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

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STATE OF VERMONT AGENCY OF

NATURAL RESOURCES,

Petitioner,

v.

UNITED STATES OF AMERICA ex rel.

JONATHAN STEVENS,

Respondent.

On Wait or CERTIORARI TO THE

Untrep STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SCHOOL BOARD, LOUISIANA STATE SCHOOL

BOARD ASSOCIATION, LOUISIANA STATE

SCHOOL SUPERINTENDENTS ASSOCIATION,

MISSISSIPPI ASSOCIATION OF SCHOOL

SUPERINTENDENTS AND MISSISSIPPI SCHOOL

BOARDS ASSOCIATION IN SUPPORT

OF THE PETITIONER

Sam A. LEBLANC, III

Counsel of Record

SEAN D. Moore

ROBERT MARKLE

ADAMS AND Reese LLP

Attorneys for Amici Curiae

4500 One Shell Square

New Orleans, Louisiana 70139

(504) 581-3234

154929 @ Counsel Press LLC

FORMERLY LUTZ APPELLATE SERVICES

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

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TABLE OF CONTENTS

Table of Cited Authorities

Interest of the Amici Curiae

Summary of the Argument

: provisions, coupled with the attorney’s fees

provisions of the FCA, are punitive, and

therefore the FCA should not apply to states,

municipalities, or other local public entities

A. The FCA, as amended in 1986 to include

provisions for treble damages, civil

TABLE OF CITED AUTHORITIES

Page

Cases:

Ambus v. Granite Board of Education, 995 F.2d 992

(CAIO 1993) csi vccecccscuncsdvessnuepeeas 4

Amchem Products, Inc. v. Windsor, 521 U.S. 591,

117 &. Ce. 2238 CGS) vn winkotsanacenconaen 11,12

Ashwander v. TVA, 297 U.S. 288 (1936) ......... 8

Barnier v. Szentmiklosi, 810 F.2d 594 (CA6 1987)

oo 0.6 p bare's 0 ten eial eis wibieed se 4iaane Naren 18, 22

Belanger v. Madera Unified Sch. Dist., 963 F.2d 248

(CA9 1992), cert. denied, 507 U.S. 919 (1993)

pevesecenssébvackh cde swab is Shenae 5

Bertot v. School District No. 1, Albany County, Wyo.,

613 F.2d 245. (CA10 1979) 2. ccccsccvecvcvess 4

Bivens v. Six Unknown Named Agents of Federal

Bureau of Narcotics, 403 U.S. 388 (1971) ..... 18

Blair v. United States, 250 U.S. 273 (1919) ...... 9

BMW of North America, Inc. v. Gore, 517 U.S. 559

(1DSG) cis cvdcdvasidoevnes meceee aan 23

Caddo Parish School Bd. v. Board of Elections Sup’r

of Caddo Parish, 384 So. 2d 448 (La. 1980) ... 3,4

iii

Cited Authorities

Page

Calderon v. Ashmus, 523 U.S. 740, 118 S. Ct. 1694

SE Ain aredidiaad n 4-004 3k6 0d 65% wes v0 aes 11

City Council of Atlanta v. Gilmer & Taylor, 33 Ala.

SET GPa Ae et eWuvhnbascc ces doceslée oc 19

City of East St. Louis v. Circuit Court, 986 F.2d

als tic ak ss canes Che ees ca 24

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

en Wd SG cPeahobstees 16, 17, 18, 19, 20, 21, 22, 23

Delta Special Sch. Dist. No. 5 v. State Bd. of Educ.,

Se ee Ee CRA BO soccer csccccceccecs 24

Dombrowski v. Eastland, 387 U.S. 82 (1967) ..... 9

Eckerd v. Indian River Sch. Dist., 475 F. Supp. 1350

ee esa os cawaek abate eon 4

Electrical Workers v. Foust, 442 U.S. 42 (1979) .. 17

Fay v. South Colonie Cent. Sch. Dist., 802 F.2d 21

RR TREE EE EE a ee a 4

Gary A. v. New Trier High School Dist. No. 203,

796 F.2d 940 (CA7 1986) ...............4.5.. 4

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

TEES Disk alin badd de ceseese 23

iv

Cited Authorities

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974)

Hafer v. Melo, 502 U.S. 21 (1991) .........-.+.-

Harmon v. Brucker, 355 U.S. 579 (1958) ........

Haynesworth y. Miller, 820 F.2d 1245 (CADC 1987)

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

Hutchinson v. Proxmire, 443 U.S. 111 (1979) ....

Idaho v. Coeur d'Alene Tribe of Idaho, 521 U.S. 261

COSD ED oc cdccesccnnecvcetecccsdetsnaneaees

In re Real Estate Title and Settlem. Servs. Antitrust

Litig., 869 F.2d 760 (CA3), cert. denied, 493 U.S.

O26 CIDER ic cxconcctacesabvcunasssaretoas

Lester H. ex rel. Octavia P. v. Gilhool, 916 F.2d 865

(CA3 1990), cert. denied, 499 U.S.923 (1991)

Lyng v. Northwest Indian Cemetery Prot. Ass'n, 485

US. GIO CIID hv cvenc chcbwlbcustecuspuare

Massey v. City of Oklahoma, 643 F. Supp. 81 (W.D.

ORR, ISDE ove cncccrvecenncdsphoaeientsas

Page

Cited Authorities

Page

McGrary v. President & Council of Cit of Lafayette,

Re BO. GER GER, BOGE ook ccc cvcckivscctcisns 19

Memphis Community School District v. Stachura,

SFT Us Se CHD oc con he cdeasdeaeeirsccs 17

Minton v. St. Bernard Parish School Board, 803 F.2d

PR CED kckscdeceeebiteset eisemnctee 4

Mt. Healthy City School District Bd. of Educ. v.

Doyle, 429 U.S. 274 (1977) .........02ceeeee 12

Order of Hermits of St. Augustine v. County of

Philadelphia, 4 Clark 120, Brightly NP 116

GP EEE bev kncncivdabas Voth ceverebedtes 19

Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1

CEP ki cnc ced dbvGaeads ba bonnyes Fackinads 23

Pelfresne v. Village of Rosemont, 22 F. Supp. 2d 756

ee SEE sah dh se tgharesescocseecee 23

Rosa R. v. Connelly, 889 F.2d 435 (CA2 1989), cert.

denied, 496 U.S. 941 (1990) .........000005. 4

Ross v. Bernhard, 396 U.S. 531 (1970) .......... 16

Rousselle v. Plaquemines Parish School Board, 633

eR, BE Ee GE ROD Bic hb vtewenetaesvccic< 3

Smith v. Wade, 461 U.S. 30 (1983) ............. 15, 16

vi

Cited Authorities

Page

South Carolina v. Katzenbach, 383 U.S. 301 (1966)

