Amicus Curiae Brief — Vermont Agency of Natural Resources v. United States Ex Rel. Stevens

No. 98-1828 : Supreme Court, U.&

~

IN THE

? JUN 10 1999

Supreme Court of the United States

CLERK

October Term, 1998

STATE OF VERMONT AGENCY OF

NATURAL RESOURCES,

Petitioner,

Vv.

UNITED STATES OF AMERICAN EX REL.

JONATHAN STEVENS,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF AMICI CURIAE STATES OF NEW YORK, ALABAMA, ALASKA,

ARIZONA, ARKANSAS, CALIFORNIA, COLORADO, CONNECTICUT,

DELAWARE, FLORIDA, GEORGIA, HAWAII, IDAHO, ILLINOIS, INDIANA,

IOWA, KANSAS, LOUISIANA, MARYLAND, MICHIGAN, MISSOURI,

MONTANA, NEBRASKA, NEVADA, NEW HAMPSHIRE, NORTH CAROLINA,

NORTH DAKOTA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, SOUTH

DAKOTA, TENNESSEE, TEXAS, UTAH, WASHINGTON, WEST VIRGINIA

and WYOMING IN SUPPORT OF PETITIONER

ELIOT SPITZER

Attorney General of the

State of New York

Attorney for Amicus Curiae

State of New York

The Capitol

PREETA D. BANSAI Albany, NY 12224

Solicitor General and (518) 473-6857

Counsel of Record

PETER H. SCHIFF Dated: June 10, 1999

Deputy Solicitor General

HOWARD L. ZWICKEL

Assistant Attorney General

Of Counsel

(Additional Counsel Listed on Inside Cover)

Printed on Recycled Paper

2 \ ee

BILL PRYOR

Attorney General

State of Alabama

Alabama State House

11 South Union Street

Montgomery, AL 36130

(334) 242-7406

BRUCE M. BOTELHO

Attorney General

State of Alaska

Post Offices Box 110300

Diamond Courthouse

Juneau, AK 99811-0300

(907) 465-2133

JANET NAPOLITANO

Attorney General

State of Arizona

1275 West Washington

Phoenix, AZ 85007-2926

(602) 542-8304

MARK PRYOR

Attorney General

State of Arkansas

323 Center Street, Suite 200

Little Rock, AR 72201-2610

(501) 682-3638

BILL LOCKYER

Attorney General

State of California

1300 "I" Street

Sacramento, CA 95814

(916) 323-7355

KEN SALAZAR

Attorney General

State of Colorado

1525 Sherman Street, 7th Floor

Denver, CO 80203

(303) 866-5856

RICHARD BLUMENTHAL

Attorney General

State of Connecticut

55 Elm Street

Hartford, CT 06106-1774

(860) 808-5318

M. JANE BRADY

Attorney General

State of Delaware

of Justice

820 N. French Street

Wilmington, DE 19801

(302) 577-8308

ROBERT A. BUTTERWORTH

Attorney General

State of Florida

The Capitol, PL-O1

Tallahassee, FL 32399-1050

(850) 488-4872

THURBERT E. BAKER

Attorney General

State of Georgia

40 Capitol Square, S.W.

Atlanta, GA 30334-1300

(404) 656-3347

THOMAS R. KELLER

Acting Attorney General

State of Hawaii

425 Queen Street

Honolulu, HI 96813

(808) 586-1387

ALAN G. LANCE

Attorney General

State of Idaho

P.O. Box 83720

Boise, ID 83720-0010

(208) 334-2400

JAMES E. RYAN

Attorney General

State of Illinois

100 West Randolph Street

Chicago, IL 60601

(312) 814-3698

JEFFREY A. MODISETT

Attorney General

State of Indiana

219 Statehouse

Indianapolis, IN 46204

(317) 232-6255

(Names of Counsel Continued)

THOMAS J. MILLER

Attorney General

State of lowa

Hoover State Office Building

Des Moines, LA 50319

(S15) 281-3349

CARLA J. STOVALL

Attorney General

State of Kansas

Judicial Building

S.W. Tenth Avenue

Topeka, KS 66612-1597

(785) 296-2215

RICHARD P. IEYOUB

Attorney General

State of Louisiana

Department of Justice

Post Office Box 94095

Baton Rouge, LA 70804-9095

(225) 342-1168

J. JOSEPH CURRAN, JR.

Attorney General

State of Maryland

200 St. Paul Place

Baltimore, MD 21202-2202

(410) 576-6345

JENNIFER M. GRANHOLM

Attorney General

State of Michigan

P.O. Box 30212

Lansing, MI 48909

(517) 373-1124

JEREMIAH W. (JAY) NIXON

Attorney General

State of Missouri

Supreme Court Building

P.O. Box 899

Jefferson City, MO 65102

(573) 781-3321

JOSEPH P. MAZUREK

Attorney General

State of Montana

Justice Building

P.O. Box 201401

Helena, MT 59620-1401

(406) 444-2026

(Names of Counsel Continued )

