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

Supreme :

pe FITTED

4 JUW 10 1999

No. 98-1828

CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM 1999

STATE OF VERMONT AGENCY OF NATURAL

RESOURCES,

Petitioner,

- against -

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 THE CITY OF NEW

YORK, THE CITY OF LOS ANGELES, THE CITY

AND COUNTY OF SAN FRANCISCO, AND THE

NATIONAL LEAGUE OF CITIES IN SUPPORT OF

PETITIONER

MICHAEL D. HESS

Corporation Counsel for the

City of New York

Attorney for Amicus Curiae

City of New York

100 Church Street

New York, N.Y. 10007

(212) 788-0991

LEONARD J. KOERNER*

HILARY B. KLEIN

MARJORIE B. LANDA

of Counsel.

*Counsel of Record

(For Other Appearances See Inside)

2bEC

JAMES K. HAHN

City Attorney

Attorney for Amicus Curiae

City of Los Angeles

Office of the City Attorney

200 North Main Street

1700 City Hall East

Los Angeles, CA 90012

(213) 485-5406

National League of Cities

1301 Pennsylvania Ave, N.W.

Washington, D.C. 20004

(212) 626-3000

LOUISE H. RENNE

City Attorney

PATRICK J. MAHONEY

Chief Trial Attorney

DONALD P. MARGOLIS

Deputy City Attorney

Attorneys for Amicus Curiae

City and County of

San Francisco

Office of the City Attorney

Fox Plaza

1390 Market Street, 6th Floor

San Francisco, CA 94102

(415) 554-8730

TABLE OF CONTENTS

TABLE OF AUTHORITIES ............... iii

Eo aia ag 5 6.0 ae be oe a ah l

REASONS FOR GRANTING THE PETITION .... 6

I.

RESOLUTION OF THE CIRCUITS’

CONFLICT OVER WHETHER THE

FCA IMPOSES PUNITIVE

REMEDIES IS CRITICAL TO

ASSESSING LOCAL GOVERNMENT

EN a6 Gu W808 00d Ware's obi 6

A. Generally, Because Punitive

Remedies Penalize Innocent

Taxpayers and Threaten Disruption

of Government Services, Local

Governments Are Immune From

B. The Circuits Are in _ Direct

Conflict Over Whether The FCA

Imposes Punitive Remedies ....... 8

Il.

RESOLUTION OF THE CIRCUITS’

CONFLICT OVER

CONGRESSIONAL INTENT IS

CRITICAL TO ASSESSING LOCAL

GOVERNMENT LIABILITY .........

Ill.

ALLOWING LOCAL GOVERNMENT

LIABILITY UNDER THE FCA

THREATENS DISRUPTION OF

GOVERNMENT SERVICES AND

UNDERMINES THE COOPERATIVE

RELATIONSHIP AMONG THE

UNITED STATES, STATES AND

oe! Aa ee ere ee

ee FL rere eere cere ae

TABLE OF AUTHORITIES

Cases: Page:

Barnier v. Szentmiklosi,

810 F.2d 594 (6th Cir. 1987) ............. 8

City of Newport v. Fact Concerts, Inc.,

ey a passim

Erickson ex rel. United States v.