Le wepebd ondes pasaeubenhneeeeeetesaeeen 23, 24

Stanley v. Darlington County School Board Dist.,

84 F.3d 707 (CA4 1996) .... 2... eee eee ewe 24

Stewart v. Baldwin County Bd. of Educ., 908 F.2d

1499 (CAI11 1990) ....... 22 cee eee ee eeeeees 4

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

U.S. 630 (1981) . 0... cee ec cccccccesccneces 16

Travelers Indem. Co. v. School Bd., 666 F.2d 505

(CA11), cert. denied, 459 U.S. 834 (1982) ..... 4

Tull v. United States, 481 U.S. 412 (1987) ....... 17

Unified Sch. Dist. No. 480 v. Epperson, 583 F.2d

1118 (CA10 1978) ..... cece ccccceccecenes 4

United States v. Bornstein, 423 U.S. 303 (1976) ..14, 15

United States v. Halper, 490 U.S. 435 (1989) .... 14

United States v. Stella Perez, 839 F. Supp. 92

(D. Puerto Rico 1993), reversed on other grounds,

55 F.3d 703 (CAI 1995) ........- 5c eee nees 14

United States Dep't of Energy v. Ohio, 503 U.S. 607

CRDDED . ov cvdwccicccuccctgtapaedooscenessses 17

vil

Cited Authorities

Page

United States ex rel. Chandler v. Hektoen Institute

for Medical Research, 35 F. Supp. 2d 1078 (N.D.

Sle ME ond oN Koc bieamakks be Bekins es 5

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

171 F.3d 279 (CAS 1999) ................... 9,10

United States ex rel. Garibaldi v. Orleans Parish

School Board, 46 F. Supp. 2d 546 (E.D. La. 1999)

$66 Wengeelontbse LAUR AEE nde b6e dA ed ieee —-

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

8 F. Supp. 2d 343 (S.D.N.Y. 1998) ........... 5

United States ex rel. Long v. SCS Business &

Technical Industries, Inc., 173 F.3d 870 (CADC

1999), supplemented, 173 F.3d 890 (CADC 1999),

petition for cert. filed, 68 USLW 3116 (1999) ..

dicta vous band snk Kaa wadee nie 10, 11, 13, 15, 16

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

SED 0 i'o.6-6 onWdKbaeUeD Le aled bis dcbeaees 15

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

of Minn., 154 F.3d 870 (CA8 1998) .......... 13

Wisconsin Dep't of Corr. v. Schacht, 524 U.S. 381, 118

Meee CEU bs dbwiniaddancvsddeukicccecs 9,10

Woods v. Graphic Communications, 925 F.2d 1195

ERED caches ba bbdohs 62 chases ackddeeke 18

Wulf v. City of Wichita, 882 F.2d 842 (CA10 1989)

vill

Cited Authorities

Page

Statutes:

1 U.S.C.A. § 2 (West Supp. 1999) ..........55-. 3

20 U.S.C.A §§ 1221-1234h (West 1990) ......... 21

20 U.S.C.A. § 1234(b) (West 1990) .........5.. 21

31 U.S.C.A. § 3729 2... ccc ccsccccceceseveons 5,8

31 U.S.C.A. §§ 3729-3733 (West Supp. 1999) .... l

31 U.S.C.A. § 3729(a)(7) (West Supp. 1999) ..... 14

31 U.S.C.A. § 3730 (West 1998) ..........6005- 8

31 U.S.C.A. § 3730(b) (West 1998) ............ 2

31 U.S.C.A. § 3730(c) (West 1998) ............. 2

31 U.S.C.A. § 3730(d) (West Supp. 1999) ....... 14

31 U.S.C.A. § 3730(d)(1) (West Supp. 1999) ..... 15

31 U.S.C.A. § 3730(d)(2) (West Supp. 1999) ..... 15

42 U.S.C. § 1983 2... cc ccc encccccccees 15, 18, 19, 23

42 U.S.C.A. § 1983 (West 1998) ............+... 12

La. Rev. Stat. Ann. § 17:51 (West 1982) ........ 3

ix

Cited Authorities

United States Constitution: ths

Pe INS Sse aah sv iene teak dered: 24

Eleventh Amendment .......... 4, 5, 6, 8,9, 10, 11, 12

Fourteenth Amendment ....................... 24

Other Authorities:

False Claims Act, 12 Stat. 696 (1863) ........... 16

La. Const. art. VIII, § 9(A) (West 1996) ......... 3

S. Rep. No. 345, 99th Cong., 2d Sess. (1986) ..... 13

a ee

l

INTEREST OF THE AMICI CURIAE

Amici Curiae Orleans Parish School Board (“the Board”),

the Louisiana State School Board Association, the Louisiana

State School Superintendents Association, the Mississippi

School Boards Association, and the Mississippi Association of

School Superintendents are vitally interested in the Court’s

resolution of this case.' The Court’s decision is likely to have a

direct impact on the continued economic viability of public

school systems nationwide.

Recent events justify this concern. The Board was cast in

judgment in a qui tam suit filed under the False Claims Act,

31 U.S.C.A. §§ 3729-3733 (West Supp. 1999) (“the FCA”).

See United States ex rel. Garibaldi v. Orleans Parish School

Board, 46 F. Supp. 2d 546 (E.D. La. 1999). The relators, two of

the Board’s internal auditors, alleged that the Board had been

allocating a disproportionate share of federal dollars, compared

to local dollars, to fund its unemployment compensation and

workers’ compensation programs. This allocation was based

on a methodology that had been recommended by a third party

contractor and reviewed annually by a national accounting firm

for more than a decade. Nonetheless, a jury determined that

this accounting technique fraudulently overcharged the federal

government over a ten year period in the amount of $4.6 million

for unemployment compensation and $3 million for workers’

compensation.

Under the FCA’s mandatory trebling provisions, those

“compensatory” damages were tripled. In addition, under the

FCA’s mandatory civil penalties, the court felt compelled to

assess the minimum of $5000 “per claim” against the 1570

reimbursement requests made over the years by the Board.

1. Neither counsel for the Petitioner nor counsel for the

Respondent authored this brief in whole or in part. No person or entity,

other than the amici curiae, their members, or their counsel made a

monetary contribution to the preparation or submission of the brief.

See Supreme Court Rule 37.6.

2

Finally, with the addition of mandatory attorneys’ fees, the

ultimate judgment exceeded $31 million. Both the Board and

the relators appealed the judgment.* The United States

Department of Justice had originally declined to intervene in

the suit’ and specifically refused to be involved in the appeal.

Contemporaneously with the litigation, but entirely separate

from it, the United States Department of Education has been

attempting to obtain reimbursement for the same “overcharges.”

In an OIG audit, the Inspector General found that for the years

1992-96 the Board overcharged $2.6 million for the

unemployment compensation program; it said overcharges in

workers’ compensation, if any, were de minimis. The report did

not mention fraud.

