Petition for Writ of Certiorari — Cook County v. United States Ex Rel. Chandler

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Court, U.S.

FILED

157

wo, OL Ee COTE 1 9 2002

SSS |

IN THE

Supreme Court of the United States

Cook COUNTY, ILLINOIS.

Petitioner.

Vv.

UNITED STATES ex rel. JANET CHANDLER, Ph.D..

Respondent.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

RICHARD A. DEVINE

State 's Attorney of

Cook County, Illinois

PATRICK T. DRISCOLL, JR. 500 Richard J. Daley Center

Deputy State’s Attorney Chicago, Illinois 60602

Chief, Civil Actions Bureau (312) 603-6934

DONNA M. LACH * Attorney for Petitioner

THOMAS M. BURNHAM

SANJAY T. TAILOR

Assistant State’s Attorneys

of Counsel

* Counsel of Record

WILSON-EPES PRINTING CO. INC. — (202) 789-0096 -— WASHINGTON, D C 20001

QUESTION PRESENTED

Whether local governmental entities are subject to gui tam

actions under the False Claims Act. 31 U.S.C. § 3729.

LIST OF PARTIES

The parties to the proceeding below were the

petitioner/defendant, Cook County, Illinois, the petitioner’s

co-defendant, the Hektoen Institute For Medical Research,

and the respondent/plaintiff, Janet Chandler, a relator under

the False Claims Act. The United States declined to

intervene in this case but participated in the issues raised in

this petition as an amicus curiae before the United States

Court of Appeals for the Seventh Circuit.

TABLE OF CONTENTS

Page

ITI cceniseicnensccenccessncssccssccensesceeces i

a ii

TARE Ge AUT TR Ies oO ccccccccccccccccscccscccsccsscesseccscees iv

Te l

a 2

I cicndrrntccceddnecesennenssnncensesesnenenes 2

a 5

le He teteieticsnscctcescncecascscascscescscnsscscsccssevcnees 5

B. The Statutory Framework of the False Claims

(Fill iantnentensnsessienencscsnesasssesensssesssscsssesseccscesescasecese 6

C. The Proceedings Below ............cccsscsscssscssssseres

REASONS FOR GRANTING THE PETITION............ 11

I. THERE IS A SQUARE AND IRRECON-

CILABLE CONFLICT IN THE CIRCUITS

REGARDING LOCAL GOVERNMENTAL

LIABILITY UNDER THE FALSE CLAIMS

Fi ccescensstusessecensceonscensnnsssccscezensccsnscvesneccecoeseccees 12

Il. THE ISSUES RAISED ARE RECURRING

AND CRITICAL TO TENS OF THOU-

SANDS OF LOCAL GOVERNMENTG............ 20

Ill. THE DECISION BELOW IS MANIFESTLY

RIESE uxaccdnecsnccecncrevsccssezeccsecescsssecsecsccesnees 21

SEE ccaccnenesnecensnscecerecnescsscsssescescsscnscessecceoseoces 29

FFT ctecencestnecssnsssscnscessssseeneencsecescecceccsccnsceeccece la

(iii)

TABLE OF AUTHORITIES

CASES Page

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

247, 101 FS. Ce. Z74E (ISBT) ..nccccccccccceccccessereeceees passim

King v. St. Vincent Hospital, 502 U.S. 215, 112

ee ee 21

Owen v. City of Independence, Mo., 445 U.S.

GR, BEDS, Ga, Bae Ce erecncesscccsscsssssessesessses 24

Pierson v. Ray, 386 U.S. 547 (1967) ......ccccceeeeeees 24

Schultzen v. Woodbury Central Community Sch.

Dist., No. C01-4089-MWB, 2002 U.S. Dist.

LEXIS 3010 (N.D. lowa Feb. 22, 2002)............ 25

Swierkiewicz v. Sorema N.A., ___ U.S. __, 122

BD, Ge, Ga Goi erscsnqnreansssnessnsnascenmnscsssnssnspeceesese 5

United States v. Bornstein, 423 U.S. 303, 96 S.

Ot 21

United States v. McNinch, 356 U.S. 595, 78 S.

ee 21

United States ex rel. Dunleavy v. County of

Delaware, 279 F.3d 219 (3d Cir. 2002), rhg.

denied, No. 00-3691 (Feb. 22, 2002)...........000++« passim

United States ex rel Dunleavy v. County of

Delaware, 2000 WL 1522854, 2000 U.S. Dist.

LEXIS 14980 (E.D.Pa. Oct. 12, 2000) .............. 9

United States ex rel. Garibaldi v. Orleans Parish

Sch. Bd., 244 F.3d 486 (Sth Cir. 2001), cert.

denied, 122 S. Ct. 808, rhg. denied, 122 S. Ct.

United States ex rel. Giles v. Sardie, 2000 U.S.

Dist. LEXIS 21068 (C.D. Cal. July 27, 2000)... 17, 18

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

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

United States ex rel Honeywell v. San Francisco

Housing Authority., et al., 2002 U.S. Dist.

LEXIS 9743 (N.D. Cal. July 12, 2001).............. 17

TABLE OF AUTHORITIES—Continued

United States ex rel. K & R Lid. P’ship v.

Massachusetts Hsg. Fin. Agency, 154 F. Supp.

a ese EI cterenincsnsesenentegrnmmnemesctnn 18, 19

United States ex rel. King v. Jackson County

Hosp. Corp. of Ariana, Fl., 2001 U.S. Dist.

LEXIS 21706 (N.D. Fla. Aug. 17, 2001)........... 18

United States ex rel. Kinney v. Hennepin County

Med. Ctr., 2002 U.S. Dist. LEXIS 10170 (D.

8 8 16

United States ex rel. Long v. SCS Business and

Technical Inst., Inc., 173 F.3d 870 (D.C. Cir.

1999), cert. denied, 530 U.S. 1202, 120 S. Ct.

ee atin 13,22

United States ex rel. Rosales v. San Francisco

Hous. Auth., 173 F. Supp. 2d 987 (N.D. Cal.

Fe crintinmmneyeaienemeeeneenis 16

United States ex re. Satalich v. City of Los

Angeles, 160 F. Supp. 2d 1092 (C.D. Cal.

ene 17, 18

Vermont Agency of Natural Resources v. United

States ex rel. Stevens, 529 U.S. 765, 120 S. Ct.

United States ex rel. Stevens v. Vermont Agency

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

1998), rev'd, 529 U.S. 765, 120 S. Ct. 1898

ITT Pasensmeenensnnesneneenenenninimnmenseneemetuenemnemange 16

Wright v. West, 50S U.S. 277, 112 S.Ct. 2482

el arutcnatennesenesmmmmeglememninemenen 23

STATUTES AND OTHER AUTHORITY

ee passim

of 8 en 27, 28

Se 7,27

TABLE OF AUTHORITIES—Continued

Page

a) 8

42 UBC. 6 BGG .nccccrccecccececccsccesccsccsscesevesnssssscsscsses 26

MISCELLANEOUS

S. Rep. 99-345 (1986), reprinted in 1986

USB.C.C.AWN. GBGG .cccccesccesccescccsccescscsecessccvsscssees passim

S. 467, 37th Cong. 3d Sess. (1863)..........cceceeeeees 22, 23

IN THE

Supreme Court of the Anited States

No.

Cook COUNTY, ILLINOIS,

Petitioner,

Vv.

UNITED STATES ex rel. JANET CHANDLER, Ph.D..,

Respondent.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

Petitioner, Cook County, Illinois (“Cook County”), respect-

fully petitions for a writ of certiorari to review the opinion

and decision of the United States Court of Appeals for the

Seventh Circuit entered on January 22, 2002.

OPINIONS BELOW

The United States Court of Appeals for the Seventh Circuit

reversed the decision of the United States District Court for

the Northern District of Illinois, which dismissed Cook

County from this False Claims Act action. The Seventh

Circuit’s opinion (App. |la-26a) is reported at 277 F.3d 969

(7th Cir. 2002). The district court’s opinion granting Cook

County’s motion to reconsider its earlier opinion and

dismissing Cook County (App. 27a-29a) is reported at 118

F. Supp. 2d 902 (N.D. Ill. 2000).

The district court’s earlier opinion denying Cook County's

motion to dismiss (App. 30a-49a) is reported at 35 F. Supp.

2d 1078 (N.D. Ill. 1999). The Seventh Circuit’s Order dis-

missing the appeal of the district court's earlier opinion

(App. 50a) is unreported. The Court's denial of certiorari of

that Seventh Circuit dismissal order (App. 51a) is reported at

§28 U.S. 931, 120 S. Ct. 329 (1999).

JURISDICTION

The opinion of the United States Court of Appeals for the

Seventh Circuit from which Cook Jounty seeks review

was entered on January 22, 2002. This Court’s jurisdiction

to review the Seventh Circuit's opinion is invoked under

28 U.S.C. §1254(1).

STATUTE INVOLVED

§ 3729. False claims

(a) Liability for certain acts.—Any person who—

(1) knowingly presents, or causes to be

presented, to an officer or employee of the United

States Government or a member of the Armed

Forces of the United States a false or fraudulent

claim for payment or approval;

(2) knowingly makes, uses, or causes to be made

or used, a false record or statement to get a false or

fraudulent claim paid or approved by the

Government;

(3) conspires to defraud the Government by get-

ting a false or fraudulent claim allowed or paid;

(4) has possession, custody, or control of prop-

erty or money used, or to be used, by the Govern-

ment and, intending to defraud the Government or

willfully to conceal the property, delivers, or causes

to be delivered, less property than tie amount for

which the person receives a certificate or receipt;

(5) authorized to make or deliver a document

certifying receipt of property used, or to be used, by

the Government and, intending to defraud the Gov-

ernment, makes or delivers the receipt without

completely knowing that the information on the

receipt is true;

(6) knowingly buys, or receives as a pledge of an

obligation or debt, public property from an officer

or employee of the Government, or a member of the

Armed Forces, who lawfully may not sell or pledge

the property; or

(7) knowingly makes, uses, or causes to be made

or used, a false record or statement to conceal,

avoid, or decrease an obligation to pay or transmit

money or property to the Government,

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,

except that if the court finds that—

(A) the person committing the violation of this

subsection furnished officials of the United States

responsible for investigating false claims violations

with all information known to such person about

the violation within 30 days after the date on which

the defendant first obtained the information;

(B) such person fully cooperated with any

Government investigation of such violation; and

States with the information about the violation, no

criminal prosecution, civil action, or administrative

action had commenced under this title with respect

to such violation, and the person did not have actual

knowledge of the existence of an investigation into

such violation;

the court may assess not less than 2 times the amount of

damages which the Government sustains because of the

act of the person. A person violating this subsection

shall also be liable to the United States Government for

the costs of a civil action brought to recover any such

penalty or damages.

