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

IN THE

Supreme Court of the United States

STATE OF VERMONT AGENCY OF

NATURAL RESOURCES,

Petitioner,

v.

UNITED STATES OF AMERICA ex rel.

JONATHAN STEVENS,

Respondent.

On Wait oF CERTIORARI TO THE

Unrrep 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 COOK COUNTY,

ILLINOIS, IN SUPPORT OF PETITIONER

Micuaet D. Hess

Corporation Counsel of the

LEONARD J. KOERNER* City of New York

HiLary B. Kern Attorney for Amicus Curiae

Marsorié B. LANDA City of New York

Of Counsel 100 Church Street

New York, New York 10007

* Counsel of Record (212) 788-0800

(Additional Counsel Listed on Inside Cover)

154592 @ Counse Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 + (800) 359-6859

~~)

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

RICHARD A. DEVINE

Cook County State's Attorney

Patrick T. Driscoit, Jr.

Deputy State's Attorney

Chief, Civil Actions Bureau

THOMAS BURNHAM

SANJAY T. TAILOR

Donna M. LAcu

Assistant State's Attorneys

Attorneys for Amicus Curiae

Cook County, Illinois

500 Richard J. Dale Center

Chicago, Illinois 60602

(312) 603-6934

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

1390 Market Street

Sixth Floor

San Francisco, CA 94102

(415) 554-8730

TABLE OF CONTENTS

Table of Cited Authorities ....................

Ne ee wae a ae

I. States And Their Political Subdivisions Are

Not “Persons” Under The False Claims Act,

Because They Are Immune Under Common

Law From The Punitive Remedies That This

Statute Imposes, And Congress Did Not

Clearly Intend To Abrogate That Immunity

A.

vee eeeeeeeeeeweweeeewmnewer errr ec ehmhUcr hl hUcr hc hm he

Governments Generally Are Immune

from Punitive Remedies, Because Such

Remedies Penalize Innocent Taxpayers

and Threaten Disruption of Government

DT aettclekieosscodgebous >

The Second Circuit Wrongly Concluded

that the FCA Is Not Punitive ........

Congress Did Not Clearly Intend to

Abrogate States’ and Localities’

Common Law Immunity from Punitive

RG saa hel ds 006e0eoesse se

il

Contents

Page

Il. Allowing State And Local Government

Liability Under The FCA Threatens

Disruption Of Government Services And

Undermines Principles Of Federalism And

State Sovereignty .......-..--+eeeeeeee 23

25

TABLE OF CITED AUTHORITIES

Page

Cases:

Alden v. Maine, 119 S. Ct. 2240 (1999) ......... 6

Atlantic Cleaners & Dyers, Inc. v. United States, 286

es EE ein uah's #0606664 Krciiadh deeee 20

Barnier v. Szentmiklosi, 810 F.2d 594 (6th Cir.

Fe PEE eT Cee ag ee ree Fe 7

Bolden v. Pennsylvania State Police, 1986 U.S. Dist.

LEXIS 21967 (E.D. Pa. 1986) ............... 7

Browning-Ferris Industries of Vermont, Inc. v. Kelco

Disposal, Inc., 492 U.S. 257 (1989) .......... 7

City of Newport v. Fact Concerts, Inc., 453 U.S. 247

DUPE A widewonoias bhsdeuunkoned teaeus 5, 6, 7, 13

Consumer Product Safety Commission v. GTE

Sylvania, Inc., 447 U.S. 102 (1980) ........... 21

Dammon v. Folse, 846 F. Supp. 36 (E.D. La. 1994)

LenS k be bob dobbs OUeR ebb Veh oehbed aah on 19

Erickson ex rel. United States v. American Institute

of Biological Sciences, 716 F. Supp. 908 (E.D.

INES Recetas dk oO ie ok Derg eee ee ae 20

Ferguson v. Joliet Mass Transit District, 526

P. Supp. 222 GUD. TE. 1981) .. 2.2... cc cceces 7

iv

Cited Authorities

Page

Florida Prepaid Postsecondary Education Expense

Board v. College Savings Bank, 119 S. Ct. 2199,

1999 U.S. LEXIS 4376 (1999) ..... 2... 0.055: 8

Genty v. Resolution Trust Corporation, 937 F.2d 899

(3rd Cir. 1991) . 0... cece eee e cece eceeeeees 5, 6,7

Georgia v. Evans, 316 U.S. 159 (1942) ........-. 22

Hunt v. City of Boonville, 65 Mo. 620 (1877) ... - - 7

Hydrolevel Corp. v. American Society of Mechanical

Engineers, Inc., 635 F.2d 118 (2d Cir. 1980), aff'd,

456 U.S. $56 (1982) .... 2... cence ceceeeeces 11

Imazio Nursery, Inc. v. Dania Greenhouses, 69 F 34

1560 (Fed. Cir. 1995), cert. denied, 518 U.S. 1018

GHOOED ccc ccdcvccaguce cegsewesneecescess ss 17

Monell v. New York City Department of Social

Services, 436 U.S. 658 (1978) .........--5055 22

Ohio v. Helvering, 292 U.S. 360 (1934) .......-- 22

Oscar Mayer & Co. v. Evans, 441 U.S. 750 (1979)

So en i ee ere han eh cess 21

Ostroff v. State of Florida, 554 F. Supp. 347 (M.D.

Pie, TIED co vcc cc ccecbssdécdcwtngsevssoces 6

Cited Authorities

| Page

Pierce v. Underwood, 487 U.S. 552 (1988) ...... 21

Rose v. Port Authority of New York and New Jersey,

13 F. Supp. 2d 516 (S.D.N.Y. 1998) .......... 6

Smith v. Wade, 461 U.S. 30 (1983) ............. 7,8

Tang v. State of Rhode Island, 904 F. Supp. 55 (D.

