Court Opinion

ID: 2654836
Source: CourtListenerOpinion
Date Created: 2014-02-27 01:02:51.498874+00
Date Added: 2024-06-11T12:58:53.319735
License: Public Domain

Filed 2/26/14 Hobbs v. Verizon California CA2/3
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                 DIVISION THREE

EARL A. HOBBS,                                                             B249131

         Plaintiff and Appellant,                                          (Los Angeles County
                                                                           Super. Ct. No. TC026703)
         v.

VERIZON CALIFORNIA INC.,

         Defendant and Respondent.

         APPEAL from a judgment of the Superior Court of Los Angeles County,

William P. Barry, Judge. Affirmed.

         Earl A. Hobbs, in pro. per., for Plaintiff and Appellant.

         Scheper Kim & Harris, Alexander H. Cote and Devon Myers for Defendant and

Respondent.

                            _______________________________________
       Plaintiff and appellant Earl Hobbs1 filed this action against Verizon California,

Inc. as a qui tam plaintiff for the Cities of Compton, Bell, Claremont, Inglewood and

Pomona pursuant to the California False Claims Act (Gov. Code, § 12650, et seq.)

based on Verizon’s alleged failure to collect sufficient taxes from its customers. This

lawsuit is similar to previous lawsuits Hobbs filed which also alleged that Verizon

under-collected taxes. Here, Verizon moved for judgment on the pleadings on the

grounds that the court lacked jurisdiction under the False Claims Act because the claim

was based on publicly disclosed information. The trial court granted the motion and

entered judgment in favor of Verizon. On appeal, Hobbs argues that an exception to the

“public disclosure bar” applies because he is the “original source” of the information on

which the complaint’s allegations are based. We disagree and affirm.

                  FACTUAL AND PROCEDURAL BACKGROUND

       Hobbs was employed by the City of Long Beach as an auditor beginning in 1981.

In 1999, he conducted an investigation at the request of his supervisor regarding the

collection of utility user’s tax by cellular telephone companies. The audit revealed that

Verizon had not collected or remitted the proper amount of tax. The assistant city

auditor started working with a consortium of other similarly affected cities to resolve

the under-collection of the tax.

1
        Although Hobbs’ appellate briefs and filings in the trial court list him as an
attorney with a State Bar Number, the State Bar website indicates that he has been an
inactive member of the State Bar of California since 2006.
(http://www.calbar.ca.gov/fal/Member/Detail/145126 [as of January 29, 2014].)

                                            2
       In April 2002, Hobbs, in his capacity as a private attorney, filed a putative class

action lawsuit against the City of Los Angeles, AT&T and Verizon, on behalf of

citizens of Los Angeles who were cellular customers of Sprint, Nextel and Cingular.2

The action alleged, inter alia, that Verizon had under-collected utility user’s tax from its

customers which resulted in class members paying more tax than Verizon customers.

The complaint was amended to add a cause of action under the False Claims Act on

behalf of 12 California cities. The cities successfully moved to dismiss this claim.

       In September 2003, Hobbs filed an action as a qui tam plaintiff under the False

Claims Act against the City of Los Angeles, the City of Long Beach, AT&T and

Verizon. Hobbs alleged, inter alia, that Verizon was under-collecting tax from its

customers and that the cities had conspired to permit Verizon to collect a lesser amount

of taxes. The cities successfully moved to dismiss the complaint on several grounds,

including that the court did not have jurisdiction under the False Claims Act because the

lawsuit was based upon publicly disclosed information.

       In April 2010, Hobbs again sued Verizon as a qui tam plaintiff under the False

Claims Act, this time on behalf of the Cities of Long Beach and Los Angeles. He

alleged that Verizon failed to collect taxes on $6.50 of its monthly charges to customers.

Each city moved to dismiss the qui tam portion of the action on the grounds that the

transactions at issue were the subject of audits by each city’s auditor. The trial court

granted the motions to dismiss.

2
        Hobbs was still an employee of the City of Long Beach at this time, and was
fired for pursuing the lawsuit as a private attorney. He sued for wrongful termination.

                                             3
       In July 2012, Hobbs filed the lawsuit at issue here. He sued Verizon once more

as a qui tam plaintiff pursuant to the False Claims Act , this time on behalf of the Cities

of Compton, Bell, Claremont, Inglewood and Pomona. His complaint alleged, yet

again, that Verizon had “not collected taxes on $6.50 in monthly charges to

customers . . . . ” Verizon moved for judgment on the pleadings on several grounds,

including that, under the False Claims Act, the court lacked jurisdiction over the action

because it was based on publicly disclosed allegations. The trial court granted the

motion and dismissed the action. Hobbs timely appealed.

                                    CONTENTIONS

       Hobbs contends that the trial court erred in concluding that it lacked jurisdiction

over this action because the “original source” exception to the False Claims Act’s

“public disclosure bar” applied.

                                      DISCUSSION

       1.     Standard of Review

       “The standard of review for a motion for judgment on the pleadings is the same

as that for a general demurrer: We treat the pleadings as admitting all of the material

facts properly pleaded, but not any contentions, deductions or conclusions of fact or law

contained therein. We may also consider matters subject to judicial notice. We review

the complaint de novo to determine whether it alleges facts sufficient to state a cause of

action under any theory. [Citation.]” (Dunn v. County of Santa Barbara (2006)

135 Cal.App.4th 1281, 1298.) When a demurrer is sustained without leave to amend,

we review the decision to deny leave to amend to determine “whether there is

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a reasonable possibility that the defect can be cured by amendment: if it can be, the trial

court has abused its discretion” in denying leave to amend. (Blank v. Kirwan (1985)

39 Cal.3d 311, 318.) The burden of proving a reasonable possibility of curing the defect

“is squarely on the plaintiff.” ( Ibid.)

