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Major Changes to New York State False Claims Act

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On August 13, 2010, New York State Governor Paterson signed into law Assembly Bill 11568, which includes major changes to New York’s False Claims Act, enacted in 2007. According to legislators, the bill was passed to address several issues that have arisen in the courts since its enactment. It is also designed to assure that the New York law continues to keep pace with federal law. One of the biggest changes, a divergence from the federal False Claims Act, is a provision that allows qui tam plaintiffs to bring actions for tax fraud, but only when the net income or sales of the defendant total $1 million or more and the damages pleaded in the action exceed $350,000. It also strengthens the protections for whistleblowers, both private individuals and government employees, who uncover information concerning the misuse of government funds. These amendments took effect immediately and apply to all false claims, records, and statements made or used prior to, on, or after the April 1, 2007, effective date of the New York False Claims Act.

The following is a summary of the provisions:

Section 1: Amends Section 188 of the State Finance Law, the definitional section, to make clear that the act applies to contractors, grantees, and other organizations receiving government funds. Other amendments in this section conform state law to recent amendments to the federal False Claims Act.

Section 2: Amends Section 189 of the State Finance Law to conform more closely to the federal act and confirm that damages that may be awarded under current law includes consequential damages.

Section 3: Amends Section 189 of the State Finance Law to authorize actions under the False Claims Act alleging tax fraud, but only when the net income or sales of the defendant total one million dollars or more, and the damages pleaded in the action exceed $350,000.

Section 4: Amends Section 190 of the State Finance Law to make clear that a local government may bring a false claim action not only on its own behalf but also on behalf of a subdivision of such local government.

Section 5: Amends Section 190 of the State Finance Law to clarify that the initial sealing of pleadings filed in a qui tam, false claims action does not preclude the attorney general from reviewing certain information and sharing certain information with other agencies when such information is needed for the purpose of investigating or prosecuting related matters.

Section 6: Amends Section 190 of the State Finance Law to clarify that when the first pleading in a qui tam, False Claims Act action is timely filed, the statute of limitations is satisfied by such filing.

Section 7: Amends Section 190 of the State Finance Law to provide that a qui tam plaintiff shall keep the government apprised of the filing of court documents and decisions favoring the government in such court proceedings.

Section 8: Amends Section 190 of the State Finance Law to clarify that while a claim that is filed after information about the fraud has been publicly disclosed may be subject to dismissal, information received in response to a FOIL request is not publicly disclosed for purposes of defeating a False Claims Act action. Similarly, the bill provides that mere posting on the internet of information concerning allegations or transactions does not constitute such public disclosure.

Section 9: Amends Section 190 of the State Finance Law regarding whistleblower protections. This section provides that remedies such as reinstatement and financial compensation are available to former employees of a defendant company, not just employees, and that such remedies are available even if the disclosure (which led to a qui tam verdict favoring the plaintiff) violated a contract, employment term, or duty owed to the employer. The amendment provides that any law enforcement authority may, nonetheless, still bring a civil or criminal action for any violation of law.

Section 10: Current law sets the statute of limitations for a False Claims Act action at no less than six years and, in certain circumstances, up to 10 years. This amendment to Section 192 of the State Finance Law sets the statute of limitations at 10 years for all such cases.

Section 11: Amends Section 192 of the State Finance Law to make clear that the initial pleadings in a False Claims Act case need not necessarily identify each specific claim that is alleged to have been fraudulent if the facts alleged would provide a reasonable indication that one or more violations of the act occurred and the allegations in the pleading provide adequate notice to permit the government to investigate and the defendants to fairly defend against the allegations made.

Section 12: Amends Section 190 of the State Finance Law to make clear that activity by a former government employee in connection with the securing of rights, protections, or benefits related to a False Claims Act action does not violate provisions of the Public Officers Law that, in some instances, temporarily bar former employees from appearing or practicing before their former employers.

Topics: Tax Fraud

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