As a result of the Orleans Parish School Board litigation,

all of the amici herein are concerned for their members. Because

the qui tam relators in the Board’s case used public records to

develop a theory of accounting fraud, among other reasons,

amici are concerned they could become easy prey for

enterprising bounty hunters who will subject school systems

— supposedly “deep pockets” — to expensive litigation that

could impair if not cripple them in achieving their mission of

educating our youth. Moreover, amici are concerned that the

apparent overlap with available administrative remedies of the

2. Responding to the Board’s post-trial motions, the trial court

reduced the total judgment to slightly more than $22 million, still a

substantial imposition. The Court, after assessing 1570 claims at a $5000

civil penalty each, for a total of $7,850,000, decided that a “penalty of

$100,000 is an adequate forfeiture, as the automatic trebling of the

verdict as prescribed in the statute has already resulted in a judgment

for $15.8 million more than was actually falsely claimed by the [Board].”

See Garibaldi, 46 F. Supp. 2d at 565. The court found the judgment,

for “over four times the losses actually incurred” by the Government,

to be “excessive.” /d.

3. The Government has the option to intervene and to direct the

course of the proceedings if it elects to intervene. See 31 U.S.C.A.

§§ 3730(b)&(c) (West 1998).

EE STENT — i al

3

U.S. Department of Education will subject them to a kind of

double jeopardy.

Amici curiae are also concerned about the ongoing exposure

to punitive FCA liability for another reason. Local governmental

entities are particularly vulnerable to lawsuits by disgruntled

employees intent on winning a share of the FCA’s bounty. In recent

years, the number of FCA actions filed against local public entities

has increased. These suits expose taxpayers of local governments

to litigation costs, the risk of harsh penalties, and the threat of

disruption of federally funded government services. In the case of

the Board and the other amici curiae, the costs are borne ultimately

by public school students of all ages.

Unlike a private corporation, a local governmental agency

enjoys a cooperative relationship with the federal government.

The federal government provides funding for services that a

local government, in turn, provides directly to its residents. The

effect of FCA suits is to frustrate the cooperative relationship

between the federal and local governments. The threat of

disruption of services or the reticence of a local government's

availing itself of federal funding because of its vulnerability to

an FCA lawsuit for draconian damages are each impediments

under which amici curiae must operate daily.

The Orleans Parish School Board is a “creature[{] of the

Louisiana Constitution with [its] duties and obligations defined

by statute.” Rousselle v. Plaquemines Parish School Board, 633

So. 2d 1235, 1241 (La. 1994); see La. Const. art. VIII, § 9(A)

(West 1996) (directing the legislature to “create parish school

boards and provide for the election of their members”). The

legislature created one parish* school board for each parish.

See La. Rev. Stat. Ann. § 17:51 (West 1982). It has entrusted

the management of public schools statewide to the parish school

boards. Rousselle, 633 So. 2d at 1241 (citing Caddo Parish

School Bd. v. Board of Elections Sup’r of Caddo Parish, 384

4. Parishes are Louisiana's equivalent to counties. See 1 U.S.C.A.

§ 2 (West Supp. 1999).

4

So. 2d 448 (La. 1980)). Under Louisiana law, “[a]s

administrators of public education, school boards are agencies

of the state.” Id.

While Louisiana caselaw deems the Board an agency of

the state, the Court of Appeals for the Fifth Circuit has held

that school boards in Louisiana ez¢ not arms of the state for

purposes of Eleventh Amendment analysis. See Minton y. St.

Bernard Parish School Board, 803 F.2d 129, 132 (CAS 1986).

Consequently, should this Court resolve the case on the basis

of the Petitioner’s Eleventh Amendment immunity, the judgment

would afford no protection to the Board and its many

counterparts, leaving school boards and districts in many states

vulnerable to FCA claims.°

5. Courts of Appeals have reached varying conclusions on the

question whether a school board is an arm of the state for purposes of

the Eleventh Amendment. The Tenth Circuit, in Ambus v. Granite Board

of Education, 995 F.2d 992, 997 (CA10 1993) (en banc), denied Eleventh

Amendment immunity to the Utah school districts. It likewise denied

immunity to Kansas school districts, Unified Sch. Dist. No. 480 v.

Epperson, 583 F.2d 1118 (CA10 1978), based upon the facts of each

case. In Bertot v. School District No. 1, Albany County, Wyo., 613 F.2d

245 (CA10 1979) (en banc), the court noted that the issue of Wyoming

school district immunity under the Eleventh Amendment was not directly

implicated, but assumed that the applicable test would compel a ruling

against a finding of immunity. See id. at 248 n.3. Nearly all other courts

considering the issue have refused to grant local school districts Eleventh

Amendment immunity. See, e.g., Lester H. ex rel. Octavia P. v. Gilhool,

916 F.2d 865 (CA3 1990) (Pennsylvania school districts), cert. denied,

499 U.S.923 (1991); Stewart v. Baldwin County Bd. of Educ., 908 F.2d

1499 (CA11 1990) (Alabama school boards); Rosa R. v. Connelly, 889

F.2d 435 (CA2 1989) (Connecticut school boards), cert. denied, 496

U.S. 941 (1990); Fay v. South Colonie Cent. Sch. Dist., 802 F.2d 21

(CA2 1986) (New York school districts); Gary A. v. New Trier High

School Dist. No. 203,796 F.2d 940 (CA7 1986) (Illinois schoo! districts);

Travelers Indem. Co. v. School Bd., 666 F.2d 505 (CA11) (Florida boards

of education), cert. denied, 459 U.S. 834 (1982); Eckerd v. Indian River

Sch. Dist., 475 F. Supp. 1350 (D. Del. 1979) (Delaware school boards);

(Cont'd)

5

Resolving the case on the Eleventh Amendment issue would

leave many public entities at substantial risk of financial ruin.

Similarly, a determination by this Court that the Petitioner cannot

be deemed a “person” under section 3729 because it is an agency

of a sovereign state would leave the same entities with

substantial punitive exposure. The amici curiae agree with the

Petitioner that the FCA does not apply to States. Rather, the

purpose and intent of the FCA, as well as sound public policy,

compel a ruling that public entities of all kinds cannot be

“persons” under the Act.®

Blameless state and local taxpayers should not be mulcted,

nor innocent school children deprived of educational

opportunities, so that a qui tam relator might earn a handsome

fee. Thus, the amici curiae urge this Court to reverse the

judgment of the Second Circuit, direct that court to dismiss the

claims against the Petitioner, and hold that the term “person,”

as used in the FCA, does not include public entities.

(Cont'd)

but see Belanger v. Madera Unified Sch. Dist., 963 F.2d 248 (CA9 1992)

(granting Eleventh Amendment immunity to California school districts

in light of “near total authority” exercised by state), cert. denied, 507

U.S. 919 (1993).

6. As the Court has recognized by granting the petition for

certiorari in this case, a conflict among the circuits exists regarding

various aspects of the FCA, namely, whether a public entity can be a

“person” as that term is used in the statute, whether the Eleventh

Amendment bars such suits against states, whether the penalty

provisions are mandatory, and whether the FCA itself is punitive in

nature. While many of the FCA defendants are either sovereign states

or “arms of the state,” still others that have fallen victim to the FCA’s

bounty hunters are public entities other than states. See, e.g., United

States ex rel. Chandler v. Hektoen Institute for Medical Research, 35 F.

