United States Ex Rel. Dunleavy v. County of Delaware

Opinions of the United

2002 Decisions States Court of Appeals

for the Third Circuit

1-29-2002

Dunleavy v. County of Delaware

Precedential or Non-Precedential:

Docket 0-3691

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Filed January 29, 2002

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-3691

UNITED STATES OF AMERICA EX REL.

ANTHONY J. DUNLEAVY

v.

COUNTY OF DELAWARE, MARIANNE GRACE,

EXECUTIVE DIRECTOR; THE COUNCIL OF THE COUNTY

OF DELAWARE, WALLACE H. NUNN, CHAIRMAN;

MATTHEW J. HAYES JR. AS ADMINISTRATOR OF THE

ESTATE OF MATTHEW J. HAYES

Anthony J. Dunleavy,

Appellant

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civ. No. 94-cv-07000)

District Judge: Honorable Thomas N. O'Neill, Jr.

Argued December 7, 2001

Before: MANSMANN, ROTH and FUENTES, Circuit Ju dges.

(Filed: January 29, 2002)

Regina D. Poserina, Esquire

(ARGUED)

7415 West Chester Pike

Upper Darby, PA 19082

COUNSEL FOR APPELLANT

Francis X. Crowley, Esquire

(ARGUED)

Elisa Cohen Lacianca, Esquire

Blank, Rome, Comisky & McCauley

1400 North Providence Road

Suite 301

Media, PA 19063

COUNSEL FOR APPELLEES

Stuart E. Schiffer

Acting Assistant Attorney General

Michael L. Levy

United States Attorney

Douglas N. Letter, Esquire

(ARGUED)

United States Department of Justice

Civil Division, Appellate Staff

Room 9106

601 D Street, N.W.

Washington, D.C. 20530

COUNSEL FOR AMICUS-

APPELLANT UNITED STATES OF

AMERICA

Brian Stuart Koukoutchos, Esquire

28 Eagle Trace

Mandeville, LA 70471

James Moorman, Esquire

Amy Wilken, Esquire

Taxpayers Against Fraud,

The False Claims Act Legal Center

1220 19th St., NW, Suite 501

Washington, D.C. 20036

COUNSEL FOR AMICUS CURIAE

TAXPAYERS AGAINST FRAUD,

THE FALSE CLAIMS ACT LEGAL

CENTER

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OPINION OF THE COURT

MANSMANN, Circuit Judge.

The appellant, Anthony J. Dunleavy, was a consultant to

appellee, Delaware County. In this capacity, Dunleavy

advised the County as to the various federal regulatory

requirements concerning certain Housing and Urban

Development funding grants. Dunleavy sued the County

contending that it committed several violations of the False

Claims Act, 31 U.S.C. S 3729, et seq. The District Court

dismissed Dunleavy's Second Amended Complaint, holding

that the County was not amenable to suit under the FCA

due to its mandatory punitive damages scheme. We agree.

Therefore, we will affirm the Order of the District Court.

I.

This appeal requires us to determine whether a local

governmental subdivision can be subject to suit under the

False Claims Act when the Act mandates treble damages.

We must first determine whether the treble damages

mandated by the Act are punitive. If so, we must then

decide whether Congress clearly manifested its intention

under the FCA to abrogate local governmental common law

immunity from punitive damage awards. If it did not, we

must further determine whether a local governmental

subdivision may nevertheless be amenable to suit under

the Act albeit subject to some lesser quantum of damages.

Finally, we note in passing that we agree with the District

Court that an employee of a local governmental unit is not

subject to suit under the Act when the employee does not

personally benefit from the transaction constituting a

violation of the Act; therefore, we conclude that no extended

discussion is necessary with respect to this issue.

II.