ES

DON STENBERG

Attorney General

State of Nebraska

2115 State Capitol

Lincoln, NE 68509

(402) 471-2682

FRANKIE SUE DeL PAPA

Attorney General

State of Nevada

100 North Carson

Carson City, NV 89710-4717

(775) 684-1115

PHitip T. MCLAUGHLIN

Attorney General

State of New Hampshire

33 Capitol Street

Concord, NH 03301

(603) 271-3655

MICHAEL F. EASLEY

Attorney General

State of North Carolina

Department of Justice

P.O. Box 629

Raleigh, NC 27602-0629

(919) 716-6400

HeIpi HEIrTKAMP

Attorney General

State of North Dakota

600 E. Boulevard Avenue

Bismarck, ND 58505-0040

(701) 328-3640

Betry D. MONTGOMERY

Attorney General

State of Ohio

State Office Tower

30 East Broad Street, 17th Floor

Columbus, OH 43215

(614) 466-8980

W.A. DREW EDMONDSON

Attorney General

State of Oklahoma

2300 N. Lincoln Boulevard

Suite 112

Oklahoma City, OK 73105-4894

(405) 522-3085

HARDY MYERS

Attorney General

State of Oregon

Justice Building

1162 Court Street NE

Salem, OR 97310

(503) 378-4402

MIKE FISHER

Attorney General

State of Pennsylvania

Strawberry Square, 15th Floor

Harrisburg, PA 17120

(717) 783-6709

MARK BARNETT

Attorney General

State of South Dakota

500 East Capitol Avenue

Pierre, SD 57501-5070

(605) 773-3215

PauL G. SUMMERS

Attorney General

State of Tennessee

500 Charlotte Avenue

Nashville, TN 37243

(615) 741-3491

JOHN CORNYN

Attorney General

State of Texas

Capitol Station

Post Office Box 12548

Austin, TX 78711-2548

(512) 936-1894

JAN GRAHAM

Attorney General

State of Utah

236 State Capitol

Salt Lake City, UT 84114

(801) 538-9600

CHRISTINE O. GREGOIRE

Attorney General

State of Washington

P.O. Box 40100

1125 Washington Street, SE

Olympia, WA 98504-0100

(360) 753-6245

DARRELL V. MCGRAW, JR.

Attorney General

State of West Virginia

State Capitol

Room 26-E

Charleston, WV 25305

(304) 558-2021

GAY WOODHOUSE

Attorney General

State of Wyoming

State Capitol Building, #123

WY 82002

(307) 777-7841

THE REPORTER COMPANY, Printers and Publishers, Inc.

181 Delaware Street, Walton, NY 13856—800-252-7181

Printed on Recycled Paper

(1558 — 1999)

TABLE OF CONTENTS

Statement of Amici Interest ....................

eas sees bes oescdcvess

ARGUMENT

This Court should grant review of Vermont's

petition in order to resolve the conflict in

the circuits and decide the important issues

of federalism presented by the petition ..........

ne etece

EE

3. The Legislative History of the

LE

C. The Issues Are of Fundamental Importance

ee oe

EES EE

*_**e © *

i

TABLE OF AUTHORITIES

Page

Cases

Blatchford v. Native Village of Noatak, 5O0\ U.S. 775

CRRSED sd evedd hve byesnes pushes teeeueeeenarea 14

Dellmuth v. Muth, 492 U.S. 223 (1989)... ee 8

Gregory v. Ashcroft, 501 U.S. 452 (1991) 2.2... eee ee eee 8

Hilton v. South Carolina Public Railways Com'n, 502 U.S.

PEGS ED occ bevisedevonomsedduiedentasnesnese 8

Hughes Aircraft Company v. United States ex rel.

Schumer, 520 U.S. 939 (1997)... 2... ce ee ee ecess 4,14

Pennhurst State School and Hospital v. Halderman,

Gon Ws DCEO 0 oWaddcdcacecscanpeneedveb nent 8

Seminole Tribe of Florida v. Florida, 517 U.S. 44

COED i vcca od dd eusecdchaeetsentatstneaiddens 12

United States ex rel. Berge v. Board of Trustees of

the University of Alabama, 104 F.3d 1453 (4th Cir.),

cert. denied, _ U.S. ___, 118 S. Ct. 301 (1997) ..... 13

United States ex rel. Foulds v. Texas Tech Univ., 171 F.

