California Court of Appeal Addresses California False Claims Act Claims

April 2014
Number 26

An appellate court recently issued a ruling that will make it easier for California’s public agencies to seek damages for false claims made by vendors. In San Francisco Unified School District ex rel. Contreras v. Laidlaw Transit, Inc. (2014) 224 Cal.App.4th 627 (Contreras II), the California Court of Appeal addressed the concept of “false implied certifications”. Such certifications can occur when a vendor or contractor submits invoices to a public agency that are unsupported or in violation of a contract with the agency creating liability for the vendor or contractor under the California False Claims Act (CFCA; Gov. Code § 12650 et seq.). The court found that a school bus company was potentially liable to a third party under the CFCA despite the fact that the school district served by the bus company was not itself involved in the false claim litigation, continued to pay the vendor’s invoices, and extended the vendor’s contract.

For over two decades, First Student, a school bus company, provided bus transportation for San Francisco Unified School District students. The contract between the District and First Student required First Student to provide school buses meeting state and federal safety and student transportation standards. The contract also required First Student to maintain its buses in excellent mechanical condition and appearance, and to establish and maintain a complete and effective preventative maintenance program.

In 2007, some former employees of First Student, along with an environmental nonprofit organization, sued First Student, alleging violations of the CFCA. Although the District declined to participate in the lawsuit, a private person may bring an action on behalf of a public agency under the CFCA. The lawsuit against First Student was based on the theory of false implied certifications – knowingly presenting false claims to the District by submitting monthly invoices impliedly certifying that First Student had met the terms of its contract.

Under the CFCA, a person who knowingly presents a false or fraudulent claim for payment or approval to a public agency must pay a civil penalty for each violation. Under CFCA case law, the alleged falsity must have a tendency to influence agency action or even be capable of influencing agency action. If a false or fraudulent claim does not meet this “materiality” requirement, the claimant is not liable under the CFCA.

The trial court had determined that the materiality requirement was not met because the District declined to intervene in the case or sue First Student for breach of contract, always paid First Student’s invoices in full, and extended First Student’s contract. The trial court concluded that the alleged false implied certifications therefore did not have a tendency to influence the District’s payment decisions.

The appellate court reversed the trial court decision. The court stated that while the District knew about the plaintiffs’ allegations of wrongdoing by First Student, there was no evidence that the District actually knew of such alleged wrongdoing and breach of contract firsthand. Further, the court noted that a false certification is “material” even where it only has the potential to influence the public agency’s funding decision, so the plaintiffs had only to prove that the certifications could have influenced the District. Several scenarios could explain the District’s continued payments to First Student. For example, the District could have accepted First Student’s representation of compliance with the contract, sought to minimize expense and difficulty of investigating the allegations of wrongdoing, feared litigation with First Student, or had concerns about disrupting service. On the other hand, the District may have extended First Student’s contract because it believed (perhaps wrongly) that First Student was in compliance with its contractual obligations. Therefore, the court of appeal concluded that the District’s continued payments and its response (or lack thereof) to the lawsuit’s allegations could be sufficient evidence that the invoices had a tendency to influence District actions.

The court of appeal also held that the plaintiffs’ claims could satisfy the CFCA’s knowledge requirement. A party may be liable under the CFCA if that party has actual knowledge of information and acts in deliberate ignorance of or with reckless disregard for the truth or falsity of such information. The plaintiffs argued that First Student’s payment claims were presented in reckless disregard to the truth or falsity of whether the company was in compliance with its contract. The plaintiffs presented evidence that First Student disregarded its own audit policies and that there were widespread violations of the maintenance requirements. First Student countered that the California Highway Patrol (CHP) conducted annual inspections and, therefore, it reasonably believed it satisfactorily performed services under the contract. The court rejected First Student’s arguments, because the CHP inspections did not ensure compliance with the contract’s maintenance requirements.