American Institute of Biological Sciences,

716 F. Supp. 908, 913 (E.D. Va. 1989) ....... 12

Genty v. Resolution Trust Corporation,

og 8 eee 7,8

Hunt v. City of Boonville,

I 8009.4 Sook aay s

Pierce v. Underwood,

IES TE RD Gy a8 PE = ea 15

Texas Industries, Inc. v. Radcliff Materials, Inc.,

Se IE a a SetURL Foe 7

Tull v. United States,

oS oe ee ee ee ee 7

United States v. Bornstein,

ee eS oe aie ae 3

***

United States v. Brekke,

97 F.3d 1043 (8th Cir. 1996), cert. denied,

el ee oe Se eee 10

United States v. Cooper Corp.,

San Ga RS o's 8S. oe 6 SHES 14

United States Department of Energy v. Ohio,

ee ee ae ay 7

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

12S F.2E FOR. Cee i. BO os ks He ich u5B's 17

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

8 F. Supp.2d 343 (S.D.N.Y. 1998) ....... passim

United States ex rel. Lamers v. City of Green Bay,

SGD Fae Seen Cree CR. TRO ieivtacde Wiese oes 18

United States ex rel. Long v. SCS Business and

Technical Institute, Inc.,

__ F.3d _ , 1999 U.S. App. LEXIS 5950

Si: SN ED eee 0-6 Rea Bre oa 8 eo passim

United States ex rel. Marcus v. Hess,

SE rE Eh in 8 OR Bika +b 2 oa 10-11

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

of Natural Resources,

162 F.3d 195 (2d Cir. 1998)

United States ex rel. Weinberger v. Florida,

GES Fae Boom Gree Gs Go ct ccc cic 4

-1V-

United States ex rel. Zissler v. Regents of the

University of Minnesota,

154 F.3d 870 (8th Cir. 1998) .......... passim

Statutes:

kh toe | eae ee ee oe 12,13

gt ed re See 3,15

pF Code > SR er a ae 12

31 U.S.C. $8 3T3O MI) .. ee eee 3,8

ERY oe 00000 PP re ee 3

DR A ee SB ON oe WSR NS 12

Rete es re ee 11,12,13

} Rik Foe bh } | ee 11,12

PA h Led | 2 er eee ee 18

MUSLIM a ee ee

Miscellaneous:

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

reprinted in 1986 U.S.C.A.A.N ........-. 3,11,14

Kenneth Mann, Punitive Civil Sanctions: The

Middleground Between Criminal and Civil Law,

101 YALE L.J. 1795 (June 1992) ........-.-+- ~

No. 98-1828

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM 1999

STATE OF VERMONT AGENCY OF NATURAL

RESOURCES,

Petitioner,

° against »

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 THE CITY OF NEW

YORK, THE CITY OF LOS ANGELES, THE CITY

AND COUNTY OF SAN FRANCISCO, AND THE

NATIONAL LEAGUE OF CITIES IN SUPPORT OF

PETITIONER

INTEREST OF AMICI

The City of New York, the City of Los Angeles, the

City and County of San Francisco, and the National League

of Cities (collectively referred to as “amici”) respectfully

submit this brief as amici curiae supporting the petition for

certiorari of the State of Vermont. Amici urge this Court

to gramt Vermont's petition because the Second Circuit's

decision in this case, which conflicts with other circuits in

allowing states to be sued under the federal False Claims

Act (“FCA”), involves a critically important issue both for

states and local governments. Allowing this decision to

stand without review will subject states and local

government to the FCA’s crushing remedies of treble

damages plus penalties and will undermine the system of

cooperative federalism upon which this nation was founded.

The City of New York is a municipality that

annually receives in excess of $3 billion in federal funds

either directly from the United States or through the State

of New York for numerous essential municipal services and

programs. Generally, the City of New York is responsible

for providing these essential services to its citizens and for

implementing these programs, while the federal government

and State of New York disburse the funds and monitor their

expenditure.

The City of Los Angeles is a municipality that

annually receives several hundred million dollars in federal

funds either directly from the United States or through the

State of California for numerous essential municipal

services and programs. Generally, the City of Los Angeles

is responsible for providing these essential services to its

citizens and for implementing these programs, while the

federal government and the State of California disburse the

funds and monitor their expenditure.

The City and County of San Francisco is a municipal

corporation that annually receives in excess of $400 million

in federal funds either directly from the United States or

through the State of California, for numerous essential

municipal services and programs. Generally, the City and

County of San Francisco is responsible for providing these

essential services to its citizens and for implementing these

programs, while the federal government and the State of

California disburse the funds and monitor their expenditure.

The mission of the National League of Cities

(“NLC”) is to strengthen and promote cities as centers of

opportunity, leadership and governance. NLC was

established in 1924 by and for reform-minded state

municipal leagues. NLC is comprised of 49 state municipal

leagues, more than 1,500 member cities and 135,000

elected officials. Through the membership of the state

municipal leagues, NLC represents more than 18,000 cities

and towns of all sizes in total.

The False Claims Act was enacted in 1863 at the

height of the Civil War primarily to “combat rampant fraud

in Civil War defense contracts.” S. Rep. No. 99-345, 99th

Cong., 2d Sess. 8 (1986), reprinted in 1986 U.S.C.A.A.N.

