Miami-Dade County adopted a purported false claims ordinance which appears to protect corrupt contractors and to penalize whistleblowers. Whistleblowers can not use this to fight fraud and corruption.   The ordinace should be amended to track the time tested Federal False Claims Act.

Dade County False Claim Ordinance

Kroner comments in italics

Sec. 21-256. Definitions.
Sec. 21-257. Certification of claims.
Sec. 21-258. Liability for false claims; penalties.
Sec. 21-259. Civil actions for false claims.
Sec. 21-260. Rights of the parties in civil actions.
Sec. 21-261. Awards to plaintiffs bringing action.
Sec. 21-262. Expenses; attorney's fees and costs.
Sec. 21-263. Exemptions to civil actions.
Sec. 21-264. Protection for participating employees.
Sec. 21-265. Burden of proof; presumption of false claim.
Sec. 21-266. Innocent claimant affirmative defense.

Sec. 21-256. Definitions.

The following terms and phrases when used in this article shall have the meanings ascribed to them in this section, except when the context clearly indicates a different meaning:

(1) Bid takeoff means the final estimate, tabulation, or worksheet prepared by the contractor in anticipation of the bid submitted, and which shall reflect the final bid price.

(2) Claim means any invoice, statement, request, demand, lawsuit, or action under contract or otherwise, for money, property, or services made to any employee, officer, or agent of the County, or to any contractor, grantee, or other recipient if any portion of the money, property, or services requested or demanded was issued from, or was provided by, the County (hereinafter "County funds").

(3) Claimant means any person who brings, submits, files, maintains, or pursues a claim

(4) County means the government of Miami-Dade County or any department, division, bureau, section, commission, planning agency, board, district, authority, agency, or instrumentality of the County, including the Miami-Dade County Public Health Trust.

(5) Extended overhead means the amount of a claim relating to an increase in overhead costs resulting from a delay in contract performance that is not compensated by a markup of direct costs.

(6) Knowing or knowingly means that a person, with respect to information:

(a) Has actual knowledge of the information;

(b) Acts in deliberate ignorance of the truth or falsity of the information; or

(c) Acts in reckless disregard of the truth or falsity of the information.

(7) Overhead per diem means the amount calculated by dividing the total overhead costs set forth in the final bid takeoff by the number of days for substantial completion of the work set forth in the contract.

(8) Person means any natural person, corporation, firm, association, organization, partnership, agency, limited liability company, business, or trust. The federal statute does not limit the term "person." Rather it broadly includes "any person." 31 USC 3729(a). Thus, for example, the federal law includes municipalities. The ordinance should clearly specify municipal corporations. Otherwise, to the extent a municipality cheats Dade County for services purchased from the County (water, sewer, solid waste, police, other infrastructure contracts) it will be exempt from the County ordinance.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-257. Certification of claims.

(1) Upon the request of the County, the person submitting a claim shall, within thirty (30) days, including Saturdays, Sundays, and legal holidays, submit a certified claim as defined by this section. A "certified claim" shall be made under oath by a person duly authorized by the claimant, and shall contain a statement that:

(a) The claim is made in good faith;

(b) The claim's supporting data are accurate and complete to the best of the person's knowledge and belief;

(c) The amount of the claim accurately reflects the amount that the claimant believes is due from the County; and

(d) The certifying person is duly authorized by the claimant to certify the claim.

(2) Failure to provide the requested certification within the prescribed thirty (30) day period shall constitute a forfeiture of the entire claim.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-258. Liability for false claims; penalties.