       2.     The Trial Court Properly Granted Verizon’s Motion for
              Judgment on the Pleadings

       The False Claims 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. [Citation.]” (American Contract Services v. Allied

Mold & Die, Inc. (2001) 94 Cal.App.4th 854, 858.) The statute “imposes liability on

any person who knowingly presents a false or fraudulent claim for payment to the

government − a ‘traditional’ false claim − or who knowingly makes or uses a false

statement to avoid paying the government − a ‘reverse’ false claim.” (Mao’s Kitchen,

Inc. v. Mundy (2012) 209 Cal.App.4th 132, 152-153 (Mao’s).)

       However, the False Claims Act also “ ‘erects a jurisdictional bar to qui tam

actions that do not assist the government in ferreting out fraud because the fraudulent

allegations or transactions are already in the public domain.’ ” (Mao’s, supra, at

p. 146.) Accordingly, the statute provides that “ ‘[n]o court shall have jurisdiction’ ”

over a private qui tam action “based upon the public disclosure of allegations or

transactions in a criminal, civil, or administrative hearing, in an investigation, report,

                                              5
hearing, or audit conducted by [the] governing body of a political subdivision, or by the

news media . . . . ” (Ibid.)

       “The jurisdictional bar is ‘triggered whenever a plaintiff files a qui tam complaint

containing allegations or describing transactions “substantially similar” to those already

in the public domain so that the publicly available information is already sufficient to

place the government on notice of the alleged fraud.’ [Citation].” (State of California

v. Pacific Bell Telephone Co. (2006) 142 Cal.App.4th 741, 748.) “ ‘A qui tam plaintiff

bears the burden of establishing that the exercise of the court’s jurisdiction is proper.’ ”

(Mao’s, supra, 209 Cal.App.4th at p. 147.)

       Here, the complaint alleged that the cities at issue had imposed a tax on

telephone services but that Verizon improperly excluded certain services charges from

the tax. Substantially similar allegations were made in Hobbs’s prior lawsuits against

Verizon. Hobbs does not dispute this but argues that the “original source” exception to

the public disclosure bar applies.

       The False Claims Act’s public disclosure bar “is relaxed only if the qui tam

plaintiff was an original source of the disclosure. (Gov. Code, § 12652,

subd. (d)(3)(B).) . . . . To be an original source, a plaintiff must have ‘direct and

independent knowledge of the information on which the allegations are based,’ have

‘voluntarily provided the information to the state or political subdivision before filing an

action based on that information,’ and have furnished information that ‘provided the

basis’ for the hearing that led to the public disclosure. (Gov. Code, § 12652,

                                              6
subd. (d)(3)(B).)” (State of California ex rel. Standard Elevator Co., Inc. v. West Bay

Builders, Inc. (2011) 197 Cal.App.4th 963, 978.)

       Hobbs argues only that he was the “original source” of the underlying allegations

because he “fil[ed] litigation and g[ave] an interview to the news media” citing to

excerpts from an interview he allegedly gave in 2010. That Hobbs initiated litigation

and gave an interview does not establish that he had “direct and independent

knowledge” of the alleged fraud, only that he helped publicize it. Furthermore, Hobbs

did not allege these facts in his complaint, and thus, they were not before the court when

it considered the motion for judgment on the pleadings.3 Accordingly, Hobbs did not

meet his burden of showing that he was the “original source” of the complaint’s

allegations, and the trial court correctly determined that it had no jurisdiction over this

action.4

3
       The record also does not indicate that Hobbs asked the trial court for leave to
amend to allege these facts, and he does not argue now that there is a reasonable
possibility he could amend the complaint to cure its defects.
4
        We also note that Division Eight of the Court of Appeal for this appellate district
has already provided an instructive analysis as to why Hobbs was not the “original
source” of the information uncovered by the 1999 audit: “The [False Claims Act]
specifically defines ‘original source’ for these purposes, and the definition requires that
the source’s information be the ‘basis or catalyst’ for the audit that led to the public
disclosure of the information . . . . In this case, Hobbs’s audits and investigations were
performed in the course of his employment as staff auditor or deputy city auditor by the
City of Long Beach. In Hobbs v. City of Long Beach, supra, NC033380, Hobbs
specifically alleged that he was assigned to investigate the city’s collection of cellular
telephone utility user taxes. His investigations revealed that AT & T and Verizon were
not applying Long Beach’s utility users tax to airtime while other wireless operators
were doing so. Consequently, the information about AT & T and Verizon’s application
of the tax, upon which Hobbs’s false claims allegations are founded, was not the ‘basis
or catalyst for the investigation’ that led to disclosure of the information. Indeed,

                                              7
                                     DISPOSITION

       The judgment is affirmed. Verizon shall recover its costs on appeal.

       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                                      CROSKEY, J.

WE CONCUR:

       KLEIN, P. J.

       ALDRICH, J.

precisely the opposite is so. Hobbs discovered the information as a result of an
investigation assigned to him by his superiors. As the cities point out, under Hobbs’s
theory, any auditor who discovers a tax irregularity as the result of an audit would be
entitled to bring a false claims action and obtain a percentage of the taxes recovered.
That result is not within the contemplation of the Act, as the definition of ‘original
source’ plainly confirms. Accordingly, because Hobbs was not the ‘original source’ of
the information within the meaning of the statute, the court had no jurisdiction over his
false claims action.” (Hobbs v. City of Los Angeles (Sept. 23, 2005, B175028 [nonpub.
opn.]).)

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