States to Watch in 2023
While cases interpretating Federal False Claims Act (FCA) liability go up before the Supreme Court, states are making their own progress by enacting and attempting to expand their state counterparts.
Colorado’s New False Claims Act
In June 2022, Colorado signed into law the Colorado False Claims Act (CFCA), Colo. Rev. Stat. Ann. § 24-31-101 et seq. The CFCA took effect on August 10, 2022, and now joins Colorado’s Medicaid False Claims Act, § 24–31–1201 et seq., as another tool to combat fraud against the state and its political subdivisions.
While the CFCA largely follows the federal FCA, there are a few notable differences. First, the CFCA enumerates a slightly broader anti-retaliation provision, adding that an employee, contractor, or agent can bring an action if they are “intimidated, sued, defamed, blacklisted, or in any other manner retaliated against” for certain “lawful acts” that are defined within the statute. Whereas the federal FCA leaves courts to interpret which “lawful acts” give rise to retaliation actions, the CFCA specifically defines conduct that constitutes protected activity, including conducting or assisting with investigations, meeting with counsel, or filing an action under the CFCA. The CFCA also establishes a “False Claims Recovery Cash Fund” to maintain proceeds obtained from CFCA actions, a portion of which will be provided to the Colorado Attorney General to cover costs associated with carrying out the duties of the Department of Law. Like the Federal FCA, the CFCA allows a whistleblower to receive up to 30% or 25% of the recovery, depending on whether the state intervenes. And like the Federal FCA, the CFCA does not apply to actions for tax fraud.
The recent enactment of the CFCA highlights the importance of False Claims Act qui tam provisions, which allow individuals to file cases on behalf of a government. This is historically the most effective way to thwart fraud, and will be needed, especially as state and local spending increased during the COVID-19 pandemic. Taxpayers Against Fraud (TAF) will continue to monitor developments, cases and settlements under this new statute.
New York’s Attempt to Close the “Tax Loophole”
New York’s Attempt to Close the “Tax Loophole.” New York legislators have tried, for a second time, to close a loophole in the New York False Claims Act (NYFCA), NY CLS St Fin § 187 et seq. The NYFCA paved the way for state FCAs to target enforcement against tax fraud, permitting actions against corporations and individuals that knowingly file a false tax return to avoid paying over $350,000 in taxes. Since the NYFCA was amended in 2010 to include tax actions, New York has recovered over $585 million from tax fraudsters, including a $330 million recovery in the largest sales tax fraud in American history. But there is a loophole: the NYFCA does not reach corporations or individuals who knowingly refuse to file any tax return, leaving no paper trail to document the false record. In 2021, the New York legislature passed Senate Bill S4730 / Assembly Bill A2543 to close this loophole by expanding application of the NYFCA to tax actions involving “claims, records, or statements, AND OBLIGATIONS…” (original emphasis) After Governor Hochul vetoed the bill, the New York legislature again passed an updated version of the bill during the following legislative session (Senate Bill S8815 / Assembly Bill A9975). On January 30, 2023, Governor Hochul vetoed the bill for a second time. In the aftermath of this second veto, it remains to be seen whether New York legislators will revive their proposed legislation to close the tax loophole.
Connecticut’s Attempted False Claims Act Expansion
Connecticut’s Attempted FCA Expansion. In March 2023, the Government Administration and Elections Committee of the Connecticut General Assembly heard public testimony on House Bill No. 6826 (An Act Concerning Liability for False and Fraudulent Claims), which seeks to remove language limiting application of the state’s FCA to state-administered health or human services programs. If passed, this amendment will significantly expand the reach of the Connecticut FCA, Conn. Gen. Stat. § 4-274, et seq., to combat fraud in every state agency—totaling more than one hundred—whereas the current Connecticut FCA only covers nine agencies. The bill would make the Connecticut FCA identical to the federal FCA except for a few state-specific references. Connecticut Attorney General William Tong testified in support of H.B. 6826, emphasizing anti-fraud enforcement efforts as “spending has quickly and substantially increased as a result of Connecticut’s $6 billion share of the Infrastructure Investment and Jobs Act.” Taxpayers Against Fraud, Connecticut legislators, and others have also expressed support for H.B. 6826. This bill follows similar efforts last legislative session to adopt Senate Bill 426, for which Attorney General Tong also testified in support, but which was not heard by the full Senate before the legislature adjourned in May 2022.
Michigan’s Proposed False Claims Act
In 2022, thirty-eight Michigan Representatives introduced House Bill 6032 to create a state FCA to create liability for many additional kinds of fraud committed against the state. The proposed FCA would accompany the Michigan Medicaid False Claims Act, MCLS § 400.601 et seq., which applies only to false claims presented under Michigan’s social welfare act. The proposed bill would also permit many actions for false or fraudulent claims, records, or statements made under a tax law. The bill has been awaiting a hearing in the Judiciary Committee since April 14, 2022.
Jaclyn Tayabji is a Fellow at Tycko & Zavareei LLP