(b) Knowing and knowingly defined.—For pur-

poses of this section, the terms “knowing” and “know-

ingly” mean that a person, with respect to information—

(1) has actual knowledge of the information;

(2) acts in deliberate ignorance of the truth or

falsity of the information; or

(3) acts in reckless disregard of the truth or

falsity of the information,

and no proof of specific intent to defraud is required.

“claim” includes any request or demand, whether under a

contract or otherwise, for money or property which is

made to a contractor, grantee, or other recipient if the

United States Government provides any portion of the

money or property which is requested or demanded, or if

the Government will reimburse such contractor, grantee,

or other recipient for any portion of the money or

property which is requested or demanded.

(d) Exemption from disclosure.—Any information

furnished pursuant to subparagraphs (A) through (C) of

subsection (a) shall be exempt from disclosure under

section 552 of title 5.

(e) Exclusion.—This section does not apply to

claims, records, or statements made under the Internal

Revenue Code of 1986.

31 U.S.C. § 3729 (1994).

STATEMENT

A. Background

This lawsuit arises out of a $5 million federal grant to fund

a medical treatment program and research study at Cook

County Hospital (“CCH”). The allegations’ are as follows: In

1989, the United States Department of Health and Human

Services (“DHHS”) and the National Institute of Drug Abuse

(“NIDA”) called for proposals to provide treatment to and

conduct a study of substance-abusing pregnant women. (Am.

Compl. at 4 15.) CCH, a Cook County-owned and operated

non-profit hospital that provides health care and related

services to residents of Cook County, submitted a grant

proposal. (/d. at fJ 12, 13, 16.) NIDA awarded CCH the

grant on September 30, 1989 and released initial payments

shortly thereafter. (/d. at § 27.) In the first two years of the

grant, the protocol was developed, and, around July 1991,

CCH began recruiting participants. (/d. at { 28.) On Sep-

tember 1, 1993, NIDA transferred the administration of the

grant from CCH to the Hektoen Institute of Medical Research

(“Hektoen”), a non-profit organization that conducts medical

research and manages research grants. (/d. at J 11, 29.)

Hektoen employed Janet Chandler (“Relator”), a clinical

' After the district court denied its original motion to dismiss, Cook

County filed an answer to the Amended Complaint, denying the sub-

stantive allegations. This case went to the Seventh Circuit on a grant of

Cook County’s motion for reconsideration dismissing Cook County from

this lawsuit. All the factual allegations contained in a complaint are taken

as true on review of the grant of a motion to dismiss. Swierkiewicz v.

SoremaN.A., _U.S.___, 122 S. Ct. 992, 995 n.1 (2002).

psychologist, as project director on October 1, 1993, (id. at

q 29), and fired her on January 24, 1995. (/d. at 4 97.)

Relator brought this False Claims Act (“FCA”) action, 31

U.S.C. § 3729, alleging that “(t]he false claims arise out of

the defendants’ knowing and deliberate failure to comply with

the express terms and conditions incorporated in and

promised by the grant, the reporting of ‘ghost’ research

subjects, and other material misrepresentations about the

progress and success of the study” and that “defendants

disregarded the required protocol.” (/d. at | 4.) Relator

additionally alleges that she was retaliated against for

disclosing these deficiencies “to the defendants and to

appropriate governmerital oversight agencies.” (/d. at { 5.)

Relator claims that the United States was damaged in the total

amount of the grant, $5 million. (/d. at 9 111.) Relator seeks

treble “he amount of the grant, that is to say, $15 million, plus

fines of up to $10,000 each for an unspecified number of

alleged false claims, plus costs and attorneys’ fees. The

defendants are Cook County, as the owner and operator of

CCH, and Hektoen, as the administrator of the grant. The

United States declined to intervene.

B. The Statutory Framework of the False Claims Act

The FCA subjects “[a}]ny person” to liability who “know-

ingly presents, or causes to be presented, to an officer or

employee of the United States Government . . . a false or

fraudulent claim for payment or approval.” 31 U.S.C. .

§ 3729(a). Congress has not defined the term “person” in the

FCA, but the Court has noted that “the term ‘person’ has

remained in the statute unchanged since 1863,” when the

statute was first enacted. Vermont Agency of Natural

Resources v. United States ex rel. Stevens, 529 U.S. 765, 783

n.12, 120 S. Ct. 1858, 1868, n.12 (2000). In 1986, Congress

enacted significant amendments to the FCA. Recently, a

number of lawsuits have been filed against States and other

governmental entities, one of which reached the Court. On

May 22, 2000, in Vermont Agency of Natural Resources v.

United States ex rel. Stevens, the Court held that States and

their agencies are not “persons” subject to liability under the

FCA. /d. at 787, 120 S. Ct. at 1870. The Court reached its

conclusion as a matter of statutory construction. /d.

In analyzing whether States are “persons” under the FCA,

Stevens began with the longstanding interpretative presump-

tion that the word “person” does not include a sovereign

without an affirmative showing of a contrary intent from

Congress. /d. at 780-81, 120 S. Ct. at 1866-67. The Court

then considered the historical context of the original

enactment, noting that the FCA was enacted to stop the fraud

perpetrated by private contractors during the Civil War. /d. at

781, 120 S. Ct. at 1867. The Court concluded that the text of

the 1863 enactment did “less than nothing to overcome the

presumption that States are not covered.” Jd. at 782, 120

S. Ct. at 1868 (emphasis in original).

The Court found that certain features of the 1986 amend-

ments “further support the conclusion that States are not

subject to qui tam liability.” Jd. at 783, 120 S. Ct. at 1868.

First, the provision which allows the Attorney General to

issue civil investigative demands (“CID”), 31 U.S.C. § 3733,

defines “person” as including States. The Court reasoned that

“(t]he presence of such a definitional provision in § 3733,

together with the absence of such a provision from the

definitional provisions contained in § 3729 . . . suggests that

States are not ‘persons’ for purposes of guwi tam liability under

§ 3729.” Id. at 784, 120 S. Ct. at 1868-69. Next, the Court

found that the mandatory treble damage scheme of the current

version of the FCA is “essentially punitive in nature, which

would be inconsistent with state gui tam liability in light of

the presumption against imposition of punitive damages on

governmental entities.” Jd. at 784-85, 120 S. Ct. at 1869

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

262-63, 101 S. Ct. 2748 (1981)). Third, the Court noted that

the Program Fraud Civil Remedies Act of 1986 (“PFCRA”),

31 U.S.C. § 3801, the FCA’s sister scheme that creates

administrative remedies for false claims, contains a definition

for “persons” subject to liability that does not include States.

Id. at 786, 120 S. Ct. at 1870. “It would be most peculiar to

subject States to treble damages and civil penalties in qui tam

actions under the FCA, but exempt them from the relatively

smaller damages provided under the PFCRA.” Jd. The Court

concluded that the FCA does not subject States and their

agencies to qui tam liability. Jd. at 788, 120 S. Ct. at 1871.

C. The Proceedings Below

1. Relator filed her complaint under seal on January 24,

1997. After the United States declined to intervene, Relator

amended her complaint and served it on the defendants. All

the defendants moved to dismiss. During the briefing of the

motions to dismiss, an opinion issued from the United States

District Court for the Southern District of New York that held

that the FCA “does not authorize suits against municipal

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

F. Supp. 2d 343, 356 (S.D.N.Y. 1998). In light of that

decision, Cook County sought, and was granted, leave to

supplement its motion to dismiss.

On February 8, 1999, the district court denied Cook

County’s motion to dismiss, holding that municipal entities

are “persons” under the FCA and that, because the mandatory

treble damage scheme is not punitive, Cook County is not

immune from an FCA suit. United States ex rel. Janet

Chandler, Ph.D. v. The Hektoen Institute For Medical

Research, et al., 35 F. Supp. 2d 1078 (N.D. Ill. 1999).

(App. 30a) Cook County appealed the district court’s denial

? CCH, originally named as a defendant, was dismissed as a nonsuable

entity, and Cook County’s motion to dismiss as to the whistleblower

claims under the FCA and state common law was granted. Chandler, 35

F. Supp. 2d at 1078, 1087. (App. 49a)

of its immunity claim under the collateral order doctrine. In

an unpublished order, on May 18, 1999, the Seventh Circuit

dismissed the appeal. Janet Chandler, Doctor v. Cook

County, Illinois, No. 99-1415 (7th Cir. May 18, 1999).

(App. 50a) Cook County petitioned the Court for a writ of

certiorari, which the Court denied on October 12, 1999. Cook

County, Illinois v. Janet Chandler, Ph.D., 528 U.S. 931, 120

S. Ct. 329 (1999). (App. 51a)

2. After the Court decided Stevens, Cook County moved

the district court to reconsider its denial of Cook County’s

motion to dismiss. In its opinion, the district court main-

tained its original position that Cook County is a person under

the FCA. United States ex rel. Chandler v. Hektoen Institute

for Med. Research, 118 F. Supp. 2d 902, 903 (N.D. Ill. 2000).

