Lawsuits & Settlements

SAN FRANCISCO - Attorney General Kamala D. Harris today announced a national settlement with Wachovia Bank N.A. (Wachovia) and Wells Fargo Bank, N.A., as its successor as part of an ongoing nationwide investigation over allegations of anticompetitive and fraudulent conduct in the municipal bond derivatives industry.

“This settlement continues efforts to bring a measure of restitution to school districts, non-profits and municipalities that were all defrauded by Wall Street,” Attorney General Harris said. “Our office will continue to pursue justice on their behalf.”

The settlement was based on allegations that Wachovia made secret deals with competitors handling the bidding process. This illegal conduct included bid-rigging, discussing bids with competitors and offering non-competitive courtesy bids. These schemes enriched the financial institutions and brokers at the expense of cash strapped state agencies, cities, school districts and non-profits that could ill afford the steep financial consequences of this illegal conduct.

As part of the multistate settlement with 26 other attorneys general, Wachovia has agreed to pay $54.5 million in restitution to affected state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into municipal derivative contracts with Wachovia between 1998 and 2004. California entities are set to receive approximately $4.5 million for restitution under this settlement. In addition, Wachovia agreed to pay a $1.25 million civil penalty and $3 million for fees and costs of the investigation to the settling states.

Wachovia also reached agreement with the U.S. Department of Justice’s Antitrust Division, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Internal Revenue Service. Wachovia is the fourth financial institution to settle with a multistate task force in the ongoing municipal bond derivatives investigation following Bank of America, UBS AG and JP Morgan. To date, the state working group has obtained settlements worth almost $310 million.

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed, or to hedge interest-rate risk.

In April 2008, the states began investigating allegations that certain large financial institutions and certain brokers and swap advisors, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.

The investigation, which is still ongoing, revealed collusive and deceptive conduct involving individuals at Wachovia and other financial institutions, and certain brokers with whom they had working relationships. The wrongful conduct took the form of bid-rigging, submission of non-competitive courtesy bids and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations.

LOS ANGELES -- Attorney General Kamala D. Harris today filed a first-of-its-kind “greenwashing” lawsuit against three companies that allegedly made false and misleading claims by marketing plastic water bottles as “100 percent biodegradable and recyclable.”

Under California law, it is illegal to label a plastic food or beverage container as biodegradable. Plastic takes thousands of years to biodegrade and may never do so in a landfill. Today’s lawsuit is the first government action to enforce the state’s landmark environmental marketing law.

“These companies’ actions violate state law and mislead consumers,” Attorney General Harris said. “Californians are committed to recycling and protecting the environment, but these efforts are undermined by the false and misleading claims these companies make when they wrongly advertise their products as 'biodegradable.'”

Balance and AquaMantra sell their products in plastic water bottles marketed by ENSO Plastics LLC; according to the label, ENSO claims that a microbial additive created the “first truly biodegradable and recyclable” plastic bottle. The bottles’ labeling states that the bottles will break down in less than five years in a typical landfill or compost environment, but that claim is false because the additive does not speed up the centuries-long process required to break down plastic.

The claim of recycling is also deceptive. The microbial additive put into the bottle is considered by the Association of Post Consumer Plastic Recyclers to be a “destructive contaminant” that can compromise the strength of the products they make.

Consumers may buy these defendants’ bottles and either dispose of them incorrectly, on the assumption that they will biodegrade quickly, when in fact they will simply take up space in landfills, or they will try to recycle them, creating problems and costs for recyclers.

A recent Gallup poll found that 76 percent of Americans buy products specifically because of their perception the product is better for the environment.

In 2008, the California Legislature banned the use of words like “biodegradable,” “degradable,” or “decomposable” in the labeling of plastic food or beverage containers. Senate Bill 567, signed into law by the Governor this year, will expand that law to all plastic products beginning in 2013.