PRE PPD idivinin ) us tinea bba ddiek 0b id de edenn 6

Texas Industries, Inc. v. Radcliff Materials, Inc., 451

PRESS cide eae adcced ) dvessniGes:. 7

Tull v. United States, 481 U.S. 412 (1987) ....... 8

United States v. American College of Physicians, 475

ORS aa eo odes 20, 21

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

United States v. Brekke, 97 F 3d 1043 (8th Cir. 1996),

cert. denied, 520 U.S. 1132 (1997) ........... 12

United States v. McNinch, 356 U.S. 595 (1958)

ipon ddd enue hdc suieak voanbameeetnscmbater 9

United States v. Oregon, 366 U.S. 643 (1961) .... 13

United States Department of Energy v. Ohio, 503

U.S. 607 (1992)

vi

Cited Authorities

Page

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

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

Cir.), cert. denied, 522 U.S. 916 (1997) ....... 24

United States ex rel. Davis v. Long's Drugs, 411

F. Supp. 1144 (S.D. Cal. 1976) .............. 15

United States ex rel. Dunleavy v. County of

Delaware, 123 F.3d 734 (3d Cir. 1997) ....... 23, 24

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

F. Supp. 2d 343 (S.D.N.Y. 1998) ..... 11, 12, 20, 22

United States ex rel. Long v. SCS Business &

Technical Institute, Inc., 173 F.3d 870, supp. op..,

173 F.3d 890 (D.C. Cir. 1999) .. 2... 6. cee ee passim

United States ex rel. Marcus v. Hess, 317 U.S. 537

FEE she ind ch dbdees- ven hone Cease benahes 12, 15

United States ex rel. Stevens v. State of Vermont

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

Ga WS aba h ob hanes cd bce besa veceenies passim

United States ex rel. Weinberger v. Florida, 615 F.2d

SPP Gnas BED 0k dec en dene ceciedve css 2

United States v. McNinch, 356 U.S. 595 (1958) ... 9

Will v. Michigan Dep't of State Police, 491 U.S. 58

CEDOND 0 caceesectenceénddGudveswesetceearn 13

vii

Cited Authorities

Statutes: _

Re is OIE 4s c.a/cuas Cabe tip mbnk cuteds 16

Fe es ID ine raed atveb ei wea) u- 15

Ey GPAs PED ovina cued ob csde'bbacscck 15

Pe Ws MII bain oss kn dy wien ie ds ox 14, 20

Pe ins vu 0s wie udirinuak ox 2, 8, 10, 20

UII eh ii ie gk i a oe 20

PE Wins SUMMED os cov cavecsutccbedece on 20

OU EEE oid nce ib ee vibbbudenaic 2

Pe See OED wav vc occu Senda decker 2

PS Sirs POOR | vcs sins buses Mocsendics 9

RE yee ry ee ee 20

RI ice er ei 20

DU aes BSPPOUMMED occ cncccvecenaccdccece 14

PP Weine WORMED sins dv cncvecdvencecas 14

vill

Cited Authorities

50 UAL. 0 STSIUMIS Siac its cdeck imesh

31 U.S.C. § 3801 ef seg. «2.0... cece cece eee

31 U.S.C. § 3801(a)(6)

31 U.S.C. § 3802 ....

31 U.S.C. § 3802(ay IMD) .. 6... eee ce eee eee

33 U.S.C. § 1362(5) .

33 U.S.C. § 1901(a)(8)

33 U.S.C. § 2701(27)

42 U.S.C. § 1983 ....

42 U.S.C. § 2014(s) ..

50 U.S.C. § 167(2) ..

ana wawerseese@d ee Oe eee ee ees 2 F

eeeeseseeoeaeseeaeeoeveeevee2eeeeee8e9

United States Constitution:

eeesveeeaeseeeaseseaoeseeeneaeeeeseee

Page

5, 22

ix

Cited Authorities

Page

Other Authorities:

ESS CUE, TOG, Ba ae CHOOOD ve dec ce cscdsndte 18

132 Cate, Mes. ZE.595 (ISOS) wc cece cetes 10, 18, 19

$32 Comp. Res. 22,336 (19GB) 2... ccc ccc cccccs 10

132 Cong. Rec. 28,580 (1986) ................. 18,19

Cong. Globe, 37th Cong., 3d Sess. 952 (1863) ..9, 13, 18

H. Rep. No. 94-1343, 94th Cong., 2d Sess. 2 (1976),

reprinted in 1976 U.S.C.C.A.N. 2597 ......... 16

H. Rep. No. 98-965, 98th Congress, 2d Session 18

(1984), reprinted in 1984 U.S.C.C.A.N. 4619

ae Dee eS 4s Owe chee TU eUEhs ses vd becduees s

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

ob) ik Fee © OR | Ber rere pee passim

False Claims Reform Act: Hearings on S. 1562

Before the Subcommittee on Administrative

Practice and Procedure of the Senate Committee

on the Judiciary, 99th Cong., Ist Sess. 2 (1985)

SCUXERC ue eREAR TE oes Cha CS coda ecto us 10, 18

Kenneth Mann, Punitive Civil Sanctions: The

Middleground Between Criminal and Civil Law,

101 YALE L.J. 1795 (June 1992) ............ 9

x

Cited Authorities

Page

Michael Lawrence Colis, Settling for Less: The

Department of Justice's Command Performance

under the 1986 False Claims Amendments Act,

7 Admin. L. J. Am. U. 409 (Summer 1993) .... 10

Singer, SUTHERLAND STATUTORY CONSTRUCTION

§ 46.05 (Sth ed. 1992) . 0.2... eee eee eee ees 15

l

INTEREST OF AMICI

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

and County of San Francisco, and Cook County, Illinois

(collectively referred to as “amici”) respectfully submit this

brief as amici curiae supporting the position of the State of

Vermont. Amici urge this Court to reverse 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”). This decision subjects states and other

governmental entities to the FCA’s draconian remedies of

treble damages plus penalties and undermines the system of

cooperative federalism upon which this nation was founded.

Amici are local government entities that receive federal

funds annually (either directly from the United States or

through the states in which they are located) for numerous

essential municipal services and programs. Generally, amici

are responsible for providing these essential services to their

citizens and for implementing those programs, while the

federal government and states disburse the funds and monitor

their expenditure. Because they receive federal funds, amici

are potential targets for suit under the FCA. '

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, reprinted in 1986 U.S.C.A.A.N. 5266, 5273. The

chief purpose of the Act was to address frauds 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 significant amendments in 1986

1. Cook County, Illinois has recently filed a petition for

certiorari in Cook County, Illinois v. Chandler, No. 99-266, in which

it seeks review of the question of municipal immunity from suit

under the False Claims Act.