Contreras II gives school districts, public agencies, or other interested plaintiffs a road map for bringing a CFCA claim under a false implied certification theory. This guidance may more easily allow claims when a public agency vendor breaches its contract but continues to submit invoices. If you have any questions regarding this opinion or the CFCA in general, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us onFacebook or Twitter, or download our Client News Brief App.

Written By

Sloan R. Simmons
Partner
Sacramento Office
ssimmons@lozanosmith.com

Frances M. Valdez
Associate
Petaluma Office
fvaldez@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Advertisements

Appellate Court Affirms a Public Agency’s Right to Waive an Inconsequential Bid Defect

April 2014
Number 25

When is a defect in a low bidder’s paperwork too significant for the public entity owner to waive? The Court of Appeal recently added another piece in the patchwork quilt of law addressing this seemingly simple, but sometimes difficult, question. The court concluded that a public agency may waive the omission of a single page of a bid package if exclusion of the page did not affect the bid amount or provide the bidder an advantage.

In Bay Cities Paving & Grading, Inc. v. City of San Leandro (2014) 223 Cal.App.4th 1181, the low bidder, Gallagher & Burk (G&B), omitted the first page of the City’s form bid bond from its bid. G&B did include the second page, which contained the necessary signatures and other information. After the bid opening G&B promptly submitted the missing page, but the second lowest bidder, Bay Cities, protested that the G&B bid was nonresponsive and should be rejected. The City determined that the bid bond was enforceable without the first page, and that it could waive the omission of the first page as “an inconsequential bid defect.” The bid bond surety confirmed that the bond was enforceable and, regardless, the information required by the missing page was stated on the second page. Bay Cities filed suit challenging the award to G&B.

The appellate court affirmed the trial court’s decision rejecting Bay Cities’ challenge. The court of appeal reasoned that under current law, a substantially conforming bid could be accepted if the variance at issue “cannot have affected the amount of the bid or given a bidder an advantage or benefit not allowed other bidders or, in other words, if the variance is inconsequential.” (Ghilotti Construction Co. v. City of Richmond (1996) 45 Cal.App.4th 897, 904.) The question of a defect being inconsequential “is a question of fact,” and must be evaluated “from a practical rather than a hypothetical standpoint.”

The City’s waiver of the defect was proper since no mistake occurred that would have allowed the low bidder to withdraw its bid without penalty. Thus, G&B had no “advantage or benefit not allowed other bidders.”

The complaining bidder, Bay Cities, argued that the City could not go beyond the “four corners” of G&B’s original bid to evaluate responsiveness and should have rejected the bid. However, the appellate court held that while responsiveness often can be determined from the “four corners,” nothing prevented the City from also looking at contract documents that it had prepared for the project.

This decision provides another example of how the law of responsiveness can be practically applied. As questions of responsiveness arise, it is critical to bear in mind that the advantage, or lack thereof, to the low bidder is an important factor when analyzing whether the owner has the right to waive the defect.

If you have any questions regarding the Bay Citiesdecision or other bid protest issues, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Megan Macy
Partner
Sacramento Office
mmacy@lozanosmith.com

Arne Sandberg
Senior Counsel
Walnut Creek Office
asandberg@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court Declares Least Restrictive Environment Mandate Applies to Extended School Year Placements

April 2014
Number 24

The U.S. Court of Appeals for the Second Circuit recently considered whether the requirement to serve special education students in the least restrictive environment (LRE) applies to extended school year (ESY) placements. (T.M. ex rel. A.M. v. Cornwall Cent. School Dist. (2d Cir. April 2, 2014) __ F.3d __ 2014 WL 1303156.) The court held the LRE requirement applies to ESY placements, concluding the LRE requirement carries the same force during the summer months as during the regular school year.