Deputy Attorney General Raissa S. Lerner and Deputy Attorney General Laura J. Zuckerman are handling the case for Attorney General Harris’ Environment section. A copy of the complaint filed today in the Orange County Superior Court is attached to the online version of this release at www.oag.ca.gov. Also attached are photos of the bottles in question.

SAN FRANCISCO --- Attorney General Kamala D. Harris joined federal, state, and Bay Area officials to announce a comprehensive civil settlement with the owners and operators of the M/V Cosco Busan, resolving all natural resource damages, penalties, and response costs that resulted from the ship striking the San Francisco-Oakland Bay Bridge in 2007, and the subsequent oil spill in the San Francisco Bay. The event killed thousands of birds, impacted a significant portion of the Bay’s 2008 herring spawn, spoiled miles of shoreline habitat and closed the Bay and area beaches to recreation and fishing.

“This Bay is the jewel of the San Francisco region and the Cosco Busan oil spill left a lasting scar across our water, natural habitats and wildlife,” Attorney General Harris said. “This settlement will allow all of these precious resources to be restored to their original health and beauty.”

The U.S. Department of Justice, the State of California, the City and County of San Francisco, and the City of Richmond signed and lodged a consent decree that requires Regal Stone Limited and Fleet Management Ltd., the owners and operators of the M/V Cosco Busan to pay $44.4 million for natural resource damages and penalties and to reimburse the governmental entities for response costs incurred as a result of the 53,000 gallon oil spill that occurred when the vessel struck the San Francisco-Oakland Bay Bridge on Nov. 7, 2007.

The full U.S. Department of Justice press release and consent decree is available for viewing at www.justice.gov/enrd/Consent_Decrees.html.

LOS ANGELES -- Attorney General Kamala D. Harris today announced her intention to join a lawsuit challenging Riverside County’s approval of an industrial project next to Mira Loma Village, a community already disproportionately affected by diesel exhaust and noise pollution.

The proposed project, the Mira Loma Commerce Center, would consist of a million square feet of warehouses and industrial buildings, resulting in approximately 1,500 additional diesel truck trips a day traveling next to the low-income, primarily Hispanic residential community of Mira Loma Village.

“The proposed Mira Loma complex carries significant health risks to a community that is already suffering the impacts of what are among the worst particulate pollution levels in the nation,” Attorney General Harris said. “All California residents could be put at risk if developments like this are pushed through by officials without appropriate, and legally-mandated, consideration of the environmental effects on health and welfare.”

Attorney General Harris filed in court Wednesday a motion to join the California Environmental Quality Act (CEQA) action filed by the Center for Community Action and Environmental Justice (CCAEJ) to set aside the county’s approvals for the project. The judge has set a September 16th hearing on that motion.

The suit outlines the county’s failure to adequately analyze and mitigate the project’s impacts in light of the already serious health and environmental risks suffered by the community. The Environmental Impact Report (EIR) did not sufficiently disclose that the county’s land use decisions result in the burdens of the project being primarily borne by the residents of Mira Loma.

Since the 1990s, Riverside County has approved a series of warehouse projects in the Mira Loma area. There are now approximately 90 mega-warehouse complexes in Mira Loma. Thousands of trucks travel to and from the ports of Los Angeles and Long Beach to distribution centers and warehouses in Riverside County each day. Over 15,000 truck trips a day already flow onto the main roads in Mira Loma.

The residents of Mira Loma have been burdened by the harmful impacts of industrial development for decades. A recent study by the University of Southern California found that the area’s extremely high rate of particulate-matter pollution is linked to stunted lung development and other serious illnesses in Mira Loma children. Mira Loma’s levels of particulate matter and ozone pollutants are significantly higher than both California and federal air quality standards.

“We have battled for more than 10 years trying to protect our families’ health and quality of life. This project is the final straw,” said Penny Newman, executive director of CCAEJ. “We are so grateful to have the Attorney General join us in what us truly a fight for their lives.”