2

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

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.

In this case, the State of Vermont argued that it was not

a “person” subject to liability under the FCA, because, under

the “plain statement rule,” states are not normally considered

“persons” unless specifically defined as such. United States

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

Resources, 162 F.3d 195, 203 (2d Cir. 1998). As a corollary

to that argument, Vermont contended that, since courts do

not ordinarily impose punitive remedies against states, and

the FCA’s remedies are punitive, states were not “persons.”

The Second Circuit rejected that argument, holding that states

were “persons,” based in part on a cursory analysis of the

statute’s remedies in which it concluded that those remedies

were not punitive. /d. at 207.

3

The Second Circuit's holding has profound implications

for the issue of local government liability. For local

governments, to which the “plain statement rule” does not

apply, 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. Therefore, amici’s

brief will focus on this issue, and will demonstrate that the

Second Circuit's perfunctory analysis was incorrect.

In addition, amici will address the policy implications

of holding states and local governments liable under the FCA.

Allowing government liability under the FCA will adversely

affect states and localities’ ability to perform their

governmental functions. Local governments administer many

federal programs, providing services to their residents such

as education, healthcare, 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 against both states

and localities under the Second Circuit's reading of the FCA.

SUMMARY OF ARGUMENT

Under principles of common law, governmental entities,

which include states and localities, are immune from punitive

remedies, unless the legislature’s intent to impose such

remedies on them is unmistakable. This immunity is based

on the understanding that: (1) punitive awards against

governments punish only taxpayers, not individual

malefactors; (2) punitive sanctions against governments do

not deter future violations by individual government

employees, since the award would not come out of their

pockets; and (3) the imposition of such remedies against

States and localities would likely result in an increase in taxes

and/or reduction in services for taxpayers.

4

As courts have recognized, punitive remedies are not

limited to punitive damages, but rather encompass all

extracompensatory remedies designed to punish and deter

defendants. In the case of the False Claims Act, particularly

as amended in 1986, its remedies of treble damages plus up

to $10,000 per false claim are punitive in purpose and effect.

On its face, these remedies do far more than make the

government whole. Moreover, Congress specifically intended

these remedies both to punish wrongdoers and deter future

violations — purposes that make no sense in a case again.t

a governmental entity.

Therefore, under common law, states and other

governmental entities are not liable under the FCA unless

Congress demonstrated a clear intention to abrogate

governments’ immunity from punitive sanctions. This

Congress did not do. Neither the plain language of the statute

nor its legislative history evidences that congressional intent.

Rather, the language leaves the term “person” undefined, and

states are normally not considered “persons” unless

specifically defined as such. Further, the debates both in 1863

and at the time of the 1986 amendments show that Congress

was concerned only with fraud by private contractors, not

governmental entities, and that its principal goal was to

protect taxpayers, a goal undermined by making states and

localities potential defendants.

Accordingly, under established common law principles,

because the False Claims Act imposes punitive remedies,

this Court should hold that governmental entities are-not

“persons” subject to liability under the Act.

5

ARGUMENT

I.

STATES AND THEIR POLITICAL SUBDIVISIONS ARE

NOT “PERSONS” UNDER THE FALSE CLAIMS ACT

BECAUSE THEY ARE IMMUNE UNDER COMMON

LAW FROM THE PUNITIVE REMEDIES THAT THIS

STATUTE IMPOSES, AND CONGRESS DID NOT

CLEARLY INTEND TO ABROGATE THAT IMMUNITY

A. Governments Generally Are Immune from Puniti

Remedies, Because Such Remedies Penalize Sera

Taxpayers and Threaten Disruption of Government

Services

Under common law principles, governmental entities are

immune from punitive remedies except in instances when

Congress clearly intends to abrogate that immunity

City of Newport v. Fact Concerts, Inc., 453 U.S. 247 (198 1)

(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 individual wrongdoers. /d. at 261. To the extent

a punitive award is allowed against a governmental

entity, however, it punishes the general public instead.

Genty vv. Resolution Trust Corporation, 937 F.2d 899, 910

(3rd Cir. 1991). Moreover, the goal of deterrence is not served

by imposing punitive sanctions against a government

because such sanctions are not likely to restrain future

violations by individual actors; the award would not come

from their pockets. Jd. Punitive remedies imposed on a

governmental body are in effect a “windfall to a fully

compensated plaintiff, and are likely accompanied by an

6

increase in taxes or a reduction of public services for the

citizens footing the bill.” City of Newport, 453 U.S. at 261.’

While this common law immunity has been applied most

frequently to local governments, the reasoning behind it

applies equally to states, as courts have recognized.’ See Tang

v. State of Rhode Island, 904 F. Supp. 55 (D. R.1. 1995)

(“... a municipality (and, by analogy, a state) is immune

from punitive damages under § 1983 . . .”); Ostroff v. State

of Florida, 554 F. Supp. 347, 353 n.10 (M.D. Fla. 1983)

(State of Florida immune from punitive damages under City

of Newport rationale). See also Rose v. Port Authority of New

York and New Jersey, 13 F. Supp. 2d 516 (S.D.N.Y. 1998)

(bi-state authority immune from punitive damages under

2. The court in Genty noted two major distinctions between

municipal corporations and ordinary corporations that militated

against imposing punitive awards on the former — the opportunity

for disassociation and the difference in accountability. /d. at 910.

Unlike citizens of a municipality, shareholders can promptly

disassociate themselves from a corporation upon receiving

information of improper conduct by selling their stock or bringing a

remedial action. In addition, shareholders receive at a minimum

quarterly reports of a corporation’s activity, but municipal officials

make no similar accounting to the public. /d.

3. Under principles of sovereign immunity and the Eleventh

Amendment, states ordinarily are not liable for damages when private

individuals bring suit against them. See, e.g., Alden v. Maine, 119 S.

