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San Francisco Unified School District ex rel. Contreras v. First Student, Inc.

California Court of Appeal, First District, Fifth Division

March 11, 2014

SAN FRANCISCO UNIFIED SCHOOL DISTRICT EX REL. Manuel CONTRERAS et al., Plaintiffs and Appellants,
v.
FIRST STUDENT, INC., Defendant and Respondent.

Superior Court of the City and County of San Francisco, No. CGC-07-463308, Ernest H. Goldsmith, Judge.

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[Copyrighted Material Omitted]

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COUNSEL

Baron & Budd, P.C., Thomas M. Sims, Austin, and Laura J. Baughman, Dallas; April M. Strauss; Environmental Law Foundation and James Wheaton, Oakland, for plaintiff and appellants.

Reed Smith LLP, Jesse L. Miller, Dennis Peter Maio, James M. Neudecker and Matthew T. Peters, San Francisco, for defendant and respondent.

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Kamala D. Harris, Attorney General, Martin Goyette, Assistant Attorney General, Larry G. Raskin, Deputy Attorney General, as Amicus Curiae on behalf of for plaintiffs and appellants.

OPINION

SIMONS, J.

California's False Claims Act (CFCA) (Gov. Code, § 12650 et seq.) [1] permits the recovery of civil penalties and treble damages from any person who knowingly presents a false claim for payment to the state or a political subdivision. Qui tam [2] plaintiffs William Padilla, Manuel Contreras, and the Environmental Law Foundation (plaintiffs) sued defendant First Student, Inc. (defendant),[3] under the CFCA, seeking to recover funds on behalf of the San Francisco Unified School District (District). Plaintiffs allege defendant violated the CFCA by submitting claims for payment to the District at times when defendant knew it was in breach of various terms of its contract to provide student bus transportation services. In particular, plaintiffs allege defendant failed to maintain its buses as required under the contract.

In San Francisco Unified School Dist. ex rel. Contreras v. Laidlaw Transit, Inc. (2010) 182 Cal.App.4th 438, 106 Cal.Rptr.3d 84 ( Contreras I ), this court reversed the trial court's orders sustaining defendant's demurrer and dismissing the action. We concluded that, under the CFCA, a vendor impliedly certifies compliance with express contractual requirements when it bills a public agency for providing goods or services. Plaintiffs' allegation that defendant's implied certifications were false with respect to its maintenance obligations was sufficient to survive a demurrer. Subsequently, the trial court granted defendant's motion for summary judgment. The court concluded no reasonable trier of fact could find that (1) the false implied

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certifications were material— that it had a natural tendency to influence the District's decision to pay defendant's invoices— or (2) defendant acted with knowledge of or reckless disregard as to the falsity of its implied certifications. This appeal followed and we now reverse, concluding the evidence in the record raises triable issues of material fact on both elements of plaintiffs' claim.

PROCEDURAL BACKGROUND

Defendant is a provider of student bus transportation services. Plaintiffs Padilla and Contreras are former employees of defendant. Plaintiff Environmental Law Foundation is a California nonprofit organization " dedicated to the preservation and enhancement of human health and the environment." In May 2007, plaintiffs filed a complaint against defendant alleging violations of the CFCA. As required by the CFCA, the complaint was filed under seal to allow the District to investigate and decide whether to intervene in the action. (See § 12652, subd. (c).) The District declined to intervene.

In July 2008, plaintiffs filed their second amended and operative complaint (Complaint), seeking damages and civil penalties on behalf of the District for false claims, records, and statements presented by defendant in violation of the CFCA. Plaintiffs also sought for themselves an award, as well as payment of their attorney fees, expenses, and costs of suit.

Plaintiffs alleged defendant transported District schoolchildren on buses that were " unsafe, unhealthy, did not meet all federal, state and local safety standards, and were not properly maintained and repaired as needed." The Complaint's first cause of action alleged defendant violated section 12651, subdivision (a)(1), by knowingly presenting false claims to the District for payment or approval. It asserted, " [w]hen [defendant] submitted monthly invoices for payment, [it] impliedly certified that [it] had met each and every material term of the [C]ontract." The second cause of action alleged defendant violated the CFCA by knowingly falsifying records and/or statements; the third cause of action alleged defendant used false records or statements to avoid a payment obligation to the District. Defendant demurred to the Complaint. The trial court sustained the demurrer as to the first two causes of action and overruled the demurrer on the third cause of action. Plaintiffs dismissed the third cause of action and the court dismissed the remainder of the Complaint.