Be ee Cea Bee cs nob acd cbtevoewnss 2, 3, 6, 14

United States ex rel. Graber v. City of New York, 8 F.

Supp.2d 343 (S.D.N.Y. 1998), overruled by United

States ex rel. Stevens v. State of Vermont Agency of

Natural Resources, 162 F.3d 195 (2d Cir. 1998) ...... 12

United States ex rel. Killingsworth v. Northrop Corp.,

BP Oe FOS GG BOD wc seka ciccccwsscccceas 13

United States ex rel. Long v. SCS Business & Technical

Institute, Inc., 173 F.3d 870, 1999 WL 178713

(D.C. Cir. April 2, 1999), opinion supplemented,

1999 WL 252644 (D.C. Cir. April 30, 1999) ..... passim

United States ex rel. Milam v. University of Tex. M.D.

Anderson Cancer Ctr., 961 F.2d 46 (4th Cir. 1992) .... 13

United States ex rel. Rodgers v. State of Arkansas, 154

F.3d 865 (8th Cir. 1998), pet. for cert. pend’g,

SD’ crane babe Ge rteaccaeslaiooeiee 2, 6, 15

United States ex rel. Stevens v. State of Vermont

Agency of Natural Resources, 162 F.3d 195

GRP ibd 6 ben cenieepaddan brome 2, 5, 12, 15

United States ex rel. Zissler v. Regents of the

University of Minnesota, 154 F.3d 865 (8th Cir.

SOE ccound vigusdlisvitseies sd ocewease 2, 6,9, 13

United States v. Bass, 404 U.S. 336 (1971) «2... 66... 8,9

United States v. Bornstein, 423 U.S. 303 (1976) ........ 10

United States v. Hess, 317 U.S. 537 (1943) ............ 10

Will v. Michigan Dept. of State Police, 491 U.S. 58

OUD Wi Cennepe seins the dicddsi¥aebiasaweses 7,8

Wilson v. Omaha Indian Tribe, 442 U.S. 653 (1978) ...... 7

Te e.g n T eee

IV v

United States Constitution False Claims Amendments Act of 1986, Pub. L.

No. 99-562, 100 Stat. 3153 (1986) ................ 11

ROE ¢ 6.5 Kelowna d daleb Wow 0k 646 wkd ck bee eee 12

H.R. Rep. No. 99-660, 99th Cong. 2d Sess. (1986) ...... 11

Eleventh Amendment .................-. 2, 6, 12, 14, 15

H.R. Rep. No. 2, 37th Cong., 2d Sess. (1862) .......... 11

Federal Statutes

1986 U.S. Code Cong. & Adm. News 5266............ 12

PURE CIN i RE Hi RR 4

S. Rep. No. 99-345, 99th Cong. 2d Sess. (1986) ........ 12

a NE res Pes Pop my 11,13

ny woe de Gk > sien s ow ces es Oe ede caw 8, 13

SE 2 isk xs dank c's G45 05 Conese 13, 14

DD bod Urea cal owemeed peeeeeee 13

a a ie ee 13

a os ea ee Cat asaees pee dt baie 14

i oe uns ob anowd ches Cats G6 aks teen 14

DD <.. xd bun'whne 6 cUasuudk thane eee 11

Te Ce bees eicdaced chien doe cteansee wanes 4

SB CD ck citvc acted Chwedsceesacndecusuwaue 4

Miscellaneous

Act of March 2, 1863, § 3, 37th Cong., Chap. 67, 12 Stat.

GO Si cdcas.ck edb cccek ab bone eae ew ee 10, 13

Act of Sept. 13, 1982, Pub. L. 97-258, 96 Stat. 877 ..... 11

Bureau of the Census, U.S. Department of Commerce,

Publication FES/97, Federal Expenditures by State

for Fiscal Year 1997 (April 1998) .................- 3

62 Cong. Globe, 37th Cong. 3d Sess .............. 10, 11

No. 98-1828

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1998

STATE GF VERMONT AGENCY OF

NATURAL RESOURCES,

Petitioner,

v.

UNITED STATES OF AMERICA EX REL.