The Individuals with Disabilities Education Act (IDEA) requires school districts to serve special education students in the LRE and to ensure that “to the maximum extent appropriate, children with disabilities…are educated with children who are not disabled.” (20 U.S.C. § 1412(a)(5)(A).) The IDEA’s implementing regulations require school districts to make a full continuum of placement options available. Additionally, ESY is required when necessary to prevent substantial regression and must be made available to provide a student a free appropriate public education (FAPE).

In Cornwall, the student attended a private mainstream kindergarten classroom during the academic year and received special education services from the school district. As the student required ESY to avoid regression, the district offered a self-contained special education classroom. The parents believed the student should be mainstreamed during ESY as he had been during the regular school year, so they unilaterally enrolled the student in a private mainstream summer program.

In this case, the school district argued the LRE requirement is only violated if a school district fails to include a student in an available less restrictive environment. Specifically, the school district maintained it was not required to provide a mainstream ESY program if the district did not have general education summer school classes in which to include special education students.

The court rejected the school district’s argument concluding, “Under the IDEA, a disabled student’s least restrictive environment refers to the least restrictive educational setting consistent with that student’s needs, not the least restrictive setting that the school district chooses to make available.”

The court acknowledged a school district is not required to create a new ESY program to serve the needs of one child with a disability. However, the court asserted that if a school district determines a student requires a less restrictive ESY placement than what the school district has to offer, the school district must consider programs operated by other public or private agencies and schools. The court pronounced that if a school district fails to consider a full continuum of possible ESY programs, and denies the student a FAPE in the LRE, then the school district may be liable for reimbursement for a parentally obtained alternative program.

Although a Second Circuit decision and therefore not binding in the Ninth Circuit, this case establishes that a school district has an affirmative duty to ensure ESY programs are offered in the LRE appropriate for each student, even if the school district does not offer general education summer classes. When thinking about ESY placement options, it is important for a school district to consider the full continuum of placement options just as it would for regular school year placements. If a school district determines that a student requires a less restrictive environment than the school district offers for ESY, the school district should look to other available program options operated by different agencies or schools.

If you have any questions about this case, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Sarah L. Garcia
Senior Counsel
Walnut Creek Office
sgarcia@lozanosmith.com

Colleen R. Villarreal
Associate
Sacramento Office
cvillarreal@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court Limits Ability to Include a Motto on School Uniforms

April 2014
Number 23

The U.S. Ninth Circuit Court of Appeals recently issued a decision regarding the limits of lawful school uniform policies under the First Amendment. In Frudden v. Pilling (9th Cir. 2014) 742 F.3d 1199, a school required students to wear a uniform, including a shirt with the motto “Tomorrow’s Leaders.” The school’s uniform policy also contained an exception that permitted students to wear a “uniform of a nationally recognized youth organization, such as Boy Scouts or Girl Scouts, on regular meeting days” in lieu of the school uniform. The parents of two students filed a lawsuit against the school district, alleging the uniform policy violated their children’s First Amendment speech rights. The district court granted the school district’s motion for summary judgment, finding the students failed to state a cause of action which demonstrated their First Amendment speech rights had been violated.

On appeal, the Ninth Circuit reversed and remanded the case back to the district court, holding the First Amendment applied to the school’s uniform policy because: (1) it compelled particular student speech by mandating the wearing of a shirt containing the school’s motto “Tomorrow’s Leaders”; and (2) the policy exemption for nationally recognized youth organization uniforms constituted a content-based regulation. Based on these two conclusions, the Ninth Circuit directed that on remand the school district must prove it has a compelling interest justifying the school’s uniform policy, and that the uniform policy is narrowly tailored to serve this purpose. Although yet to be determined, it will be difficult for the school district to meet this standard when it returns to the district court.