Diesel exhaust is listed as a known carcinogen under Proposition 65. The California Air Resources Board had recommended a buffer zone between a diesel source and residential neighborhoods, schools and parks to reduce the risk of health impact from diesel particulate emissions. While the EIR acknowledged increased pollutants, the county failed to adopt all feasible mitigation measures to reduce air quality impacts. The county rejected the recommended buffer zone as infeasible, but did not explore the possibility of a more limited buffer zone or other comparable mitigation, such as a trees or shrubs, which can reduce particulate pollution by as much as 30 percent.

A copy of the proposed complaint is attached to the press release.

SACRAMENTO --- Attorney General Kamala D. Harris today announced the filing of a proposed $24.5 million settlement with Chevron U.S.A. Inc. and Chevron Stations Inc. The proposed settlement will resolve law enforcement allegations that the companies violated state laws governing hazardous materials and hazardous waste by failing to properly inspect and maintain underground tanks used to store gasoline for retail sale.

"There must be accountability and consequences when the environment is compromised and innocent people are potentially exposed to hazardous materials that could endanger their health,' Attorney General Harris said. 'This settlement accomplishes both, and will protect Californians by mandating a compliance program for Chevron's underground storage tanks.'

The Attorney General's office was joined in this enforcement action by Humboldt County District Attorney Paul V. Gallegos, Merced County District Attorney Larry D. Morse II, Nevada County District Attorney Clifford Newall, and Sacramento County District Attorney Jan Scully.

The complaint, filed last Friday, alleges that - since 1998 - Chevron has violated anti-pollution laws with respect to underground storage tanks by tampering with or disabling leak detection devices, and failing to test secondary containment systems, conduct monthly inspections, train employees in proper protocol, and maintain operational alarm systems, among other violations.

A statewide investigation found violations of hazardous materials and hazardous waste laws and regulations at gas stations in 32 counties across the state.

The parties have agreed to resolve the matter, and today submitted to Alameda County Superior Court a proposed final judgment that would impose a permanent injunction on the defendants. The hearing on the motion for judicial approval of the settlement is scheduled for September 29 at 2pm in Department 20.

If approved by the Court, the settlement would require Chevron to maintain a statewide compliance program, which includes a training program for employees and a database to track how underground storage tanks are monitored, among other requirements.

Deputy Attorney General Brett J. Morris handled the case for Attorney General Harris' Environment Section.

A copy of the complaint is attached to the online version of this release at oag.ca.gov.

SAN FRANCISCO --- Attorney General Kamala D. Harris today announced that the California Department of Justice, in conjunction with the State Bar of California, has sued multiple entities accused of fraudulently taking millions of dollars from thousands of homeowners who were led to believe they would receive relief on their mortgages.

Attorney General Harris sued Philip Kramer, the Law Offices of Kramer & Kaslow, two other law firms, three other lawyers, and 14 other defendants who are accused of working together to defraud homeowners across the country through the deceptive marketing of 'mass joinder' lawsuits. 'Mass joinder' lawsuits are lawsuits with hundreds, or more, individually named plaintiffs. This is the first consumer action by the Attorney General’s Mortgage Fraud Strike Force.

Kramer’s firm and other defendants were placed into receivership on Monday, Aug. 15. The legal actions were designed to shut down a scheme operated by attorneys and their marketing partners, in which defendants used false and misleading representations to induce thousands of homeowners into joining the mass joinder lawsuits against their mortgage lenders. Defendants also had their assets seized and were enjoined from continuing their operations. Nineteen DOJ special agents participated as the firms were taken over Wednesday, Aug. 17, along with 42 agents and other personnel from HUD’s Office of Inspector General, the California State Bar, and the Office of Receiver Thomas McNamara at 14 locations in Los Angeles and Orange Counties. Sixteen bank accounts were seized.