JONATHAN STEVENS,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF OF AMICI CURIAE STATES OF NEW YORK, ALABAMA,

ALASKA, ARIZONA, ARKANSAS, CALIFORNIA, COLORADO,

CONNECTICUT, DELAWARE, FLORIDA, GEORGIA, HAWAII,

IDAHO, ILLINOIS, INDIANA, IOWA, KANSAS, LOUISIANA,

MARYLAND, MICHIGAN, MISSOURI, MONTANA, NEBRASKA,

NEVADA, NEW HAMPSHIRE, NORTH CAROLINA, NORTH

DAKOTA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA,

SOUTH DAKOTA, TENNESSEE, TEXAS, UTAH, WASHINGTON,

WEST VIRGINIA and WYOMING IN SUPPORT OF PETITIONER

2

STATEMENT OF AMICI INTEREST

The States of New York, Alabama, Alaska, Arizona,

Arkansas, California, Colorado, Connecticut, Delaware, Florida,

Georgia, Hawaii, Idaho, Illinois, Indiana, lowa, Kansas,

Louisiana, Maryland, Michigan, Missouri, Montana, Nebraska,

Nevada, New Hampshire, North ‘ ‘aroiina, North Dakota, Ohio,

Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee,

Texas, Utah, Washington, West Virginia and Wyoming urge this

Court to grant certiorari in this case involving two important

questions affecting the liability of States under the federal False

Claims Act ("FCA"). At issue in this case is, first, whether a

State is a "person" who may be sued by private citizens or by the

United States under the FCA and, second, whether a private

person may sue a State under the FCA in order to reap a

financial reward for himself and to recover money for the United

States despite the bar of the Eleventh Amendment to the U.S.

Constitution.

Both issues have been the subject of recent conflicting

determinations by the United States Courts of Appeals. Com-

pare United States ex rel. Long v. SCS Business & Technical

Institute, Inc., 173 F.3d 870, 1999 WL 178713 (D.C. Cir. April

2, 1999), opn. supplemented, 1999 WL 252644 (D.C. Cir. April

30, 1999) (State is not a "person" under the FCA); United

States ex rel. Foulds v. Texas Tech Univ., 171 F.3d 279 (Sth Cir.

1999) (Eleventh Amendment bars suits by private citizens

against States), with United States ex rel. Stevens v. State of

Vermont Agency of Natural Resources, 162 F.3d 195, 203 (2d

Cir. 1998), per. for cert. pend'g, No. 98-1828 (May 11, 1999)

(State is a "person" under the FCA and Eleventh Amendment is

not a bar); U.S. ex rel. Zissler v. Regents of the University of

Minnesota, 154 F.3d 865, 874 (8th Cir. 1998) (State is a

“person” under the FCA); United States ex rel. Rodgers v.

Arkansas, 154 F.3d 865 (8th Cir. 1998) (Eleventh Amendment

3

is not a bar to FCA lawsuit), pet. for cert. pend'g, No. 98-1664

(April 14, 1999),

This case affords the Court the opportunity to review both

issues. Amici States accordingly urge this Court to grant

Vermont's petition and thereby to resolve both matters affecting

the States’ liability under the FCA.

The decision below undermines the amici States’ interests and

upsets the federalist balance in two important ways. First, its

holding that States are "persons" subject to suit under the FCA

exposes the States to very significant financial liability. States

receive substantial federal dollars under a vast array of federal

social welfare, education, environmental, transportation and

other programs where they perform regulatory and police power

functions. Federal grants to State and local governments doubled

from $115 billion in 1988 to $230 billion in 1997. See Bureau of

the Census, U.S. Department of Commerce, Publication FES/97,

Federal Expenditures by State for Fiscal Year 1997 at 46, Table

11 (April 1998). Under these federal grant programs, States

agree to comply with certain federal requirements, including the

responsibility to repay federal dollars that are overpaid to the

State in error.

The FCA exposes States to penalties than can amount to

hundreds of millions of dollars. Pursuant to most federal aid

programs, States file thousands of claims and numerous reports

each year with federal agencies. Because a single policy or

reporting practice that is found to be wrongful could taint each

and every claim filed, and because there is a six-year statute of

limitations under the FCA, there is a potential for enormous

damages in FCA lawsuits against States. For example, in

Foulds, the plaintiff alleged that staff physicians at Texas Tech

Health Sciences Center routinely signed patient charts and

Medicare/Medicaid billing forms certifying that they personally

performed or supervised the performance of treatment for

4

patients when in fact the patients were allegedly seen only by

residents. The gui tam relator alleged that based upon this

wrongful practice, the State defendant submitted over 400,000

false claims and received over $20 million in overpayments. 171

F.3d at 282 & n. 2. Because each false claim could result in a

penalty of up to $10,000, the State's liability in that case could

amount to hundreds of millions, or even billions, of dollars. These

potentially large financial judgments against States could have

disastrous effects on a State's treasury. '

Second, the opinion below would allow private citizens to sue

States on their own behalf and on behalf of the United States. In

the vast majority of cases, the United States remains on the

sidelines and allows the gui tam relator to commence and

prosecute the FCA lawsuit on his or her own. Because the

private party is seeking only to reap a financial reward, the qui

tam relator is usually prepared to pursue the litigation to final

judgment or settlement without any concern for the disruption

that burdensome discovery and a trial will have on the States’

administration of these complex federal programs. More

importantly, because the relator’s only interest is financial, States

lose a meaningful opportunity to resolve the underlying lawsuit

through negotiation or through the political process, even if such

a resolution would be in the public interest.