In 1976, Delaware County purchased the Penza tract in

a condemnation action using HUD funds. The intended use

of the Penza tract was to expand a pre-existing park. In

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1979, however, the County entered into an agreement with

the Pennsylvania Department of Transportation (Penn DOT)

whereby Penn DOT purchased 26.3 acres of the Penza

tract. Penn DOT made additional purchases from the tract

through the years until its final purchase from the County

in 1988. Penn DOT intended to use the land for highway

construction. After consulting with Dunleavy, the County

decided that it would put the proceeds from the sales of

Penza tract land into an interest-bearing account under the

assumption that if Penn DOT was unable to use its newly

acquired lands for highway construction the County would

repurchase the land. On the other hand, if Penn DOT

completed its highway construction, the County would

return the proceeds from the land sales, plus interest to

HUD. After numerous delays, Penn DOT completed its

highway construction project in 1991.

During the interim, the County occasionally used funds

from the Penza tract account for general County purposes.

Dunleavy contends that this was improper, because, in his

view, the funds in the account were HUD program funds

subject to various reporting requirements with which the

County failed to comply. Further, Dunleavy contends that

once the County knew that it would not be repurchasing

the tract, the County knowingly failed to return the

principal and interest earned on the account to HUD.

Dunleavy's final contention is that the County fraudulently

received additional monies from HUD in fiscal years`92,

`93, `94, and `95 because the County took these monies

knowing that it committed the previously alleged violations

of HUD regulations with respect to Penza Tract funds.

Dunleavy filed this action in 1994 seeking treble damages

as required by the False Claims Act. In 1995, the

Government declined to intervene, concluding that no fraud

had been committed. HUD, however, after a Limited Review

Audit, demanded that the County pay it 1.7 million dollars

plus interest. In 1996, HUD and the County settled the

dispute between them without including Dunleavy in the

settlement process.1

_________________________________________________________________

1. The False Claims Act permits the Government to settle with the

Defendant notwithstanding the objections of the person initiating the

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The District Court dismissed Dunleavy's Second

Amended Complaint for lack of subject matter jurisdiction,

a Judgment that we reversed and remanded to the District

Court. The County then filed motions to dismiss for failure

to state a claim and failure to plead with particularity,

which were denied by the District Court. On May 23, 2000,

the District Court, on its own motion, directed the parties

to brief the question of whether this action should proceed

in light of the United States Supreme Court's decision in

Vermont Agency of Natural Resources v. United States ex rel.

Stevens, 529 U.S. 765 (2000). The District Court concluded

that Dunleavy's claim could not proceed in light of Stevens.

See United States ex rel. Dunleavy v. County of Delaware,

2000 WL 1522854 (E.D.P.A. 2000). This timely appeal

followed.2

We begin our analysis with a brief discussion of the legal

framework controlling the resolution of this appeal.

III.

Unless Congress clearly provides otherwise, a local

governmental entity is immune from punitive damages

awards. See City of Newport v. Fact Concerts, Inc., 453 U.S.

247 (1981) (holding that a municipality was immune from

punitive damages awards under 42 U.S.C. S 1983 because

at common law a municipality was absolutely immune from

punitive damages and in enacting section 1983 Congress

_________________________________________________________________

action if the court determines, after a hearing, that the proposed

settlement is fair, adequate, and reasonable under all the circumstances.

See 31 U.S.C. S 3730(c)(2)(B) (1994). Therefore, in this case, Dunleavy as

relator is prosecuting a qui tam civil action in the name of the Federal

Government after the Government has determined that, in its view, no

fraud has been committed. Accordingly, we do not consider the question

of whether the United States may maintain a suit against a local

government under the FCA.

2. The District Court had jurisdiction under 28 U.S.C. S 1331, and the

appeal was taken in accordance with Rule 4(a), Fed. R. App. P. We have

jurisdiction under 28 U.S.C. S 1291. The questions of law before us are

subject to our plenary review. Bowen v. Monus , 172 F.3d 270, 273 (3d

Cir. 1999).

