# 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%3A12

## Record

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

## Text

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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0278%3A12. Public record. Not legal advice.