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State ex rel. Kahle v. One Love Ministries

Intermediate Court of Appeals of Hawaii

February 28, 2018

STATE OF HAWAI'I, Plaintiff-Appellee,
v.
ONE LOVE MINISTRIES and CALVARY CHAPEL CENTRAL OAHU, Defendants-Appellants, and Ex Rel. MITCHELL KAHLE and HOLLY HUBER, Plaintiffs-Relators-Appellees, and DOE ENTITIES 1-50; JOHN DOES 1-50; and JANE DOES 1-50, Defendants.

         APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 13-1-0893-03)

          James Hochberg Jeremiah Galus Erik Stanley David J. Hacker (on the briefs) for Defendants-Appellants

          James J. Bickerton Stephen M. Tannenbaum (Bickerton Dang) for Plaintiffs-Relators-Appellees

          NAKAMURA, CHIEF JUDGE, and REIFURTH and CHAN, JJ.

          OPINION

          NAKAMURA, C.J.

         Plaintiffs-Relators-Appellees Mitchell Kahle and Holly Huber (Relators) brought a qui tarn action[1] on behalf of the State of Hawai'i (State) against Defendants-Appellants One Love Ministries (One Love) and Calvary Chapel Central Oahu (Calvary Chapel) (collectively, the Churches). Relators alleged that the Churches had violated the Hawai'i False Claims Act (HFCA), Hawaii Revised Statutes (HRS) Chapter 661, Part II, by fraudulently underpaying the State for the Churches' use of public school facilities under the Hawai'i Community Use of School Facilities Program (Community Use of Schools Program), Hawaii Administrative Rules (HAR) Chapter 39. The Churches moved to dismiss the Relators' First Amended Complaint, arguing that the Relators' claims were foreclosed by the HFCA's public disclosure bar and that the Relators did not fall within the original source exception.

         The Circuit Court of the First Circuit (Circuit Court)[2] denied the Churches' motion to dismiss. On appeal, the Churches argue that the Circuit Court erred in: (1) retroactively applying the 2012 amendments to the HFCA to conduct that occurred prior to the amendments; (2) ruling that the public disclosure bar is an affirmative defense rather than a jurisdictional bar; (3) failing to dismiss the First Amended Complaint under the public disclosure bar; and (4) ruling that the Relators could meet the definition of an "original source."

         We hold that the 2 012 HFCA amendments do not apply retroactively to conduct that occurred prior to the effective date of the amendments. We further hold that the 2012 HFCA amendments changed the public disclosure bar from a jurisdictional bar to an affirmative defense. Therefore, in ruling on the Churches' motion to dismiss, the Circuit Court erred in applying the 2012 amended version of the HFCA (Amended HFCA) to all of the claims in the First Amended Complaint. Instead, the Circuit Court should have applied the pre-amended version of the HFCA (Pre-Amended HFCA) to claims arising before the effective date of the 2 012 HFCA amendments and the Amended HFCA to claims arising after the effective date.

         As explained below, we affirm the Circuit Court's denial of the Churches' motion to dismiss with respect to claims arising after the effective date of the 2012 HFCA amendments. We vacate the Circuit Court's denial of the Churches' motion to dismiss with respect to claims arising before the effective date of the 2012 HFCA amendments. We remand the case to permit the Circuit Court to apply the Pre-Amended HFCA in deciding the Churches' motion to dismiss with respect to claims arising before the effective date of the 2012 HFCA amendments and for further proceedings consistent with our Opinion.

         BACKGROUND

         I.

         In December 2011, the Relators began a review of Hawai'i churches' use of public school facilities under the Community Use of Schools Program.[3] One Love and Calvary Chapel are two of the churches who used public school facilities for weekly services and special events under the Community Use of Schools Program.

         On March 22, 2013, Relators filed a qui tarn Complaint on behalf of the State against the Churches, alleging violations of the HFCA. The Circuit Court granted the Churches' motion to dismiss the Complaint, with leave for the Relators to file an amended complaint, on the ground that the Complaint failed to state the fraud claims with sufficient particularity. The Circuit Court denied the motion to dismiss, without prejudice, as to the other grounds raised.

         On February 20, 2014, the Relators filed a First Amended Complaint against the Churches. The First Amended Complaint contained numerous factual allegations regarding the Churches' use of school facilities from 2007 to 2013 and asserted that the Churches had violated the HFCA in three ways. Count 1 alleged the violation of HRS § 661-21(a)(6); Count 2 alleged the violation of HRS § 661-21 (a) (7); and Count 3 alleged the violation of HRS § 661-21(a) (8) .[4]

          In the First Amended Complaint, Relators asserted that they were "original sources" of the information contained in the First Amended Complaint in that they "(i) obtained direct and independent knowledge of the information on which the allegations herein are based; (ii) have materially added to what little information was publicly available prior to their efforts; and (iii) have voluntarily provided said information to the Attorney General of the State of Hawai'i before filing this action." Among other things, Relators alleged in the First Amended Complaint that they: (1) visited schools (including schools used by One Love and Calvary Chapel) to observe, photograph, and document Hawai'i churches' actual use of school facilities, "including the specific days, hours, activities and facilities and utilities that churches were using"; (2) researched laws, rules, and legislative history relating to the Community Use of Schools Program; (3) reviewed Hawai'i Department of Education practices and policies and Board of Education minutes and materials relating to the Community Use of Schools Program; (4) requested and obtained pursuant to the Uniform Information Practices Act (UIPA) copies of Hawai'i churches' "Form B0-1 Application[s] for Use of School Buildings, Facilities, or Grounds" (B0-1 Applications), including the B0-1 Applications submitted by One Love and Calvary Chapel; (5) designed and programed a "custom relational database" to analyze and review the B0-1 Applications they obtained; (6) communicated directly with school officials in person and through email, including sending school principals customized requests for information based on B0-1 Applications for their school; (7) searched the internet and monitored and reviewed various church websites; (8) monitored churches' activities through personal on-site surveillance, through observation of service broadcasts on television and online, and by reviewing church newsletters and email announcements; (9) submitted B0-1 Applications and rented school facilities themselves; and (10) reviewed and analyzed the information they obtained and programmed spreadsheets "to calculate the amounts each church was actually paying a school, as compared to the amounts each church had underpaid[.]"