"The defendants in this case fraudulently promised to win prompt mortgage relief for millions of vulnerable homeowners across the country,' said Attorney General Harris. 'Innocent people, already battered by the housing crisis, were targeted for fraud in their moment of distress.'

"The number of lawyers who have tried to take advantage of distressed homeowners in these tough economic times is nothing short of shocking,' said State Bar President William Hebert. 'By taking over the practices of four attorneys accused of fraudulent marketing practices, the State Bar can put a stop to their deplorable conduct as part of our ongoing effort to protect the public.'

It is believed that at least two million pieces of mail were sent out by defendants to victims in at least 17 states. Defendants’ revenue from this scam is estimated to be in the millions of dollars.

As alleged in the lawsuit, defendants preyed on desperate homeowners facing foreclosure by selling them participation as plaintiffs in mass joinder lawsuits against mortgage lenders. Defendants deceptively led homeowners to believe that by joining these lawsuits, they would stop pending foreclosures, reduce their loan balances or interest rates, obtain money damages, and even receive title to their homes free and clear of their existing mortgage. Defendants charged homeowners retainer fees of up to $10,000 to join as plaintiffs to a mass joinder lawsuit against their lender or loan servicer.

Consumers who paid to join the mass joinder lawsuits were frequently unable to receive answers to simple questions, such as whether they had been added to the lawsuit, or even to establish contact with defendants. Some consumers lost their homes shortly after paying the retainer fees demanded by defendants.

This mass joinder scam began with deceptive mass mailers, the lawsuit alleges. Some mailers, designed to appear as official settlement notices or government documents, informed homeowners that they were potential plaintiffs in a 'national litigation settlement' against their lender. No settlements existed and in many cases no lawsuit had even been filed. Defendants also advertised through their web sites.

When consumers contacted the defendants, they were given legal advice by sales agents, not attorneys, who made additional deceptive statements and provided (often inaccurate) legal advice about the supposedly 'likely' results of joining the lawsuits. Defendants unlawfully paid commissions to their sales representatives on a per client sign-up basis, a practice known as 'running and capping.'

Defendants’ alleged misconduct violates the following laws:
-False advertising, in violation of section 17500 of the Business and Professions Code
-Unfair, fraudulent and unlawful business practices, in violation of section 17200 of the Business and Professions Code
-Unlawful running and capping, in violation of section 6152, subdivision (a) of the Business and Professions Code (i.e., a lawyer unlawfully paying a non-lawyer to solicit or procure business)
-Improper fee splitting (defendants unlawfully splitting legal fees with non-attorneys)
-Failing to register with the Department of Justice as a telephonic seller.

Homeowners who have paid to be added to one of the lawsuits should contact the State Bar if they feel they may be victims of this scam. They can also contact a HUD-certified housing counselor for general mortgage related assistance.

The Department of Justice has seized the practices of the following non-attorney defendants:
Attorneys Processing Center, LLC; Data Management, LLC; Gary DiGirolamo; Bill Stephenson; Mitigation Professionals, LLC; Glen Reneau; Pate Marier & Associates, Inc.; James Pate; Ryan Marier; Home Retention Division; Michael Tapia; Lewis Marketing Corp.; Clarence Butt; and Thomas Phanco.

The State Bar has seized the practices and attorney accounts of the attorney defendants:
The Law Offices of Kramer & Kaslow; Philip Kramer, Esq; Mitchell J. Stein & Associates; Mitchell Stein, Esq.; Christopher Van Son, Esq.; Mesa Law Group Corp.; and Paul Petersen, Esq.

Attorney General Harris is challenging the defendants’ alleged misconduct in marketing their mass joinder lawsuits; her office takes no position as to the legal merits of any claims asserted in the mass joinder lawsuits filed by defendants.

Victims in the following states are known to have received these mailers, or signed on to join the case. This is a preliminary list that may be updated:

Alaska, Arizona, California, Colorado, Connecticut, Florida, Hawaii, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, Texas, Washington

The complaint, temporary restraining order, examples of marketing documents and photos of the enforcement action are available with the electronic version of this release at http://oag.ca.gov/news.

