STAND. COM. REP. NO. 378-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 1804
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Judiciary and Hawaiian Affairs, to which
was referred H.B. No. 1804 entitled: 

     "A BILL FOR AN ACT RELATING TO FALSE CLAIMS,"

begs leave to report as follows:

     The purpose of this bill is to enact a state counterpart to
the Federal False Claims Act.

     Your Committee finds that a State False Claims Act will
provide restitution of money taken from the state by fraud.  The
genesis of the False Claims Act stems from the Civil War period,
when President Abraham Lincoln urged Congress to enact a scheme
to address and prevent widespread fraud by private military
contractors.  In 1863, Congress passed legislation that allowed
private informers or "relators" to bring fraud actions against
contractors on behalf of the United States.  These lawsuits are
referred to as "qui tam" actions, which means, "Who sues on
behalf of the King as well as for himself."

     Consumer Lawyers of Hawaii and Hawaii Electricians Market
Enhancement Program Fund submitted testimony in support of this
measure.  The Attorney General's Office supported this measure
with reservations.

     Your Committee finds that a State False Claims Act will
benefit the residents and taxpayers of Hawaii for several
reasons.  A State False Claims Act will provide for the
restitution of money taken from the state by fraud.  It will

 
 
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promote lawsuits which the State is not equipped to bring on its
own.  This bill will allow for qui tam actions against
contractors and suppliers who, due to their close relationship
with the Executive Branch, would not otherwise be investigated or
prosecuted and it will encourage and provide an incentive for
those with knowledge of fraud to come forward.  Finally, a State
False Claims Act will create a chilling effect and discourage
fraud from occurring in the first place.

     Your Committee further notes that in recent years, potential
abuses have been exposed which may result in qui tam actions.
For example, in 1998, the Legislative Auditor found discrepancies
in the cost of some contracts that had been awarded to private
providers of special education services.  In one instance, the
Auditor noted that payment rates for certain special education
contracts were markedly higher than the rates paid by other state
agencies for the same or more extensive services.  For example, a
private provider charges $100 a day for a child placed by the
Office of Youth Services for group home services while it charges
$260 a day for a child placed by the Child and Adolescent Mental
Health Division.  The reason for the discrepancy is that the
division bases payment on costs identified by the provider
whereas other agencies tell providers what they are willing to
pay.

     Your Committee has amended this measure by:

     (1)  Allowing for private cause of action even if the
          government had prior knowledge of the fraud;

     (2)  Increasing the maximum penalty for each false claim
          from $5000 to $10,000, plus three times the amount of
          damages that the State sustains because of the act of
          that person;

     (3)  Providing an independent cause of action for relators;

     (4)  Allowing relators to remain in the action even if the
          state chooses to intervene;

     (5)  Making the contractor liable for the submission of
          false claims if it knows the information to be false,
          or acts in deliberate ignorance or reckless disregard
          of its truth or falsity;

     (6)  Requiring the standard of proof in evidentiary
          determinations to be based on a preponderance of the
          evidence; and


 
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     (7)  Making technical, nonsubstantive amendments for
          purposes of style and clarity.

     As affirmed by the record of votes of the members of your
Committee on Judiciary and Hawaiian Affairs that is attached to
this report, your Committee is in accord with the intent and
purpose of H.B. No. 1804, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
1804, H.D. 1, and be referred to the Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Judiciary &
                                   Hawaiian Affairs,



                                   ______________________________
                                   ERIC G. HAMAKAWA, Chair