- Ct. 2240 (1999). The issue of states’ specific immunity from punitive

damages therefore has not arisen frequently. In the case of the False

Claims Act, the Eleventh Amendment applies only to suits in which

the relator sues without the intervention of the United States. See

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

Inc., 173 F.3d 870, 882, supp. op., 173 F.3d 890 (D.C. Cir. 1999).

Accordingly, to resolve the statutory construction issue in this case,

which is relevant both to suits brought by relators and by the United

States, amici urge this Court to analyze the punitive nature of the

statute and apply governmental entities’ traditional common law

immunity from punitive remedies.

7

City of Newport rationale); Bolden y. lvania S$

Police, 1986 U.S. Dist. LEXIS 21967 Ape~ 1986) na

agency immune from punitive damages); Ferguson v. Joliet

Mass Transit District, 526 F. Supp. 222 (N.D. Ill. 1981)

(public utility immune from punitive damages). As with a

municipality, assessing punitive damages against a state

entity would only punish taxpayers, not wrongdoers, and

would not deter future misconduct by state employees.

Further, although traditionally government immunit

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, “[tJhe very idea of

treble damages reveals an intent to punish past, and to deter

future, unlawful conduct . . .” In City of 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 allowing the imposition of such

damages would penalize innocent taxpayers. 453 U.S. at 261.

Accord Genty, 937 F.2d 899 (municipalities not liable under

RICO because of treble damages remedy); Barnier vy.

Szentmiklosi, 810 F.2d 594 (6th Cir. 1987) (treble damages

not allowed against a municipality under Michigan false

arrest statute). See also Browning-Ferris Industries of

Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 274-75

(1989) (equating treble and punitive damages in discussion

of the Eighth Amendment); Smith v. Wade, 461 U.S. 30, 36

(1983) (noting that treble damages in the patent code was a

punitive civil remedy).‘

4. Congress also understands treble iti

sanctions. For example, in passing the yep ane cng on aa

Act of 1984, and exempting municipalities from liability for treble

damages for antitrust violations, Congress explained: “The record

(Cont'd)

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 ). See

also Smith v. Wade, 461 U.S. at 36 (noting that civil fine in

1863 False Claims Act was a punitive remedy).

B. The Second Circuit Wrongly Concluded that the FCA

Is Not Punitive

The False Claims Act is punitive because it entitles the

federal government to recover both treble damages and a civil

penalty of between $5000 and $10,000 for each false claim.

31 U.S.C. § 3729%(a). As shown above, courts ordinarily

consider statutes with either treble damages or civil penalties

to be punitive.

The legislative history of the False Claims Act confirms

that the remedies were largely intended to serve punitive

purposes. Enacted in 1863, during the Civil War, the False

Claims Act was intended to address widespread and blatant

fraud by private military contractors, who had been billing

the United States for nonexistent or worthless goods,

charging exorbitant prices for goods, and generally

Cont'd . . *,* .

re abi however, the notion that municipalities — and their

taxpayers who must ultimately shoulder the burden — should not

be subject to punitive sanctions in the form of treble damages.

H. Rep. No. 98-965, 98th Congress, 2d Session 18 (1984), reprinted

in 1984 U.S.C.C.A.N. 4619. See also Florida Prepaid Postsecondary

Education Expense Board v. College Savings Bank, 119 S. Ct. 2199,

1999 U.S. LEXIS 4376, at *35 n.11 (1999) (noting that Congress

exempted United States from treble damages authorized in patent

infringement action against all other parties).

9

plundering the public treasury. See United States v. McNinch,

356 U.S. 595, 599 (1958). Its purpose was not merely to

compensate the federal government, but rather its “stringent

provisions are required for the purpose of punishing and

preventing these frauds.” McNinch, 356 U.S. at 600, quoting

Cong. Globe, 37th Cong., 3d Sess. 952 (1863). See also

Kenneth Mann, Punitive Civil Sanctions: The Middleground

Between Criminal and Civil Law, 101 YALE L: J. 1795, 1855,

1861 (June 1992) (intent of False Claims Act to punish

wrongdoers). To accomplish this purpose, Congress provided

for a civil action against contractors with remedies of double

damages and a $2000 penalty for each false claim. Cong.

Globe, 37th Cong., 3d Sess. 957 (1863).

The 1986 amendments to the Act increased the punitive

nature of the statute’s remedies by establishing the current

treble damages and $5,000 to $10,000 penalty per false

claim.* Making this change, “Congress understood very well

that it was instituting new ‘punitive sanctions.’ ” Mann, 101

YALE L.J. at 1860.° Congressman Fish, a sponsor of the

5. In addition, section 3730(d)(5) was added in 1986 to provide

that prevailing relators may be awarded reasonable attorneys’ fees

in addition to any other percentage of award recovered. S. Rep.

99-345, 99th Cong., 2d Session 29 (1986), reprinted in 1986

U.S.C.C.A.N. 5294. Previously, the FCA did not contain a specific

authorization for fees, and these were added to be “payable by the

defendant in addition to the forfeiture and damages amount.” /d.

Since the provision for attorneys’ fees represents yet another

monetary drain on a government defendant’s treasury, in addition

to treble damages and fines, it renders the current FCA remedial

structure more punitive.

6. In fact, in hearings conducted on the 1986 amendments, the

Department of Justice had opposed the change from double to treble

damages, and had suggested increasing the penalty from $2000 to

$5000, rather than $10,000, cautioning that judges ey ~ less

(Cont'd)

10

1986 amendments in the House, explained that the purpose

of the unamended Act’s

double damages recovery, with the accompanying

civil fine, is intended to be a substantial penalty

— to forcefully discourage individuals and

companies that do business with the United States

from engaging in fraudulent practices . . . the dual

purpose of any such law should always be to deter

as well as punish fraudulent conduct.

132 Cong. Rec. 22,336-37 (1986). In order to increase the

Act’s deterrent effect, however, the consensus was that

increasing the penalties from $2000 to $10,000 was

necessary. See 132 Cong. Rec. 22,335, 22,336 (1986)

(statements of Rep. Glickman and Rep. Brooks, respectively).