LOS ANGELES -- Attorney General Kamala D. Harris today announced a settlement with cargo terminals at the ports of Long Beach and Los Angeles over diesel emissions from exhaust that requires the terminals to complete projects to reduce their diesel emissions and better notify the public of emissions.

Attorney General Harris filed suit in June alleging the terminals violated Proposition 65, by exposing thousands of neighboring residents to high levels of diesel exhaust without giving the required warning.

“This settlement will speed the requirements for port terminals to reduce diesel emissions,” said Attorney General Harris. “This is vitally important because expanding port traffic leads nearby residents to be exposed to polluted air, and increased risk of cancer and other diseases.”

Approved today in Los Angeles Superior Court, the settlement requires the terminals to: implement an innovative warning program using newspaper ads, bus shelter signs and the Internet to inform the community about the diesel exposures; undertake projects valued at $1 million per terminal to reduce diesel emissions from their respective operations; and pay monies to the ports of Long Beach and Los Angeles for projects to lower diesel emissions from the trucks, tractors and trains that operate at the port.

The $1 million projects to be undertaken at the seven terminals include pilot projects to test solar electric panels that withstand the salt water environment and a crane mounted system to capture exhaust from idling vessels. The terminals will also pay $756,000 to the Port of Los Angeles for grants to allow small trucking firms to buy new, low-emission trucks; $324,000 to the Port of Long Beach for projects for clean running trucks and locomotives; and $540,000 in civil penalties.

In addition, the terminal operators will have to warn the public that they are being exposed to diesel exhaust, as required by Proposition 65. The settlement requires the terminal operators to keep giving the warnings – at bus stops, in newspapers and on the Internet – until diesel emissions no longer pose a significant risk to the community.

The seven terminals at the Ports of Long Beach and Los Angeles that cause the largest diesel exposures to the surrounding neighborhoods are: APM Terminals Pacific, Ltd.; Eagle Marine Services, Ltd.; International Transportation Service, Inc.; SSA Terminal (Long Beach) LLC; SSA Terminals, LLC, Pacific Maritime Services, L.L.C.; Trapac, Inc.; West Basin Container Terminal LLC; Yusen Terminals, Inc.

In February, Attorney General Harris filed a friend-of-the-court brief in a Ninth Circuit Court of Appeals case in support of efforts by the Port of Los Angeles to reduce air pollution through its Clean Trucks program (http://oag.ca.gov/news/press_release?id=2039&).

SAN FRANCISCO –-- Attorney General Kamala D. Harris today announced a national settlement with JP Morgan Chase & Co. (JPMC) as part of an ongoing nationwide investigation over allegations of anti-competitive and fraudulent conduct in the municipal bond derivatives industry.

“School districts, non-profits and municipalities in this case were all defrauded by Wall Street,” Attorney General Harris said. “This settlement brings a measure of restitution, justice and closure to the victims.”

The settlement was based on allegations that JPMC made secret deals with competitors in the bidding process. This illegal conduct included bid-rigging, peeking at competitors’ bids and offering non-competitive courtesy bids. These schemes enriched the financial institutions and brokers at the expense of cash strapped state agencies, cities, school districts and non-profits that could ill afford the steep financial consequences of this illegal conduct.

The settlement also provides that JPMC will pay $17 million in restitution directly to certain other government and not-for-profit entities as part of separate agreements it entered into today with the U.S. Securities and Exchange Commission and the Office of the Comptroller of the Currency.

The state and federal settlements are distinct components of a coordinated global $228 million settlement that JPMC entered into today. JPMC also reached agreement with the U.S. Department of Justice’s Antitrust Division, the Internal Revenue Service and the Federal Reserve Board.

