Tuesday, March 2, 2010
Court of Appeal Revives Qui Tam Suit Against School Bus Company
By a MetNews Staff Writer
The First District Court of Appeal has reinstated a suit charging that the company that provides school bus services to the San Francisco Unified School District defrauded the district by claiming payment while in willful non-compliance with safety and environmental standards.
Because a claim for payment is an implied certification that the vendor is complying with the material terms of a government contract, Justice Mark Simons wrote Friday for Div. Five, the plaintiffs need not prove that the district specifically inquired about whether Laidlaw Transit Inc. was in compliance or that the company made actual false statements.
The action is a qui tam suit under the California False Claims Act. Like the federal act that it is patterned after, the CFCA allows a private citizen who has personal knowledge of a fraudulent claim by a government contractor to sue on behalf of the public and keep a share of any damages or penalties that are awarded.
The plaintiffs accuse Laidlaw of breaching its contract by failing to meet state and federal safety standards for school bus fleets, to maintain an adequate spare fleet, to replace unfit vehicles, to meet emission standards, and to maintain accurate records. Among other things, the plaintiffs claim, Laidlaw falsified safety reports required by the California Highway Patrol in order to allow unrepaired buses to remain in service.
San Francisco Superior Court Judge Ernest Goldsmith sustained Laidlaw’s demurrer, and the case was dismissed.
Simons, however, cited federal case law holding that a false claims suit may be brought on an “implied certification theory” if a contractor claims payment while in material breach of the contract, even if there is no specific false statement on the face of the invoice or other request for payment.
The justice also cited City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, in which the court held that the plaintiffs stated a CFCA claim by alleging that parts supplied to the city for use in the municipal water system were of inferior quality, and that the defendant’s billings constituted an implied misrepresentation that the parts supplied met the specifications stated in its catalogue.
Simons went on to conclude that the plaintiffs adequately pled materiality and causation.
“The CFCA does not expressly require a showing of materiality to support the imposition of a statutory penalty for the submission of a false claim,” although materiality must be shown in order to collect damages, the justice explained. In any event, he said, the plaintiffs’ allegations that the district requires satisfactory performance of all contracts as a prerequisite to payment and that the district was unaware of the non-compliance were sufficient to allege the materiality element of a claim for damages for fraud.
The complaint also expressly alleged that the implied misrepresentations damaged the district, and specifically that Laidlaw violated contractual provisions entitling the district to liquidated damages, the justice said.
The case is San Francisco Unified School District ex rel. Contreras v. Laidlaw Transit, Inc., 10 S.O.S. 1066.
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