(App. 28a) However, because, under Stevens, the FCA’s

mandatory damages are punitive, the district court, adopting

the reasoning of United States ex rel. Dunleavy v. County of

Delaware, 2000 WL 1522854, 2000 U.S. Dist. LEXIS 14980

(E.D.Pa. Oct. 12, 2000), held that Cook County is immune

from an FCA suit and dismissed Cook County from this

lawsuit. /d. Relator appealed to the Seventh Circuit. In the

appellate court, the United States filed an amicus curiae brief

on behalf of the Relator, as did the Taxpayers Against Fraud.’

The Seventh Circuit reversed the dismissal of Cook County.

The Seventh Circuit began its analysis with the proposition

that “municipal corporations were presumptively included

within the meaning of ‘person’” in 1863 and, finding no

> The Seventh Circuit consolidated Relator’s appeal of the dismissal of

Cook County, (Appeal No. 00-4110), with Cook County’s appeal of the

district court’s order requiring Cook County to disclose to Relator’s

attorneys original unredacted treatment and research records of the grant

participants. (Appeal No. 01-1810.) Chandler, 277 F.3d at 973. (App.

6a.) The United States filed an amicus curiae brief on behalf of Cook

County with respect to Appeal No. 01-1810. The issues raised in Appeal

No. 01-1810 are not involved in this petition.

“exception for suits against municipalities,” determined that

Congress intended to subject local governments to liability

under the original version of the FCA. Chandler, 277 F.3d at

974. (App. 8a.) Next, the Seventh Circuit concluded that the

1986 amendments point “to a finding of continued municipal

liability.” Jd. at 975-76. In so doing, the Seventh Circuit

relied on a 1986 Senate Committee Report for the proposition

that the purpose of the amendments was “to increase the

effectiveness of the Act” by giving federal law officers more

effective tools and by increasing the percentage of proceeds a

relator may receive. Jd. (citing S. Rep. No. 99-345 at 2,

reprinted in 1986 U.S.C.C.A.N. 5266). (App. 10a-1 1a.)

Having found that local governments are “persons” under

the FCA, the Seventh Circuit considered the 1986 increase in

the FCA’s penalty from double to treble damages to decide

whether the common-law immunity from punitive damages

on governmental entities applies. Jd. at 976-77. (App. 13a.)

As the Seventh Circuit read City of Newport v. Fact Concerts,

Inc., 453 U.S. 247, 101 S. Ct. 2748 (1981), the immunity does

not apply to the FCA. Jd. at 977-978. (App. 13a-16a.) In the

Seventh Circuit’s view, the taxpayers have already been

enriched by the municipality’s fraudulent conduct in that “any

ill-gotten gains from the federal government produce more

services or lower taxes.” Jd. at 978. (App. 15a.) The Seventh

Circuit reasoned that the FCA’s treble damages scheme is “a

response specifically determined by Congress as necessary for

the effective operation of the FCA.” Jd. (App. 16a.) Because

Congress did not specifically indicate that it intended to

exempt local governments from the scope of the FCA, the

Seventh Circuit refused to find that Congress did so sub

silentio. Id. at 979. (App. 17a.) The Seventh Circuit rejected

the presumption of governmental immunity from punitive

damages because “Congress, in creating, in 1863, and then

strengthening, in 1986, a comprehensive mechanism designed

to remedy fraud against the federal government clearly

determined that recipients of federal funds must be subject to

such a deterrent.” /d. (App. 18a.)

The Seventh Circuit reversed the district court’s dismissal

of Cook County and remanded the case to the district court.

Id. at 983. (App. 26a.) Recognizing that the unanimous

decision constituted a split from the Fifth Circuit’s holding in

United States ex rel. Garibaldi v. Orleans Parish Sch. Bd.,

244 F.3d 486, 495 (Sth Cir. 2001), cert. denied, 122 S. Ct.

808, rhg. denied, 122 S. Ct. 1198 (2002), the panel circulated

the opinion to the entire court, but no active judge voted

to hear this case en banc. Chandler, 277 F.3d at 980 n.10.

(App. 19a.) One week after the Seventh Circuit decided

Chandler, the Third Circuit affirmed the district court and

held that local governments may not be sued under the FCA.

United States ex rel. Dunleavy v. County of Delaware, 279

F.3d 219, 226 (3d Cir. 2002), rhg. denied, No. 00-3691 (Feb.

22, 2002). Cook County moved for a stay of mandate

pending its petition for certiorari, which the Seventh Circuit

granted. United States ex rel. Chandler v. Cook County,

Illinois, Nos. 00-4110 & 01-1810, 2002 U.S. App. LEXIS

2587 (7th Cir. Feb. 15, 2002).

REASONS FOR GRANTING THE PETITION

This case presents the Court with a valuable opportunity to

resolve a question of first impression under federal law, a

question that is critical to tens of thousands of local gov-

ernments receiving federal funds, namely, whether local

governments are subject to suit under the FCA. The question

is recurring throughout the federal courts. Yet, the circuits

are sharply divided, not only as to their ultimate holdings, but

also as to their reasoning. District courts in circuits that have

not yet decided the issue are also coming to different

conclusions. Much of the conflict is over the meaning of

Stevens and the application of City of Newport to FCA claims

against local governments. The Court should take hold of this

opportunity to resolve the split in the circuits, correct the

serious errors made by the Seventh Circuit in this case, and

clarify an issue critically impacting local governments across

the United States.

I. THERE IS A SQUARE AND IKRiCON-

CILABLE CONFLICT IN THE CIRCUITS

REGARDING LOCAL GOVERNMENTAL LIA-

BILITY UNDER THE FALSE CLAIMS ACT.

In ruling that local governments are “persons” under the

FCA, the Seventh Circuit knowingly parted company with the

Fifth Circuit, the first of the circuits to analyze whether local

governments are subject to liability under the FCA. One

week after the Seventh Circuit’s opinion, the Third Circuit,

siding with the Fifth Circuit, held that local governments are

not subject to suit under the FCA.

1. The issue addressed by the Fifth Circuit was whether a

school board qualifies as “any person” under the FCA.

United States ex rel. Garibaldi v. Orleans Parish Sch. Bd.,

244 F.3d 486, 489 (Sth Cir. 2001), cert. denied, 122 S. Ct.

808, rhg. denied, 122 S. Ct. 1198 (2002). A jury found that

the school board had submitted 1,570 false claims to the

federal government over the course of eleven years and that

the federal government’s actual damages were $7.6 million,

which the court trebled to $22.8 million and added a civil

penalty of $7.85 million. /d. at 488.

The Fifth Circuit found guidance in that portion of Stevens

holding that the FCA’s mandatory treble damage scheme is

punitive and “contrary to the well-settled presumption that

governments, including local governments, are not subject to

punitive damages.” Jd. at 491. Noting that the Court has held

that “imposing punitive damages on local governments is

ordinarily contrary to sound public policy,” the Fifth Circuit

went on to say that: “Though a local government can properly

be made to pay compensation for the wrongful acts of its

agents, punishing a local government is pointless.” /d. The

Fifth Circuit was particularly troubled by a policy that would

impose punitive damages on local governments in favor of

the federal government: “Requiring such a transfer payment

would reflect a judgment by Congress that denying the

schoolchildren of Orleans Parish needed services, or requiring

the taxpayers of Orleans Parish to pay higher taxes, is

justified in light of the relatively minor benefit to the federal

treasury.” /d. at 492. The Fifth Circuit concluded: “Though

Congress is free to make that determination if it chooses, we

will not find such a choice absent clear language in the text of

the False Claims Act.” /d.

Unlike the Seventh Circuit, the Fifth Circuit found the

1986 Senate Committee Report at S. Rep. No. 99-345,

reprinted in 1986 U.S.C.C.A.N. 5266, faulty for two reasons:

“it cites to a case concerned with an entirely different federal

statute, namely 42 U.S.C. §1983” and it is “post-enactment

legislative history, and ‘utterly irrelevant’ to determining the

meaning of the term person in the liability portions of the

False Claims Act.” /d. at 489-90 n.3. The Fifth Circuit found

that neither the relator nor the United States provided any

authority to indicate that, in 1863, Congress contemplated

liability for local governments under the FCA. /d. at 494.

The Fifth Circuit concluded by finding that a statement made

by the D.C. Circuit was applicable to local governments:

“*Even if one assumes that states commit a good deal of fraud

against the federal government, it cannot seriously be argued

that the very purpose of the [False Claims] Act would be

thwarted if states were not liable under the [False Claims]

Act.”” Id. at 494-95 (quoting United States ex rel. Long v.

SCS Business & Tech. Inst., Inc., 173 F.3d 870, 875 (D.C.

Cir. 1999), cert. denied, 530 U.S. 1202, 120 S. Ct. 2194

(2000)). Under the Fifth Circuit’s holding, “the term person

in the liability provision of the [FCA] does not include local

governments.” Garibaldi, 244 F.3d at 495.

2. One week after the Seventh Circuit rendered its decision

in Chandler, the Third Circuit weighed in. Like the Fifth

Circuit and contrary to the Seventh Circuit, the Third Circuit

held that local governments cannot be subject to an FCA suit

by a gui tam relator. United States ex rel. Dunleavy v. County

of Delaware, 279 F.3d 219, 226 (3d Cir. 2002), rhg. denied,

No. 00-3691 (Feb. 22, 2002).