(1) The following action(s) shall constitute a violation of this article:

(a) Any person who knowingly presents or causes to be presented to the County, or to any officer, employee, agent, or consultant of the County, a false or fraudulent claim for payment or approval;

(b) Any person who knowingly makes, uses, or causes to be made or used, a false record or statement to get a false, fraudulent, or inflated claim paid or approved by the County;

(c) Any person who conspires to defraud the County by facilitating the payment of a false, fraudulent, or inflated claim allowed or paid by the County;

(d) Any person who delivers, with the intent to defraud the County, goods or services of different quality or quantity than that specified in the applicable contract or specification;

(e) Any person who is authorized to make or deliver a document certifying receipt of property used, or to be used, by the County and, intending to defraud the County, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(f) Any person who knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer, employee, or agent of the County who lawfully may not sell or pledge the property; or

(g) Any person who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the County. Subparagraph (g) exceeds the federal statute since it appears to include tax fraud. Good.

(2) Any beneficiary of an inadvertent submission of a false claim to the County, who subsequently discovers the falsity of the claim, and who fails to disclose the falsity of the claim to the County within thirty (30) days of discovering the error, shall also be found to have submitted a false claim to the County.

(3) Any person found to have submitted a false claim to the County shall:

(a) Be liable to the County for an amount equal to three (3) times that part of the claim which is false, fraudulent, or inflated;

(b) Immediately, fully, and irrevocably forfeit the entire amount of the claim;

(c) Be liable to the County for all costs and fees (including, without limitation, reasonable legal, expert, and consulting fees) incurred by the County to review, defend, and evaluate the claim; and

Amend (3)(c) to include a prevailing qui tam relator, just like the federal statute. See 21-262(2).

(d) Be subject to debarment from County contracting for a period not to exceed five (5) years. Additionally, any person who certified a claim later found to be false shall be subject to debarment from County contracting for a period not to exceed five (5) years.

Sub (d) should track--at a minimum--the time tested and proven federal statute which imposes triple damages and up to $10,000 per transaction. Under the federal statute, a person who makes a false claim "...is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person…" 31 U.S.C. §3729(a).

For example, the transactional penalty discourages a Medicare provider from adding a false $15 charge to each claims (each patient’s monthly bill is a separate transaction.) On the other hand, the same false charges added by a county contractor providing medical services for the county (e.g. at full-service schools) would go unpunished. The triple damages for such claims would not encourage the risk of filing such a low damages case.

A municipal ordinance should offer greater incentives than the federal statute since the rewards to relators will generally be much smaller. Thus, the occasional big reward acts as a disincentive to other careless/corrupt contractors.

(4) Liability under this section shall be joint and several for any act committed by two (2) or more persons.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-259. Civil actions for false claims.

(1) The County Manager may investigate a violation under Section 21-258. If the County Manager finds that a person has violated or is violating Section 21-258, he or she may bring a civil action against the person on behalf of the County.

(2) A person may bring a civil action for a violation of Section 21-258 for the person and for the County. Civil actions instituted under this article shall be governed by the Florida Rules of Civil Procedure and shall be brought in the name of the County.

(a) The complaint shall be identified on its face as a qui tam action and shall be filed under seal in the circuit court of the Eleventh Judicial Circuit, in and for Miami-Dade County. The ordinance should permit filing in courts other than Eleventh Judicial Circuit that are not perceived to be subject to local influence. Many Judges hire the same political consultants as are hired by county contractors (and county commissioners). Immediately upon filing of a complaint by a person, a copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the County Manager by registered mail, return receipt requested. The County Manager may elect to proceed with the action, in lieu of the qui tam plaintiff, on behalf of the County, within one hundred eighty (180) days after he or she receives both the complaint and the material evidence and information. Why triple the 60 days allowed under the federal statute at 3730(b)(2)? This allows evidence to erode and witnesses to forget. In light of (b) below, sixty days should suffice.

(b) The County Manager, for good cause shown, may petition the court to extend the time during which the complaint remains under seal under subsection (a). Any such motion may be supported by affidavits or other submissions in camera. The defendant is not required to respond to any complaint filed under this section until twenty (20) days after the complaint is unsealed and served upon the defendant in accordance with law.