5266, 5273. The chief purpose of the Act when enacted

was to address fraud perpetrated by large private

contractors. United States v. Bornstein, 423 U.S. 303, 310

(1976). Over the years, Congress amended the FCA many

times, making the most significant amendments in 1986 by,

inter alia, increasing the statute’s mandatory civil remedies

from double to treble damages and from a $2,000 penalty

to a $5,000-$10,000 penalty for each violation. 31 U.S.C.

§ 3729(a). See S. Rep. No. 99-345, 99th Cong., 2d Sess.

8, reprinted in 1986 U.S.C.C.A.N. 5266, 5273. Under the

statute, as amended in 1986, a whistleblower, known as the

“relator,” is generally entitled to receive between 15 and 30

percent of the total recovery. 31 U.S.C. §§ 3730 (d)(1);

(d)(2).

Prior to the 1986 amendments, it appears that, with

one exception, the statute was not invoked against states or

-3.

localities. See United States ex rel. Weinberger v. Florida,

615 F.2d 1370, 1371 (Sth Cir. 1980) (court vacated district

court decision that states were not “persons,” holding

instead that the district court had lacked subject matter

jurisdiction over the case). Subsequent to 1986, however,

there have been an increasing number of cases brought

against governmental entities, thereby subjecting states and

localities to the statute’s severe remedial structure and

allowing private individuals to collect a bounty at state and

local taxpayers’ expense.

The Second Circuit’s holding that states are

“persons” under the FCA has profound implications for the

issue of local government liability. For local governments,

the critical question for determining if they are “persons”

under the statute is whether the statute is punitive; if so,

liability may be imposed on them only if there is

unequivocal congressional intent to do so. The rationale for

this common law immunity is that punitive sanctions punish

innocent taxpayers, not actual wrongdoers, and subject

those governments to undue fiscal constraints. In the FCA

context, states have also argued that punitive remedies

should not be imposed against them, and, therefore, several

circuits have examined the issue of whether the statute’s

remedial scheme was punitive. In this case, the Second

Circuit held that the remedies in the FCA were not

punitive, while the D.C. Circuit suggested otherwise.

As a result of the Second Circuit’s holding, funding

for local government services may decrease significantly.

Both state and local government liability under the FCA

will adversely affect localities’ ability to serve their

residents. Since localities receive state funding for services

they provide, to the extent FCA liability depletes state

-4-

funds, state aid to those localities is likely to decrease

concomitantly. Local governments and states are

interdependent entities, with states providing funding and

expecting local governments to provide direct services. It

is local governments that actually administer many federal

programs, providing services such as education, health,

child welfare, and environmental protection, and it is the

localities’ ability to provide these critical services that is

jeopardized by the treble damages and $10,000 per claim

penalty imposed by the FCA against both states and

localities.

Amici therefore are vitally interested in the outcome

of this suit. They submit that, in seeking to combat private

military profiteering during the Civil War by enacting the

FCA, and in subsequently amending the statute to augment

punitive remedies, Congress never intended to disrupt the

administration of federal programs at the state and local

level. But that is exactly the result of permitting FCA

liability, since it allows recoveries of treble damages,

penalties, and a windfall to an individual whistleblower, all

at the expense of state and local taxpayers. Amici urge the

Court to grant Vermont’s petition and reverse the Second

Circuit’s determination that states are “persons” under the

FCA. '

' Amici do not address the issue of whether the Eleventh Amendment

bars suits by relators against states when the United States does not

intervene in a suit. However, since state funding for programs

administered on the ground level by municipalities or other local

governmental entities is threatened by the Second Circuit's holding that

the Eleventh Amendment is inapplicable, amici join in Vermont's

discussion of the Eleventh Amendment.

uF

REASONS FOR GRANTING THE PETITION

I

RESOLUTION OF THE CIRCUITS’ CONFLICT

OVER WHETHER THE FCA IMPOSES PUNITIVE

REMEDIES IS CRITICAL TO ASSESSING LOCAL

GOVERNMENT LIABILITY

A. Generally, Because Punitive Remedies Penalize

Innocent Taxpayers and Threaten Disruption of

Government Services, Local Governments Are

Immune From Them

In determining whether states are liable “persons”

under the FCA, the Second Circuit, as well as the other

ciicuits that examined the issue, focused on the issue of

congressional intent. See United States ex rel. Stevens v.

