Convictions for theft by false pretenses and making a false account of public moneys reversed where federal law preempts state prosecution for these offenses. Dillard was the executive director and Daniels was an administrative assistant of the Associated Community Action Program (ACAP), an anti-poverty agency in Alameda County. They obtained a federal Assets for Independence (AFI) grant, meant to establish demonstration projects and to help low income individuals achieve goals such as home ownership. Defendants caused ACAP to use some of the funds for “non-AFI purposes.” In addition to other offenses, they were convicted of grand theft by false pretenses (Pen. Code, § 487, subd. (a)) and making a false account of public moneys (Pen. Code, § 424, subd. (a)(3)), based on representations made to the Department of Health and Human Services (HHS). Defendants appealed, arguing the prosecutions of these offenses were preempted by federal law. Held: Reversed in part. The supremacy clause of the U.S. Constitution makes federal law paramount and vests in Congress the power to preempt state law. After analyzing the AFI legislation and regulations, the Court of Appeal here concluded that obstacle preemption applied. Obstacle preemption requires a showing that Congress had particular objectives in mind, that leaving the state law in place would compromise those objectives, and that it appears unlikely Congress was aware of the “background tapestry” of state law and was content to let it remain in effect. Permitting state prosecutions based on grantees’ representations to HHS with respect to the AFI Act would undermine Congress’ objectives because it would hinder HHS’s ability to fashion appropriate responses if the grantee failed to operate its AFI program in compliance with the Act and its grant. Also, the threat of state criminal prosecution could deter potential grantees from applying for AFI grants.

The full opinion is available on the court’s website here: http://www.courts.ca.gov/opinions/documents/A141998.PDF