Warning! Danger Ahead for Public Entities

Public entities are known to assert False Claims actions “to up the ante” to intimidate and aggressively address contractor construction claims. This strategy in the case of John Ross of Industrial Sheet Metal, Inc. (JRI) V. City of Los Angeles Department of Airports (LAWA), 29 Cal. App. 5th 378 (2018), backfired on the public entity, LAWA, in a big way and should serve as a warning to public entities about expanding claims to include False Claim actions. In this case, LAWA was awarded $1 in contract damages, its California False Claims Act (CFCA) claim was rejected by the jury as were JRI’s claims against LAWA. Despite losing on the substantive contract claims, the trial court found that JRI “prevailed in the action” under the relevant CFCA fee provision, Government Code 12652, subd. (g)(9)(B), regardless of JRI’s failure to prevail in the action as a whole. The California Appellate Court (hereinafter “Court”) affirmed the trial court’s finding.

The CFCA is analogous to the federal False Claims Act (FFCA; 31 U.S.C. 3729 et seq.). Since the CFCA is patterned on similar federal legislation, it was appropriate for the Court to look to precedent construing this similar federal act in interpreting the CFCA provisions. Accordingly, the Court looked at the False Claims Act cases for guidance in upholding the trial court’s decision in its determination that JRI was the “prevailing party” for determining an attorney’s fees award against LAWA.

Here, JRI and LAWA entered into a contract for JRI to build and provide four aircraft rescue and firefighting vehicles for airports owned and operated by LAWA. JRI provided and LAWA accepted and paid in full for trucks #3 and #4. Thereafter, LAWA terminated the contract and refused to pay for trucks #1 and #2 before they were physically delivered to LAWA. At that time, trucks #1 and #2 were substantially completed, and therefore JRI sought contractual payments of approximately $2 million from LAWA. However, LAWA filed a lawsuit against JRI for breach of contract demanding the return of the more than $2 million it had paid for trucks #3 and #4. JRI filed a separate breach of contract lawsuit against LAWA. LAWA amended its complaint to add causes of action against JRI, including a claim for violation of the CFCA, and LAWA asserted that when JRI submitted its invoices for progress payments and final payments on the trucks, JRI knew that it was not in compliance with contract and sought to defraud the government entity...