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did not clearly manifest an intention to abrogate this

common law immunity). Similarly, in Genty v. Resolution

Trust Corp., 937 F.2d 899 (3d Cir. 1991), we held that

municipalities were immune from civil punitive damage

awards under the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C. SS 1961-1968. In reaching our

holding in Genty, we cited Fact Concerts and commented

that in order to subject municipalities to punitive damage

awards, a statute must expressly provide for such an award

against a municipality. See Genty, 937 F.2d at 910.

Furthermore, we noted that the rationale for exempting a

municipal entity from punitive damages awards is firmly

grounded in public policy because "assessing punitive

damages against a public entity serves neither the

retributive nor the deterrent purposes of . . . civil

punishment and contravenes public policy by punishing

the taxpayers and citizens who constitute the very persons

who `are to benefit from the public example which the

granting of such damages is supposed to make of the

wrongdoer.' " Id. at 910 (citation omitted). Simply stated, we

concluded that a local government is presumptively

immune from the imposition of punitive damages unless

the statutory scheme which creates liability clearly

indicates that Congress intended to abrogate the well-

settled notion of local governmental common law immunity

from punitive damages. See also Doe v. County of Centre,

242 F.3d 437, 456 (3d Cir. 2001) (holding that overcoming

common law immunity requires a clear expression of

congressional intent).

We now turn to the threshold question on this appeal:

whether the damages imposed by the Act are punitive. If

the damages are properly characterized as punitive, we

must next determine whether Congress expressly intended

to abrogate local governmental immunity under the FCA.

For the reasons that follow, we believe that the mandatory

treble damages imposed by the Act are punitive and that

Congress did not expressly abrogate local governmental

immunity under the FCA.

A.

When first enacted in 1863, the FCA provided for suits to

be brought in the name of the Government by private

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individuals in a qui tam (in the name of the King) action.

The Act imposes liability on any person who knowingly

presents a false claim to the Federal Government for

payment. 31 U.S.C. S 3729(a) (1994). The current version of

the Act imposes a civil penalty between five and ten

thousand dollars per false claim plus three times the

amount of damages which the Government sustains. 31

U.S.C. S 3729(a) (1994). Recently, in Vermont Agency of

Natural Resources v. United States ex rel. Stevens , 529 U.S.

765 (2000), the United States Supreme Court examined the

issue of whether a State or State agency is a "person" for

purposes of the Act. In reaching its conclusion that a State

is not within the meaning of "person" as used in the Act

and therefore not amenable to suit under the Act by a qui

tam realtor, the Court held that the Act imposes treble

damages that are "punitive in nature." Id. at 784. Thus, the

Court has answered the first prong of our inquiry: the

FCA's treble damages provision is punitive. Accord United

States ex rel. Garibaldi v. Orleans Parish Sch. Bd. , 244 F.3d

486, 491 n.5 (5th Cir. 2001) ("The treble damages imposed

by the False Claims Act are punitive damages.") (citing

Stevens, 529 U.S. at 784).

Nonetheless, Dunleavy contends that the Supreme

Court's characterization of the Act's damages provision is

obiter dictum. We do not agree. The Stevens majority stated

that "[s]everal features of the current statutory scheme

further support the conclusion that States are not subject

to qui tam liability," and that one of those features is that

"the current version of the FCA imposes damages that are

essentially punitive in nature." Stevens, at 783, 784.

Clearly, the Court relied on the Act's treble damages

scheme in reaching its holding and thus its declaration that

the damages scheme is punitive is not dictum. We therefore

agree with the Garibaldi court and conclude that the treble

damages mandated by the FCA are punitive. See also

Genty, 937 F.2d at 914 (holding that the mandatory treble

damages scheme of civil RICO statute is punitive in

character).

B.