Supp. 2d 1078 (N.D. Ill. 1999) (county); United States ex rel. Graber v.

City of New York, 8 F. Supp. 2d 343 (S.D.N.Y. 1998) (municipality).

6

SUMMARY OF THE ARGUMENT

The Court is presented with two grounds for reversing the

judgment of the Second Circuit. First, there is a statutory basis

for reversing the lower court’s ruling that a State is included as

a “person” defendant under the FCA. Second, there is a

constitutional basis for determining that a State is not subject

to liability under the FCA because of immunity from suit under

the Eleventh Amendment. Based upon principles of judicial

restraint espoused in the federal judicial system, the Court

should resolve this case on the statutory basis and resort to the

constitutional argument only if the Court resolves that the term

“person” includes States.

This determination will allow the Court to avoid the

constitutional question unless it is necessary to the disposition

of the case. Nor must the Eleventh Amendment issue be

addressed first as one of subject matter jurisdiction. The Court

has not held Eleventh Amendment immunity to be determinative

of subject matter jurisdiction. Indeed, Eleventh Amendment

immunity may be waived. Holding Eleventh Amendment

immunity to be jurisdictional would be contrary to the maxim

that the parties may not confer jurisdiction upon a court. It would

allow a party to supply subject matter jurisdiction by waiver.

The FCA does not apply to States, or to municipalities or

other public entities, for the simple reason that it mandates

punitive damages. This Court has held that public entities are

not subject to punitive damages because the retributive and

deterrent effects of such damages are not visited upon the actual

wrongdoers, but upon taxpayers and citizens.

The FCA originally included criminal sanctions, and, in

its present form, mandates the trebling of compensatory

damages and the imposition of additional civil penalties of

$5,000 to $10,000 per claim. This Court has held the previous

version of the FCA to be compensatory, but has not addressed

the punitive nature of the present version. The Court, however,

7

has held other federal statutes that impose treble damages to be

like those imposed by the FCA in addition to treble damages,

are punitive. The present version of the FCA imposes both treble

damages and heavy civil penalties, in addition to attorney's fees.

It is clearly punitive and does far more than compensate the

Government for its losses.

. Under this Court’s precedent, public entities, including not

just States but also municipalities and other local governmental

entities, are not subject to liability for punitive damages unless

Congress expressly provides otherwise. Such damages are

intended to have retributive and deterrent effects, and those

effects are not properly visited upon taxpayers and citizens who

ultimately bear the cost of punitive damages. The taxpayers

and citizens are innocent of any act to be punished or deterred.

Instead, the only thing an award of punitive damages against

such a public entity accomplishes is the creation of a risk to the

financial integrity of the governmental entity and its ability to

serve the needs of the citizenry. In the case of some statutes

that award both compensatory and punitive damages, all a court

need do in dealing with a public entity is award the

compensatory damages. The FCA leaves no discretion or

distinction for the award of compensatory damages but mandates

that damages be trebled and that an additional civil penalty be

assessed. In such a case, the immunity is from the statute, not

from the damages. However, such immunity does not leave the

Government without a remedy. For instance, in the case of the

being utilized to address the same transactions that form the

basis for the FCA action.

A finding that a State is not a “person” defendant under the

FCA based purely on statutory interpretation, legislative history,

and the traditional notion that the term “person” does not include

a sovereign state will not necessarily assist a public entity such

as the Board. Such public entities may not be considered to be

the State for purposes of determining Eleventh Amendment

immunity or sovereignty issues. Thus, even though such a

finding will free States from the threat of punitive damages under

the FCA, the taxpayers and citizens served by municipalities

and other local governmental entities will remain subject to the

mandatory treble damages, civil penalties, and attorney's fees.

This Court, however, can easily hold, under its ."r ar precedent,

that the FCA does not apply to States, munic.;:#l.ties, or other

local governmental entities because it is punitive and does not

expressly apply to such public bodies.

ARGUMENT

I. This Case is Properly Resolved on Statutory Grounds

The Petitioner, State of Vermont Agency of Natural

Resources, asserts that it is not subject to liability in a qui tam

action for two reasons: (1) because it is not a “person” that may

be a defendant under 31 U.S.C.A. § 3729 (West 1998), and

(2) because a qui tam action brought against a state or one of its

agencies under 31 U.S.C.A. § 3730 (West 1998) is barred by

the Eleventh Amendment. Principles of judicial restraint,

however, counsel that the Court should first address whether

the Petitioner may be a “person.” The Court need not, and should

not, reach the constitutional issue unless it first answers that

question in the affirmative.

A fundamental principle of judicial restraint requires that

federal courts avoid resolving constitutional questions in

advance of the necessity of deciding them. See, e.g., Lyng v.

Northwest Indian Cemetery Prot. Ass'n, 485 U.S. 439, 445-46

(1988); Ashwander v. TVA, 297 U.S. 288, 346-348 (1936)

(Brandeis, J., concurring). In Harmon v. Brucker, 355 U.S. 579

(1958), for example, the Court, recognizing its “duty to avoid

deciding constitutional questions presented unless essential to

proper disposition of a case,” “look{ed] first to [the] petitioners’

nonconstitutional claim that respondent acted in excess of

powers granted him by Congress.” /d. at 581.

9

Similarly, in Blair v. United States, 250 U.S. 273 (1919),

the Court explained that “[c]Jonsiderations of propriety, as well

as tr am ep practice, demand that [it] refrain from

passing upon the constitutionality of an act of Congress unless

obliged to do so in the proper performance of [its) judicial

function, when the question is raised by a party whose interests

entitle him to raise it.” Jd. at 279. The fundamental proposition

that an Article III court should avoid deciding a case on

constitutional grounds if it may resolve the matter by construing

a statute persists today throughout the federal judiciary, where

exceptions are few.’

In a recent False Claims Act case, United States ex rel.

Foulds v. Texas Tech Univ., 171 F.3d 279 (CAS 1999), the Court

of Appeals for the Fifth Circuit chose to resolve a constitutional

question, i.e., the Eleventh Amendment issue, before reaching

a question of statutory interpretation. The Foulds court viewed

Eleventh Amendment immunity as immunity from suit, and,

bestene. 4 ‘the j ity issue jurisdictional. Ny

a threshold determination of the matter. Jd. at 285-87.

In the same opinion, however, the Fifth Circuit recognized

that whether El h A , , ity is jurisdictional

remains an open question in this Court. /d. The Court itself has

explicitly so stated. See Wisconsin Dep't of Corr. v. Schacht,

524 U.S. 381, __, 118 S. Ct. 2047, 2054 (1998). Bearing in

mind that Eleventh Amendment immunity may be waived by a

7. This Court recognized one such exception Hutchinson

Prazmire, 443 US. 111 (1979). There, the Court conceded that special

considerations mandated that it first resolve the constitutional questions.