State of Vermont Agency of Natural Resources, 162 F.3d

195, 203-08 (2d Cir. 1998); United States ex rel. Long v.

SCS Business and Technical Institute, Inc., __ F.3d _,

1999 U.S. App. LEXIS 5950 at *10-30 (D.C. Cir. 1999);

United States ex rel. Zissler v. Regents of the University of

Minnesota, 154 F.3d 870, 874-75 (8th Cir. 1998).

Congressional intent is also central to an analysis of the

FCA’s applicability to local governments: if the FCA is

considered punitive in nature, local governments are

immune from liability unless Congress clearly intends to

abrogate that immunity. Cf. City of Newport v. Fact

Concerts, Inc., 453 U.S. 247 (1981) (under § 1983 of the

Civil Rights Act of 1851, no punitive damages may be

awarded against municipalities because Congress did not

intend to subject municipalities to punitive damages).

The reason for this common law immunity from

punitive damages is simple: punishment should be imposed

only against actua) wrongdoers. /d. at 261. To the extent

a punitive award is allowed against a local government,

however, it punishes the general public, not the individual

wrongdoer. Genty v. Resolution Trust Corporation, 937

F.2d 899 (3rd Cir. 1991). Moreover, the goal of

deterrence is not served by imposing punitive sanctions

against a locality, because such sanctions are not likely to

restrain future violations by individual actors; the award

would not come from their pockets. /d. at 910. Punitive

remedies imposed on a locality are in effect a “windfall to

a fully compensated plaintiff, and are likely accompanied by

an increase in taxes or a reduction of public services for the

citizens footing the bill.” City of Newport, 453 U.S. at’

261.

While traditionally local government immunity from

remedies that punish has arisen in the context of punitive

damages, this Court has applied the same principles to other

civil remedies that may be viewed as punishment, including

treble damages. As this Court commented in Texas

Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630,

639-40 (1981), a case brought under the Clayton Act, “[t}he

very idea of treble damages reveals an intent to punish past,

and to deter future, unlawful conduct... ”? In City of

? This Court also considers civil penalties to be punitive under common

law principles. See United States Department of Energy v. Ohio, 503

U.S. 607 (1992) (civil penalties under the Clean Water Act and the

Resource Conservation and Recovery Act of 1976 intended as

punishment); Tull v. United States, 481 U.S. 412, 422 n.7 (1987) (“the

remedy of civil penalties is similar to the remedy of punitive damages”).

3

Newport, this Court relied on Hunt v. City of Boonville, 65

Mo. 620 (1877), a case exempting municipalities from

treble damages under a state trespass statute, because such

damages would penalize innocent taxpayers. 453 U.S. at

261. See also Genty, 937 F.2d oY9 (municipalities not

liable under RICO because of treble damages remedy);

Barnier v. Szentmiklosi, 810 F.2d 5°4 (6th Cir. 1987)

(treble damages not allowed against a municipality under

Michigan false arrest statute).

Thus, on its face, the FCA’s remedies of treble

damages and a $5000 to $10,000 penalty for each false

claim appear punitive. See Kenneth Mann, Punitive Civil

Sanctions: The Middleground Between Criminal and Civil

Law, 101 YALE L. J. 1795, 1860 (June 1992) (in 1986, by

increasing the FCA’s double damages to treble damages and

raising the penalties, Congress was instituting “new punitive

sanctions”).

B. The Circuits Are in Direct Conflict Over Whether

The FCA Imposes Punitive Remedies

In arguing that a state is not a “person” under the

FCA, the state defendants asserted that Congress did not

clearly express its intention to subject states to liability, and

that this congressional intent must be crystal clear because

in common usage, the term “person” does not include

states. Stevens, 162 F.3d at 203; Long, 1999 U.S. App.

LEXIS 5950 at *7-10; Zissler, 154 F.3d at 11. As a

corollary, the states argued that courts have not ordinarily

imposed punitive remedies against states, so the fact that the

FCA’s remedies are punitive provides further evidence that

Congress did not intend states to be defendants under that

statute. Stevens, 162 F.3d at 207; Long, 1999 U.S. App.