We turn to the second prong of our inquiry: Did Congress

express a clear indication to abrogate local governmental

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immunity under the FCA? We note here that the parties'

arguments focus on whether the term "person" as used in

the Act encompasses local governments. This argument is

simply the other side of the coin with respect to the

question before us, namely whether Congress clearly

abrogated local governmental immunity under the FCA. If

Congress clearly expressed its intention to encompass local

governments within the ambit of FCA liability as a"person,"

then it must also have intended to abrogate the common

law immunity of local governments against punitive

damages under the FCA. In our view, consistent with our

reasoning in Genty, the question is whether Congress

intended to disturb local governmental immunity from

punitive damages by subjecting local governments to FCA

suits. See Genty, 937 F.2d at 914 (noting that the RICO

statute expresses no specific intention that municipalities

be liable for treble damages); see also Will v. Michigan Dep't

of State Police, 491 U.S. 58, 67 (1989) (holding that

Congress did not intend to override well-established

common law immunities in passing civil rights act).

Dunleavy's assertions that Congress intended to subject

municipalities to the FCA's coverage are unpersuasive in

light of the fact that the statute offers no clear indication

that Congress intended to abrogate local governmental

immunity from punitive damages. Indeed, the relevant

portion of the Act does not even define the term"person."

In Genty, we observed that the civil RICO Act defined the

word "person" as "any individual or entity capable of

holding a legal or beneficial interest in property." Genty,

937 F.2d at 907 (quoting 18 U.S.C. S 1961(3)). Clearly, this

definition of the term "person" is a broad one. Yet we

nevertheless found that despite this broad definition of the

term "person", Congress did not clearly abrogate local

governmental immunity from punitive damages in the

context of civil RICO. Moreover, we observed that had

Congress intended to subject local governments to punitive

damages under RICO, it could have easily so stated, as it

has done in other statutes imposing civil liability on local

governments. See Genty, 937 F.2d at 914 (citing 15 U.S.C.

S 77b(2)) (noting that Congress specifically provided for

subjecting local governments to civil damage awards under

the securities laws). Other statutes specifically define the

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term "person" to include local governments or

municipalities, such as the Clean Water Act, 33 U.S.C.

S 1362(5); the Resource Conservation and Recovery Act, 42

U.S.C. S 6903(15); the Wild Bird Conservation Act of 1992,

16 U.S.C. S 4903(4); and the Oil Pollution Act of 1990, 33

U.S.C. S 2701(27). Our Genty analysis is equally applicable

here. We find nothing on the face of the relevant portions

of the FCA as originally enacted in 1863 or in its current

form which evidences a clear indication on the part of

Congress to subject local governments to punitive damages

under the Act. The Act is utterly devoid of any specific

intention to subject local governments to its strictures. This

lack of clarity in the text of the Act is insufficient indicia of

congressional intent to abrogate local governmental

immunity from punitive damages under the FCA.

Dunleavy and amicus Taxpayers Against Fraud (False

Claims Act Legal Center) argue that the original drafters'

intent is immaterial to a determination of Congress' intent

to subject local governmental subdivisions to liability under

the FCA. He contends the intent of the Congress that

enacted the treble damages scheme should control whether

or not Congress intended to subject local governments to

the FCA. His argument is premised on the notion that if in

1863, Congress intended to encompass local governments

within the meaning of the term "person" under the FCA, the

subsequent amendment in 1986 to provide treble damages

under the FCA is evidence of Congress' intent to subject

local governments to punitive damages.

Even if we were persuaded that the intent of the 1986

Congress amending the Act controlled the resolution of this

matter, Dunleavy's argument must fail. The 1986

amendments added nothing to the meaning of the term

"person" that remotely approaches a clear expression of

Congress' intent to abrogate local governmental immunity.

See Stevens, 529 U.S. at 783 n.12 (observing that the term

"person" in the FCA has not been altered since the FCA's

initial passage in 1863). Moreover, in Genty, we found that

Congress' imposition of treble damages in the RICO statute

evinced its intent to exclude local governments from the

civil RICO statute's coverage. See Genty, 937 F.2d at 914

(Courts will not interpret statutes to overturn well-

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established common law principles unless Congress so

authorizes"); County of Centre, 242 F.3d at 456 (3d Cir.