The Third Circuit began its analysis with the well-

established presumption that “[uJnless Congress clearly

provides otherwise, a local governmental entity is immune

from punitive damages awards.” /d. at 222. The Third

Circuit viewed the issue of “whether the term ‘person’ as used

in the Act encompasses local governments . . . [as] simply the

other side of the coin with respect to the question . . . whether

Congress clearly abrogated local governmental immunity

under the FCA.” /d. at 223 (“If Congress clearly expressed its

intention to encompass local governments within the ambit of

FCA liability as a ‘person,’ then it must also have intended to

abrogate the common law immunity of local governments

against punitive damages under the FCA.”). The Third

Circuit determined that nothing on the face of the 1863

enactment or the current version of the FCA shows a clear

to punitive damages under the FCA. /d. at 224 (“The Act is

utterly devoid of any specific intention to subject local

governments to its strictures.”). The Third Circuit found that

“{t}his lack of clarity in the text of the Act is insufficient

indicia of congressional intent to abrogate local governmental

immunity from punitive damages under the FCA.” /d. In so

ments that carried the day in the Seventh Circuit, namely, (i)

local governments were presumptively “persons” in 1863 and,

without an indication from Congress to the contrary,

automatically subject to the FCA; and (ii) in 1986, when

Congress imposed punitive damages, it intended to subject

local governments to punitive damages. Unlike the Seventh

Circuit, the Third Circuit did not find that the 1986 impo-

sition of punitive damages was a “clear intent to abrogate

common law immunity and subject local governments to

punitive damages awards.” /d. at 224-25.

In addition, the Third Circuit, like the Fifth Circuit and

unlike the Seventh Circuit, did not find the 1986 Senate

Committee Report persuasive. /d. at 225 (citing Stevens, 529

U.S. at 783 n.12, 120 S. Ct. at 1868 n.12). The Third Circuit

concluded that there is “only ambiguity as to whether

Congress intended to disturb the well-settled doctrine of local

governmental immunity from punitive damages under the

FCA,” which “is not enough . . . to carry the day.” Jd.

While the FCA’s mandatory punitive damage scheme was

central to their analyses, there are subtle differences between

the Fifth and the Third Circuits’ decisions, with the Fifth

Circuit ultimately finding that local governments are not

persons under the FCA, see Garibaldi, 244 F.3d at 495, and

the Third Circuit finding that they are immune from suit.

Dunleavy, 279 F.3d at 226.

3. Although the remaining circuits have yet to address

whether local governments are subject to FCA suits, district

courts within the Second, Eighth, Ninth, Eleventh, and D.C.

Circuits have reached conflicting results.

e In the Second Circuit, the United States District Court

for the Southern District of New York was the first

federal court to address whether local governments could

be sued under the FCA. United States ex rel. Graber v.

City of New York, et al., 8 F. Supp. 2d 343 (S.D.N.Y.

1998). After conducting an exhaustive recitation of the

FCA’s background, the Graber court dismissed both the

City and State of New York, holding that “Congress in

1863 did not contemplate that states and cities would be

defendants in False Claims Act suits.” Jd at 352.

Graber also concluded that States and municipalities

were not subjected to the FCA by the 1986 amendments

because Congress nowhere explicitly expressed an intent

to impose punitive damages on them. /d. at 352-53. The

Second Circuit’s subsequent decision in United States ex

rel. Stevens v. Vermont Agency of Nat'l Resources, 162

F.3d 195 (2d Cir. 1998), impliedly reversed the Graber

decision. The Court, in turn, reversed the Second Cir-

cuit’s opinion. Stevens, 529 U.S. 765, 120 S. Ct. 1858.

In the Eighth Circuit, a district court concluded that local

governments are not persons under the FCA. United

States ex rel. Kinney v. Hennepin County Med. Crtr.,

2002 U.S. Dist. LEXIS 10170 (D. Minn. Jan. 22, 2001).

There, a former paramedic of defendant Hennepin

County Medical Center (“HCMC”) alleged false claims

to the federal Medicare and Medicaid programs. /d.

at *2. The district court found in favor of HCMC under

the common-law presumption against municipal liability

for punitive damages: “When Congress amended the

FCA to increase the liability from double damages to

treble damages, thus making the FCA ‘essentially

punitive,’ it did not clearly authorize the imposition of

such damages against municipalities.” /d. at *24. Based

on the common-law immunity, HCMC was dismissed

with prejudice.

In the Ninth Circuit, the district courts are in conflict

with each other.

e In the Northern District of California, one district

court held that local governments are subject to the

FCA, and another district court held the opposite. In

United States ex rel. Rosales v. San Francisco Hsg.

Auth., 173 F. Supp. 2d 987 (N.D. Cal. 2001), relators

brought an FCA action against the San Francisco

Housing Authority (“SFHA”) and the City and County

of San Francisco, alleging that false statements were

made to the Department of Housing and Urban Devel-

opment (“HUD”) for grant funds. /d. at 991. The

district court, after analyzing Stevens, reasoned that

local governments were considered persons at the time

of the original enactment, id. at 1015, and that the

mandatory treble damage scheme is remedial and not

punitive. /d. at 1024. On the other hand, in United

States ex rel. Honeywell v. San Francisco Housing

Auth., et al., 2002 U.S. Dist. LEXIS 9743 (N.D. Cal.

July 12, 2001), the district court, declining to follow

Rosales, instead relied on the Fifth Circuit’s decision

in Garibaldi, which was decided shortly after Rosales.

Id. at *10. The complaint in Honeywell was also

brought against the SFHA and the City of San

Francisco for alleged false claims to HUD. /d. at *2.

The Honeywell court, however, determined that, under

Stevens, the FCA’s damage scheme is punitive, noting

the “presumption against the imposition of puni-

tive damages on governmental entities.’"” /d. (citing

Stevens, 529 U.S. at 785, 120 S. Ct. at 1869). The

Honeywell court further noted that there is no

indication that Congress ever intended to subject local

governments to the FCA’s liability. /d.

In the Central District of California, the same conflict

exists. In United States ex rel. Giles v. Sardie, 2000

U.S. Dist. LEXIS 21068 (C.D. Cal. July 27, 2000), an

FCA case brought against, inter alia, the City of Los

Angeles, the district court was not “persuaded by the

argument that Stevens stands for the proposition that

municipalities are immune from the liability provision

of section 3729(a) of the FCA.” /d. at *13. Conse-

quently, the City of Los Angeles’ motion to dismiss

was denied. /d. at *16. United States ex rel. Satalich

v. City of Los Angeles, 160 F. Supp. 2d 1092 (C.D.

Cal. 2001), was also brought against the City of Los

Angeles. The Satalich court, finding both Rosales and

Giles unpersuasive, concluded “that Stevens bars FCA

suits against municipalities.” Jd. at 1102. Relying on

municipal immunity from punitive damages and

rejecting the argument that “any person” must include

municipal corporations, the district court dismissed

the City of Los Angeles. /d. at | 104, 1106.

e In the Eleventh Circuit, a district court concluded that

the legislative history shows that local governments were

not intended “to be defined as persons” under the FCA.

United States ex rel. King v. Jackson County Hosp.

Corp. of Mariana, Fl., 2001 U.S. Dist. LEXIS 21706

(N.D. Fla. Aug. 17, 2001). A surgeon at Jackson County

Hospital (“JCH”) brought an FCA suit alleging that false

statements were made to the federal government under

Medicare and Medicaid. After analyzing the legislative

history of the FCA, the district court concluded that

“Congress did not envision that local governments

would be subject to FCA liability at the time of

enactment.” Jd. at *17. The district court further con-

cluded that “local governmental agencies should not be

held liable because the FCA’s imposition of punitive

damages is contrary to the presumption that local

governments are not subject to punitive damages.” Id.

The district court granted JCH’s motion to dismiss on

the ground that it “is not a ‘person’ under the liability

provisions of the FCA.” Id. at *23.

In the D.C. Circuit, the district court held that govern-

mental entities are subject to qui tam liability under the

FCA. United States ex rel. K & R Lid. P’ship v.

Massachusetts Hsg. Fin. Agency, 154 F. Supp. 2d 19, 26

(D.D.C. 2001). There, the relator filed a qui tam action

against the Massachusetts Housing Finance Agency

(“MHFA”), an entity that was created by the Massa-

chusetts Legislature. Id. at 20-21. The court determined

that the MHFA, as a “governmental entity,” id. at 21, is

not immune from the FCA’s mandatory punitive dam-

ages in light of Stevens:

If this Court were to now dismiss K&R’s complaint

on the grounds that the MHFA is immune from the

damages awarded under the FCA, it would, in effect,

accept a loophole in the Act that would allow entities

with some connection to the state, but that are

considered “persons” subject to suit under the FCA, to

escape liability for any false claims made to the fed-

eral government. Although Congress has made the

damages awarded under the current version of the

FCA punitive in nature, this Court does not believe

that in doing so Congress intended to create such a

gap in the statute.

Id. at 24. MHFA’s motion to dismiss was, thus, denied.

Id. at 27.

As the above cases demonstrate, the question of whether

the FCA subjects local governments to liability has resulted in

irreconcilable conflict, primarily stemming from a funda-

mental disagreement over the meaning of Stevens and the

application of City of Newport to FCA claims against local

governments. There is no realistic probability that the con-

flict will go away without an interpretation from the Court.

Therefore, further review is needed.

Il. THE ISSUES RAISED ARE RECURRING AND

CRITICAL FOR TENS OF THOUSANDS OF

LOCAL GOVERNMENTS.

Whether Congress intended to include local governments

as “persons” subject to liability under the FCA, especially in

light of the punitive damage scheme under the 1986 amend-

ments, is an important issue of federal law. As the above

FCA opinions illustrate, given the vast number of local

governments throughout the country, this issue will recur, and

the courts will continue to reach different conclusions under

diverse interpretations of Stevens as well as City of Newport,

resulting in a disparate application of the FCA.

There are tens of thousands of units of local governments

in the United States, including municipalities, counties, and

school districts. Local governments and the United States

enjoy a cooperative relationship, with the federal government

providing funding for services that local governments, in turn,

provide directly to its residents. In fact, it is this cooperative

relationship of passing funds to a local government for the

administration of direct services that, in part, renders local

governments “deep pocket” targets for FCA lawsuits. If

applicable to them, the FCA’s punitive damage scheme leaves

local governments with equally unpalatable choices of

rejecting federal funds or, if sued, either being coerced into

high settlements by the threat of punitive damages or

incurring the cost of litigation and risking a substantial

adverse judgment, which, of course, is shouldered by the local

taxpayers. The ramifications of qui tam suits for local gov-

ernments can, indeed, be devastating. For that reason, during

the briefing of the Stevens case, Cook County, together with

the City of Los Angeles and the City and County of San

Francisco, joined the City of New York’s amicus curiae brief

on behalf of the Vermont Agency of Natural Resources.