As this Court recognized in Hughes Aircraft Company v.

United States ex rel. Schumer, 520 U.S. 939, 949 (1997), "[a]s

' A finding that the FCA cannot be applied to the States does not leave

the United States without viable remedies. Most federal programs contain

provisions requiring States to repay monies improperly received. See, e.g..,

7 U.S.C. § 2020(g)(Food Stamps); 42 U.S.C. § 604 (Aid to Families With

Dependent Children); § 1396(c)(Medicaid). If existing administrative

remedies are inadequate to ensure the recovery of money erroneously or

wrongfully obtained by the States, those mechanisms should be improved.

The States should not be subjected to the punitive sanctions of the FCA

through a rewriting of that statute.

5

a Class of plaintiffs, gui tam relators are different in kind than the

Government. They are motivated primarily by prospects of

monetary reward rather than the public good." Because relators

sue only for their own pecuniary gain, they do not share the

federal government's broader interest in the public welfare.

Consequently, FCA qui tam litigation causes State officials to

devote time and resources to defending their actions in discovery

and at trial. Even if it would be appropriate to attempt to resolve

the dispute through negotiation or the political processes, States

are impeded in their ability to do so where the lawsuit is being

prosecuted by a private citizen with his own personal financial

interest at stake.

In his dissenting opinion in the Second Circuit, Judge

Weinstein eloquently expressed the enormous burden that a suit

by a qui tam relator places on the States’ ability to implement

these major federal programs in partnership with the United

States. He explained that "[a]pplication of the FCA's gui tam

provisions to the States interferes with the political process in

ways which seriously undermine the position of the States vis-a-

vis the federal government." Stevens, 162 F.3d at 219

(Weinstein, J. dissenting).

Counsel for the relator in Long, for example, sought and

obtained the production of voluminous documents, including

documents that pertain to the internal decisionmaking processes

of the New York State Education Department. He also noticed

numerous depositions of current or former State employees in

his ongoing effort to probe the internal processes of State

government. Because FCA litigation is very disruptive, and a

resolution through negotiation becomes extremely difficult given

the relator's narrow focus, FCA qui tam lawsuits interfere with

the efficient administration of important state administered

regulatory programs.

6

SUMMARY OF ARGUMENT

The Courts of Appeals are squarely divided over the two

issues raised in Vermont's petition. A resolution of the "person"

issue will resolve the express and deep-seated conflict between

the Second Circuit's decision below (which is in accord with the

Eighth Circuit's decision in Rodgers) and the recent decision by

the District of Columbia Circuit in Long. A determination of the

Eleventh Amendment issue will resolve the express conflict

between the Second Circuit's decision (which is in accord with

the Eighth Circuit's decision in Zissler as well as earlier decisions

by the Fourth and Ninth Circuits) and the recent decision by the

Fifth Circuit in Foulds.

The conflicts among the Courts of Appeals reflect a basic

disagreement over fundamental principles that underlie federalism.

The core principles at issue on the "person" question involve the

“ordinary rule of statutory construction" that a State is not

usually considered a "person" where liability is imposed, and the

“plain statement" rule which requires a clear statement of State

inclusion whenever Congress enacts legislation that could alter

the federal balance of power. A central principle at issue on the

Eleventh Amendment question is that States have an Eleventh

Amendment immunity to suit from private citizens, even when

the private party is designated to sue on behalf of the United

States as well as on his or her own behalf.

The amici States note that the United States acquiesces in

grant of this petition. Because this case presents for review both

related FCA issues upon which the Courts of Appeals are

divided, it is an appropriate vehicle by which this Court may

resolve the underlying issues involving important matters of

federalism that affect the States’ relations with the federal

government. A resolution by this Court is essential.

:

ARGUMENT

THIS COURT SHOULD GRANT REVIEW OF

VERMONT'S PETITION IN ORDER TO RESOLVE THE

CONFLICT IN THE CIRCUITS AND DECIDE THE

IMPORTANT ISSUES OF FEDERALISM PRESENTED BY

THE PETITION.

The conflicts among the Courts of Appeals with respect to the

application of the FCA to the States reveal two dramatically

competing views of the FCA. In the States’ view, the decision of

the Second Circuit majority, which essentially adopted the

position of the United States and the relator, undermines

federalism and seriously distorts this Court's rulings. If left

undisturbed, the Second Circuit's decision would expose States

to FCA liability that was never envisioned by the Congress that

enacted the FCA in 1863.