Augmenting the House’s increase in civil penalties, the

Senate bill allowed for the imposition of treble damages,

after reconciliation, the Senate’s treble damages clause and

the increase in civil penalties found in both bills were

adopted. Id. at 34; 31 U.S.C. § 3729(a).

In the face of this overwhelming evidence of the statute's

punitive purpose and effect, the Second Circuit rejected the

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

FCA were punitive and that the statute therefore did not

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

(Cont'd)

likely to hold in favor of the government if the penalties to be

assessed appeared punitive rather than remedial. Michael Lawrence

Colis, Settling for Less: The Department of Justice's Command

Performance under the 1986 False Claims Amendments Act, 7 Admin.

L. J. Am. U. 409 (Summer 1993), citing False Claims Reform Act:

Hearings on S. 1562 Before the Subcommittee on Administrative

Practice and Procedure of the Senate Committee on the Judiciary,

99th Cong., Ist Sess. 2 (1985) (statement of Jay B. Stephens, Deputy

Associate Attorney General, U.S. Department of Justice).

11

cursory discussion, the Second Circuit explained

double damages in the 1863 FCA were ann Aastha

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

However, the Second Circuit failed to examine either the

initial intent of Congress when it enacted the statute in 1863

or the critical issue of whether the change to treble damages

and escalation of penalties made the statute punitive.’ |

In contrast, the D.C. Circuit in United States ex rel.

v. SCS Business and Technical Institute, Inc., 173 mera

supp. op. 173 F.3d 890 (D.C. Cir. 1999) examined both issues,

and indicated that it considered the statute punitive. 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.” Jd. at 878.

Further, the court pointed out that the statute could be

characterized as remedial only prior to the 1986 amendments

when the statute provided for double damages of which the

government only received a one-half share. /d. at 877, citing

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

2d 343, 349 n.3 (S.D.N.Y. 1998) (holding that states and

municipalities were not persons under the FCA and the

Statute was punitive).* Thus, the court reasoned, once the

. 7. The Second Circuit also failed to consider its own earlier

decision in Hydrolevel Corp. v. American Society of Mechanical

Engineers, Inc., 635 F.2d 118, 126 (2d Cir. 1980), aff'd, 456 U.S. 556

(1982), in which it expressly recognized, even before the 1986

amendments, that the remedial scheme of the False Claims Act was

particularly punitive, since it called for both multiple damages and civil

penalties, rather than one or another.

8. The D.C. Circuit in Long relied heavily on the district

. .

analysis in Graber in determining that roca did not ve pam

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

not Graber, is Second Circuit law.” Long, 173 F.3d at 8750.7.

12

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.” Id. °

In sum, this Court should adopt the reasoning of the D.C.

Circuit, reject the perfunctory analysis of the Second Circuit,

and find that the statute imposes punitive remedies that

ordinarily may not be assessed against governmental entities.

United States may argue that governmental immunity from

PIP Bisa does not apply to suits brought by the United States,

an argument that was properly rejected in Graber, 8 F. Supp. 2d at 350-

351. As the court in Graber explained, the doctrine of governmental

immunity from punitive damages has its roots in policy considerations,

not in the law of sovereign immunity. /d. Those policy considerations

apply with full force to suits brought by the federal government:

“If City of Newport means anything at all, it means that it is up to

Congress to clearly signal its desire to subject municipalities to

exemplary damages, regardless of the plaintiff.” /d.

Further, the United States may claim that the 2 pasting “

tory rather than punitive, relying on double jeopardy

peora resco that an FCA civil suit does not bar a subsequent

criminal prosecution. See, e.g., United States v. Brekke, 97 F.3d 1043,

1048 (8th Cir. 1996), cert. denied, 520 U.S. 1132 (1997). In relying on

double jeopardy law, however, the United States would be ignoring the

critical 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 US. 537, 550 (1943)

(despite the fact that multiple civil damages provided for in the False

Claims Act 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).

13

C. Congress Did Not Clearly Intend to Abrogate

States’ and Localities’ Common Law Immunity

from Punitive Damages

Once it is established that the False Claims Act is

punitive, the only remaining issue is whether Congress

intended to abrogate governmental entities’ common law

immunity from punitive remedies. City of Newport, 453 U.S.

at 261. In light of the strong public policy reasons against

penalizing governments, courts require that congressional

intent to abrogate that immunity be clearly and specifically

expressed. Jd. To make this determination, courts examine

whether a statute “expressly authorizes” government liability

for punitive remedies. Jd. As shown below, there is no express

authorization of state liability in the language of the FCA,

and, in fact, the statutory language of the FCA and a

companion statute, the Program Fraud Civil Remedies Act,

as well as the weight of the legislative history, indicate that

Congress did not intend to subject states and their political

subdivisions to liability.

The statutory language is paramount in determining

congressional intent. See United States v. Oregon, 366 U.S.

643, 648 (1961) (where language of a statute is clear, there

is no occasion to look at legislative history). In the 1863

Act, there was no mention of the possibility of subjecting

states to liability. The Act subjected any “person” (not in the

military or naval forces of the United States) to liability for

double damages and civil penalties. See Cong. Globe, 37th

Cong., 3d Sess. 953 (1863). When the term “person” is

undefined (as in the 1863 Act), it is generally understood

not to include states. Will v. Michigan Dep't of State Police,

491 U.S. 58, 64 (1989). Cf. City of Newport, 453 U.S. at 258

(in 1863, the term “person” did not include municipalities

when punitive remedies involved).

14

Consistent with the 1863 Act, the plain language of the

1986 amendments supports the notion that states and other

governmental entities continued to be excluded from the

liability provisions of the Act. Congress specifically included

states only in the new “Civil investigative demands” (“CID”)

provision of the Act. 31 U.S.C. § 3733(1)(4). Under the CID

provision, “[w]henever the Attorney General has reason to

believe that any person may be in possession, custody or

control of any documentary material or information relevant

to a false claims law investigation,” the Attorney General

may serve pre-complaint discovery “upon such person.”