Plaintiffs appealed and, in Contreras I, supra, 182 Cal.App.4th 438, 106 Cal.Rptr.3d 84, this court reversed. As to the first cause of action, we concluded that, under the CFCA, a vendor impliedly certifies compliance with its express contractual requirements when it bills a public agency for providing goods or services.

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( Contreras I, at pp. 448-453, 106 Cal.Rptr.3d 84.) Plaintiffs did not challenge the dismissal of their second cause of action. ( Id. at p. 444, fn. 6, 106 Cal.Rptr.3d 84.)

In March 2012, defendant moved for summary judgment on plaintiffs' first cause of action. Plaintiffs opposed the motion. The trial court ruled in favor of defendant, concluding no reasonable trier of fact could find that defendant's alleged false implied certifications were material or that defendant acted with the scienter required by the CFCA. In September, the court entered judgment in favor of defendant.

This appeal followed. The California Attorney General submitted an amicus curiae brief challenging the trial court's analysis of the materiality issue.

FACTUAL BACKGROUND [4]

Defendant's Contract with the District

For over 20 years, defendant has provided bus transportation for District students. A contract effective in 2005 and extended in 2010 (Contract) imposed a number of requirements on defendant. Those requirements included provisions that defendant: (1) provide school buses meeting state and federal standards relating to pupil transportation; (2) maintain its buses in " excellent mechanical condition and appearance" and replace all vehicles " which are deemed to be unfit for providing the required service" ; (3) provide buses meeting or exceeding state and federal safety standards; and (4) employ a " Fleet Maintenance Supervisor" to " establish and maintain a complete and effective preventative maintenance program with complete and accurate records on each vehicle." The Contract states that the District seeks buses with " the highest standards of performance and safety for the educational and personal well-being of the students."

The District agreed to pay defendant on a monthly basis " for services satisfactorily performed by [defendant] after receipt of properly documented invoices." The Contract authorized the District to terminate the contract without cause on 30 days' written notice, and to terminate or suspend the contract immediately for reasons including " [f]ailure or refusal" of defendant " to perform or do any act herein required."

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Plaintiffs' Evidence of Violations of the Maintenance Requirements

In opposing defendant's motion for summary judgment, plaintiffs presented evidence that defendant committed numerous violations of the maintenance requirements, including among other things: (1) disregarding a 45-day inspection requirement; (2) operating buses with defective brake linings; and (3) placing buses into service with dangerously low tire tread.[5]

A. 45-Day Inspection Requirement

California law requires a preventative maintenance inspection (PMI) of a school bus every 45 calendar days or 3,000 miles (whichever occurs first), or more often if necessary to ensure safe operation of the bus. (Cal. Code of Regs., tit. 13, § 1232, subd. (b).) The requirement is incorporated into defendant's maintenance policies. Nevertheless, defendant frequently kept buses in service beyond the 45-day inspection time limit. Alex Ageev, a lead mechanic for defendant, was responsible for ensuring compliance with the PMI requirement. He testified at his deposition that defendant would intentionally operate buses that exceeded the 45-day inspection interval when defendant got behind on maintenance. This occurred at least once a year for every bus as far back as 2001.[6]

B. Brake Linings

Plaintiffs, quoting from the Motor Vehicle Safety Compliance Handbook published by the California Highway Patrol (CHP), points out the CHP warns that " ‘ [a] truck or bus operated daily on the steep hills of San Francisco obviously will require much more frequent attention to both the service brakes and the parking brake than the same vehicle would need if operated exclusively in any of the level ground communities in California's central valleys.’ " (See Department of the California Highway Patrol, Motor Vehicle Safety Compliance Handbook (3d ed. 1992), p. 2-5 (CHP Handbook).) A number of defendant's buses are " Type D" buses that are ...


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