Id. at 122-23. At issue was the Speech or Debate Clause of the

Constitution, whose purpose is to protect Members of Congress

not only from the consequences of litigation’s results but also from

the burden of defending themselves.’ ” /d. (quoting Dombrowski v.

Eastland, 387 U.S. 82, 85 (1967)). No such issue is present here where,

Se ee en nen On many gaeenth, te Gover of

Petitioner yields the same result as would a determination

constitutional issue. . i hes

10

State, thereby conferring federal “subject matter jurisdiction,”

but that subject matter jurisdiction cannot be stipulated by the

parties, the amici curiae urge that the Eleventh Amendment is

better viewed as providing a waivable immunity rather than as

depriving a court of subject matter jurisdiction.

In light of the foregoing principles of judicial restraint,

however, the Court need not reach this issue if the case can be

resolved on statutory grounds. This point is illustrated by the

District of Columbia Circuit in United States ex rel. Long v.

SCS Business & Technical Industries, Inc., 173 F.3d 870 (CADC

1999), supplemented, 173 F.3d 890 (CADC 1999), petition for

cert. filed, 68 USLW 3116 (1999), another False Claims Act

case. In a supplemental opinion on the merits, the court reached

a result directly contrary to that of the Fifth Circuit in Foulds.

See Long, 173 F.3d at 898. In the words of the District of

Columbia Circuit, its approach “has the significant virtue of

avoiding a difficult constitutional question. . . .” Jd.

The Long court wrote its supplemental opinion after the

Fifth Circuit issued Foulds. The District of Columbia Circuit,

per Silberman, J., noted first that the Foulds court believed it

was compelled to decide the Eleventh Amendment issue before

reaching the statutory question. Because the Long court viewed

Foulds as an implicit challenge to its jurisdiction, and because

the court had not yet issued its mandate, it addressed the question

whether it was required to decide the Eleventh Amendment issue

first. See Long, 173 F.3d at 891.

The Eleventh Amendment bar on suits against the states in

federal court “is not a garden variety jurisdictional issue.”

Id. at 892. Although the Amendment speaks in terms of the

limits of the judicial power, a state can waive its Eleventh

Amendment defense and consent to suit in federal court, and

this Court has held that there is no obligation for a court to raise

the issue sua sponte. See Schacht, 524 U.S. at __, 118 S. Ct. at

2052-53.

Oe

11

Further, this Court has recognized that the Eleventh

Amendment is a rather peculiar kind of jurisdictional issue.

See Calderon v. Ashmus, 523 U.S. 740, __ n.2, 118 S. Ct. 1694,

1697 n.2 (1998) (“While the Eleventh Amendment is

jurisdictional in the sense that it is a limitation on the federal

court’s judicial power, and therefore can be raised at any stage

of the proceedings, we have recognized that it is not coextensive

with the limitations on judicial power in Article III”).

“The Amendment . . . enacts a sovereign immunity from suit,

rather than a nonwaivable limit on the federal judiciary’s subject-

matter jurisdiction.” Idaho v. Coeur d’Alene Tribe of Idaho, 521

U.S. 261, 267 (1997). That this Court in Calderon thought itself

obliged to decide first the case-or-controversy question suggests

that the Eleventh Amendment, a less than pure jurisdictional

question, need not be decided before a merits question. See Long,

173 F.3d at 894.

As the Long court explained, when a court decides that a

statute does not provide for a suit against the states, there is no

risk at all that the court is issuing a hypothetical judgment, i.e.,

an advisory opinion by a court whose very power to act is in

doubt. Rather, the conclusion that the statute does not provide

for suits against the states in federal court is, in effect, a

resolution of the jurisdictional question in that the Eleventh

Amendment can no longer be said to apply. See id. at 896. This

Court, only two terms ago, adopted this reasoning in deciding a

class action certification issue before reaching an asserted array

of jurisdictional barriers, including ripeness, standing, and

subject matter jurisdiction. In Amchem Products, Inc. v. Windsor,

521 U.S. 591, 117 S. Ct. 2231 (1997), the Court explained that,

because resolution of the class certification issues was “logically

antecedent to the existence of any Article III issues, it [was]

appropriate to reach them first.” Jd. at__, 117 S. Ct. at 2244.

Here, the jurisdictional issue would arise solely because of

the Court’s assumption of the answer to the statutory question

in favor of the Respondent. Because the Eleventh Amendment

12

issue would not exist but for that assumption, see id., it is

appropriate for the Court to decide the logically prior issue first.

In fact, the Court has done so in other contexts. See, e.g., Hafer

v. Melo, 502 U.S. 21, 21-30 (1991) (holding that state officials

sued in their individual capacities are persons under 42 U.S.C.A.

§ 1983 (West 1998), and then holding that the Eleventh

Amendment presents no bar to such a suit); Mt. Healthy City

School District Bd. of Educ. v. Doyle, 429 U.S. 274, 278-80

(1977) (deciding first that the contention that municipalities

were not persons under section 1983 was a merits question that

had been waived, and then deciding that the Eleventh

Amendment does not bar a suit against a municipality in federal

court).

Based upon this Court’s willingness to decide other

Statutory questions in advance of an Eleventh Amendment issue,

and considering the salutary effect of avoiding a troublesome

constitutional issue, amici curiae urge the Court to adopt the

better-reasoned approach of the District of Columbia Circuit

and resolve the case based upon the construction of the FCA.

Il. The mandatory treble damages and penalty

provisions, coupled with the attorney’s fees provisions

of the FCA, are punitive, and therefore the FCA

should not apply to states, municipalities, or other

local public entities

The Petitioner has argued that the Court should hold that

the definition of a defendant “person” under the FCA does not

include a State because the plain language of the FCA shows

that it does not include a State, and the legislative history of the

FCA does not indicate otherwise. Additionally, the Petitioner

has set forth that the term “person” does not generally include a

State, because the term “person” does not ordinarily include

the sovereign. Contrary to the assertions of some courts that

have reviewed the FCA’s legislative history, there is no indication

whatsoever that Congress intended to include a state or other

public entity within the FCA statutory term “person.”

a

~

13

In fact, Judge Silberman, for the court in Long, engaged in

an exhaustive refutation of such assertions. See Long, 173 F.3d

at 875-81. Particularly significant is the discussion of a so-called

“smoking gun” piece of legislative history. The relators in Long

pointed to a Senate Report issued at the time Congress amended

certain provisions of the Act. That report, S. Rep. No. 345, 99th

Cong., 2d Sess., at 8 (1986), purported to be purely descriptive

legislative history of the FCA. According to the relators, the

Senate Report confirmed that the Congress of 1863, 103 years

earlier, intended to include states as defendant persons, an

argument accepted by both the Second Circuit in this case and

the Eighth Circuit in United States ex rel. Zissler v. Regents of

the Univ. of Minn. 154 F.3d 870, 874-75 (CA8 1998). Skeptical

of the validity of such “postenactment legislative history,” the

Long court explained that this sort of “history” becomes of

“absolutely no significance” when the subsequent Congress,

or, more precisely, a committee of one House, “takes on the

role of a court and in its reports asserts the meaning of a prior

statute.” Long, 173 F.3d at 878-79. This particular Senate Report

appeared only to describe the way in which this Court had

interpreted the FCA. The author of the report apparently had

not read the cases carefully, as not one of the cases to which the

report refers interpreted the term “person” under the FCA. /d.

at 879. Moreover, “all three stand for the unremarkable

proposition that governmental entities can be included in the

term person when Congress so intends.” Jd. Courts that have

held that the FCA includes states as persons have based their

opinions not on the granite of Vermont but on the ever-flowing

swamp of the Everglades.