Notably, the Ninth Circuit distinguished Jacobs v. Clark County School District (9th Cir. 2009) 525 F.3d. 419, a case the district court relied upon in dismissing student’s claims. In Jacobs, the Ninth Circuit held that a school’s uniform policy, which required students to wear solid colored bottoms and a solid colored polo, tee or button down shirt, did not compel speech and was therefore constitutional. In Frudden, the court found that unlike Jacobs, the school’s uniform policy compelled speech because the shirts contained an expressive motto. Additionally, unlike Jacobs, the school’s uniform policy was not content neutral because it contained a content-based exception, i.e., that students could wear uniforms of nationally recognized organizations on meeting days, but not for organizations that are not nationally recognized.

The Ninth Circuit’s decision provides guidance regarding whether a school’s uniform policy raises any First Amendment concerns and may be subject to First Amendment challenges. Under Frudden, if required school uniforms include attire containing written words or expressive mottos, then the uniform may constitute compelled speech and trigger First Amendment protection. Additionally, if a school uniform policy or its exemptions are not content neutral, the First Amendment may restrict such exemptions’ implementation. With this in mind, school districts should review school uniform policies for these possible First Amendment issues.

For further information on this case or school uniform policies, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Sloan R. Simmons
Partner
Sacramento Office
ssimmons@lozanosmith.com

Aimee Perry
Associate
Sacramento Office
aperry@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court Upholds School District’s Authority to Involuntarily Transfer Students to Continuation School

April 2014
Number 22

In Nathan G. v. Clovis Unified School Dist. (March 25, 2014) __ Cal.App.4th __ 2014 WL 1202665, the California Court of Appeal issued the first published opinion to address several issues regarding the involuntary transfer of students to continuation high school under Education Code section 48432.5, as well as the applicable legal standard under which transfer decisions are reviewed by the courts. Lozano Smith represented the school district in this case.

In Nathan G., a high school student admitted to entering school grounds on a school day under the influence of a controlled substance, conduct for which he was suspended. Consistent with Education Code section 48432.5, the student received written notice of his recommended involuntary transfer to continuation high school and the right to participate in a meeting to review and question the reasons and evidence supporting the recommendation. Following the scheduled meeting, in which the student and his parent participated, Clovis Unified School District issued a written decision involuntarily transferring the student to continuation high school. Also consistent with section 48432.5, the transfer decision rested upon the findings that the student violated Education Code section 48900 and District policy when he entered campus under the influence of a controlled substance, and his presence on school grounds posed a danger to other students and/or threatened to disrupt the educational process. The transfer decision also made the finding that other means of correction had failed to bring about improvement on the part of the student because: (1) the record included other alternative means of correction implemented by the District to address the student’s prior less severe disciplinary violations; and (2) a month earlier, the student had been suspended from extracurricular activities due to his involvement in an incident relating to alcohol, for which school officials counseled him as to the more serious consequences that would result if found in possession or under the influence of a controlled substance.

The student challenged his involuntary transfer in superior court. The superior court applied the “substantial evidence” standard because the court found that transferring the student to continuation school did not substantially affect a vested fundamental right. The substantial evidence standard is more deferential to the District’s discipline decision-making process then the alternative independent judgment standard. The superior court upheld the District’s involuntary transfer of the student, and the student appealed.

On appeal, among other propositions, the student argued that: (1) Education Code section 48432.5 demands reasonable exhaustion of all other means of correction before a student can be involuntarily transferred to continuation school; and (2) the proper standard of judicial review of a school district’s involuntary transfer decision is the “independent judgment test” rather than the substantial evidence test because the administrative action of involuntarily transferring a student to continuation school substantially affects a fundamental vested right, namely access to public education.

The court of appeal addressed several issues of first impression relative to involuntary transfers. The court of appeal first held that an involuntary transfer decision is properly subject to review through a writ of administrative mandate. Second, the court of appeal rejected the student’s argument that Education Code section 48432.5 requires school districts to reasonably exhaust all other means of correction before imposing an involuntary transfer. On the record of the case, several alternative means of correction were utilized with the student for other disciplinary infractions, including in relation to another controlled substance related incident. This record of other means of correction was sufficient under the statute.

