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SACRAMENTO–When tugboat captain Kevin Bartoo alleged construction companies were ripping off the government by stealing sand from San Francisco Bay, he took a chance that could make his life miserable. By filing a whistle-blower complaint, Bartoo opened himself up to retaliation and maybe even the end of his livelihood. But now that Attorney General Bill Lockyer has picked up his case, Bartoo’s actions also could make him very rich. Bartoo filed suit under the False Claims Act, a state law that protects and rewards people who come forward to report when someone shortchanges the government. Based on a similar federal law, the statute guarantees whistle-blowers a cut of whatever money the government eventually recovers and also shields them from retaliation. It can be quite a payday. The act allows the government to seek triple damages plus an extra $10,000 per violation. The AG’s office said Bartoo’s case, for example, is worth about $200 million. Bartoo and his lawyer, Wayne Lamprey of San Francisco’s Goodin, MacBride, Squeri, Ritchie & Day, could get up to a third of any recovery. As in other contingency cases, lawyer fees typically range from 20 to 40 percent. State false claims cases were once rare, but the AG’s office says they’re getting more common. There were only a handful of active false claims when Lockyer took over from his Republican predecessor in 1999. As of Dec. 1, the caseload had grown to 68, and the AG’s office only expects that number to rise. Local governments are also joining the fray, filing and threatening false claims against contractors. Some prosecutors attribute the increase to people becoming more sensitive to malfeasance — see Enron, WorldCom, etc. — or maybe it’s because more workers are finding out about the perks of being a whistle-blower. Defense attorneys, for their part, believe the statute may be overused and want to see it removed as a bargaining chip when government entities sit at the table with contractors. One thing plaintiffs and defense attorneys alike agree on: Government intervention is the key to winning a false claims suit. Although the state has had a false claims statute since 1987, its ability to assess and prosecute cases jumped when Lockyer took office in 1999. He made false claims a priority, creating for the first time a special section within his office devoted exclusively to the special actions. “The establishment of the unit was an enormous help,” said Eric Havian, a partner in the San Francisco office of Phillips & Cohen, which is considered by many practioners to be the premier false claims plaintiffs firm. “Before then you were dealing with people in the AG’s office who weren’t sufficiently familiar with the law, who didn’t do these cases frequently enough to have a nuanced view of the issues.” For Lockyer, creating the unit brought him full circle with work begun in his previous life. As chair of the Senate Judiciary Committee in 1987, Lockyer helped write the bill that created the state False Claims Act. “It’s one thing to have the law and another thing to implement it,” Lockyer said recently. The number of false claims cases has increased since the unit’s creation, said Senior Assistant Attorney General Christopher Ames, a 28-year office veteran who runs the unit. Exact figures on pre-1999 filings are difficult to come by because the office didn’t track them before the unit existed. Ames said Lockyer’s Republican predecessor, Dan Lungren, started a few cases that Lockyer has had to finish. Ames expects the upward trend to continue. That doesn’t mean fraud is a new phenomenon. Ames said the original federal False Claims Act was drafted during the Civil War, when companies shipped barrels of sand instead of gunpowder and used rotten fabric to make soldiers’ backpacks. “I don’t see any reason it’s going to go down with the amount of corporate fraud that is coming to light,” Ames said. Since 1999, the unit has recovered state money in 12 cases. Parts of some of those are still ongoing or under appeal, but figures from the AG’s office put the total recovery at just under $230 million, Ames said. The unit’s budget is on average a little more than $6 million per year. “That’s a pretty good cost-benefit analysis. There aren’t many segments of state government that are consistently in the black,” Lockyer said. Six of those cases included payouts to whistle-blowers totaling about $32 million. The recovered money goes into a false claims fund, which pays for the unit, and into the state’s general fund, which covers everything from schools to welfare to law enforcement. The recoveries include cases involving highway construction, books bought by school libraries and defective computer products sold to state agencies, to name a few. Government contracts are notoriously complicated. As anyone familiar with budgeting knows, money comes from a variety of sources, and payments are calculated in diverse ways. In Bartoo’s case, for example, Lockyer’s office alleges that the sand-dredging companies played around with the royalties they paid the state