Amici curiae, of course, agree with the Petitioner’s position

in this regard but add that the Court should find that the FCA

does not apply to States, municipalities, or other local

governmental entities because the FCA imposes punitive

damages. Under this Court’s authority, such entities are not

subject to claims for punitive damages absent express

Congressional intent to the contrary. This is so because these

14

damages are borne by the taxpayers who support the

governmental entity or the citizens served by it. The retributive

and deterrent effects of punitive damages are not achieved by

aiming them at those taxpayers and citizens who, in the case of

amici curiae, are public school children. Congress has expressed

no such intent in the FCA.

A. The FCA, as amended in 1986 to include provisions

for treble damages, civil penalties, and attorney’s

fees, provides for punitive damages.

The FCA, as amended in 1986, declares that a person who

makes a false claim “is liable to the United States Government

for a civil penalty of not less than $5,000 and not more than

$10,000, plus 3 times the amount of damages which the

Government sustains because of the act of that person... .”

31 U.S.C.A. § 3729(a)(7) (West Supp. 1999). The 1986

amendments thus dramatically increased the mandatory civil

remedies from double to triple the amount of actual damages

suffered by the United States, and increased the fines from

$2,000 per false claim to the heavier civil penalty of $5,000 to

$10,000 per false claim. In addition, it provides for the award

of attorney’s fees. See 31 U.S.C.A. § 3730(d) (West Supp. 1999).

Courts have assessed the civil penalty on a per claim basis. See,

e.g., United States v. Stella Perez, 839 F. Supp. 92, 97-98 (D.

Puerto Rico 1993), reversed on other grounds, 55 F.3d 703 (CAI

1995).

Although the double damages awardable under the pre-

1986 version of the FCA have been called compensatory, see

United States v. Halper, 490 U.S. 435, 449 (1989); United States

v. Bornstein, 423 U.S. 303, 314-15 (1976), a review of the

present version of the FCA, including its provisions for heavier

civil penalties and treble damages, as well as attorney’s fees,

indicates that the FCA is truly punitive.* The pre-1986 statute

8. A circuit split exists on the question whether the mandatory

treble damages, increased fines, and attorney's fees instituted by the

(Cont'd)

15

allowed a qui tam relator one half of the total recovery by the

United States, and thus the award of double damages only made

the United States whole. Bornstein, 423 U.S. at 315. This Court

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

537 (1943), that Congress could have provided for treble

damages in the FCA as it did in the antitrust laws and that such

damages might be considered “punishment.” Jd. at 550.

With the 1986 amendments, the FCA provides for

mandatory treble damages and a much heavier, mandatory civil

penalty of $5,000 to $10,000 per alleged false claim. Further,

the United States is made far more than whole by the treble

damages and civil penalties. A qui tam relator is no longer

entitled to recover one-half of that amount. Instead, he has the

potential to receive from 15 percent to 30 percent of the amount

recovered, depending upon whether the Government proceeds

with the action. 31 U.S.C.A. §§ 3730(d)(1)&(2) (West Supp.

1999). Thus, even if the qui tam plaintiff recovers the maximum

30 percent, the Government receives 210 percent of the actual

damages, and 70 percent of the civil penalties.

The Court of Appeals for the District of Columbia Circuit,

in Long, explained that regardless whether the pre-amendment

act was punitive, the 1986 amendments to the FCA, creating

treble damages and heavier civil penalties, plus attorney’s fees,

created a form of punitive damages. Jd. at 877. The amounts

recoverable by the Government are clearly in excess of what is

needed to make the Government whole.

Indeed, this Court, in Smith v. Wade, 461 U.S. 30 (1983),

referring to Congress’s ability to subject “persons” to punitive

damages remedies, explained that other statutes enacted

contemporaneously with 42 U.S.C. § 1983 illustrate that where

(Cont'd)

1986 amendments to the FCA constitute punitive damages. While the

Second Circuit in this case held the FCA provisions are not punitive,

the District of Columbia Circuit, in Long, held that they are. The District

of Columbia Circuit was right.

16

Congress wished to subject persons to a punitive damages

remedy, it did so explicitly. Id. at 85. As an example, the Court

cited the “False Claims Act, 12 Stat. 696, 698 (1863),” which

“provided a civil remedy of double damages and a $2,000 civil

forfeiture penalty for certain misstatements to the government.”

461 U.S. at 85. Thus, the Court, at least for illustrative purposes,

has previously viewed the original version of the FCA as

punitive.

When the FCA was enacted, it was intended as a criminal,

and, consequently, punitive, statute. The Long court observed

that in 1863 Congress made clear that it intended the FCA to

include criminal, and, a fortiori, punitive, sanctions. The original

statute provided for criminal penalties, including imprisonment

for one to five years, for non-military “persons” convicted under

the FCA, as well as for fines. Jd. at 877-78.’

This Court has held in the context of other statutes that

where treble damages are allowed as a civil remedy they are

punitive rather than merely compensatory. In Texas Industries,

Inc. v. Radcliff Materials, Inc., 451 U.S. 630 (1981), a case

filed under the Clayton Act, the Court stated that “[t}he very

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

deter future, unlawful conduct, not to ameliorate the liability of

wrongdoers.” Id. at 639; see also Ross v. Bernhard, 396 U.S.

531, 536 (1970) (noting that treble damages imposed for a

securities violation are punitive). In City of Newport v. Fact

Concerts, Inc., 453 U.S. 247 (1981), the Court favorably cited

the Missouri Supreme Court’s reasoning in Hunt v. City of

Boonville, 65 Mo. 620 (1877) that a municipality could not be

held liable for treble damages under a trespass statute because

such damages are punitive. Newport, 453 U.S. at 261.

9. Of course, it is no more likely Congress contemplated that a

local governmental entity be imprisoned than it did a sovereign State.

Neither could Congress have contemplated that states or

municipalities are military or non-military “persons” who would face

incarceration. See Long, 173 F.3d at 876.

——-

Te ee -

17

Likewise, the important characteristic of a civil penalty, as

awardable under the FCA, is that it exacts punishment and is,

in that way, equivalent to punitive damages in both purpose

and effect. Tull v. United States, 481 U.S. 412, 422 n.7 (1987).