-8-

LEXIS 5950 at *19-20; Zissler, 154 F.3d at 873. In the

context of determining whether states are “persons” under

the FCA, therefore, the circuits discussed whether the

Statute is punitive, parting ways completely on this issue.

The D.C. Circuit in Long addressed the issue of the

punitive nature of the statute, because the state had argued

that the statute’s remedies “created a form of punitive

damages that would be palpably inconsistent with state

liability.” Long, 1999 U.S. App. LEXIS 5950 at *19.

Looking back to the intent of Congress when it enacted the

Statute in 1863, the D.C. Circuit commented: “The 1863

Congress . . . made clear as day that it intended criminal,

and a fortiori punitive, sanctions . . Those provisions are

surely inconsistent with the concept of state liability.” Id.

at 20. Further, the court pointed out .hat the statute could

be characterized as remedial oniy prior to the 1986

amendments, when the statute provided for double damages

of which the government only received a one-half share.

Id. at *19, citing United States ex rel. Graber v. City of

New York, 8 F. Supp. 2d 343, 349 n.3 (S.D.N.Y. 1998)

(district court held that states and municipalities were not

persons under the FCA and that the statute was punitive).’

By implication, the court reasoned, once the statute was

amended to increase the penalties to treble damages and

decrease the relator’s share, it was no longer merely making

“the government whole.” /d.

> The D.C. Circuit in Long relied heavily on the district court's

analysis in Graber in determining that Congress did not intend states to

be liable under the FCA, although it noted that “[o}f course, Stevens,

not Graber, is Second Circuit law.” Long, 1999 U.S. App. LEXIS

5950 at *13 n.7.

9.

In contrast, in this case, the Second Circuit rejected

the state’s argument that the treble damages and penalties of

the FCA are punitive and that the statute therefore did not

authorize suits against states. Stevens, 162 F.3d at 207. In

a cursory discussion, the Second Circuit explained that the

double damages in the 1863 FCA were remedial, enacted in

order to fully compensate the government for its losses. /d.

However, the Second Circuit never even mentioned the

issue that the D.C. Circuit found critical -- whether the

change to treble damages and escalation of penalties made

the statute punitive.

Applying different reasoning, the Eighth Circuit in

Zissler rejected the argument that the FCA’s remedies “alter

the usual constitutional balance of federalism because they

are extracompensatory.” Zissler, 154 F.3d at 873. Without

Citation, the court determined that, while private citizens

may not necessarily recover more than compensatory

damages from states, the federal government is not so

restricted. /d. Contra Graber, 8 F. Supp. 2d at 350-351.

The court in Zissler further stated that FCA’s remedies

were compensatory rather than punitive, citing an Eighth

Circuit double jeopardy case which held that an FCA civil

suit did not bar a subsequent criminal prosecution. /d.,

citing United States v. Brekke, 97 F.3d 1043, 1048 (8th

Cir. 1996), cert. denied, 520 U.S. 1132 (1997). In citing

a double jeopardy case, however, the court in Zissler did

not consider, as the court in Graber had, the distinction

between “punitive” civil sanctions for the purpose of the

Double Jeopardy Clause and punitive sanctions for the

purpose of governmental immunity from suit. See Graber,

8 F. Supp. 2d at 350, citing United States ex rel. Marcus v.

Hess, 317 U.S. 537, 550 (1943) (despite the fact that

multiple civil damages provided for in the False Claims Act

-10-

are akin to punitive or exemplary damages, for purposes of

the application of the Double Jeopardy Clause, they do not

constitute a criminal penalty or cause the remedy to lose the

quality of a civil action).

Both in approach and result, therefore, the three

Circuits that considered whether the FCA’s remedial

structure is punitive differed completely. Since this issue is

highly relevant to state liability and its resolution is critical

to assessing local government liability under the FCA, this

Court should resolve it by granting Vermont's petition.