A. The Person Issue

Under this Court's precedents, two principles that underlie

federalism must be used in determining that States are not

“persons” under the FCA: the “ordinary rule of statutory

construction” that the word "person" in a statute does not

include "State," and the “plain statement" rule.

1. The “Ordinary Rule of Statutory Construction”

First, this Court has held that, under the “ordinary rule of

statutory construction,” where "person" is included in a statute

that imposes a new liability, that word does not include State.

See Will v. Michigan Dept. of State Police, 491 U.S. 58, 64

(1989); Wilson v. Omaha Indian Tribe, 442 U.S. 653, 667

(1978). This rule of statutory construction should apply to the

FCA which covers the conduct of “any person" and provides

8

liability for treble damages and penalties to which the States had

previously not been subjected.

The United States and the relator contend that this rule of

statutory construction does not apply where the statute is for the

benefit of the United States and where its purpose, prevention of

fraud, is clear. That argument finds no support in case law.

They further contend that because the statute also uses the

word "person" to define the relator in 31 U.S.C. § 3730(b), and

because some States have been gui tam relators, the applicable

principle of statutory construction is that the same word used in

different sections of the same statute should have the same

meaning. As the D.C. Circuit explained in Long, this principle

does not apply to the FCA because, inter alia, "[i]mposing

liability is quite different from conferring a right to sue,” and the

canon has an important exception where the subject matter to

which the word refers is not the same. Long, 1999 WL 178713

at * 17, n. 15.

2. The “Plain Statement” Rule

Second, this Court has held that the "plain statement” rule

requires Congress to provide a "clear" or "plain" statement

whenever it enacts a law that: (a) alters the federal balance of

power; (b) preempts the historic powers of the States; (c)

abrogates the States’ sovereign immunity: or (d) imposes a new

condition upon the receipt of federal funding. See, Hilton v

South Carolina Public Railways Com'n, 502 U.S. 196, 206

(1991); Gregory v. Ashcroft, 501 U.S. 452, 460-61 (1991); Will,

491 U.S. at 64; Dellmuth v. Muth, 491 U.S. 223, 227 (1989);

Pennhurst State School and Hospital v. Halderman, 451 U.S. 1,

17 (1981); United States v. Bass, 404 U.S. 336 (1971). This

rule squarely applies to the FCA.

9

In Bass, Justice Marshall explained:

[iJn traditionally sensitive areas, such as legislation affecting

the federal balance, the requirement of clear statement assures

that the legislature has in fact faced, and intended to bring into

issue, the critical matters involved in the judicial decision.

404 U.S. at 349.

There is no dispute that the PCA does not contain a “plain

statement” that States are included within the scope of the

liability provision. The respondents argue that the “plain state-

ment" rule has no application to the FCA because the States have

no sovereign immunity with respect to the federal government.

They further contend that States have no historic right to defraud

the United States and, therefore, the United States is not

imposing a financial burden on the States when it obtains

additional monetary penalties under this statute. These argu-

ments have been successful not only in the Second Circuit but

also in the Eighth Circuit's decision in Ziss/er.

This analysis of the effect of the FCA on States misconstrues

the function of the “plain statement" rule, which is to protect the

States’ position in our federalist scheme against unconsidered

federal encroachment that usurps the States’ authority, and

mistakes the intrusiveness of FCA qui tam lawsuits on the States’

performance of essential functions. Judge Silberman, the author

of the Long opinion, properly noted that "the Act's imposition of

liability necessarily interferes with a State's sovereign perfor-

mance of a range of indisputably essential functions, such as the

administration of a State education department involved in the

present case. . . That the federal government funds in part that

function does not destroy its essentiality to the State." Long,

1999 WL 178713 at * 15 (fn. omitted).

10

3. The Legislative History of the False Claims Act

The legislative history of the FCA demonstrates that the Act

was never meant to apply to the States either when it was

originally enacted in 1863 or when it was later amended.

The FCA was enacted in 1863 to combat rampant fraud by

large private war material contractors in Civil War defense

contracts. See United States v. Bornstein, 423 U.S. 303, 309

(1976); United States v. Hess, 317 U.S. 537, 547 & n. 12

(1943). Because the Union of States had been billed for nonexis-

tent or worthless military goods, Congress sought to stop this

plundering of the Union's treasury. See, e.g., 62 Cong. Globe,

952-958, 37th Cong., 3d Sess. (1863).

As originally enacted in 1863, the FCA prohibited "any person

not in the military” from submitting a false claim or a false record

in order to have a claim paid to the United States, or causing

such claim or record to be presented and paid. Where liability

was found, the statute provided for both civil penalties (double

damages plus a fine of two thousand dollars and costs) and

criminal penalties (possible imprisonment). See Act of March 2,

1863, §§ 1, 3, 37th Cong. Chap. 67, 12 Stat. 696, 698.