(c) Before the expiration of the one hundred eighty (180) day period or any extensions obtained under subsection (b), the County Manager shall:

i. Proceed with the action, in which case the action is conducted by the County Attorney on behalf of the County; or

ii. Notify the court that the County declines to take over the action, in which case the person bringing the action has the right to conduct the action.

(d) When a person files an action under this section, no person other than the County Manager on behalf of the County may intervene or bring an action under this article based on the facts underlying the pending action.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-260. Rights of the parties in civil actions.

(1) If the County Manager, on behalf of the County, elects to proceed with the action, he or she has the primary responsibility for prosecuting the action, and is not bound by any prior or subsequent act(s) of the person bringing the action. The County may also voluntarily dismiss the action notwithstanding the objections of the person bringing the action. Allowing the County Manager to dismiss, in its sole discretion, is a fundamental & catastrophic flaw. As with the federal law, a judge should decide whether to dismiss the action and the whistleblower should have a right to be heard. 31 U.S.C. 3730(c)(2). Given the County's history, potential whistleblowers and their lawyers will be discouraged by the perception that the county manager is subjected to political influence by major county contractors (all of whom are a/k/a major county commissioner campaign contributors). A county manager's dismissal of a case against contractors with whom the manager enjoys established relationships creates an appearance of impropriety.

(2) If the County Manager elects not to proceed with the action, the person bringing the action has the right to conduct the action. If the County Manager so requests, he or she shall be served with copies of all pleadings and motions filed in the action and copies of all deposition transcripts. Does this require the whistleblower to purchase transcripts for all depositions? When the person bringing the action proceeds with the claim, the court may permit the County to take over the action on behalf of the County at a later date upon a showing of good cause.

(3) Nothing in this article shall be construed to limit the authority of the County or the qui tam plaintiff, proceeding pursuant to Section 21-259(2), to compromise a claim brought in a complaint filed under this article if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-261. Awards to plaintiffs bringing action.

The history of the federal statute shows the importance of strong incentives. The cost to the County of paying occasional rewards is far less than it appears due to the deterrent effect of contractors knowing that every employee may be looking over their shoulders. Deterrents are especially useful for white collar fraud since it is not committed in the heat of passion. Rather contractors weigh the benefits of fraud against the potential penalty and the risk of being caught. Enhancing the award will increase the risks of being caught and thereby serves to deter fraud. This is the real benefit of the Fed. Statute.

(1) If the County proceeds with and prevails in an action brought by a person under this article, except as provided in subsection (2), the court shall order the distribution to the person of ten (10) percent of the proceeds recovered under any judgment obtained by the County in an action under Section 21-258 or of the proceeds of any settlement of the claim.

These awards are less than the fifteen to twenty five percent(15%-25%) under the federal and Florida statutes. FS 68.085(1). Why does the County seek to decrease the incentives?

(2) If the County proceeds with an action which the court finds to be based primarily on disclosures of specific information, other than that provided by the person initiating the action, relating to allegations or transactions in a criminal, civil, or administration hearing; a legislative, administrative, or inspector general report, hearing, audit, or investigation; or from the news media, the court may award such sums as it considers appropriate, but in no case more than five (5) percent of the proceeds recovered under a judgment or received in settlement of a claim under this article, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation.

(3) If the County does not proceed with an action under this article, the person bringing the action or settling the claim shall receive twenty-five (25) percent of the proceeds recovered under a judgment rendered in an action under this article or in settlement of a claim under this article.

These awards are less than the twenty five to thirty percent(25%-30%) under the federal and Florida statutes. Again, why does the County seek to decrease incentive to deter fraud? FS 68.085(3)

(4) Any payment under this section to the person bringing the action shall be paid only out of the proceeds recovered from the defendant.

(5) Whether or not the County proceeds with the action, if the court finds that the action was brought by a person who planned, initiated, or furthered the violation of Section 21-258 upon which the action was brought, the person shall be dismissed from the civil action and shall not receive any share of the proceeds of the action. Such dismissal shall not prejudice the right of the County to continue the action.