RESOLUTION OF THE CIRCUITS’ CONFLICT

OVER CONGRESSIONAL INTENT IS CRITICAL

TO ASSESSING LOCAL GOVERNMENT

LIABILITY

Where a statute is found to be punitive, local

clearly intended to abrogate that immunity. City of

Newport, 452 U.S. at 261. The Second Circuit in this case,

the Eighth Circuit in Zissler and the D.C. Circuit in Long

all analyzed congressional intent under the FCA as reflected

in the statute’s language and legislative history to determine

whether Congress contemplated state liability. In several

critical places, the FCA’s language and legislative history

discuss states and political subdivisions together. See 31

U.S.C. §§ 3732(b); 3733(a)(1); S. Rep. No. 99-345, 99th

Cong., 2d Sess. 8-9, reprinted in 1986 U.S.C.C.A.N.

5273-74. As a result, the reasoning of all three circuits

concerning congressional intent to subject states to liability

is significant to local governments.

Specifically, in discussing the statutory language. the

Second Circuit's conclusion that states are “persons” subject

to liability was based on its determination that states are

persons under other FCA provisions and that, ordinarily,

the same word the same thing throughout the statute.

Stevens, 162 F.3d at 205. Accord Zissler, 154 F.3d at

875. The Second Circuit relied on the fact that first, courts

have allowed states to be relators under the provision that

a “person” may bring a civil action for a violation of the

FCA; Stevens, 162 F.3d at 204-05; second, the FCA

contains a provision that allows states and local

governments to join state law claims with FCA claims, 31

U.S.C. § 3732(b); Id. at 205; and third, states are explicitly

stated to be “persons” (along with their political

subdivisions) subject to pre-complaint discovery under the

FCA’s civil investigative demand (“CID”) section. 31

U.S.C. § 3733(a)(1), Id. at 207.

The D.C. Circuit in Long disagreed explicitly with

the Second Circuit on each and every one of these points.

First, it argued that the fact that courts have allowed states

to be relators does not indicate that was Congress's intent.‘

4

Amici believe that Congress's intent was to allow states and local!

government to be relators, and that this is not inconsistent with its intent

to exclude states and local governments from liability under the FCA

The definition of “person” in § 3729 is different from the definition o!

“person” in § 3730. Section 3730(e) specifically defines which persons

may be relators and excludes several categories of persons, but does m«

exclude states and local governments. It is basic statutory constructx™

that “the enumeration of specific exclusions from the operation ot «

Statute is an indication that the statute should apply to all cases nm.

specifically excluded.” Erickson ex rel. United States v. Ameri ur

‘nstitute of Biological Sciences, 716 F. Supp. 908, 913 (E.D. Va. 1984

(continued +

-]2-

Second, it read § 3732(b) as permitting intervention by

states for recovery of state funds, rather than allowing states

to be relators. Third, it pointed out that the listing of

“states” as “persons” subject to civil investigative demands

includes the caveat “for purposes of this section,” so it

cannot be construed to subject states to liability as

“persons” in a different section of the Act. Moreover, the

D.C. Circuit found that distinction quite logical: “It seem

evidence to establish that private contractors, for example,

made false claims.” Long, 1999 U.S. App. LEXIS 5950 at

*4-*6.

The three circuits’ views of the FCA’s legislative

Second and Eighth Circuits claimed legislative history

support for their conclusion that Congress intended state

liability under the Act. According to the Second Circuit,

the 1863 Congress was concerned about all kinds of fraud

perpetrated on the federal government, including fraud by

state officials. This conclusion was based on the

publication of a House Report in 1862 which specifically

had noted the problem of state officials’ participation in

fraudulent activities. Stevens, 162 F.3d at 206. The Eighth

Circuit emphasized the 1986 amendments’ purpose to make

the statute a more useful tool to combat fraud, so that it

should be construed to reach states as potential defendants,

since states receive a significant amount of federal funding.

Zissler, 154 F.3d at 874.

* (...continued)

(citations omitted). In contrast, no specific exclusions are contained in

§ 3729, * liability provision of the FCA.

-13-

Countering these arguments, the D.C. Circuit first

explained that the fraud of state officials referred to in the

1862 House Report was not committed against the United

States government, and that, in any event, this piece of

legislative history was not linked to the passage of the FCA.