and reported collecting less sand than they actually took onto harvesting boats. It took Ames’ team 14 months to investigate Bartoo’s allegations before deciding to intervene, a time period Ames said is common. “The investigations are often extremely complex, requiring unearthing old and dusty records,” he said. And they don’t always bear fruit. According to federal statistics, the government enters only about 20 percent of the cases that are brought in by plaintiffs attorneys. There aren’t equivalent state figures, but Ames guessed his numbers would also be close to 20 percent. Lockyer said he would consider keeping better track of the numbers, including what happens to cases if the government decides not to get involved. Havian, the Phillips & Cohen partner, attributes the low rate of government intervention to a couple of quirks in the law. For starters, the state and federal acts both require a race to the courthouse; you have to be the first whistle-blower to file to get a share of proceeds. Also, the allegations have to be based on something that’s not publicly disclosed. Havian said those factors, plus the fact that cases are filed under seal, can make it hard for plaintiffs lawyers to thoroughly investigate before alerting government lawyers. “You have one person’s view of what’s going on and it’s very difficult to gather information to find out whether that view is complete,” Havian said. “That’s one reason why cases don’t pan out if the government isn’t involved.” To make it as a false claims plaintiffs attorney, it helps to have government experience yourself. Havian and Lamprey, the attorney in the “sand pirates” case, both were with the U.S. attorney’s office before joining their firms. Two other local attorneys known for their false claims work, Charles Stevens and George O’Connell, who have their own firm in Sacramento, each served as Eastern District U.S. Attorney. Of the remaining 80 percent of cases in which the government decides not to intervene, most are dropped by plaintiffs. Ames said the AG’s office bows out when it believes the state’s interest is adequately represented by the whistle-blower or if it thinks there’s no merit. Although the rewards can be high, not every plaintiffs attorney is cut out for the work, Ames said. “We see a lot of poorly conceived and poorly thought through cases,” he said. Besides doing without the government’s substantial resources and courtroom muscle, Lamprey said defense lawyers will use a negative decision against plaintiffs. “The defense will say the whole time that the government decided not to intervene,” he said. False claims defense attorney Neil O’Donnell of Rogers Joseph O’Donnell & Phillips in San Francisco believes that if government lawyers opt out, a case shouldn’t move forward. “While some of those actions do get simply dropped, a lot continue on, and they’re a real cost to contractors without having much benefit to the government,” O’Donnell said. There have been attempts in the state Legislature in recent years to change the statute to make it harder for plaintiffs to file, but none have been successful. Not every false claims case has a whistle-blower. Sometimes the government files for the triple recovery if it uncovers alleged wrongdoing itself, a technique that’s more popular with local governments. The practice has led to complaints from contractors that government agencies use the act in regular negotiations, even when there’s no fraud. “There’s a great potential for abuse there. The False Claims Act is like a superweapon, not only because of the damages that are involved. � It has the potential of leading to the debarment of a contractor,” O’Donnell said. Because of that threat, contractors often simply give in and settle, he added. “The law is undeveloped enough, and the potential of making a false claim is so broad that contractors have to worry about any but the most implausible of allegations. For agencies that choose to use it, it’s created a very different balance in contract negotiations,” O’Donnell said. One thing false claims cases have in common is they’re “very numbers and fact-details driven,” said Ames, whose team in the AG’s office includes 15 lawyers and 15 analysts and auditors. Indeed, one of the companies named in the “sand pirates” case, Hanson PLC, said its problem with Lockyer’s office has nothing to do with fraud but is just a misunderstanding of payment calculations. In a statement, Hanson said it had just recently passed an audit of its sand-dredging operation. “Hanson will also contend that the attorney general is adopting a stance that is inconsistent with standard mineral royalty procedures,” according to the statement. In the end, a judge or jury may decide. Either way, Ames said his team doesn’t take on a case unless it’s ready to delve into the numbers behind government contracts. That the cases are so intricate is another reason why people like Bartoo, the tugboat captain, are paid so well for their inside knowledge. “I am surprised there aren’t more whistle-blowers out there,” Ames said.

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