Clearly, the issues raised in this case have comparable

importance for local governments around the nation.

The Court granted review in Stevens to settle a conflict

regarding the important issue of whether States and their

agencies are subject to qui tam suits under the FCA. Now,

the conflict in the circuits involves whether local governments

are subject to qui tam liability under the FCA. There are

many more units of local government than there are States

and state agencies that are potential defendants in an FCA

suit. Given the number of local governments and the

importance of the question of the applicability of the FCA to

all local governments, review should not be delayed.

Ill. THE DECISION BELOW IS MANIFESTLY

INCORRECT.

The Court’s review is also warranted because the Seventh

Circuit’s decision that local governments are subject to FCA

suits is manifestly incorrect.

1. Neither the text nor the legislative history of the FCA

support the Seventh Circuit’s conclusion that local govern-

ments are subject to FCA suits. Yet, without any consid-

eration of the context of the word “person” in the original

Statute and in its legislative history, the Seventh Circuit’s

decision rests on an erroneous assumption that the term

“person,” when otherwise undefined in a statute and without a

specific indication from Congress to the contrary, necessarily

includes local governments. Chandler, 277 F.3d at 974.

(App. 8a.) The Seventh Circuit skipped a vital step in its

statutory construction analysis. See King v. St. Vincent's

Hosp., 502 U.S. 215, 221, 112 S. Ct. 570, 574 (1991) (“the

meaning of statutory language, plain or not, depends on

context”). Had the Seventh Circuit examined the meaning of

“person” within the context of the FCA’s enactment, it could

not have reconciled its conclusion with this Court’s recurring

interpretation of the FCA’s purpose as confronting massive

fraud on the federal government by private contractors during

the Civil War, Stevens, 529 U.S. at 781, 120 S. Ct. at 1867;

United States v. Bornstein, 423 U.S. 303, 309, 96 S. Ct. 523,

528 (1976); United States v. McNinch, 356 U.S. 595, 599, 78

S. Ct. 950, 953 (1958), and as not being “designed to reach

every fraud practiced on the Government,” McNinch, 356

U.S. at 599, 78 S. Ct. at 953, or to reach “all types of

fraudsters.” Stevens, 529 U.S. at 781 n.10, 120 S. Ct. at 1867

n.10 (emphasis in the original). Under the standards of

statutory construction, the context of the FCA overcomes the

Seventh Circuit’s assumption that local governments are

“persons” under the FCA.

The text of the original version of the FCA indicates that it

was not directed at local governments. The Court observed in

Stevens: “far from indicating that States were covered, it did

not even make clear that private corporations were since it

applied only to any person not in the military” and “imposed

criminal penalties that included imprisonment.” /d. at 782,

120 S. Ct. at 1867. The Court’s rationale likewise applies to

local governments. The reference to military status and impo-

sition of criminal penalties strongly imply that Congress did

not consider local governments to be subject to suit under the

FCA. Cf. United States ex rel. Long v. SCS Business &

Technical Inst., Inc., 173 F.3d 870, 878 (D.C. Cir. 1999)

(criminal penalty inconsistent with state liability under FCA).

Moreover, the genesis of the FCA further confirms that

local governments were not Congress’ target. In its original

form, Senate Bill 467 broadly targeted “any person”

submitting a false claim. S. 467, 37th Cong. 3d Sess. § 1

(1863). On January 29, 1863, the bill was amended to,

among other things, replace the phrase “any person” with the

phrase “any person in the land or naval forces” and “any

person not in the military.” Jd. at §§ 1, 4. That local

governments were not Congress’ intended targets in 1863 is

evident by its narrowing and refining the scope of Senate Bill

467 prior to passage. Senate Bill 467 also originally included

a provision deeming any person contracting with the United

States to provide military supplies both a member of the

military and subject to court-martial in case of fraud. Jd. at §

2. Though that provision was ultimately withdrawn from the

bill, the fact that Congress was contemplating court-martial of

contractors defrauding the military is further proof that local

governments were not intended to be subject to liability under

the FCA as originally enacted.

Instead of studying the 1863 text and legislative history, the

Seventh Circuit turned to a 1986 Senate Committee Report as

authority that the 1863 enactment included local governments

within its scope. Chandler, 277 F.3d at 975. (App. 10a-1 1a.)

The Seventh Circuit distinguished Stevens’ dismissal of that

report as “erroneous,” Stevens, 529 U.S. at 783 n. 12, 120

S. Ct. at 1868 n.12, by finding it correct with respect to

governmental entities that are not “arms of the state itself.”

Chandler, 277 F.3d at 975 n.8. (App. 10a-lla.) Stevens did

not make such a distinction between States and other

governmental entities. Moreover, that report, based on a mis-

taken interpretation of the original enactment and case law, is

likewise erroneous with respect to local governments. See

Dunleavy, 279 F.3d at 225; Garibaldi, 244 F.3d at 489-90

n.3; Graber, 8 F. Supp. 2d at 353. Reliance on that report is

further suspect because “‘the views of a subsequent Congress

form a hazardous basis for inferring the intent of an earlier

one.”” See Wright v. West, 50S U.S. 277, 295, n.9, 112 S. Ct.

2482, 2492 n.9 (1992) [citation omitted]. The Seventh

Circuit’s determination that Congress, in 1863, intended local

governments to be “persons” subject to the FCA’s liability

was error.

2. The Seventh Circuit’s initial determination that Con-

gress, in 1863, included local governments as “persons” under

the FCA tainted its analysis of the 1986 amendments. Not

only is the Seventh Circuit’s pronouncement that three

changes to the FCA enacted in 1986 demonstrate “continued

municipal liability,” Chandler, 277 F.3d at 975, (App. 9a),

not borne out by any of those changes, the 1986 amendments,

in fact, confirm that local governments were never intended

subjects of FCA liability in 1863.

The most significant of the 1986 changes considered by the

Seventh Circuit is the increase in the FCA’s damages from

double to treble. The increase in damages implicates a

presumption that both States and local governments enjoy.

Indeed, the Court, in holding that the treble damages plus

penalties imposed by the 1986 amendments to the FCA are

punitive, reaffirmed the “presumption against imposition of

punitive damages on governmental entities.” Stevens, 529

U.S. at 785 (citing City of Newport, 453 U.S. at 262-63, 101

S. Ct. at 2757-58 ). The Court has, “on several occasions,

found that a tradition of immunity was so firmly rooted in the

common law and was supported by such strong policy reasons

that ‘Congress would have specifically so provided had it

wished to abolish the doctrine.”” Owen v. City of Inde-

pendence, Mo., 445 U.S. 622, 637, 100 S. Ct. 1398, 1408

(1980) (quoting Pierson v. Ray, 386 U.S. 547, 555 (1967)).

In Stevens, the Court found Congress’ imposition of man-

datory punitive damages in the 1986 amendments to be

further support for the conclusion that States were never

included as “persons” under the FCA. /d. at 785, 120 S. Ct.

at 1869. That reasoning likewise applies to local govern-

ments. See City of Newport, 453 U.S. at 260 n.20, 101 S. Ct.-

at 2756 n.20 (“The general rule today is that no punitive

damages are allowed [against a municipal entity] unless

expressly authorized by statute.”).

The heart of the question, then, is what constitutes explicit

Congressional intent to impose punitive damages. Nowhere

in the text or legislative history of the 1986 amendments to

the FCA did Congress explicitly impose the FCA’s punitive

damages on local governments. For that *eason, the Fifth

Circuit refused to find that Congress intended to subject

municipal entities to liability under the FCA. Garibaldi, 244

F.3d at 492 (“Though Congress is free to make that deter-

mination if it chooses, we will not find such a choice absent

clear language in the text of the FCA.”). Also, for that

reason, the Third Circuit found: “At best, after considering

the text of the statute and its legislative history, we find only

ambiguity as to whether Congress intended to disturb the

well-settled doctrine of local governmental immunity from

punitive damages under the FCA. Ambiguity, however, is not

enough . . . to carry the day.” Dunleavy, 279 F.3d at 225.

The Seventh Circuit, on the other hand, while acknowl-

edging that Congress nowhere explicitly subjected local

governments to punitive damages under the FCA, looked for

an explicit exemption of municipal entities from the FCA’s

punitive damages and found none. Chandler, 277 F.3d at 979

(“When it desires to exempt municipal entities from federal

statutory schemes, Congress has not hesitated to do so.”).

(App. 17a.) In so doing, the Seventh Circuit employed a

standard that is at odds with the Court’s teachings by ignoring

this Court’s consistent refusal “to construe the general

language of [a statute] as automatically abolishing such

traditional immunities by implication.” See City of Newport,

453 U.S. 247, 258, 101 S. Ct. 2748, 2755. In short, the

Seventh Circuit took the well-established presumption against

the imposition of punitive damages on local governments

absent an explicit indication from Congress and turned it on

its head.*

The error in the Seventh Circuit’s approach is further

demonstrated by the policy justifications offered for its view

that Congress implicitly imposed punitive damages on local

governments. First, the Seventh Circuit distinguished City of

Newport on the grounds that “there are important differences

between [the punitive damages] available under sec. 1983 and

those imposed by the FCA.” Chandler, 277 F.3d at 978.