2001) (noting that Newport instructs us to assume that

Congress intended to retain common law immunity absent

a clear expression of congressional intent to the contrary).

As a result, we cannot say that the imposition of the

current treble damages scheme in and of itself evidences

Congress' clear intent to abrogate common law immunity

and subject local governments to punitive damages awards.

We conclude that Congress' imposition of treble damages is

powerful evidence that Congress did not intend to subject

local governments to punitive damages under the FCA.

Accord Garibaldi, 244 F.3d at 493 (stating that the punitive

damages regime of the FCA reflects Congress' intent to

exclude local governments from liability under the FCA).

Second, Dunleavy points to the legislative history of the

1986 amendments to support his theory that Congress

intended to subject local governments to suit under the

FCA by qui tam relators. We reiterate that even if we

believed that the intent of the 1986 Congress controlled our

determination, a question we do not decide here,

Dunleavy's argument cannot pass muster in light of the

Stevens Court's express rejection of the pertinent 1986

legislative history as erroneous and of questionable value.

See Stevens, 529 U.S. at 783 n.12 (noting that the

legislative history contained the Senate's erroneous

understanding of the meaning of the term "person" as used

in the Act). At best, after considering the text of the statute

and its legislative history, we find only ambiguity as to

whether Congress intended to disturb the well-settled

doctrine of local governmental immunity from punitive

damages under the FCA. Ambiguity, however, is not enough

for Dunleavy to carry the day. There is simply nothing in

the FCA's text remotely manifesting a clear expression of

Congress' intent to abrogate local governmental immunity

against punitive damages under the Act. As a result, we

hold that Congress did not intend to disturb local

governmental immunity from punitive damages under the

FCA by clearly including local governments within the

meaning of the term "person." It necessarily follows that the

County is immune from claims under the FCA by a qui tam

relator due to the mandatory nature of the treble damages

10

provision. See Genty, 937 F.2d at 911-12 (treble damages

awards under RICO are mandatory and therefore

municipalities may not be liable under RICO if those

damages are punitive).

C.

Dunleavy and the United States, as amicus, invite us to

subject the County to "some liability", however, by reading

into the statute an exception to the mandatory treble

damages scheme. In essence, Dunleavy and the United

States argue that we should reduce any treble damages

award against a local government to a level that would be

deemed compensatory rather than punitive. We decline to

create such an exception under the FCA, just as we

declined in Genty with the RICO statute. Genty, 937 F.2d at

914. The FCA provides for mandatory treble damages

subject to a narrow exception that is not applicable to the

case sub judice. See 31 U.S.C. S 3729(a) (providing a

reduction from treble damages to double damages when a

defendant supplies information concerning the violation

prior to their knowledge of governmental investigation). As

a result, creating an exception for local governments from

the existing damages scheme would require us to rewrite

the FCA. Of course, while Congress is free to do this if it

chooses, such redrafting is outside the traditional province

of the courts. Accord Garibaldi, 244 F.3d at 493. Therefore,

we will not disturb the existing statutory damages

provisions by reading into the Act an exception from treble

damages for local governments. The result, in the end, is

that a local government such as Delaware County cannot

be subject to liability under the FCA in a qui tam action.

IV.

We conclude that the mandatory treble damages scheme

imposed by the FCA is punitive and that local governments

are exempt from FCA damages because Congress did not

clearly express its intention under the Act to abrogate local

governmental common law immunity against punitive

damages. As a result, since the FCA does not, as written,

permit a court to reduce treble damages awards, we

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conclude that a local government cannot be subject to suit

by a qui tam relator under the Act. For all these reasons,

we will affirm the Order of the District Court dismissing

Dunleavy's Second Amended Complaint.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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