LAW-43-13-00022-A Private and Public Litigation Under Art. XIII of the State Finance Law

12/31/13 N.Y. St. Reg. LAW-43-13-00022-A

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 53

December 31, 2013

RULE MAKING ACTIVITIES

DEPARTMENT OF LAW

NOTICE OF ADOPTION

 

I.D No. LAW-43-13-00022-A

Filing No. 1230

Filing Date. Dec. 17, 2013

Effective Date. Dec. 31, 2013

Private and Public Litigation Under Art. XIII of the State Finance Law

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Amendment of section 400.4; and addition of sections 400.5-400.8 to Title 13 NYCRR.

Statutory authority:

State Finance Law, section 194

Subject:

Private and public litigation under art. XIII of the State Finance Law.

Purpose:

To comply with section 1909 of the U.S. Social Security Act, and clarify procedures and applications of art. XIII of the State Finance Law.

Text or summary was published

in the October 23, 2013 issue of the Register, I.D. No. LAW-43-13-00022-P.

Final rule as compared with last published rule:

No changes.

Text of rule and any required statements and analyses may be obtained from:

Gregory Krakower, Department of Law, 120 Broadway, New York, NY 10271, [phone], email: [e-mail]

Initial Review of Rule

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2017, which is the 4th or 5th year after the year in which this rule is being adopted. This review period, justification for proposing same, and invitation for public comment thereon, were contained in a RFA, RAFA or JIS:

An assessment of public comment on the 4 or 5-year initial review period is not attached because no comments were received on the issue.

Assessment of Public Comment

Proposed Rule to Comply with § 1909 of the U.S. Social Security Act, and Clarify Procedures & Applications of Art. XIII of the State Fin. Law.

A Notice of Proposed Rule Making was published in the State Register for this rule on October 23, 2013 under I.D. No. LAW-43-13-00022-P. The Department of Law received two comments on the rule after a forty-five day comment period. The Department of Law reviewed and evaluated both comments that it received.

Issue: Application of the damage multiplier

Comments: Both comments addressed the proposed addition by the Department of Law (“Department”) of 13 N.Y.C.R.R. section 400.6, which addresses the application of the damage multiplier of the New York False Claims Act. The issue is whether the rule requiring the multiplying of a gross damage amount as opposed to a net damage amount should be adopted.

One comment strongly supported this addition, arguing that the proposal: (1) is consistent with the dual purposes of the damage multiplier in the statute, which are to deter companies contemplating committing a fraud and to punish companies that have engaged in fraud; (2) prevents a defendant from escaping liability by simply paying its debt after it is caught; (3) provides the government and whistleblowers with greater compensation, which in turn encourages whistleblowers to report evidence of fraud to the government; and (4) prevents courts from misinterpreting the statutory term. The commenter pointed to federal courts that, for the application of the damage multiplier of the federal False Claims Act, had supported the application proposed by the Department’s rule.

The other comment opposed this addition as confusing and troubling as a matter of law and equity. The commenter argued that a defendant that returns disputed funds to the government should not have to also return double or triple the amount returned. The commenter also pointed to federal cases that, for the application of the damage multiplier of the federal False Claims Act, had opposed the application proposed by the Department’s rule.

Response: The Department adopts the rule to better achieve the purposes of the New York False Claims Act. The rule will facilitate the recovery of funds or property fraudulently obtained or retained from the state and local governments, and better prevent and deter fraud against the state and local governments. The Department does not believe that a defendant should be permitted to escape the statutory command of the New York False Claims Act to pay a damage multiplier by simply paying the government an offset or a credit before a judgment of multiplied damages is entered. Also, by increasing the government’s recovery, the rule encourages potential qui tam plaintiffs to file valid qui tam complaints and cautions government contractors and large taxpayers against defrauding the government. The rule also resolves the confusion created by inconsistent federal case law, and thus puts the state, local governments, qui tam plaintiffs, and potential defendants on notice of the proper application of the damage multiplier.

Issue: Attorneys’ fees awarded to the state

Comment: One comment supported the proposed addition of section 400.8, which clarifies that any costs and attorneys’ fees awarded to the state are awarded and paid in the same manner as costs and fees that are awarded to local governments or qui tam plaintiffs.

Response: The Department adopts the proposed rule to clarify how attorneys’ fees awarded in favor of the state are paid. The rule will facilitate the recovery of funds or property fraudulently obtained or retained against the state and local governments, and better prevent and deter fraud against the state and local governments.

Issue: Public disclosure bar motions

Comment: one comment opposed the addition of 13 N.Y.C.R.R. section 400.5(b) which requires the state to not seek, and to oppose, the dismissal of a qui tam action pursuant section 190(9)(b) of the New York False Claims Act solely because of an alleged public disclosure in a federal report, hearing, audit, or investigation. The commenter argued the regulation: contradicts section 190(9)(b) of the New York False Claims Act, is an inappropriate exercise of regulatory authority, and would encourage parasitic qui tam actions that burden defendants and public resources. The commenter also questioned the Department’s position that the rule is necessary for the state to remain in compliance with the United States Deficit Reduction Act of 2005 (“DRA").

Response: The Department rejects the comment. The rule as proposed merely codifies the exercise of the state’s absolute discretion under section 190(9)(b) of the New York False Claims Act to oppose and not seek a dismissal of a qui tam action because of an alleged public disclosure in a federal report, hearing, audit, or investigation. The rule is necessary for the state to remain in compliance with the DRA and retain tens of millions of dollars. Indeed, the federal government recently deemed Virginia out of compliance with the DRA because that state allowed such dismissals. Although the rule might increase the risk of a parasitic qui tam action, it also encourages meritorious qui tam actions to be filed involving undisclosed federal reports that have not resulted in state or local government enforcement actions. The rule will facilitate the recovery of funds or property fraudulently obtained or retained from the state and local governments, and better prevent and deter fraud against the state and local governments.