Third, while the court acknowledged that access to public education is a fundamental interest, the court held an involuntarily transfer to continuation school under Education Code section 48432.5 does not substantially affect this interest. Rather, unlike suspension or expulsion from school, an involuntary transfer to continuation school does not deny a student access to public education. Instead, the court reasoned, a student involuntarily transferred to continuation school still receives educational instruction, albeit at an alternative venue. In fact, in Nathan G., the District’s continuation high school had the same graduation requirements as the District’s other comprehensive high schools. As such, the lesser substantial evidence test applies to the judicial review of a school district’s involuntary transfer decision, a standard the court found consistent with the “deference to be accorded to a school administrator’s decision to discipline a student.”

Before the court of appeal and the superior court, the District was represented by Sloan Simmons, Ruth Mendyk and Aimee Perry of Lozano Smith.

For further information on student discipline, involuntary transfers to continuation high school, defending against lawsuits challenging student discipline decisions, or for information about our student discipline in-service trainings, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Sloan R. Simmons
Partner
Sacramento Office
ssimmons@lozanosmith.com

Gary B. Bell
Associate
Fresno Office
gbell@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Appellate Court Rules that Public Records Act Does Not Apply to Electronic Communications Sent on Personal Devices to Personal Accounts

April 2014
Number 21

What happens when elected officials and government employees communicate using their personal electronic devices and private accounts? If these messages relate to government business, are they subject to public disclosure under the California Public Records Act (CPRA) (Gov. Code §§ 6250 et seq.)?

In the first published appellate court decision in California addressing this issue, the court on March 27, 2014, ruled that private communications sent on personal devices that are not stored on a public agency’s servers are not subject to the CPRA. (City of San Jose v. Superior Court (March 27, 2014, Case No. H039498).) While this case provides important guidance, it still remains subject to potential appeal, and leaves a number of questions unanswered.

The San Jose case started when a member of the public made an extensive CPRA request to the City of San Jose. That request included a demand for certain emails and text messages sent or received on “private electronic devices” used by the Mayor, City Council, and City staff. The City produced such messages if they were sent or received from private electronic devices using City accounts, but took the position that such emails and text messages sent or received using personal devices and personal accounts were not governed by the CPRA. The requesting party sued, and last year, the trial court ruled that all such responsive emails and texts had to be produced under the CPRA, even if they were sent or received on personal devices using personal accounts. The trial court reasoned that any other result would mean “a public agency could easily shield information from public disclosure simply by storing it on equipment that it does not technically own.” (For more details regarding the superior court case, Smith v. San Jose (March 19, 2013, No. 1-09-CV-150427), please see our previous Client News Brief dated April 2013, No. 17.)

The appellate court reversed the trial court decision. The appellate court received extensive arguments from free speech and media organizations in support of the trial court’s public policy reasoning. Countervailing policy arguments from the City and the California League of Cities contended the trial court’s ruling was impractical, and violated privacy protections. While the appellate court acknowledged these various policy arguments, it concluded the entire matter could be determined solely based on the express language of the CPRA. Because section 6252, subdivision (e), of the CPRA defines “public records” as communications “prepared, owned, used, or retained” by the public agency, the court concluded the requested emails and texts were not governed by the CPRA. The court thus distinguished between a public agency as the holder of public documents and its individual elected officials and employees. The court observed as a practical matter that “the City cannot, for example, ‘use’ or ‘retain’ a text message sent from a council member’s smartphone that is not linked to a City server or City account.”

While the court did acknowledge concerns about abuses resulting from the ability of an elected official or public employee to address public business on personal devices and accounts, the court concluded this was a policy issue to be resolved by the Legislature. As explained by the court: “That city council members may conceal their communications on public issues by sending and receiving them on private devices from private accounts is a serious concern; but such conduct is for our lawmakers to deter[mine] with appropriate legislation.”