There was no mention of States in the original legislative

history. The legislative debates from the 1863 law discussed

individual private war contractors who had defrauded the Union,

not States. See, e.g., 62 Cong. Globe 955 (1863) ("The bill

offers, in short, a reward to the informer who comes into court

and betrays his coconspirator, if he be such. . . .") (remarks of

Sen. Howard); id. at 958 ("if a man swindles the government in

times like this there ought never to be any limitation. . . .")

(remarks of Sen. Grimes).

The only reference to State officials (but not States them-

selves) is contained in a report by a House investigating committee

from 1862 which, in the course of reporting on the grossest

frauds upon the government in the provision of war contracts,

made reference to fraud by a quartermaster in Indiana. See H.R.

Rep. No. 2, 37th Cong., 2d Sess. xxxviii-xxxix (1862). When

the FCA was debated in Congress the following year, the sole

reference to the 1862 report was made by Senator Wilson of

Massachusetts in the context of arguing in favor of language of

the bill that would make war contractors liable as if they were "in

the military or naval forces of the United States." 62 Cong.

Globe at 956. Senator Wilson did not discuss the portion of the

1862 report referring to State officials.

For 123 years, from 1863 until 1986, the statute was “largely

unchanged ." H.R. Rep. No. 99-660, 99th Cong. 2d Sess.

(1986) at 17. See also Act of Sept. 13, 1982, Pub. L. 97-258,

96 Stat. 877 (reorganizing the statute without making any

substantive changes -- the language of the liability provision was

rewritten to apply to "[a] person not a member of an armed force

of the United States").

In 1986, the statute was substantially amended. The amend-

ments defined knowledge of a false claim to include reckless

conduct and deliberate ignorance of the circumstances. The

amendments also increased the punitive nature of the statute by

providing for treble damages and a civil penalty of between

$5,000 and $10,000 that could be imposed for each false claim

or false report filed. False Claims Amendments Act of 1986,

Pub L. No. 99-562, 100 Stat. 3153 § 2 (1986), amending 31

U.S.C. § 3729 (the liability section of the Act).

However, Congress in 1986 made no substantive change to

the scope of section 3729, which defined the group subject to the

liability provisions of the Act. In fact, the provision returned to

its (pre- 1982) format of applying to "[a]ny person” although the

exception for members of the armed forces was revised and

moved to a new section, 31 U.S.C. § 3730(e)(1).

12

The legislative history of the 1986 amendments shows that

Congress wanted to provide stronger measures to combat fraud

by private enterprise against the United States. There is no

evidence in the legislative history that fraud committed by States

was under consideration or that Congress discussed and debated

the financial impact upon States of increasing the Act's penalties

and providing for treble damages. In fact, the Congressional

Budget Office advised that the 1986 amendments were

"expected to involve no significant costs to the federal govern-

ment or to State or local governments.” S. Rep. No. 99-345,

99th Cong. 2d Sess. (1986) at 37, reprinted in 1986 U.S. Code

Cong. & Adm. News ("U.S.C.C.A.N.") 5266, 5302.’

B. The Eleventh Amendment Issue

This Court's decision in Seminole Tribe of Florida v. Florida,

517 U.S. 44, 72-73 (1996), stands for the proposition that the

Eleventh Amendment prevents private parties from suing States

in federal court under a statute, like the FCA, which was enacted

in 1863 under Congress’ Article I power. Because gui tam

relators have a separate, legal interest in the FCA lawsuit, they

are private persons suing States for money damages and their

FCA suits against States are barred by the Eleventh Amendment.

The United States and the relator assert that the Eleventh

Amendment does not apply to the FCA because the only “real

party in interest" is the United States and the States have no

? The only reference to States as liable parties came in a discussion in

the background and history section of the Act in the Senate Report, where

the committee assumed that States were already covered by the statute. S.

Rep. No. 99-345 at 8, reprinted in 1986 U.S.C.C.A.N. at 5273. The D.C.

Circuit properly concluded in Long that this assumption of the Senate

ne was wrong and “of no legal significance.” Long, 1999 WL 178713

* 6. Accord United States ex rel. Graber v. City of New York, 8

E Supp.2d 343, 354-55 (S.D.N.Y. 1998), overruled by Stevens, 162 F.3d

195.

13

Eleventh Amendment i immunity against the federal government.