JPMC is the third financial institution to settle with the multistate working group in the ongoing municipal bond derivatives investigation following Bank of America and UBS AG. To date, the state working group has obtained settlements worth approximately $250 million. California entities are set to receive approximately $6.7 million for restitution under the JPMC settlement.

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed, or to hedge interest-rate risk.

In April 2008, the states began investigating allegations that certain large financial institutions, brokers and swap advisors engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.

The investigation, which is still ongoing, revealed collusive and deceptive conduct involving individuals at JPMC and other financial institutions, and certain brokers with whom they had working relationships. The wrongful conduct took the form of bid-rigging, submission of non-competitive courtesy bids and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations.

SACRAMENTO --- Attorney General Kamala D. Harris and 37 other attorneys general announced a $40.75 million settlement with GlaxoSmithKline, LLC and SB Pharmco Puerto Rico, Inc. for alleged substandard drug manufacturing processes.

The settlement resolves allegations that GlaxoSmithKline and its subsidiary in Puerto Rico engaged in unfair and deceptive practices when they manufactured and distributed certain lots of drugs, which were adulterated because the manufacturing processes used to produce them were substandard.

“Consumers shouldn’t need to wonder if the drugs prescribed by their doctors are safe,” said Attorney General Harris. “This settlement resolves an unacceptable and potentially dangerous practice of GlaxoSmithKline and underscores my commitment to protecting the health and well-being of Californians.”

The drugs include: Kytril, a sterile drug used to prevent nausea and vomiting caused by cancer chemotherapy and radiation therapy; Bactroban, an antibiotic ointment used to treat skin infections; Paxil CR, the controlled release form of Paxil, the popular antidepressant drug; and, Avandamet, a combination Type II diabetes drug.

GlaxoSmithKline and SB Pharmco no longer manufacture drugs at the facility in Puerto Rico, which closed in 2009. Consumers should be aware that there is no current cause for concern regarding the drugs covered by this agreement because the adulterated batches have been recalled for many years and/or the products’ expiration dates have passed. If consumers do have concerns, they should contact their health care provider.

As part of the settlement, GlaxoSmithKline and SB Pharmco agreed not to make false, misleading or deceptive claims regarding the manufacturing of all drugs formerly manufactured at the Puerto Rico facility – regardless of where these drugs are now produced. In addition, the companies must not misrepresent the characteristics of those drugs, or describe them in ways likely to cause confusion or misunderstanding about the way in which they are manufactured.

Illinois Attorney General Lisa Madigan and Oregon Attorney General John Kroger led the investigation into GlaxoSmithKline and SB Pharmco’s manufacturing practices.

States joining California, Illinois, Oregon and the District of Columbia in today’s settlement include Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia and Wisconsin.

Supervising Deputy Attorney General Daniel Olivas and Deputy Attorney General Judith Fiorentini handled the case for Attorney General Harris’ Consumer Law section. California will receive more than $3.3 million from the settlement, the largest share among the states.

Copies of the complaint and settlement are attached to the online version of this release at ag.ca.gov.

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SACRAMENTO --- Attorney General Kamala D. Harris today announced a $241 million settlement - the largest recovery in the history of California's False Claims Act - with Quest Diagnostics, the state's biggest provider of medical laboratory testing, of a lawsuit alleging illegal overcharges to the state's medical program for the poor.

"In a time of shrinking budgets, this historic settlement affirms that Medi-Cal exists to help the state's neediest families rather than to illicitly line private pockets,' said Attorney General Harris. 'Medi-Cal providers and others who try to cheat the state through false claims and illegal kickbacks should know that my office is watching and will prosecute.'

The settlement with Quest is the result of a lawsuit filed under court seal in 2005 by a whistleblower and referred to the Attorney General's office. The lawsuit alleged that Quest systematically overcharged the state's Medi-Cal program for more than 15 years and gave illegal kickbacks in the form of discounted or free testing to doctors, hospitals and clinics that referred Medi-Cal patients and other business to the labs.