The original plaintiff in this case still has the option to appeal the court’s ruling, or to seek de-publication, modification or a rehearing of the matter. Based on the coalition of free speech and media entities that supported the plaintiff, and the novelty of the issues being considered, this chapter may not yet be closed. Media reports have already quoted the plaintiff’s legal team as planning to seek review of the appellate court’s decision by the California Supreme Court. The court’s decision could also be read as an invitation for the Legislature to revisit this issue. Based on the strong public policy in favor of public disclosure, and the interest of the media and free speech groups in keeping records public, it would not be surprising to see attempts at legislation that would effectively reverse the court’s decision. We will continue to monitor this case and report on its progress should there be an appeal or modification, or legislation proposed to address the issue.

While the San Jose case gives guidance regarding the treatment of electronic documents under the CPRA, there are many questions left to be answered. One such question is whether a writing must both be sent to or from a personal device and be sent or received from a personalaccount to escape application of the CPRA. The City of San Jose had elected to produce electronic communications that were sent to or from personal devices but on City provided or owned devices, so those types of communications were not at issue before the court. Some may argue the court of appeal’s decision supports the notion that the CPRA would not apply if the communications were either on personal devices or were on personal accounts. This stems from the following statement in the court’s decision: “We conclude that the Act does not require public access to communications between public officials using exclusively private cell phones or email accounts.” (Emphasis added.) However, there are multiple other instances in which the court either directly or indirectly made it seem that the CPRA applies unless the materials were on a personal device and on a personal account. This includes references to communications “sent or received by public officials and employees on their private devices using their private accounts.”

Another issue left open is what impact a local agency’s policies and practices regarding personal emails and devices would have on a future court’s review of the CPRA issue. The court observed that “it is within the province of the agency to devise its own rules for disclosure of communications related to public business.” In this case, the City of San Jose had a policy addressing the disclosure of private communications, but this policy did not appear to factor into the court’s interpretation of state law. The implication remains that local agencies could expand on the public’s access to agency records.

It is important to note that the court in San Jose limited its ruling to communications exchanged between devices and accounts that are exclusively private. The court did not address several other situations such as whether communications are disclosable under the PRA when: (1) communications are exchanged between a government issued device and a private device; or (2) communications exchanged between private devices where employees receive a stipend from their employing agency to offset the expenses of using their private device for public business.

In light of the court’s ruling regarding personal devices and email accounts and the various questions that remain, it would be prudent for public agencies to review their policies and practices regarding personal devices, and to establish clearly defined and consistent electronic communication practices. One issue not affected by the court’s decision is the presumption that electronic communications sent or received in government accounts and/or on government devices may constitute public records.

Attorneys at Lozano Smith have been asked by school districts for model policies governing the retention and disposal of emails for educational agencies. In response to this demand, Lozano Smith created an informative document entitled “School District Email Retention.” The document sets forth certain policy options for addressing the complexities raised by the retention of emails and other electronic communications. It offers possible options for adding to existing school board policies and administrative regulations on retention of district records and on employee use of technology. If you would like a copy of “School District Email Retention,” please contact Harold Freiman (hfreiman@lozanosmith.com), or Manuel Martinez (mmartinez@lozanosmith.com).

Issues regarding the San Jose case and electronic communications under the CPRA will be addressed by Lozano Smith partner Harold Freiman at the upcoming California Association of School Business Officials 2014 Annual Conference & California School Business Expo in Sacramento during his presentation “Technology Legal Issues.” The workshop on April 3, 2014 will cover the latest technology and legal issues that school districts face in today’s world.

If you have any questions regarding the San Jose decision or CPRA requests in general, or if we can be of assistance in reviewing or developing your policies regarding electronic communications and retention, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold M. Freiman
Partner
Walnut Creek Office
hfreiman@lozanosmith.com

Manuel F. Martinez
Associate
Walnut Creek Office
mmartinez@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.