The Second Circuit's opinion, which supports respondents’

position, also represents the view of a majority of the Circuits

which have addressed the issue. See Zissler, 154 F.3d at 872

("[T]}he United States is the real party in interest because of its

significant control over the course of the litigation and its

dominant share of the proceeds thereof"); see also United States

ex rel. Berge v. Board of Trustees of the University of Alabama,

104 F.3d 1453 (4th Cir.), cert. denied, U.S. ___, 118 S. Ct.

301 (1997); United States ex rel. Milam v. University of Texas

M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th Cir. 1992);

United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d

715 (9th Cir. 1994).

However, these decisions ignore the fact that the relator has

a separate, legal interest in the FCA lawsuit and is solely

responsible for prosecuting the action where the United States

Coes not intervene. The original statute authorized the "person"

bringing the suit and “prosecuting it to final judgment" to

recover one-half of the damages recovered. See Act of March 2,

1863, supra, § 6. The statute now provides that "[a] person may

bring a civil action for a violation of section 3729 for the person

and for the United States Government.” 31 U.S.C. §

3730(b)(emphasis added).

In the event the United States does not proceed with the

lawsuit, which occurred in the instant action, the relator is the

only party who prosecutes the action through final judgment.

See id. § 3730(b)(1), (b)(4)(B), (c)(3). According to the FCA,

in these circumstances the person bringing "the action shall have

the right to conduct the action." /d. § 3730(b)(4)(B),

3730(c)(3)(emphasis added). Although the United States can

seek to intervene at a later stage of the proceedings, the federal

government must show "good cause” to do so. Jd. § 3730(c)(3).

In addition, intervention by the United States at a later stage of

14

the proceedings is “without limiting the status and rights of the

person initiating the action." /d. § 3730(c)(3).

Where the relator prosecutes the action to a judgment or

settlement, the relator's share of the damages and penalties “shall

be not less than 25 percent and not more than 30 percent of the

proceeds." /d. § 3730(d)(2). Where the United States proceeds

with the action, the relator is still entitled to receive between 15

and 25 percent of the proceeds. See id. § 3730(d)(1). The

relator is also entitled to receive attorney's fees, costs and

expenses from the person found liable. See id. § 3730(d)(1), (2).

Thus, the interests of the relator and the United States are

separate. See Hughes Aircraft, 520 U.S. at 949 n. 5 ("[A]

relator's interests and the Government's do not necessarily

coincide. Moreover, as the statute specifies, gui tam actions are

brought both ‘for the person and for the United States Govern-

ment.’ 31 U.S.C. § 3730(b)(1).” (emphasis in original).

Even if the gui tam relator were acting entirely at the behest

of the United States, the United States is not authorized to

designate private citizens to sue States. Such a designation runs

afoul of the "plan of the convention,” under which States gave

up their claim of sovereign immunity, but only to the federal

government. See Blatchford v. Native Village of Noatak, 501

U.S. 775, 785 (1991) ("We doubt, to begin with, that that

sovereign exemption can be delegated -- even if one limits the

permussibility of delegation (as respondents propose) to persons

on whose behalf the United States itself might sue. The consent,

‘inherent in the convention,’ to suit by the United States -- at the

instances and under the control of responsible federal officers --

is not consent to suit by anyone whom the United States might

select.”) (emphasis in original).

The Fifth Circuit's decision in Foulds, the Eleventh Amend-

ment discussion by the D.C. Circuit in Long, and the dissenting

ie

Ee

15

opinions by Judge Weinstein in the Second Circuit in Stevens and

by Judge Panner in the Eighth Circuit in Rodgers, are directly

supportive of the States’ position that the gui tam relator's FCA

lawsuit is barred by the Eleventti Amendment. Because of the

importance of the Eleventh Amendment issue to the States, this

Court should review that issue, resolve the conflict between the

Circuits and eventually conclude that the Eleventh Amendment

constitutes a bar to the gui tam relator's lawsuit.

C. The Issues Are Of Fundamental Importance To

The States

Finally, the amici States submit that review of both issues

presented in this petition is important because the matters which

divide the parties and the Circuits are fundamental to state-

federal relations. The amici States therefore urge this Court to

review the decision below to resolve the tension that exists

between the position of the federal government and the relator

and the position of Vermont over whether the Act can be applied

to States.

For the Reasons Discussed Herein and in the Petition, The

State of Vermont's Petition for a Writ of Certiorari Should

Be Granted.

16

CONCLUSION

Dated: Albany, New York

June 10, 1999

Respectfully submitted,

ELIOT SPITZER

Attorney General of the

State of New York

Attorney for Amicus Curiae

State of New York

PREETA D. BANSAL

Solicitor General and Counsel of Record

PETER H. SCHIFF

Deputy Solicitor General

HOWARD L. ZWICKEL

Assistant Attorney General

Of Counsel