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Charter schools are, but cities and public school districts aren’t � “persons,” that is, for the purposes of suing or being sued under the state’s False Claims Act. The California Supreme Court made those findings Thursday in two long-awaited rulings that clarify which public entities are liable for fraud and which can file qui tam suits � normally brought by individuals � to attack deceptive practices. “Absent contrary indications,” Justice Marvin Baxter wrote in one ruling, “we assume the Legislature intended the same meaning of ‘person’ to delineate both who may be sued under the statute, and who may sue under its qui tam provision.” The decisions hurt cities by narrowing their options in pursuing fraud, but help cash-strapped public schools by freeing them from potentially budget-busting lawsuits. Corporate-run charter schools, however, could face ruin from provisions of the False Claims Act that permit treble damages. In the lead case � Wells v. One2One Learning Foundation (State of California), 06 C.D.O.S. 8194 � a group of schoolchildren sued several school districts that oversaw charter schools and the corporations that operated them. The kids claimed fiscal mismanagement had deprived them of proper educations. In the companion case � State of California ex rel. Harris v. PricewaterhouseCoopers LLP, 06 C.D.O.S. 8208 � the city of San Francisco accused the accounting giant of fraudulently issuing a clean audit for Old Republic Title Co. despite knowing Old Republic officers kept millions of dollars in dormant escrow funds rather than forwarding the money to the state as required by law. At trial, the city had won a judgment of $22 million from Old Republic, but PwC had been dismissed from the case. On appeal, the city claimed it had a right as a qui tam plaintiff to maintain its fraud case against PwC. Writing for a unanimous court on Thursday, Justice Baxter held in Wells that there is nothing in the legislative history of the 19-year-old California False Claims Act to suggest that school districts were meant to be considered “persons” for the purposes of liability. “In light of the stringent revenue, appropriations and budget restraints under which all California governmental entities operate,” he wrote, “exposing them to the draconian liabilities of the CFCA would significantly impede their fiscal ability to carry out their core public missions.” Free public education, mandated by the state constitution and provided by the state’s many school districts, could be particularly imperiled, Baxter said. Baxter had “little difficulty,” though, in declaring charter schools “persons” subject to liability under the False Claims Act. “Though charter schools are deemed part of the system of public schools for purposes of academics and state funding eligibility, and are subject to some oversight by public school officials,” Baxter wrote, “they are operated, not by the public school system, but by distinct outside entities.” The three schools at issue � located in Sierra, Humboldt and Yuba counties � are run by the Texas corporation One2One Learning Foundation, along with the California-based Charter School Resource Alliance. In the PricewaterhouseCoopers case, Baxter ruled cities simply are not “persons” as identified by the False Claims Act. Instead, he held, San Francisco can only file suit as a political subdivision under the act and then only if local funds are at stake. Likewise, the attorney general can file under the False Claims Act only if state funds are at risk. Individuals, Baxter noted, can file qui tam suits in the name of a state or a political subdivision. The advantage for qui tam plaintiffs is that they can receive up to 50 percent of the proceeds from a suit, while a political subdivision’s take is limited to 33 percent. “The obvious purpose of these provisions,” Baxter wrote, “is to delineate the boundaries of official jurisdiction, to make each public entity’s prosecuting officer or officers responsible only for funds falsely claimed from that entity and to preclude one government agency’s false claims jurisdiction from intruding on another’s.” Letting public entities act as qui tam plaintiffs, Baxter held, “may encourage some agencies, seeking risky paydays, to employ taxpayer funds, and to divert time and resources from their usual public duties, in order to speculate in qui tam litigation on the sole behalf of other agencies.” Daniel Kolkey, a partner in Gibson, Dunn & Crutcher’s San Francisco office who represented PwC, called the court’s ruling “a textbook model of faithful statutory construction, which has the added virtue of protecting the state’s taxpayers.” Donald Margolis, the deputy city attorney who argued San Francisco’s position, said he was disappointed. The court, he said, removed “one arrow in the [city's] enforcement quiver.” Sacramento-based Deputy AG Mark Soble expressed pleasure that the court had agreed with him that charter schools are subject to the False Claims Act. “It’s really important to have clarity,” he said. Mathew Evans, a partner in Sacramento’s Evans, Wieckowski & Ward who represented the public schools, couldn’t be reached. And Kurt Kappes, a partner in Seyfarth Shaw’s Sacramento office who represented the charter schools, declined to comment.

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