         The Churches filed a motion to dismiss the First Amended Complaint pursuant to Hawai'i Rules of Civil Procedure (HRCP) Rule 12(b)(1) and Rule 12(b)(6) (2000).[5] The Churches sought dismissal pursuant to HRCP Rule 12(b)(1) on the ground that the Relators were jurisdictionally foreclosed from bringing the First Amended Complaint because of the HFCA's public disclosure bar and because the Relators did not fall within the original source exception to the public disclosure bar. The Churches sought dismissal under HRCP Rule 12(b)(6) on the ground that the Relators had failed to state a claim on which relief could be granted.

         The Circuit Court denied the Churches' motion to dismiss insofar as it was based on HRCP Rule 12(b)(1). The Circuit Court ruled that the HFCA's public disclosure bar constituted an affirmative defense, and not a jurisdictional bar, and it therefore denied the Churches' claim that it lacked subject matter jurisdiction over the First Amended Complaint. The Circuit Court initially granted in part and denied in part the Churches' motion to dismiss based on HRCP Rule 12(b)(6). However, the Circuit Court later reconsidered its partial granting of the motion under HRCP Rule 12(b)(6), and it denied the Churches' motion insofar as it was based on HRCP Rule 12(b)(6). Thus, the Circuit Court's ultimate decision was to completely deny the Churches' motion to dismiss, rejecting the motion on both the HRCP Rule 12(b) (1) and the HRCP 12(b) (6) grounds asserted by the Churches. The Circuit Court granted the Churches' motion to file an interlocutory appeal from its denial of their motion to dismiss, and this appeal followed.

         DISCUSSION

          I.

         The Hawai'i appellate courts have not previously construed the HFCA. The HFCA, however, is patterned after the federal False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. We therefore look to cases interpreting the FCA for guidance. See French v. Hawaii Pizza Hut, Inc., 105 Hawai'i 462, 467, 99 P.3d 1046, 1051 (2004); State v. Ontai, 84 Hawai'i 56, 61, 929 P.2d 69, 74 (1996); Trivectra v. Ushijima, 112 Hawai'i 90, 101-02, 144 P.3d 1, 12-13 (2006).

         A.

         The historical development of the FCA is instructive as it helps provide context in understanding provisions in the FCA that correspond to provisions in the HFCA. The United States Supreme Court described the historical development of the FCA as follows:

As originally enacted, the FCA did not limit the sources from which a relator could acquire the information to bring a qui tarn action. In United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943), we upheld the relator's recovery even though he had discovered the fraud by reading a federal criminal indictment -- a quintessential "parasitic" suit. Id., at 545-548, 63 S.Ct. 379; see id., at 545, 63 S.Ct. 379 ("Even if, as the government suggests, the petitioner has contributed nothing to the discovery of this crime, he has contributed much to accomplishing one of the purposes for which the Act was passed"). Congress promptly reacted to that decision by amending the statute to preclude qui tarn actions "based upon evidence or information in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought." This amendment erected what came to be known as a Government knowledge bar: "Once the United States learned of a false claim, only the Government could assert its rights under the FCA against the false claimant." In the years that followed the 1943 amendment, the volume and efficacy of qui tarn litigation dwindled. "Seeking the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own, " Congress overhauled the statute once again in 1986 "to make the FCA a 'more useful tool against fraud in modern times[.]'" . . . § 3730(e) (4) was enacted in 1986 as part of this larger reform. Congress apparently concluded that a total bar on qui tarn actions based on information already in the Government's possession thwarted a significant number of potentially valuable claims. Rather than simply repeal the Government knowledge bar, however, Congress replaced it with the public disclosure bar in an effort to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits such as the one in Hess.

Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 293-95 (2010) (brackets and some citations omitted).

         B.

          The HFCA was first enacted in 2000 "to allow for qui tarn, or citizen attorney general, lawsuits to recover against persons who submit fraudulent claims for payment by the State." Conf. Comm. Rep. No. 84 in 2000 Senate Journal, at 768, 2000 House Journal, at 891. When first enacted, the HFCA included a jurisdictional public disclosure bar, which was similar to the one in the 1986 FCA, and provided as follows:

§ 661-28 Jurisdiction. No court shall have jurisdiction over an action under this part based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a legislative or administrative report, hearing, audit, or investigation, or from the news media, unless the action is brought by the attorney general or the person bringing the action is an original source of the information. For purposes of this section:
"Original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the State before filing an action under this part that is based on the information, and whose information provided the basis or catalyst for the investigation, hearing, audit, or report that led to the public disclosure.

HRS § 661-28 (Supp. 2011).[6]

          Congress amended the FCA in 2010. In 2012, the Hawai'i Legislature amended the HFCA to "bring the State's laws regarding false claims against the State and the counties into compliance with the federal False Claims Act." S. Stand. Comm. Rep. No. 3304, in 2012 Senate Journal, at 1063. The 2012 HFCA amendments include an amended public disclosure bar and "original source" definition that closely parallels ...


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