California law states that 'no provider shall charge [Medi-Cal] for any service more than would have been charged for the same service to other purchasers of comparable services under comparable circumstance.' Yet, Quest charged Medi-Cal up to six times as much as it charged some other customers for the same tests. For example, Quest charged Medi-Cal $8.59 to perform a complete blood count test, while it charged some of its other customers $1.43.

California law also prohibits Medi-Cal providers from soliciting and receiving 'any kickback, bribe, or rebate, directly or indirectly, overtly or covertly, in cash or in valuable consideration of any kind [in] return for the referral, or promised referral, of any individual for the furnishing of any service' paid for by Medi-Cal.

According to the attorney general’s complaint, Quest systematically offered doctors, hospitals and clinics low prices for lab tests in return for referrals to Quest of patients, including Medi-Cal patients. Quest then allegedly charged Medi-Cal a higher price to make up the difference - resulting in the loss of millions of dollars to the Medi-Cal program.

Under the state's False Claims Act, any person with previously undisclosed information about a fraud, overcharge, or other false claim can file a sealed lawsuit on behalf of California to recover the losses, and is entitled to a share of the recovery in some cases. Such individuals become plaintiffs and are known as 'whistleblowers,' 'qui tam plaintiffs,' or 'relators.'

In this case, the whistleblowers were Chris Riedel and his company Hunter Laboratories. Hunter Laboratories found it could not compete in a significant segment of the marketplace where major medical laboratories such as Quest offered doctors, hospitals and clinics far lower rates than they were charging Medi-Cal. Riedel and Hunter were represented by Niall P. McCarthy of Cotchett, Pitre & McCarthy, LLP.

The Attorney General's Bureau of Medi-Cal Fraud and Elder Abuse conducted an intensive three-year investigation that uncovered widespread abuse of Medi-Cal by medical testing laboratories in California.

Based on allegations in the complaints, the California Department of Health Care Services, which administers the Medi-Cal program, launched an independent statewide audit of medical laboratories. Through reform of industry pricing practices stemming from this case, Medi-Cal is expected to save hundreds of millions of dollars.

"This agreement sends a strong message that fraud against the state and its Medi-Cal program will not be tolerated,' said Toby Douglas, director of the Department of Health Care Services. 'I commend our department's employees and the Department of Justice for working successfully in pursuit of compensation and justice for the state and its important health care programs.'

Besides providing compensation to the whistleblower under statutory guidelines, the settlement is designed to reimburse the state's Medi-Cal program and the Attorney General for expenses in investigating and prosecuting false claims actions. The total that will flow to the state is $171 million.

The settlement also requires Quest to report information to assist the state in determining Quest's future compliance with Medi-Cal's pricing rules.

Similar cases are still pending against four other defendants, including Laboratory Corporation of America, commonly known as LabCorp, the second largest medical laboratory service provider in California. Trial is scheduled for early next year.

Also assisting in the case was the Office of the Inspector General of the U.S. Department of Health and Human Services.

Among those in the Attorney General's office who were instrumental in this case: Aviva Burmas, Doug Cantrell, Sharon Crotteau, Vincent DiCarlo, Dennis Fenwick, J. Timothy Fives, Brian Frankel, Alissa Gire, Jennifer Gregory, David Guon, Sharon Harris, Brian Keats, Eileen Landon, Linda McCrackin, Larry Menard, Kelli O'Neill, Susan Park, Kim Reed, Marcy Rodriguez, James Shannon, Annette Silva, Jill Spitz, Tom Temmerman, Claude Vanderwold, Kenneth Vo, Lawrence Wold, Mark Zahner, and Gary Zerbey.

A copy of the original complaint can be found at http://oag.ca.gov/news/press_release?id=1705&y=2009.

To report fraud or abuse, call the Bureau of Medi-Cal Fraud and Elder Abuse hotline at (800) 722-0432.