Similarly, the Court stated that fines under the Clean Water Act

and the Resource Conservation and Recovery Act are

“ “punitive,” imposed to punish past violations.” United States

Dep't of Energy v. Ohio, 503 U.S. 607, 613 (1992). The treble

damages and heavy civil penalties provided by the FCA are no

different. They are clearly punitive, returning to the United States

far more than is necessary to compensate for any false claim,

even after any bounty is paid to a qui tam plaintiff.

B. State and local governmental entities, absent

express action of Congress, are not subject to

liability for punitive damages; therefore, they

cannot be “persons” under the False Claims Act,

which imposes punitive damages

Without dispute, punitive damages, such as those provided

by the FCA, are intended to punish past and deter future

misconduct. See Memphis Community School District v.

Stachura, 477 U.S. 299, 306 n.9 (1986) (purpose of punitive

damages is to punish the defendant for his willful or malicious

conduct and to deter others from similar behavior); Newport,

453 U.S. at 266-67; Electrical Workers v. Foust, 442 U.S. 42,

48 (1979); Gertz v. Robert Welch, Inc., 418 U.S. 323, 350 (1974)

(punitive damages are private fines levied by civil juries to

punish reprehensible conduct and to deter its future occurrence).

Such damages are not appropriately directed against a State,

municipality, or other local public entity because they will not

be borne by the malefactors who committed acts deserving of

such punishment, but by innocent taxpayers who support, and

citizens who are served by, the public entity. Those taxpayers

and citizens have not committed and will not commit acts to be

punished or deterred. This Court has held, based upon those

circumstances, that absent express Congressional intent to the

18

contrary, liability for punitive damages is not to be imposed

upon a municipality or other local government entity. Otherwise,

innocent taxpayers shoulder the blame, paying such judgments

through either increased taxes or a reduction in services.

See Newport, 453 U.S. at 267.

Courts have since followed the rule of law set forth in Newport

and denied the award of punitive damages against municipalities

in anumber of cases arising under federal law. See Woods v. Graphic

Communications, 925 F.2d 1195, 1205 (CA9 1991); Wulf v. City

of Wichita, 882 F.2d 842 (CA10 1989); Barnier v. Szentmiklosi,

810 F.2d 594, 598-99 (CA6 1987); Haynesworth v. Miller,

820 F.2d 1245 (CADC 1987) (punitive damages may not

be assessed against a municipality in a Bivens action).

As amici have previously stated, the damages awardable

under the FCA are not merely compensatory, but punitive. The

FCA has historically contained attributes of a criminal statute.

The statute, however, does not expressly state that it applies to

municipalities or other local or state governmental entities.

In Newport, this Court held that absent clear expression to the

contrary, Congress does not intend punitive damages to be

assessed against public entities. Jd. at 271. In that § 1983 civil

rights case, the Court held that a municipality may not be held

liable for punitive damages. See Newport, 453 U.S. at 271.

There, the trial court had upheld the award of punitive

damages against the municipality. The court reasoned that the

payment would focus taxpayer and voter attention upon the

municipality’s conduct and that this might produce

accountability at the next election. Jd. at 255. This Court

expressly disagreed with that rationale. Jd. at 268-70.

The Court ruled that the retributive and deterrent goals of

punitive damages are not met when punitive damages are

imposed on a municipality or other local public entity, because

the punishment is visited upon the taxpayers, not upon the

perpetrators of the conduct warranting such damages. This

principle existed in the jurisprudence at the time that the civil

19

rights act at issue in Newport was enacted in 1871 (and likewise

existed at the time the FCA was enacted in 1863).

The Court explained that by the time Congress enacted what

is now section 1983, while courts generally understood that a

municipality was subject to suit in tort, “this understanding did

not extend to the award of punitive or exemplary damages.

Indeed, the courts that have considered the issue prior to 1871

were virtually unanimous in denying such damages against a

municipal corporation.” Newport, 453 U.S. at 259-60 (citing

City Council of Atlanta v. Gilmer & Taylor, 33 Ala. 116 (1858);

Order of Hermits of St. Augustine v. County of Philadelphia,

4 Clark 120, Brightly NP 116 (Pa. 1847); McGrary v. President

& Council of City of Lafayette, 12 Rob. 668, 674 (La. 1846))

(further citations omitted).

Relying upon McGrary, the Court recognized that those

who violate laws, disregard the courts, and wantonly inflict

injuries are properly assessed punitive damages for their

wrongdoing. “ ‘[Punitive damages], however, can never be

allowed against the innocent.’ ” Newport, 453 U.S. at 261

(quoting McGrary, 12 Rob. at 677). In McGrary, because the

punitive damages were to have been “borne by widows, orphans,

aged men and women, and strangers,” the Supreme Court of

Louisiana disallowed their imposition. /d. at 677. Ultimately,

damages imposed upon a public entity, i.e., the taxpayers, could

not exceed that which would be sufficient to make the plaintiff

whole. /d.

Courts have viewed awards of punitive damages against

public entities as contrary to sound public policy “because such

awards would burden the very tax payers and citizens for whose

benefit the wrongdoer was being chastised.” Newport, 453 U.S.

at 263. For instance, in the case of the Board and the members

of the other amici curiae, the windfall from the punitive damages

award must be funded by the taxpayers who support the various

school boards, making this burden particularly onerous. “Neither

20

reason nor justice suggests that such retribution should be visited

upon the shoulders of blameless or unknowing taxpayers.” Jd.

The liability of a State, municipality, or local governmental

entity for the acts of its officials is not analogous to that of a

corporation for the acts of its agents. Even were a public entity's

officers to commit fraud, punitive damages may not be awarded

against the entity.

[T}he relation which the officers of a municipal

corporation sustain toward the citizens thereof for

whom they act, is not in all respects identical with

that existing between the stockholders of a private

corporation and their agents; and there is not the

same reason for holding municipal corporations,

engaged in the performance of acts for the public

benefit, liable for willful or malicious acts of its

officers, as there is in the case of private

corporations.

Newport, 453 U.S. at 261-62.

For the same reason that a punitive damages award cannot

visit retribution upon a public entity, neither can it serve to deter

future misconduct by the public entity. Jd. at 268. This Court

concluded in Newport that it is not at all clear that public officials

would be deterred by knowledge that punitive damages would

be awarded against their municipalities. In fact, it is reasonable

to assume that such an award would be a matter of complete

indifference to a public official. While the public entity might

conceivably seek indemnification from the officials, indemnity

may not be available against the public officials, and if even it

were, the officials most likely could not pay the award. Id.

Similarly, the Court in Newport did not assume that

corrective action, such as discharge of those appointed or

excoriation of those elected, would fail to occur absent an

assessment of punitive damages against the public entity. The

more reasonable assumption is that responsible superiors, and

21

the electorate at large, may be assumed to be motivated not

only by concerns for the public fisc but also for governmental

integrity. Id. at 269.

This assumption is indeed true in the case of the Board,

which now consists of elected members different from those

serving at the time of the alleged acts giving rise to the judgment

against the Board. The Board has since seen the arrival of two

new school superintendents and has replaced many

upon the present board for transgressions occurring in the past

may indeed have an unintended consequence. The electorate

may vote out of office the very officials who have brought about

change based upon the public perception that the present board

members are responsible for the acts that brought about the

punitive damages to be borne by the electorate.