(App. 15a.) The Seventh Circuit reasoned:

Under the FCA, at least a portion of the recovery

will come from the monies taken by the municipality

through its false claims, whereas under § 1983 both the

* One federal district court recently “performed an exhaustive search

and yet was unable to find any court of appeals decisions, with the

exception of the Seventh Circuit’s recent decision in Chandler, authorizing

an award of punitive damages against a municipality, absent express

statutory authority to do so.” Schultzen v. Woodbury Central Community

Sch. Dist., No. C01-4089-MWB, 2002 U.S. Dist. LEXIS 3010 (N.D. lowa

Feb. 22, 2002).

compensatory and punitive damages come directly from

the tax base. Further, in the FCA context, the taxpayers

themselves have been enriched by the fraudulent conduct

of the municipality. Presumably any ill-gotten gains

from the federal government produce more services or

lower taxes. Thus, even though some of the burden of

the FCA’s treble damages shifts to the local taxpayers,

this shift is not unjust, because the local taxpayers

have already received, without justification, some of

the benefit.

Id. The Seventh Circuit’s reasoning deviates from this

Court’s expressed concern with the hardship caused by

imposing damages on local taxpayers that are three times

higher than any amount of ill-gotten gains. See Stevens, 529

U.S. at 785 n.15, 120 S. Ct. at 1869 n.15. As the Fifth Circuit

noted: “Though a local government can properly be made

to pay compensation for the wrongful acts of its agents,

punishing a local government is pointless.” Garibaldi, 244

F.3d at 491.

The Seventh Circuit was also persuaded by the fact that the

FCA’s damages are not divided into compensatory and puni-

tive, as are the damages under 42 U.S.C. § 1983. Chandler,

277 F.3d at 978. (App. 16a.) Stevens did not recognize such

a distinction between the two statutes, instead noting that both

Section 1983 and the FCA are federal laws “designed to

benefit the citizens of the United States.” Stevens, 529 U.S. at

785 n.15, 120 S. Ct. at 1869 n.15 (“[a] better read of Newport

is that we were concerned with imposing punitive damages on

taxpayers under any circumstances”). The Seventh Circuit

did not take into consideration that the federal govern-

* The Seventh Circuit’s reasoning is belied by Relator’s own Amended

Complaint, which suggests that federal monies were used in a manner that

did not produce the intended benefit to the tax-paying public.

ment has available causes of action other than the FCA to

recoup damages for any “ill-gotten gains.” See 31 U.S.C.

§ 3730(c)(5).

Contrary to the Seventh Circuit’s determination, two other

changes to the FCA in 1986, in fact, support a conclusion that

Congress never intended local governments to be sued under

the FCA. In discussing the CID provision at Section 3733

that defines “person” to include “any State or political

subdivision of a State . . . for purposes of this section,” the

Seventh Circuit concluded that “[a]lthough this definition

does not demonstrate Congressional intent to impose liability

on municipalities, it certainly does not support an inference

that Congress intended them to be exempt.” Chandler, 277

F.3d at 975. (App. 10a.) Yet, applying the Court’s reasoning

in Stevens, Congress’ addition of local governments in the

CID provision at Section 3733, coupled with its decision not

to define “person” in Section 3729 to include local govern-

ments, leads to the same conclusion as the Court reached

Stevens with respect to States, namely, that local governments

are not persons for purposes of FCA suits.

The third change to the FCA in 1986 considered by the

Seventh Circuit was the whistleblower provision. Although

the whistleblower provision uses the word “employer”

without defining the term, 31 U.S.C. § 3730(h), the 1986

Senate Committee Report states that “employers” include

“public as well as private sector entities.” Chandler, 277 F.3d

at 975 (citing S. Rep. 99-345 at 34-35). (App. 10a-lla.) As

6 noted above, that Senate Committee Report is itself of suspect

value, being based on an inaccurate interpretation of the law.

See Garibaldi, 244 F.3d at 489 n.3; Graber, 8 F. Supp. 2d at

353. According to the Seventh Circuit, there would be no

reason to subject local governments to whistleblower liability

if they were not already subject to FCA liability. However,

that is not true. Congress can subject a public entity to

liability for retaliation without making that entity subject to

liability under the FCA, because the federal government can

pursue remedies independent of Section 3729, such as a cause

of action in breach of contract or fraud, or by way of the

administrative process. See 31 U.S.C. § 3730(c)(5). More-

over, the Seventh Circuit’s reasoning here, too, is incom-

patible with the presumption that punitive damages are not

imposed on local governments without an explicit indication

from Congress. See City of Newport, 453 U.S. at 261, 271,

101 S. Ct. at 2757. Back-dooring liability for local gov-

ernments through an unrelated provision is not the explicit

abrogation of the imposition of punitive damages demanded

by City of Newport. Taken together, the serious errors in the

Seventh Circuit’s analysis provide an additional reason for

this Court to review the important questions raised in this

petition at this time.

Despite the 139-year history of the FCA, local governments

have only recently become its frequent targets. As it stands

now, local governmental liability under the FCA is directly

dependent upon geographic location: the thousands of local

governments in the Seventh Circuit are subject to suit under

the FCA, while those in the Fifth and Third Circuits are not.

Given the profound and potentially catastrophic impact of

FCA suits on local governments, the split in the circuits, and

the resulting disparate application of the FCA throughout the

country, the Court should take this opportunity to resolve this

critical issue.

CONCLUSION

The petition for a writ of certiorari should be granted.

PATRICK T. DRISCOLL, JR.

Deputy State’s Attorney

Chief, Civil Actions Bureau

DONNA M. LACH *

THOMAS M. BURNHAM

SANJAY T. TAILOR

Assistant State’s Attorneys

of Counsel

* Counsel of Record

Respectfully submitted,

RICHARD A. DEVINE

State's Attorney of

Cook County, Illinois

500 Richard J. Daley Center

Chicago, Illinois 60602

(312) 603-6934

Attorney for Petitioner

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

| FOR THE SEVENTH CIRCUIT

Nos. 00-4110 & 01-1810

wes UNITED STATES OF AMERICA ex rel.,

: JANET CHANDLER, Ph.D.,

Plaintiff-Appellant, Cross-Appellee,

Vv.

Cook COUNTY, ILLINOIS,’

Defendant-Appellee, Cross-Appellant.

September 5, 2001, Argued

January 22, 2002, Decided

i : JUDGES: Before FLAUM, Chief Judge, and POSNER and

7 RIPPLE, Circuit Judges.

OPINION:

RIPPLE, Circuit Judge.

Janet Chandler, Ph.D., brought this qui tam action as rela-

tor on behalf of the United States under the False Claims Act

(“FCA”), 31 U.S.C. §§ 3729 et seq., to recover funds that

allegedly were obtained fraudulently by defendants Hektoen

Institute for Medical Research (“Hektoen”) and Cook County,

Illinois, in the administration of a drug treatment program.

The district court dismissed the suit against Cook County,

| The Hektoen Institute for Medical Research, a defendant in this

action in the district court, filed a motion for non-involvement in this

appeal. The court granted that motion.

holding that, as a municipality, the County was immune from

punitive damages under the FCA. Dr. Chandler appealed and,

for the reasons set forth in this opinion, we reverse in case

No. 00-4110.

Cook County also appealed or, in the alternative, requested

mandamus, from the district court’s discovery order requiring

Cook County to turn over certain drug treatment records. We

believe the district court’s discovery order does not comply

with federal privacy regulations. Therefore mandamus will

issue requiring the district court to vacate its discovery order

and to proceed in conformity with this opinion.

I. BACKGROUND

A. Cook County as a Party

Dr. Janet Chandler brought this qui tam action against

Hektoen and Cook County for alleged misconduct in their

handling of a federal research grant.” Cook County Hospital

(“CCH”) applied for, and received, a $ 5 million grant from

the National Institute of Drug Abuse (“NIDA”) to study the

treatment of drug-dependant pregnant women. Along with its

grant application, CCH submitted an assurance of compliance

plan to the Department of Health and Human Services

(“HHS”), representing that CCH would comply with federal

human subject research regulations. The grant initially was

awarded to CCH, but was transferred to Hektoen, an affiliate

of CCH established to receive funds and conduct medical

research. The program was dubbed “New Start”; it was

designed to provide treatment and conduct research. New

Start provided treatment to drug-dependant pregnant women

and studied the effect of a stepped-up battery of medical and

2 Dr. Chandler initially sued Cook County Hospital in addition to these

defendants. The hospital was found to have no identity independent of

Cook County and was dismissed from the case. See United States ex rel.

Chandler v. Hektoen Inst., 35 F. Supp. 2d 1078, 1086 (N.D. Ill. 1999).

social services on its patients, compared with a control group

receiving the typical treatment available in the community.

On September 1, 1993, Dr. Chandler was hired as New

Start’) project director. While in this post, Dr. Chandler came

to believe that the defendants were violating the terms of the

grant and federal regulations. Further, she believed they were

misrepresenting the success of the New Start program and

submitting false progress reports to the government, which

included information on “ghost” program participants who

did not exist. Dr. Chandler alleged that CCH did not follow

mandatory protocol for research on human subjects and for

dispensing methadone to pregnant women, did not obtain

informed consent from study participants, did not obtain

thorough medical or drug histories, provided substandard

care, failed to keep accurate records and failed to randomize

participants.

In 1994, Dr. Chandler began to speak up, informing

physicians at CCH that she was concerned with the handling

of the New Start program. She told them that the program

was violating the terms of the grant, the assurance of

compliance plan and pertinent federal regulations. Ultimately

Dr. Chandler was discharged and brought this action. She

alleged that CCH retaliated against her by revoking some of

her responsibilities and then firing her in January 1995, after

she was accused of lying in her report to NIDA on the study’s

alleged failure.

Cook County moved to dismiss on the ground that it was

not a “person” within the meaning of the False Claims Act.

See 31 U.S.C. § 3729%a).’ The district court denied Cook

> § 3729 provides:

(a) Any person who—

(1) knowingly presents, or causes to be presented, to an officer or

employee of the United States Government or a member of the

County’s motion to dismiss, holding that the County was a

person within the meaning of the FCA. See Chandler v.

Hektoen Inst., 35 F. Supp. 2d 1078, 1084 (N.D. Ill. 1999)

(Chandler I). Specifically, the court was persuaded by the

definition of person within the Civil Investigative Demand

(“CID”) provision of the FCA, added in 1986. See 31 U.S.C.

