9th Circuit’s Office Depot Decision Shows CFCA Does Not Require Proof of Intent to Defraud

On Behalf of | June 5, 2018 | Whistleblower Law

The old adage that “the penny matchmaker is a millionaire today” applies to the False Claims Act case I filed on behalf of David Sherwin against Office Depot in 2009.  Mr. Sherwin was an Office Depot Account Representative who was responsible for responding to the needs of Office Depot’s municipal, county, and state government clients around the country. These entities’ contract provided that product prices would only change twice a year, on January 1st and June 1st.  One of Mr. Sherwin’s government customers noted that the price of several products had increased by a few cents outside of the two contractually approved yearly time periods. Mr. Sherwin investigated his customer’s allegations and discovered that despite the contract provisions, Office Depot was increasing the prices for office products by very small amounts – pennies –  in violation of the contract. Eventually, David Sherwin’s False Claims Act case was settled for $77.5 million in January 2015. Thus, the reference to the “penny matchmaker”. A few pennies at a time, Office Depot violated the False Claims Act by failing to honor its contracts with various government entities.

Despite the $77.5 million settlement, one aspect of Sherwin’s saga with Office Depot continues.  As reported by Law 360 on May 21, 2018, the 9th Circuit reversed the district court’s decision to accept AIG’s denial of coverage for Office Depot’s litigation defense costs. The 9th Circuit held that the California False Claims Act (“CFCA”) does not require proof of a specific intent to defraud and therefore successful claims under the CFCA are not necessarily tantamount to “willful acts” under Section 533 of California’s Insurance Code. Accordingly, the 9th Circuit found that AIG had not yet met its burden to show that “the CFCA claims against Office Depot are uninsurable as a matter of law” and remanded the case to further weigh the facts surrounding this and other exclusionary provisions.