31 U.S.C. § 3733(a)(1). The CID provision goes on to define

“person,” stating, “/fJor purposes of this section, the term

‘person’ means any natural person, partnership, corporation,

association, or other legal entity, including any State or

political subdivision.” 31 U.S.C. § 3733(1)(4) (emphasis

added).

It is clear that “this section” refers only to the CID

provision, because that provision differentiates “this section”

from “sections 3729 through 3731 of this title,” which are,

respectively, the liability provision, the qui tam provision,

and the procedural provisions of the Act. 31 U.S.C. § 3733

(1)(1)(A). Thus, the definition of person in the CID section,

which includes states and political subdivisions, is

specifically not cross-referenced in the section of the Act

that subjects “persons” to liability, despite the fact that the

word “person” in the liability section is not defined. 31 U.S.C.

§ 3729.

By including states and localities in its definition of

person only in the pre-complaint discovery provision of the

Act, Congress indicated that it did not intend to abrogate

their common law immunity from liability under this Act.

Had Congress wished to include governmental entities in

the definition of person for purposes of liability, it could

15

easily have done just that. The fact that it included states in

one section and not in the other is strong evidence that

Congress did not intend to subject them to liability for treble

damages and penalties under this Act.'® See Singer,

SUTHERLAND STATUTORY CONSTRUCTION § 46.05 (5th ed. 1992)

(a statutory subsection may not be considered in a vacuum,

but must be considered in reference to the statute as a whole).

See also Long, 173 F.3d at 877 (agreeing with state that

limitation “for purposes of this section” defeats relator’s

argument that CID section evidences congressional intent to

subject states to liability).

The policy reasons for including states and political

subdivisions in the CID section are readily apparent.

Although not wishing to subject them to suit under the False

Claims Act, Congress evidently recognized that they may

have important information that may shed light on the nature

of false claims by private parties. In certain cases, the false

claim for payment may actually be made to a State or locality.

See, e.g., United States ex rel. Marcus v. Hess, 317 U.S. 537,

63 S. Ct. 379 (1943) (contracts to work on federally-funded

Public Works Administration project entered into with local

government); United States ex rel. Davis v. Long's Drugs,

411 F. Supp. 1144 (S.D. Cal. 1976) (claims for Medicaid

payments submitted to state). In such a circumstance,

Congress wished to ensure access to important evidence

against private parties that may reside only in the offices of

a governmental entity: “It seems rather obvious, however,

that states could provide useful evidence to establish

10. As the CID provision demonstrates, when Congress desires

to refer to states and their political subdivisions, it knows how to do

so. On many other occasions, Congress has explicitly defined the

phrase “person” to include states and political subdivisions.

See, e.g., 15 U.S.C. § 3002(1); 15 U.S.C. § 3301 (26); 33 U.S.C.

§ 1362(5); 33 U.S.C. § 1901(a)(8); 33 U.S.C.§ 2701(27); 42 U.S.C.

§ 2014(s); 50 U.S.C. § 167(2).

16

that private contractors, for exampie, made false claims.”

Long, 173 F.3d at 877."

Still more evidence that Congress did not intend to

subject states and localities to liability under the FCA is

provided by the language of a companion statute, the Program

Fraud Civil Remedies Act (“PFCRA”). Passed by the same

Congress within weeks of the 1986 amendments to the FCA,

the PFCRA provides an administrative remedy for false

claims in cases in which the Department of Justice declines

to bring court actions and the claim involves a maximum of

$150,000. 31 U.S.C. § 3801 et seg. The conduct prohibited

by this statute is identical to that prohibited in the FCA, with

the sole distinction being the monetary amount at issue.

31 U.S.C. § 3802. Further, the statute provides for penalties

of $5000 per false claim and an assessment of double

the amount of each false claim as remedies. 31 U.S.C.

§ 3802(a)(1)(D). On their face, these remedies are less

11. This interpretation is buttressed by the fact that the CID

section was modeled on the Hart-Scott-Rodino Antitrust

Improvements Act of 1976, which expanded pre-complaint discovery

for the Justice Department in antitrust cases. S. Rep. No. 99-345,

99th Cong., 2d Sess. 15 (1986), reprinted in 1986 US.C.C.A.N.

5280. Indeed, the Committee “intends that the legislative history

U.S.C.C.A.N. 5298. In that antitrust bill, the CID provisions were

broadened to allow for discovery against “non-target” third parties,

rather than merely targets. H. Rep. No. 94-1343, 94th Cong., 2d

Sess. 2 (1976), reprinted in 1976 U.S.C.C.A.N. 2597. At the same

time, person was defined in the CID provisions to include “any

natural person, partnership, corporation, association, or other legal

entity, including any person acting under color or authority of State

law.” a definition which would seem to encompass governmental

entities. 15 U.S.C. § 1311(f). Similarly, here, non-target

governmental entities are subject to being served with pre-complaint

discovery, even though they cannot be liable under the False Claims

Act.

17

punitive than the treble damages and up to $10,000

per false claim mandated by the FCA. sad

In the PFCRA, Congress expressed a clear intent not to

subject governmental entities to liability, because it expressly

defined the persons who would be subject to administrative

liability and omitted states and localities from that definition.

31 U.S.C. § 3801(a)(6) (“person” means “any individual

partnership, corporation, association or private

organization.”). As Congress did not mean to subject states

to liability for false claims under the PFCRA, it makes no

sense that the same Congress would have authorized state

liability for the identical conduct under the more punitive

FCA. See Long, 173 F.3d at 877 (“since both acts proscribe

essentially the same conduct, [citations omitted], it would

have been quite bizarre for Congress to exempt states from

administrative liability if it had thought that states already

were subject to the more onerous False Claims Act liability

of treble damages and penalties.”). Cf. Imazio Nursery, Inc

v. Dania Greenhouses, 69 F.3d 1560, 1568 (Fed. Cir. 1995).

cert. denied, 518 U.S. 1018 (1996) (“Where Congress uses

the same form of statutory language in different statutes

having the same general purposes, courts presume that

Congress intended the same interpretati ,

instances.”). 7 10n to apply in both

Consonant with the statutory language, the legislati

history of the 1863 Act supports the ee that Heenan

sole targets were private entities. As noted earlier, the False

Claims Act was intended to address fraud perpetrated by

private contractors on the military during the Civil War. The

discussion of the Act on the floor of Congress talked only

about fraudulent activity by “contractors” and

subcontractors;” there was absolutely no mention of the

submission of false claims by states nor any other indication

18

of an intent to encompass states within the Act’s sweep.

