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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0278%3A06

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2000
- **Citation:** 529 U.S. 765

## Text

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0278%3A06. Public record. Not legal advice.