Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR Cervantes

ORIGINAL DATE

LAST UPDATED

2/12/07

2/19/07 HB 770/HHGACS

SHORT TITLE Fraud Against Taxpayers

SB

ANALYST Wilson

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$0.1

$0.1 Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$0.1

$0.1

$0.1 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

Higher Education Department (HED)

State Department of Transportation (DOT)

SUMMARY

Synopsis of Bill

The House Health & Government Affairs Committee substitute for House Bill 770 enacts the

enacts the “Fraud Against Taxpayers Act," providing for a private civil action on behalf of the

state and in the name of the state, against a person who makes a false claim for payment by or

who conspires to or actually defrauds the state or its agents.

This bill defines terms used in the Act, including the following:

• A claim is a request or demand for money, property or services when all or a portion of

House Bill 770/HHGACS– Page

2

the money, property or services requested or demanded issues from or is provided by a

state agency.

• A person is an individual, corporation, firm, association, organization, trust, business,

partnership, limited liability company, joint venture or any legal or commercial entity;

•

A state is the state of New Mexico or any of its branches, agencies, departments, boards,

commissions, officers, institutions or instrumentalities, including the New Mexico

finance authority, the New Mexico mortgage finance authority and the New Mexico

lottery authority.

HB 770/HHGACS p

rovides that a person who violates the Act shall be liable for:

(1) three times the amount of damages sustained by a state agency because of the violation;

(2) a civil penalty of from $5,000 up to and including $10,000 for each violation;

(3) the costs of a civil action brought to recover damages or penalties; and

(4) reasonable attorney fees, including fees for state agency counsel.

The Act provides that a court may assess not less than two times the amount of damages

sustained by the state if the court finds that three specific circumstances exist. The Act does not

apply to claims, records or statements made pursuant to Chapter 7 NMSA 1978, relating to

taxation.

The bill requires investigations of suspected violations of the Act by the Attorney General (AG),

who may bring a civil action against a violator pursuant to the Act. The Act provides for

delegation of authority to investigate or to bring a civil action from the AG to the state agency to

which a false claim was made.

The bill provides for the bringing of a civil action by a qui tam plaintiff for violation of the Act

on behalf of the person and the state, brought in the name of the state. Once filed, the action may

be dismissed only with the written consent of the court, taking into account the best interest of

the parties involved and the public purposes behind the Act. . The AG on behalf of the state

may

intervene and proceed with the action with 60 days after receiving the complaint, evidence

and information. .

The bill: provides for awards to the qui tam plaintiff and the state when the state prevails in an

action, when the state proceeds and when the plaintiff proceeds alone. The court may reduce the

plaintiff’s share of proceeds if the court finds that the action was brought by a person that

planned or initiated the violation of the Act upon which the action was based.

If the state does not proceed with the action and the qui tam plaintiff does, the court may award a

defendant reasonable attorney fees and costs if the defendant prevails and the court finds the

action clearly frivolous, clearly vexatious or brought primarily for purposes of harassment.

An employer may not interfere with an employee’s participation in an action under the Act, nor

may an employer retaliate or discriminate in any way against an employee who discloses

information in furthering an action under the Act. If an employer does retaliate or discriminate,

the employer shall be liable to the employee for all relief necessary to make the employee whole,

two times the amount of back pay with interest on the back pay, compensation for any special

House Bill 770/HHGACS– Page

3

damage sustained and, if appropriate, punitive damages. Additionally, an employer shall be

required to pay the litigation costs and reasonable attorney fees of the employee.

A civil action pursuant to the Act may be brought for conduct that occurred prior to the effective

date of the Act, but not for conduct that occurred prior to July 1, 1987.

The effective date of the Act is July 1, 2007.

FISCAL IMPLICATIONS

State agencies could be reimbursed for the money spent to pay false claims and for the attorneys’

fees and costs for recovering this money.

There will be a minimal administrative cost for statewide update, distribution and documentation

of statutory changes. Any additional fiscal impact on the judiciary will be proportional to the

enforcement of this law and civil actions commenced under the Act. New laws, amendments to

existing laws and new hearings have the potential to increase caseloads in the courts, thus

requiring additional resources to handle the increase.

SIGNIFICANT ISSUES

Currently, someone who submits a false claim to a state agency has nothing to fear because there

is no disadvantage in doing so. This leaves the State in the position of treating all claims in the

same manner because no mechanism exists to pursue a person for filing a false claim.

The bill will provide a mechanism for the AG to file a lawsuit against a false claimant and, if

successful, to receive reimbursement for a false claim that has been paid, as well as the

attorney’s fees and costs to recover this amount. This, in turn, will provide a financial incentive

for a person not to submit a false claim.

The bill also provides a financial incentive for private parties who know a false claim has been

submitted to come forward. This will allow the State to receive previously unknown information

about a false claim so that it could use the mechanism provided by this bill to take action against

a false claimant.

DOT notes that to combat the problem of false claims in their own jurisdictions, the Federal

Government and twelve other states - California, Delaware, the District of Columbia, Florida,

Hawaii, Illinois, Indiana, Massachusetts, Montana, Nevada, Tennessee, and Virginia - have

passed acts which provide for the recovery of damages and penalties from a false claimant. In

their legislation, both the Federal Government and these twelve states also provide a financial

incentive for a private party who knows a false claim has been submitted to come forward.

Thus,

HB 770/HHGACS

will be consistent with legislation previously passed by the Federal

Government and the 12 states listed above.

HED states that the Act protects them from students who might falsify records for payment,

illegally claim residency or submit false requests for student financial aid. This Act will place the

State of New Mexico in line with Federal Financial Aid guidelines. Federal Financial Aid forms

state, if you purposely give false or misleading information, you may be fined $20,000, sent to

prison, or both.

House Bill 770/HHGACS– Page

4

ADMINISTRATIVE IMPLICATIONS

The AG will have an increased case load.

OTHER SUBSTANTIVE ISSUES

The AOC provided the following:

“Qui tam" is an abbreviation of the Latin phrase “qui tam pro domino rege quam pro se

ipso in hoc parte sequitur," meaning “he who [sues] for the king as well as for himself."

A "qui tam" action is a lawsuit under a statute, which gives to the plaintiff bringing the

action a part of the penalty recovered and the balance to the state. The plaintiff describes

himself as suing for the state as well as for himself.

In an action brought under the Act, the state agency or the qui tam plaintiff is required to

prove all elements, including damages, by a preponderance of the evidence.

DW/nt