Cong. Globe, 37th Cong., 3d Sess. 952-58 (1863).”

Similarly, the discussions of the 1986 amendments on

the floor of Congress reveal no intention to subject states or

their political subdivisions to liability. There is absolutely

no mention of false claims by governmental entities.

Congress’s focus was entirely on fraudulent conduct of

private corporations. As Senator Grassley, the bill S sponsor

explained, the False Claims Act is “even more crucial today

as the Government spends hundreds of billions of dollars on

contracts with private corporations in areas such as defense,

aerospace and construction.” 131 Cong. Rec. 22,322 (1985)

(emphasis added)."* See also 132 Cong. Rec. 22,335, 22,340

(1986) statement of Rep. Stark) (discussing the 1986

amendments as reforming the incentives for “Government

contractors” to defraud); 132 Cong. Rec. 28,580, 28581

(1986) (statement of Sen. Grassley) (discussing bill’s targets

as “corporations”).

Indeed, in discussing the purpose of the amendments,

the point was made numerous times that the False Claims

12. In this case, the Second Circuit apparently believed that

the 1863 Congress was concerned about fraud perpetrated by state

officials on the federal government, basing this belief on the

publication of a House Report in 1862 that had noted the problem

of state officials’ participation in fraudulent activities. Stevens, 162

F.3d at 206. As the D.C. Circuit explained, however, the fraud of

state officials referred to in that House Report was not committed

against the United States government, and, in any event, this piece

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

Long, 173 F.3d at 876.

13. The Senate bill originally introduced as the False Claims

Reform Act of 1985, S.1562, later was enacted with a few

changes as the False Claims Act Amendments Act of 1 986. Ss. Rep.

No. 99-345, 99th Cong., 2d Sess. 13 (1986), reprinted in 1986

U.S.C.C.A.N. 5278.

19

Act’s ultimate beneficiaries are taxpayers. For example,

Senator Grassley stated that the bill “arises from a realization

that the government needs help — lots of help — to

adequately protect taxpayer funds from growing and

increasingly sophisticated fraud.” 132 Cong. Rec. 28,580

(1986). Similarly, Congressman Fish explained that the bill

“deals with the issue of civil and criminal penalties for those

who try to take advantage of taxpayers in this country by

filing false claims against the Government.” 132 Cong. Rec.

22,335 (1986). Since that is so, absent a clear expression of

congressional intent, this Court should not conclude that

Congress wished recoveries under the Act to come from some

of these same taxpayers — those who unfortunately happen

to reside in the particular state or local community found

liable under the Act. Cf. Dammon y. Folse, 846 F. Supp. 36,

38 (E.D. La. 1994) (“[A]}warding punitive damages against

the taxpayers of a municipal corporation whom RICO was

designed to protect would be counterintuitive to the very

purpose of the statute”).

In the face of this analysis of the statutory language and

legislative history, the Second Circuit nevertheless concluded

that states were “persons” subject to liability. With respect

to the statutory language, it viewed states as persons under

other statutory provisions and applied the principle that,

ordinarily, the same word means the same thing throughout

the statute. Stevens, 162 F.3d at 205. Upon close examination,

however, the Second Circuit's arguments fail.

First, the Second Circuit relied on the CID provision’s

inclusion of “states” in its definition of person. Jd. at 207.

However, as discussed above, Congress’s authorization of

discovery against states indicates just the opposite, since it

expressly limits the CID’s definition of “person” to that

section alone. See pp. 14-15, supra. Accord Long, 173 F.3d

at 877.

20

Second, the Second Circuit emphasized its belief that

the statute authorized states to be relators in two separate

provisions of the statute, reasoning that if states may be

plaintiffs under those sections they should also be potential

defendants. Stevens, 162 F.3d at 204-05. See 31 U.S.C.

§ 3730(b)(1) (section defining who may be a relator);

§ 3732(b) (section conferring jurisdiction on district courts

over state law Claims brought for the recovery of funds paid

by a state or locality). As the D.C. Circuit noted in Long,

however, it is doubtful that the consistent meaning principle

can be applied to this case, because this doctrine has an

important exception “ ‘[wJhere the subject-matter to which

the words refer is not the same in the several places where

they are used.’ ” Jd. at 881 n.15, quoting Atlantic Cleaners

& Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932).

Here, imposing liability is a quite different issue from

conferring a right to sue. /d. Accord Graber, 8 F. Supp. 2d at

351 n.7. In addition, according to the D.C. Circuit, the Second

Circuit’s reasoning was flawed because it equated

“meanings” enacted by two different Congresses — the 1863

Congress that enacted § 3729(a) subjecting persons to

liability and the 1986 Congress that amended the term person

in § 3730(b)(1). Long, 173 F.3d at 881 n.15. See also United

States v. American College of Physicians, 475 U.S. 834, 847

(1986).'*

14. Further, the definition of “person” in § 3729 is different

from the definition of “person” in § 3730. Section 3730(e)

specifically defines which persons may be relators and excludes

several categories of persons, but does not exclude states and local

governments. It is basic statutory construction that “the enumeration

of specific exclusions from the operation of a statute is an indication

that the statute should apply to all cases not specifically excluded.”

Erickson ex rel. United States v. American Institute of Biological

Sciences, 716 F. Supp. 908, 913 (E.D. Va. 1989) (citations omitted).

In contrast, no specific exclusions are contained in § 3729, the

liability provision of the FCA.

(Cont'd)

21

The Second Circuit’s analysis of the statute’s legislative

history is similarly defective, because it is contrary to this

Court’s established view of the insignificance of post-

enactment legislative history. Notwithstanding Congress's

clearly articulated concern for combating fraud among private

contractors, the Circuit relied on a section in the Senate

Report accompanying the 1986 amendments to the FCA,

which, in describing the “history of the FCA,” states that

“the term ‘person’ is used in its broad sense to include .. .

