First Student, Inc. provides bus transportation for San Francisco Unified School District pursuant to a contract.  That contract requires First Student to maintain its buses in excellent condition and appearance, to meet or exceed all safety standards, and to establish and maintain a complete preventative maintenance program.  California law requires a preventative maintenance inspection of a school bus every 45 days or 3,000 miles, whichever occurs first. 

Two former employees of First Student and the Environmental Law Foundation filed a complaint against First Student alleging violations of the California False Claims Act and seeking to recover amounts paid on behalf of the District.  The employees presented evidence that First Student disregarded the 45-day inspection requirement, sent buses into services that were unsafe, and failed to establish a complete maintenance program.  The employees alleged First Student violated the False Claims Act by submitting invoices to the District when it knew it was in violation of the contract by failing to maintain the buses as required under the contract.  The employees claimed First Student impliedly certified it met each material term of the contract by submitting the monthly invoices.

The trial court granted First Student's motion for judgment in its favor, finding that no person could reasonably find that First Student's alleged false implied certifications were material to the contract or that it acted with knowledge or reckless disregard as to the falsity of its implied certifications.  The employees appealed this ruling and the Court of Appeal reversed.

The False Claims Act permits recovery of civil penalties and treble damages from any person who knowingly submits a false claim to a public agency for payment or approval.  Parties "knowingly" submit a false claim if they have actual knowledge, are deliberately ignorant, or act in reckless disregard of the claim's falsity.  The False Claims Act permits a private person, called a "qui tam plaintiff," to bring a false claims action on behalf of a public agency.

Here, the employees alleged First Student violated the False Claims Act by seeking payments from the District while knowingly failing to provide the required contractual maintenance services.  First Student argued the "implied certifications" were not material as the District continued to pay its invoices after it learned of the alleged violations via the employees' filing of the False Claims Act lawsuit.  The Court of Appeal stated a false claim is material if it could influence the District to pay the invoices, not whether the District actually knew of and potentially accepted its falsity.  First Student's alleged falsities could be considered material based on common sense and the express maintenance requirements of the contract.  Additionally, First Student could have "knowingly" been aware of these falsities as the numerous maintenance failures show a reckless disregard of the truth of its implied certifications of compliance with the contract.  The lawsuit will return to the trial court for trial.  

Note:

A vendor's invoice may be a false claim if that vendor knowingly fails to comply with the material terms of the contract with the public agency.  Public agencies should ensure the vendor is complying with the provisions of the contract, especially when the compliance relates to the safety of public.  Additionally, individuals may bring false claims act lawsuits on behalf of public agencies for a vendor's material breach, even if that agency decides not to pursue any claim against the vendor.

San Francisco Unified School District v. First Student, Inc. (2014) 224 Cal.App.4th 627.