§ 3733(1)(4); Chandler I, 35 F. Supp. 2d at 1084. The statute

defines person as “any natural person, partnership,

corporation, association, or other legal entity, including any

State or political subdivision of a State.” 31 U.S.C.

§ 3733(1)(4). The district court further held that the treble

damages provision of the FCA was not punitive, so that

municipalities’ traditional immunity from punitive damages

was not implicated. See Chandler I, 35 F. Supp. 2d at 1084-

85. Therefore, Cook County’s motion was denied.

In 2000, the Supreme Court decided Vermont Agency of

Natural Resources v. United States ex rel. Stevens, 529 U.S.

765, 120 S. Ct. 1858, 146 L. Ed. 2d 836 (2000). Stevens held

that states were not persons within the meaning of the FCA

and concluded that the treble damages provision was

punitive. See id. at 783-84. Cook County filed a motion to

reconsider in light of Stevens. See Chandler v. Hektoen Inst.,

118 F. Supp. 2d 902, 902 (N.D. Ill. 2000) (Chandler II). The

district court found nothing in Stevens to “alter its conclusion

Armed Forces of the United States a false or fraudulent claim for

payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false

record or statement to get a false or fraudulent claim paid or

approved by the Government;

(3) conspires to defraud the Government by getting a false or

fraudulent claim allowed or paid; . . .

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. § 3729(a).

that the County is a ‘person’ for purposes of the FCA” but

found that “it is quite clear that under Stevens the County is

immune from the imposition of punitive damages.” Jd. at 903.

The court dismissed the case against Cook County.

B. Discovery

Dr. Chandler brought this action on January 27, 1997. She

sought the records of the New Start program in discovery.

The voluminous records contained inter alia physicians’

notes, consent forms, medical records, patient questionnaires

and drug test results. The County resisted, pointing to federal

regulations requiring researchers to keep drug and alcohol

treatment records confidential. On January 7, 1999, the

district court granted Dr. Chandler’s motion to compel and

ordered Cook County to produce the records with patient-

identifying information redacted. Notice was sent to the

former New Start patients, informing them that “Janet

Chandler has been given permission by the Court to review

your New Start records, so long as all the identifying

information and other personal information on the records is

blacked out.” R.72, Ex.B. The notice also provided the former

patients with forms to reply if they wanted to object to the

disclosure or if they consented to the disclosure of identify-

ing information. The patients were informed that if they

did nothing, the redacted records would be disclosed to

Dr. Chandler and her representatives.

Over the next year or so, the parties were contentious about

the quality of the redacted records. Dr. Chandler’s attorneys

claimed that many records were missing or incomplete. There

was a problem with the index created by Cook County to

obscure patient identifying information in compliance with

the court’s discovery order. The court ordered the County to

produce a “key” to cross-reference original and substituted

file numbers because the substituted file numbers could not

be linked with a large quantity of study data. In early 2001,

Dr. Chandler went back to the district court seeking access to

the unredacted patient records.

On March 5, 2001, the district court ordered Cook County

to turn over unredacted patient records to Dr. Chandler’s

representatives and asked the parties to draft protective

orders. On March 14, 2001, the district court entered a

protective order governing the disclosure of unredacted

patient records to Dr. Chandler’s attorneys. The order limited

disclosure to three of Dr. Chandler’s attorneys and one

paralegal for ten days. They were prohibited from disclosing

information to anyone, including Dr. Chandler and were not

permitted to record any of the information. Cook County

sought an emergency stay pending appeal. After briefing

from both sides, the motions panel of this court granted

the stay on June 12, 2001 and denied Dr. Chandler’s motion

to dismiss for want of jurisdiction. We consolidated the

two appeals.

II. DISCUSSION

The False Claims Act establishes civil penalties for “[a}ny

person” who, inter alia, “knowingly presents, or causes to be

presented, to an officer or employee of the United States

Government . . . a false or fraudulent claim for payment or

approval,” or who “conspires to defraud the Government by

getting a false or fraudulent claim allowed or paid.” 31 U.S.C.

§ 3729(a)(1), (3). Such a person “‘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 be cause of the act of that

person.” Jd. § 3729(a). The FCA may be enforced by the

Attorney General, id. § 3730(a), or by a private person,

known as a relator, who brings a qui tam suit “for the person

and for the United States Government . . . in the name of the

Government,” id. § 3730(b). A qui tam suit is filed in camera,

and remains under seal for sixty days. Jd. § 3730(b)(2). The

relator must present all material evidence to the Government;

during the sixty day period, the Government may intervene

and proceed with the action itself. /d. If the Government

declines to assume responsibility for the suit, the relator may

proceed on his own. /d. § 3730(b)(4)(B). If the suit is

successful, the relator receives a portion of the Government’s

award. /d. § 3730(d). If the Government takes over, the

relator will receive between 15 and 25 percent of the

Government’s proceeds, “depending upon the extent to which

the person substantially contributed to the prosecution of the

action,” plus reasonable expenses. /d. § 3730(d)(1). If the

relator proceeds on his own, he will receive between 25 and

30 percent of the proceeds, plus reasonable expenses. /d. The

qui tam relator is also protected by a “whistleblower”

provision which provides relief to any employee who suffers

retaliation for bringing a claim under the FCA or assisting

an employee-relator who does so. /d. § 3730(h). The

whistleblower protection extends to any relator who brings a

claim in good faith, whether or not it is successful.

We must determine whether Cook County is a “person”

within the meaning of the FCA.‘

* Under Illinois law, Cook County is a “home rule” unit. Secretary of

State of Illinois, //linois Counties & Incorporated Municipalities 30

(1993); see also Ill. Const. Art. VII § 6; Nevitt v. Langfelder, 157 Ill. 2d

116, 623 N.E.2d 281, 285 (Ill. 1993) (noting that Cook County and the

City of Chicago are the only home rule units in Illinois with populations

in excess of | million people). “Except as limited by this Section, a home

rule unit may exercise any power and perform any function pertaining to

its government and affairs including, but not limited to, the power to

regulate for the protection of the public health, safety, morals and welfare;

to license; to tax; and to incur debt.” II]. Const. Art. VII, § 6(a). Home rule

status is automatically granted to any municipality with a population

greater than 25,000 and any county with a chief executive elected by the

voters, or any municipality who chooses such status by referendum. /d

The issue is one of statutory interpretation. Therefore we

must ascertain the will of Congress; we must determine

whether Congress, when it enacted the FCA, intended

counties to be defendants in qui tam suits.

We begin, as always, with the text of the statute. Congress

provides no definition of “person” within § 3729. There have

been only cosmetic changes to this section since the FCA was

first adopted in 1863; therefore, the definition of person has

remained constant throughout the FCA’s history. See Stevens,

529 U.S. at 783 n.12, 120 S. Ct. 1858. The Supreme Court

has noted that, by 1844, both private and municipal

corporations were presumptively included within the meaning

of “person.” See Monell v. Dep't of Soc. Serv., 436 U.S. 658,

685-89, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). Nowhere in

the text is there an exception for suits against municipalities.

Nor have the parties suggested any other statutory provision

that would limit the text before us.

The structure of the statute does not appear to bar a finding

that counties may be sued under the FCA. The FCA creates a

mechanism designed to discover and correct fraud against the

federal government. In a qui tam suit, the relator must inform

the Department of Justice of his intention to sue and must

keep his suit under seal for sixty days while the Justice

Department decides whether to prosecute the action itself.°

The parties have not suggested anything in the structure of the

The legislature may preempt the taxing power of a home rule unit by a

three-fifths vote of both houses. See id § 6(g). The legislature may also

preempt, by ordinary majority vote, “any power or function of a home rule

unit other than a taxing power” or certain local improvements and special

services. /d §§ 6(h), (1).

> There is no reason to presume that a decision by the Justice

Department not to assume control of the suit is a commentary on its

merits. The Justice Department may have myriad reasons for permitting

the private suit to go forward including limited prosecutorial resources

and confidence in the relator’s attorney.

FCA, when read as a whole, that would require anything

other than a straight-forward reading of the text.

The 1986 amendments to the FCA did not change the

meaning of “person” nor did these legislative changes

explicitly include or exclude suits against municipalities.

However, three of the changes to the FCA made by Congress

in 1986 are relevant to this case. That year, Congress adopted

what is now 31 U.S.C. § 3733, which permitted the Attorney

General to issue a Civil Investigative Demand (“CID”) to

“any person” who “may be in possession, custody, or control

of any . . . information relevant to a false claims law

investigation.” See 31 U.S.C. § 3733(a)(1). A CID requires its

recipient to produce documents, answer interrogatories and

give oral testimony. /d. Political subdivisions of states were

included within the CID provision’s definition of “person.”

See id. § 3733(1). Second, Congress adopted a “whistle-

blower” statute, protecting relators and their witnesses from

retaliation by employers. See id. § 3730(h). Finally, Congress

increased the penalties for violations, from $2,000 per claim

and double damages to $5,000-$10,000 per claim and treble

damages. /d. § 3729(a)°. We believe that a proper under-

standing of each of these changes points to a finding of

continued municipal liability.

The CID provision was added to provide the Justice

Department with a new weapon to discover fraud and

investigate false claim suits. That section defines “person” as

“any natural person, partnership, corporation, association, or

other legal entity, including any State or political subdivision

of a State.” Jd. § 3733(1)(4).’ The CID’s definition of person

* This change shifted the FCA’s damages regime from a compensatory

system to a punitive one, see Stevens, 529 U.S. at 785-86, 120 S. Ct. 1858,

thereby implicating municipalities’ common-law immunity from punitive

damages. See infra § 1I(B).

” The Supreme Court in Stevens found that this definition militated

against a finding that states were within the definition of “person.” See

10a

at least demonstrates that Congress intended that states and

their subdivisions be potential targets of false claim

investigations. Although this definition does not demonstrate

Congressional intent to impose liability on municipalities,

it certainly does not support an inference that Con-

gress intended them to be exempt. Every change made in

1986 made it more likely for FCA claims to be filed and

to succeed.

