act does not provide such a remedy.