The absence of liability under the FCA decidedly does not

allow public entities to abscond with federal funds with

impunity. For instance, in the case of the Board, the General

Education Provisions Act, 20 U.S.C.A §§ 1221-1234h (West

1990), unlike the FCA, sets forth an administrative claims

procedure that expressly allows recovery against state or local

educational agencies. See 20 U.S.C.A. § 1234(b) (West 1990).

Significantly, this Act does not permit the imposition of punitive

awards such as the trebling of damages, the heavy civil penalties,

and the attorney's fees allowed by the FCA. Thus, it does not

result in the loss of services necessitated by an award of such

damages.

Additionally, it does not allow a relator to collect a bounty,

and thus does not encourage a qui tam plaintiff to prey ultimately

upon the taxpayers and citizens served by the Board. Moreover,

the actual perpetrators of a fraud on the Government remain

subject to state and federal criminal laws outside of the FCA.

A holding that the FCA does not apply to States, municipalities,

or other local public entities will not give carte blanche to such

entities to submit false claims. It will merely move the

22

punishment for any such claims from the backs of the citizenry

to those of the individual perpetrators of the fraud, leaving the

public entity itself to pay only compensatory damages through

other available remedies.

Although the benefits of an award of punitive damages

against a public entity are questionable, “the costs may be very

real.” Newport, 453 U.S. at 270. The exposure to punitive

damages “may create a serious risk to the financial integrity of

these governmental entities.” /d.; Barnier v. Szentmiklosi, 810

F.2d 594, 599 (CA6 1987). “The impact of such a windfall

recovery is likely to be both unpredictable and, at times,

substantiai, and we are sensitive to the possible strain on local

treasuries and therefore on the services available to the public

at large.” Newport, 453 U.S. at 270-71. There is no doubt that,

for a local public entity such as a school board, the treble

damages and fines imposed by the FCA create a serious risk to

the entity’s continuing financial viability.

Notably, in the case of a public entity such as the Petitioner

or the Board, there is neither allegation nor evidence that money

went into an individual’s pocket. Were it otherwise, an action

under the FCA would be appropriately aimed at the individual

wrongdoer. Newport, 453 U.S. at 267.

The claim against the Petitioner involves an accounting

issue, as does the claim against the Board. Resolving accounting

disputes with public entities has never been the FCA’s target.

Rather, the Act was aimed at fraud by contractors during the

Civil War who sought to defraud the Government by providing

either inferior products or services or no products or services at

all. Those who steal from the government for their own financial

gain were, and are, appropriate targets of an FCA suit. The

punishment for such fraud is appropriately visited upon them,

not upon taxpayers and citizens who fund and are served by a

public entity. Because the FCA is a punitive statute, and because

a public entity is not subject to liability for punitive damages,

23

the Court should conclude that governmental entities are

In Newport, the Court was required to determine only that

the punitive damages aspects of section 1983 did not apply to a

With respect to the FCA, however, the only relief available under

the statute is punitive: treble damages; heavy civil penalties;

and attorney's fees. In fact, the FCA does not authorize relief

that is not punitive.

In such a case, where punitive damages are mandated and

compensatory damages are not authorized, affording no

discretion to reduce the damages to a non-punitive level, the

immunity from punitive damages necessarily requires immunity

from suit under the statute. For instance, a claim under RICO

requiring mandatory punitive damages in the form of treble

damages cannot be maintained against a municipality. See Genty

v. Resolution Trust Corp., 937 F.2d 899, 914 (CA3 1991);

Pelfresne v. Village of Rosemont, 22 F. Supp. 2d 756, 761 (N.D.

Ill. 1998); Massey v. City of Oklahoma, 643 F. Supp. 81, 85

(W.D. Okl. 1986). Similarly, a claim for mandatory punitive

relief under the FCA cannot be maintained against a State, -

municipality, or other local governmental entity.

Finally, in a different context, this Court has held that both

substantive and procedural due process protection is required

where a tribunal seeks to impose punitive damages on an alleged

punitive damages requires consideration of the reasonableness

of the award and the adequacy of the guidance from the court

in cases tried to a jury. BMW of North America, Inc. v. Gore,

517 U.S. 559, 563 (1996); Pacific Mut. Life Ins. Co. v. Haslip,

499 U.S. 1, 18-19 (1991).

It is doubtful, however, that a state or local governmental

entity is entitled to such protection. Relying on South Carolina

v. Katzenbach, 383 U.S. 301 (1966), holding that States are not

24

persons under the Fifth Amendment, and thus are not entitled

to due process protection, see id. at 323-24, courts have held

that local public entities, too, are not entitled to constitutional

due process protection. See, e.g., Stanley v. Darlington County

School Board Dist., 84 F.3d 707, 717 (CA4 1996) (a political

subdivision is not a “person” protected by the Fourteenth

Amendment); City of East St. Louis v. Circuit Court, 986 F.2d

1142, 1144 (CA7 1993) (municipalities cannot challenge an

action on due process grounds because they are not “persons”

under the due process clause); Delta Special Sch. Dist. No. 5 v.

State Bd. of Educ., 745 F.2d 532, 533 (CA8 1984) (political

subdivision of a state cannot invoke Fourteenth Amendment

due process protection).

While the Court of Appeals for the Third Circuit, in

In re Real Estate Title and Settlem. Servs. Antitrust Litig., 869

F.2d 760, 765 n.3 (CA3), cert. denied, 493 U.S. 821 (1989),

concluded that school boards are persons within the meaning

of the Fifth Amendment and are therefore entitled to due process

protection, the overwhelming majority view is that States and

local public entities are entitled to no due process protection.

Should the Court permit the FCA’s remedies to be assessed

against such entities, it will subject them to punitive damages

without the due process protection afforded all other defendants

targeted by such claims. Taxpayers and citizens who ultimately

pay any punitive damages will not be protected by the due

process afforded to an individual malefactor even though those

taxpayers and citizens are undeniably innocent of any fraud.

When enacting and amending the FCA, Congress could

not reasonably have intended such a result, one that affords

greater protection to corporate persons and their shareholders

than it does to individual taxpayers and public school children.

Rather, such a result further demonstrates why States,

municipalities, and other local governmental entities cannot be

“persons” subject to liability under the FCA.

25

CONCLUSION

The liability of a public entity under the FCA is wholly

statute. The amici curiae have shown the devastating effects of

to fall within the scope of the FCA. Therefore, the Board and

the other amici curiae respectfully urge the Court to reverse the

judgment of the Second Circuit and hold that neither States nor

other public entities may be deemed defendant “persons” as

that term is used in the FCA.

Respectfully submitted,

Sam A. LeBLanc, III

Counsel of Record

SEAN D. Moore

ROBERT MARKLE

ADAMS AND Reese LLP

Attorneys for Amici Curiae

4500 One Shell Square

New Orleans, Louisiana 70139

(504) 581-3234