Long, 1999 U.S. App. LEXIS 5950 at *14. Second, it

argued, the broad purpose of the FCA to counter fraud

cannot be sufficient to answer the question of whether states

were made potential defendants under the FCA, particularly

since Congress's primary concern in 1863 was to address

frauds perpetrated by private military contractors. /d. at

*11-12. Third, it considered the Zissler court’s point that

an effective anti-fraud statute would subject states to

liability simply because they receive a substantial amount of

money from the federal government “similarly

unpersuasive,” id. at *12. It reasoned that a court’s role in

examining congressional intent is “not to ‘engraft on a

Statute additions which [the court] thinks the legislature

logically might or should have made.’ ” /d., quoting

United States v. Cooper Corp., 312 U.S. 600, 605 (1941).

Finally, both the Second and Eighth Circuits relied

on a section in the Senate report accompanying the 1986

amendment to the FCA, which, in describing the “history

of the FCA,” states that “the False Claims Act reaches all

parties who may submit false claims. The term ‘person’ is

used in its broad sense to include partnerships, associations

and corporations . . . . as well as States and political

subdivisions thereof.” Stevens, 162 F.3d at 207, quoting

S. Rep. No. 99-345, 99th Cong., 2d Sess. 8-9, reprinted in

1986 U.S.C.C.A.N. 5266, 5273-74. See also Zissler, 154

F.3d at 874-75.

ei

The D.C. Circuit, however, pointed out oo

portion of the Senate Report was utterly unconnected to any

of the substantive amendments made by the 1986 Congress,

it was merely a “legislative observation about what

§ 3729(a), enacted by an earlier Congress, means. Such

post-enactment legislative history is of no import when the

subsequent Congress takes on the role of a court and in a

report asserts the meaning of a prior statute. * Long, 1999

U.S. App. LEXIS 5950 at *21-22, citing Pierce v.

Underwood, 487 U.S. 552, 566 (1988). Moreover, the

court reasoned, because the Report only was attempting to

describe the way in which the Supreme Court had

interpreted the Act, and it was completely wrong in its

analysis, “the Report is of no legal significance, Long,

1999 U.S. App. LEXIS 5950 at *23. Accord Graber, 8 F.

Supp. 2d at 353-54.

Thus, in looking at the statutory language and

legislative history of the FCA, the three circuits could not

have diverged more. The a, of reno semi

found implications for | gov Sil

seamen cuntieiat discussed states and their political

subdivisions in the same breath. Once this Court resolves

the circuits’ split over whether states are “persons under

the FCA, it necessarily will settle the closely-linked

question of local government liability under that statute as

well.

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Ill

ALLOWING LOCAL GOVERNMENT LIABILITY

UNDER THE FCA THREATENS DISRUPTION OF

GOVERNMENT SERVICES AND UNDERMINES

THE COOPERATIVE RELATIONSHIP AMONG

THE UNITED STATES, STATES AND LOCALITIES

Resolution of the issues presented in this case is

critical to local governments. Local governments are unlike

private corporations. Treating them the same under the

FCA threatens disruption of government services and

undermines the cooperative partnership among different

levels of government. Rather than pursuing federal monies

for profit, local governments apply for and utilize federal

funds for the benefit of their citizens. They do so in

cooperation with states and the federal government, sharing

both legal and financial responsibility for implementing a

wide variety of government programs. While the federal

government and states monitor and fund many government

programs, it is the unique role of local governments to

implement those programs and provide direct services.

Because of the range of services provided by cities

with federal financial support, however, all of these services

are targets under the FCA. In recent years, there has been

a dramatic increase in the number of FCA suits against

local governments, exposing those governments and their

taxpayers to litigation costs, the risk of draconian remedies

and the threatened disruption of government services. Such

suits, which are rarely joined by the United States, interfere

with statutory procedures for administration designed to

ensure both compliance with federal requirements and the

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provision of government services. As it stands now, due to

the conflict in the circuits, FCA suits can go forward

against states and localities in parts of the country even

when the United States has suffered no damages, has

declined to intervene, has exercised administrative remedies

to correct possible violations, and/or has concluded that

there was no fraud involved.

For example, in United States ex rel. Dunleavy v.