States and political subdivisions thereof.” S. Rep.

No. 99-345, 99th Cong., 2d Sess. 8 (1986), reprinted in 1986

U.S.C.C.A.N. 273. See Stevens, 162 F.3d at 207. As this Court

has held time and time again, statements in Committee

Reports are not authoritative if they purport “to define a

statutory term enacted by a prior Congress,” United States v.

American College of Physicians, 475 U.S. 834, 847 (1986).

Accord Pierce v. Underwood, 487 U.S. 552 (1988); Consumer

Product Safety Commission v. GTE Sylvania, Inc., 447 U.S.

102 (1980); Oscar Mayer & Co. v. Evans, 441

Se, , U.S. 750

Applying that principle, the D.C. Circuit in Long

recognized that this 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.” Long, 173 F.3d at 878. The court noted that such

post-enactment legislative history is of no import “when the

(Cont'd)

The D.C. Circuit in Long also noted that the consistent meaning

rule did not apply because it did not necessarily agree that states

could be relators. See discussion in Long at 173 F.3d at 879-81.

Amici, however, believe that states and local governments can be

relators, and that is no way inconsistent with shielding them from

liability under the Act. Allowing FCA suits against government

entities implicates common law immunities; allowing suits by such

entities does not.

22

subsequent Congress takes on the role of a court (or more

precisely, a committee of one House) and in its reports asserts

the meaning of a prior statute.” /d. at 878-79. Moreover, the

court reasoned, because the Report was attempting to

describe only 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,” Jd. at 879.

Accord Graber, 8 F. Supp. 2d at 353-54."

In sum, neither the statute’s language nor history

evidence Congress’s intent to abrogate governmental entities’

traditional common law immunity from punitive damages.

This Court thus should determine that states are not “persons”

subject to liability under the False Claims Act.

15. The statement appears only in a general section entitled

“History of the False Claims Act and Court Interpretations” that

discusses court interpretations of the Act, not in the Committee's

explanation of the specific sections of the Act that reference the

term “person.” On its face, therefore, it does not purport to be an

expression of Congress’ intent to include states as liable parties.

Rather, it reflects the Committee's understanding of case law under

the FCA prior to the 1986 amendments, and, as such, it shows the

Committee’s fundamental misapprehension of that law. In citing

three Supreme Court decisions, the Committee failed to recognize

that, in the 123 years in which the FCA had been in effect, no court

had ever held a governmental entity liable under the Act. As the

D.C. Circuit recognized, the cases cited have nothing to do with the

issue of whether an FCA case may be brought against a governmental

entity, and in fact do not involve the FCA at all. See Ohio v.

Helvering, 292 U.S. 360 (1934) (state not immune from federal

taxation when it engages in business of a private nature, as opposed

to when it performs a governmental function); Georgia v. Evans,

316 U.S. 159 (1942) (state may bring case as plaintiff under federal

antitrust statutes); Monell v. New York City Department of Social

Services, 436 U.S. 658 (1978) (municipalities may be held liable

for compensatory damages under 42 U.S.C. § 1983 if challenged

actions taken pursuant to official municipal policy).

23

Il.

ALLOWING STATE AND LOCAL GOVERNMENT

LIABILITY UNDER THE FCA THREATENS

DISRUPTION OF GOVERNMENT SERVICES AND

UNDERMINES PRINCIPLES OF FEDERALISM

AND STATE SOVEREIGNTY

States and 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, state and local

governments apply for and utilize federal funds for the benefit

of their citizens, sharing with the federal government both legal

and financial responsibility for implementing a wide variety of

government programs.

- Because of the range of services provided by states and

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

governmental entities, exposing 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 funding and administration designed

to ensure both compliance with federal requirements and the

provision of government services. Unless this Court reverses

the Second Circuit, FCA suits will be able to go forward against

states and localities even when the United States has suffered

no damages, has declined to intervene, has invoked

administrative procedures to correct possible violations, and/

or has concluded that there was no fraud involved.

For example, in United States ex rel. Dunle

; avy v. County

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

24

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.

Id. 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’s taxpayers 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.

Similarly, in an FCA case against the University of

Alabama, the State of Alabama defended against charges by a

former graduate student that her work was not properly identified

in the University’s grant applications to the National Institutes

of Health and that, as a result, the University had violated the

False Claims Act. United States ex rel. Berge v. The Board of

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

cert. denied, 522 U.S. 916 (1997). The district court allowed

the case to proceed to trial, despite the fact that the Office of the

Inspector General of the Department of Health and Human

that no action be taken because “ ‘many of the assumptions

behind the relator’s allegations [were] in error or exaggerations

of the truth ° ” Jd. at 1456. Although the Fourth Circuit reversed

the jury verdict awarding the United States $1.66 million on

the FCA allegations, determining that many of the alleged false

25

statements were, in fact, true, and that they were immaterial in

any event, Alabama nonetheless had to expend substantial

resources over the course of several years to defend itself in

this action.

In sum, invocation of the FCA against governmental entities

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’s ~

reversal of the Second Circuit’s decision in this case.

CONCLUSION

For the foregoing reasons, Court should reverse the Second

Circuit’s decision in this case.

Respectfully submitted,

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) 788-0800

LEONARD J. KOERNER*

Hicary B. Kein

Mariorie B. LANDA

Of Counsel

* Counsel of Record

26

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 DonaLp 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

RICHARD A. DEVINE 1390 Market Street

Cook County State's Attorney Sixth Floor

Patrick T. Drisco.t, JR. San Francisco, CA 94102

Deputy State's Attorney (415) 554-8730

Chief, Civil Actions Bureau

THOMAS BURNHAM

SANJAY T. TAILOR

Donna M. Lacu

Assistant State's Attorneys

Attorneys for Amicus Curiae

Cook County, Illinois

500 Richard J. Dale Center

Chicago, Illinois 60602

(312) 603-6934