This is far more restrictive than the federal law and interpretations thereunder. The term "furthered" can be broadly construed. Does a truck driver "further" a violation if he unknowingly delivers goods but does not otherwise participate in the fraud? What about a clerical employee who handled documents, knew of the fraud, and later had second thoughts? Under the federal statute "close observers" and even participants in a fraud may blow the whistle and receive compensation for their efforts. The federal law permits a court to reduce the reward to a wrongdoing relator "to the extent the court considers appropriate." In a case against Northrop Company a wrongdoing whistleblower who made only a small contribution to the case was nonetheless awarded 10.8% (instead of up to 25%) of the recovery. Sub-paragraph (5) reduces the population of potential whistleblowers. The Federal Statute makes sense in light of its intended purpose--to discourage fraud. Sub (5) further weakens the ordinance. It should be amended to track the federal statute.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-262. Expenses; attorney's fees and costs.

(1) If the County initiates an action under this article or assumes control of an action brought by a person under this article, and the County prevails in such action, the County shall be awarded its reasonable attorney's fees, expenses, and costs.

(2) If the court awards the person bringing the action proceeds under this article, the person shall also be awarded an amount for reasonable attorney's fees and costs. This should parallel paragraph 1 and include "expenses". The federal statute includes the relator's expenses, plus reasonable attorney fees and costs. Payment for reasonable attorney's fees and costs shall be made from the recovered proceeds before the distribution of any award. The ordinance should track the federal statute and explicitly include fees and costs as additional damages. Instead, (2) can be read to subtract fees and costs from the recovery. In effect, sub (2) covertly eliminates fees. This sharply reduces the incentive to pursue all but the largest of County frauds. How does this help the County fight fraud? See 21-258(3)(c).

(3) If the County does not proceed with an action under this article and the defendant is the prevailing party, the court shall award the defendant reasonable attorney's fees and costs against the person bringing the action.

As written, although (2) does not provide fees and costs for a prevailing whistleblower, sub (3) does clearly provide fees and costs to a prevailing defendant. How perverse! This is the precise opposite of the federal statute which provides prevailing plaintiff fees and costs and fees and costs to a defendant only for a frivolous suit. If a whistleblower filed suit and the County dismisses (in its sole discretion) this could trigger a fee assessment against the whistleblower by the "prevailing" defendant.

(4) No liability shall be incurred by the County for any expenses, attorney's fees, or other costs incurred by any person in bringing or defending an action under this article, except as otherwise specifically provided by law.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-263. Exemptions to civil actions.

(1) In no event may a person bring an action under Section 21-258 based upon allegations or transactions that are the subject of a civil action or an administrative proceeding in which the County is already a party.

(2) No court shall have jurisdiction over an action brought under this article based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing; in a legislative, administrative, or inspector general report, hearing, audit, or investigation; or from the news media, unless the action is brought by the County, or unless the person bringing the action is an original source of the information. For purposes of this subsection, the term "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the County Manager before filing an action under this article based on the information. This language should track the federal statute more closely. Compare 21-259(2)(a) (requiring info upon filing). Should two identical packages be provided: first a 263(2) package the day before filing (after all, this is a jurisdictional threshold) and then an identical 21-259(2)(a) package upon filing. How does this help the County deter fraud?

(3) No court shall have jurisdiction over an action where the person bringing the action under Section 21-258 is:

(a) Acting as an attorney for the County; or

(b) An employee or former employee of the County,

and the action is based, in whole or in part, upon information obtained in the course or scope of County employment. Paragraph 3 is more restrictive than the parallel federal requirement. How does this help the County deter fraud? Have this relate to damages, not jurisdiction.

(4) No court shall have jurisdiction over an action where the person bringing the action under Section 21-258 obtained the information from an employee or former employee of the County. Have this relate to damages, not jurisdiction. How does this help the County deter fraud?