County of Delaware, 123 F.3d 734 (3d Cir. 1997), a relator

alleged improper reporting to the Department of Housing

and Urban Development (“HUD”) by the County of

Delaware concerning the transfer of a parcel of land. Apart

from the FCA action, HUD investigated the land transfer

and concluded that the County owed HUD approximately $2

million. Ultimately, HUD and the County settled their

dispute, with the County agreeing to remit a check to HUD,

and HUD in turn consenting to return the funds to the

County’s line-of-credit so that the monies would be

available to fund eligible activities. The United States

specifically declined to join the FCA suit, concluding that

the matters raised in the relator’s complaint did not

constitute fraud. /d. at 739. The Third Circuit refused to

dismiss the case despite HUD’s settlement with the County

(id. at 738-39), thereby throwing a wrench into the

cooperative relationship between the two levels of

government. As a result of the court’s decision, the relator

stood to recover a bounty for himself and deprive the

County of three times the amount of money that the County

allegedly had improperly failed to remit to HUD,

notwithstanding the settlement with HUD and the United

States’ conclusion that no fraud had occurred.

3%

Similarly, in United States ex rel. Lamers v. City of

Green Bay, 168 F.3d 1013 (7th Cir. 1999), a relator

charged that Green Bay’s federally funded school bus

operations violated federal regulations related to bus maps

and stopping policies. The relator first filed a formal

complaint with the Federal Transit Administration (“FTA”),

which cited the City for violations and threatened to

discontinue federal funding. Subsequently, the FTA

approved the City’s annual grant application notwithstanding

the fact that it had not yet achieved full regulatory

compliance. In the meantime, the relator brought an FCA

action in which the United States declined to intervene.

Thereafter, the FTA reported that Green Bay had come into

full regulatory compliance. While the court eventually

granted summary judgment for Green Bay, the City was

nonetheless forced to defend a lawsuit over an issue it had

already resolved with the federal government, and where it

had eventually come into complete compliance. As in

Dunleavy, the FCA suit interfered with the cooperation

between the federal government and the locality and

threatened the operation of a vital government program.

Finally, even in a case where the United States did

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

8 F. Supp. 2d 343 (S.D.N.Y. 1998), application of the

FCA to a state and municipality threatened to undermine

Congress’s scheme for providing foster care services. See

42 U.S.C. § 671 et seg. Graber principally involved

allegations that New York City and State claimed federal

foster care funds evea though they did not provide all of the

federally required services. However, as the court noted,

“no suggestion” was made in the case that “any state or

local official personally profited from the alleged fraud.

Rather, all the monies apparently were used for the foster

~ -18-

care program.” /d. at 356. Despite this fact, the federal

government sought through the FCA to recoup three times

the amount of federal funds claimed and to give a

substantial portion of that recovery to the relator, an

individual city employee. By contrast, the remedy

established by Congress mandates that, even if substantial

problems in a state’s foster care program are found in a

compliance review, the federal agency has no discretion to

withhold foster care funds upon successful completion of

corrective action. 42 U.S.C. § 1320a-1a(4).

In sum, invocation of the FCA against localities

undermines the cooperative mechanisms established by

Congress to foster the efficacious delivery of government

services, threatening the disruption of those services

through the imposition of draconian remedies mandated by

the statute. Ultimately, this issue of federalism goes to the

core of our governmental system, and it should be resolved

by this Court.

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CONCLUSION

The State of Vermont's petition for a writ of

certiorari should be granted.

MICHAEL D. HESS

Corporation Counsel of the

City of New York

Attorney for Amicus Curiae

City of New York

100 Church Street

New York, New York 10007

(212) 788-0991

LEONARD J. KOERNER*

HILARY B. KLEIN

MARJORIE B. LANDA

of Counsel

*Counsel of Record

JAMES K. HAHN LOUISE H. RENNE

City Attorney City Attorney

Attorney for Amicus Curiae PATRICK J. MAHONEY

City of Los Angeles Chief Trial Attorney

Office of the City Attorney DONALD P. MARGOLIS

200 North Main Street Deputy City Attorney

1700 City Hall East Attorneys for Amicus Curiae

Los Angeles, CA 90012 City and County of

(213) 485-5406 San Francisco

Office of the City Attorney

National League of Cities Fox Plaza

1301 Pennsylvania Ave, N.W.1390 Market Street, 6th

Washington, D.C. 20004 Floor

(212) 626-3000 San Francisco, CA 94102

(415) 554-8730

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