The Colorado Court of Appeals has ruled that municipalities, such as the Town of Palmer Lake, cannot be held liable under the Colorado False Claims Act (CFCA). This decision, announced on October 29, 2026, affects how fraud claims can be pursued against local governments in Colorado. The ruling is significant as it clarifies the definition of a "person" under the CFCA, which was enacted in 2022 to combat fraud against the state.

The case, Moseley v. Town of Palmer Lake (Docket No. 25CA2019), involved plaintiffs Roger Moseley and Martha Brodzik, who acted as relators on behalf of the State of Colorado. They alleged that the Town of Palmer Lake submitted false claims to obtain public funds, which were then misappropriated. The court's decision means that municipalities are not considered "persons" under the CFCA, thereby dismissing the plaintiffs' claims.

The Colorado False Claims Act allows private individuals, known as relators, to file lawsuits on behalf of the state against those who commit fraud. The law defines a "person" as including individuals and various types of legal entities, but the court determined that this definition does not extend to municipalities. This ruling is the first of its kind regarding the CFCA and municipalities in Colorado.

The dispute arose when Moseley and Brodzik filed their complaint, claiming that the Town had knowingly submitted false claims to the state and federal governments. They argued that the Town received grants but failed to allocate the funds appropriately. In response, the Town moved to dismiss the claim, asserting that it was not liable under the CFCA.

The district court agreed with the Town, ruling that municipalities are exempt from liability under the CFCA. The court also noted that the plaintiffs' claims were barred by the Colorado Governmental Immunity Act (CGIA), which protects government entities from certain lawsuits. The plaintiffs appealed the dismissal, leading to this ruling by the Colorado Court of Appeals.

The court examined the language of the CFCA and determined that the General Assembly intended to exclude municipalities from the definition of "person." The opinion stated, "By specifying 'other nongovernmental legal entity,' the General Assembly intended to exclude governmental entities from the definition of 'person.'" The ruling was delivered by Judge Johnson, with Judges Fox and Yun concurring.

This decision has implications for future fraud claims against municipalities in Colorado. It establishes a precedent that municipalities cannot be held liable under the CFCA, which may limit the ability of relators to pursue claims against local governments for alleged fraud. The ruling reinforces the notion that municipalities are considered governmental entities rather than private legal entities.

As a result of this ruling, individuals who believe they have been defrauded by a municipality may need to seek other legal avenues, as the CFCA will not apply. This could lead to a reevaluation of how fraud cases against municipalities are approached in Colorado.

Looking ahead, the plaintiffs may consider appealing this decision to a higher court, although the opinion did not specify any immediate plans for further legal action. The outcome of this case may influence similar cases in the future, as it clarifies the legal landscape regarding municipal liability under the CFCA.

In conclusion, the Colorado Court of Appeals has affirmed the district court's ruling, solidifying the understanding that municipalities are not subject to liability under the Colorado False Claims Act. This ruling could significantly impact how fraud claims are handled against local governments in Colorado.