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-264. Protection for participating employees.

Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms or conditions of employment by his or her employer because of lawful acts done by the employee in furtherance of an action under this article, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this article, shall have a cause of action under Florida Statutes, Section 112.3187. FS 112.3187 is weak. Employees concerned about their jobs will not feel protected. The ordinance should track the federal statute instead.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-265. Burden of proof; presumption of false claim.

(1) Whenever practicable, bid specifications for County contracts shall contain a requirement that the successful bidder maintain, as a condition precedent to submitting a claim against the County, a final bid takeoff. The final bid takeoff shall contain a line item for allocation of overhead costs.

(2) Upon request from the County, a contractor making a claim against the County for delay or other damages shall submit, within twenty (20) days, a copy of the final bid takeoff, certified pursuant to this subsection. Failure to provide the requested certification shall constitute a forfeiture of the claim for delay or other damages. The certification shall be submitted under oath by a person duly authorized by the claimant and shall contain a statement that:

(a) The final bid takeoff was prepared contemporaneously with the bid and in anticipation of the bid for the project;

(b) The contractor relied on the final bid takeoff to prepare the bid and the original schedule of values; and

(c) The final bid takeoff has not been altered in any way.

(3) Any claim for extended overhead costs that exceeds, on a per diem basis, more than ten (10) percent of the overhead per diem contained in the final bid takeoff shall be presumed to be a false claim, and the contractor shall have the burden of proving that any such claim for extended overhead is not false.

(Ord. No. 99-152, § 1, 11-2-99)

Sec. 21-266. Innocent claimant affirmative defense.

These should be factors for a judge to consider in the determination of damages, not an affirmative defense.

The provisions of this article shall not apply if the claimant can demonstrate by a preponderance of the evidence each of the following facts:

(1) The claimant submitted or caused to have submitted the claim to or against the County reasonably believing that such claim was free of any material misstatements, or any exaggerated, inflated, or unsubstantiated assertions or damages;

(2) The claimant had no reasonable basis to doubt the truth, veracity, or accuracy of such claim at the time it was submitted; Sub (1) and sub (2) defeat the purpose of the ordinance. A primary purpose of civil liability is to encourage scrupulous compliance with the terms of County contracts. These should be factors for a judge to consider in the determination of damages, not an affirmative defense.

(3) Prior to submitting the claim, the claimant diligently investigated the facts underlying such claim and prepared the claim in a reasonable manner given all the relevant information available; and

Supplement and amend sub(3) by requiring a diligent investigation of not just the facts but also the law and contractual requirements. The second part of sub(3)'s affirmative defense relating to "prepared the claim in a reasonable manner given all relevant information available" is vague and thus dilutes the incentives otherwise created by the ordinance.

Thus, a proposed alternative:

"(3) The claimant diligently investigated all facts, law and contractual requirements relating to the claim."

(4) When information indicating that any element, statement, or allegation in the claim was false or misleading first became available, such claimant, within five (5) business days of discovering the falsity of the claim, took immediate steps to modify, correct, or withdraw such claim and provided the County with immediate notice thereof.

Sub (4), as written, is a safe harbor that seems designed to seduce honest contractors to file false claims. Sub(4) should be limited to steps taken prior to the filing date of a case under this Ordinance. Otherwise, this "window of corrections" becomes an open barn door instead. The claimant (a contractor who did in fact submit false claims and cheat the county ) can lose at trial, then "discover its falsity," and make the correction. Sound crazy? See litigation history through U.S. Sup. Ct. of 29 CFR 541.118(a)(6), another barn door of corrections. A post-judgment "correction" defense can convert a corrupt contractor into a "prevailing party" and trigger the contractor's right to impose legal fees as a prevailing defendant upon an innocent whistleblower.

(Ord. No. 99-152, § 1, 11-2-99)

Secs. 21-267--21-275. Reserved.