Further, the legislative history of the 1986 amendments, in

particular that accompanying the whistleblower provision,

makes it likely that the Congress, when voting on the

amendments, was aware that the FCA might reach

municipalities. The Senate Judiciary Committee’s report

states that “the False Claims Act reaches all parties who may

submit false claims. The term ‘person’ is used in its broad

sense to include partnerships, associations, and corporations

. . . a8 well as States and political subdivisions thereof.”

S. Rep. 99-345 at 8 (1986), reprinted in 1986 U.S.C.C.A.N.

5266, 5273." In discussing the whistleblower provision, the

Stevens, 529 U.S. at 784, 120 S. Ct. 1858. The court reasoned that if

Congress wanted to include states within the ambit of § 3729, it could

have provided a similar definition within that provision. /d Given the

presumption that States are not included within the definition of “person,”

“the failure to add States to § 3729 suggests that States are not subject to

qui tam liability under § 3729.” Jd. at 784 n.14, 120 S. Ct. 1858.

Municipalities and other political subdivisions, however, are presump-

tively within the meaning of “person.” Congress’ inclusion of “political

subdivision of a State” within § 3733's definition of person and its

exclusion from § 3729's definitions section does not have the same

meaning as Congress’ similar action with regard to states. We need not

draw the same inference the Supreme Court drew from this aspect of the

statute’s structure because Cook County does not enjoy the same privilege

of place within our constitutional structure enjoyed by states.

* The Supreme Court in Stevens found this statement to be erroneous.

See Stevens, 529 U.S. at 783 n.12, 120 S. Ct. 1858. The committee’s error,

however, was in presuming that “person” in its broad sense included

states which, as Stevens points out, is not the case. Given the sovereign

Committee report defines “employers” to “include public as

well as private sector entities.” See id. at 34-35. Unless

municipalities are subject to suit under the FCA, Congress

would have no reason to be concerned that municipalities

might retaliate against their employees for bringing FCA

claims. Given that states are excluded from the definition of

“person” within the FCA, the only public entities remaining

are municipal corporations and other political subdivisions of

states which are not arms or agencies of state government.

This reading of the 1986 amendments is compatible with

other evidence that Congress’ purpose in enacting those

amendments was to increase the effectiveness of the Act. See

S. Rep. No. 99-345 at 2 (1986) (“In order to make the statute

a more useful tool against fraud in modern times, the

Committee believes the statute should be amended in several

significant respects. The proposed legislation seeks not only

to provide the Government’s law enforcers with more

effective tools, but to encourage any individual knowing of

Government fraud to bring that information forward.”).

Congress also increased the percentage of the Government’s

proceeds a relator may receive where the Government

assumes responsibility for the action. Before 1986, a relator’s

share was capped at ten percent of the award. See 31 U.S.C.

§ 3729(c)(1) (1983). Now, a court has discretion to give the

relator between fifteen and twenty-five percent, but fifteen

percent is the minimum award. 31 U.S.C. § 3730(d)(1).

Before 1986, if a relator proceeded on his own, his potential

status of states, Congress must do something more to bring states within

the coverage of a federal law than enact a law aimed at “persons,” even if

that term is used in its broadest sense. See id. at 780-81, 120 S. Ct. 1858.

The same is not true of municipal corporations and other governmental

bodies within state boundaries. Therefore, while the committee report was

incorrect with respect to the liability of states under the FCA before 1986,

we believe it was correct in asserting that political subdivisions of states

were, and are, subject to suit under the FCA so long as they are not

properly considered arms of the state itself.

12a

award was capped at twenty-five percent, see 31 U.S.C.

§ 3729(c\(2) (1983); now twenty-five percent is the mini-

mum he would receive, with a maximum of thirty percent.

31 U.S.C. § 3730(d)(2). These changes both encourage qui

tam suits and encourage cooperation with the Department of

Justice.

The 1986 amendments also added several provisions which

deter frivolous suits and give courts the discretion to restrict a

relator’s participation in suits when the Government has

intervened. The district court can restrict the relator’s

participation if he remains in the case for purposes of

harassment, 31 U.S.C. § 3730(c)(2\(C); the court may stay

discovery if the relator’s actions interfere with the

Government’s investigation, id. § 3730(c)(4). If the basis for

the suit was information that was already available, a district

court may limit a relator’s recovery to 10 percent of the

award, id. § 3730(d)(1), or bar the suit entirely unless the

Attorney General prosecutes the case, id. § 3730(d)(4)(A). If

the relator himself planned or was guilty of violations of the

FCA, the court may dismiss his suit. Jd. § 3730(d)(3). If the

relator proceeds with the suit himself and the court finds that

the suit was “clearly frivolous, clearly vexatious or brought

primarily for purposes of harassment,” the court may award

the defendant attorneys’ fees and expenses. /d. § 3730(d)(4).

Finally, the FCA bars suits against members of Congress,

members of the judiciary and senior executive branch

officials. Jd. § 3730(e)(2). These changes gave courts more

discretion to regulate gui tam suits and to weed out

illegitimate actions.

Congress also changed the knowledge element of the

offense, making success more likely. Some confusion had

arisen about the standard of intent necessary for a finding of

liability under the FCA. Congress adopted § 3729(b) which

defines knowing and knowingly to mean that a person “(1)

has actual knowledge of the information; (2) acts in deliberate

ignorance of the truth or falsity of the information; or (3) acts

13a

in reckless disregard for the truth or falsity of the information,

and no proof of specific intent to defraud is required.”

31 U.S.C. §3729(b). This definition sets a fairly low

standard, making it easier for the United States to prevail in

FCA actions.

We must conclude that a study of the text and structure of

the Act, supported by the available legislative history, leads

to the conclusion that Congress intended to include counties

within the meaning of “person.”

Cook County nevertheless urges that we are prohibited

from interpreting the statute to include counties because of

the municipalities’ traditional, commonlaw immunity from

punitive damages. The Supreme Court in Stevens stated that,

by increasing the damages from double to treble in 1986, the

FCA was transformed from a remedial statute to a punitive

one. See Stevens, 529 U.S. at 785-86, 120 S. Ct. 1858.”

Because damages under the FCA are now considered to be

punitive, we turn to the question of whether Congress has

made it sufficiently clear that municipalities do not enjoy the

traditional common-law immunity of municipalities from

punitive damages for FCA claims.

We begin with the Supreme Court’s decision in City of

Newport v. Fact Conceris, 453 U.S. 247, 101 S. Ct. 2748, 69

L. Ed. 2d 616 (1981). See Doe v. County of Centre, 242 F.3d

437, 454 (3d Cir. 2001) (using City of Newport to analyze

whether municipalities were immune from punitive damages

in suits brought under the Americans with Disabilities Act

and the Rehabilitation Act). In Newport, the Court was called

upon to decide whether a municipality was immune from

* The Supreme Court had held that the double damages recoverable

before 1986 were remedial. See United States v. Bornstein, 423 U.S. 303,

315, 96 S. Ct. 523, 46 L. Ed. 2d 514 (1976).

l4a

punitive damages under 42 U.S.C. § 1983. See Newport, 453

U.S. at 249, 101 S. Ct. 2748. The Court could find no

evidence that Congress intended to disturb the settled

common-law immunity of municipalities from punitive judg-

ments. See id. at 265, 101 S. Ct. 2748. Under the § 1983

statutory scheme, there is no guidance from Congress as to

the damages to be imposed, or to the limits on the amount of

punitive damages a jury may assess.

Compensatory damages, designed to make the victim of

unconstitutional behavior whole, are a permissible basis of

recovery and, although punitive damages, properly calc-

ulated, serve many salutary purposes when a truly egregious

situation is presented, they remain a windfall for the fully

compensated plaintiff. There is always the danger that the

“deep pocket” of the municipality’s tax base will tempt a jury

to succumb to an unprincipled determination. See Newport,

453 US. at 270, 101 S. Ct. 2748. In light of these factors, the

Court in Newport found no basis for disregarding the

presumption that a municipal entity ought not be subjected to

such a liability.

In Newport, the court identified a “two-part approach” for

“scrutinizing a claim of immunity proffered by a munic-

ipality.” Jd. at 259, 101 S. Ct. 2748. Such a claim requires

“careful inquiry into considerations of both history and

policy” to determine “both the policies that it [the immunity]

serves and its compatibility with the purposes” of statutes, id.

Earlier, in Owen v. City of Independence, 445 U.S. 622, 635,

100 S. Ct. 1398, 63 L. Ed. 2d 673 (1980), the Court had noted

that “the question of the scope of a municipality's immunity

from liability . . . is essentially one of statutory

interpretation.” For instance, in the context of § 1983, the

Court concluded in Newport that immunity from punitive

damages was not inconsistent with the purposes of § 1983,

see Newport, 453 U.S. at 271, 101 S. Ct. 2748; however, in

Owen, the Court held that municipal immunity based on the

15a

good faith of its officers was inconsistent with § 1983, see

Owen, 445 U.S. at 657, 100 S. Ct. 1398. In both cases, the

Court looked at the fit between the purpose of the asserted

immunity and the Congressional intent in enacting § 1983.

Given the Supreme Court’s analysis in Newport, we must

examine the purpose of municipal immunity from punitive

damages to determine if it is consistent with the False Claims

Act. In the context of section 1983, the Supreme Court wrote

in Newport: “Compensation was an obligation properly

shared by the municipality itself, whereas punishment prop-

erly applied only to the actual wrongdoers.” Newport, 453

U.S. at 263, 101 S. Ct. 2748. Punitive damages are borne by

“the very taxpayers and citizens for whose benefit the

wrongdoer [is] being chastised.” Jd. Ordinarily, punitive

damages “are in effect a windfall to a fully compensated

plaintiff, and are likely accompanied by an increase in taxes

or a reduction of public services for the citizens footing the

bill.” Jd. at 267, 101 S. Ct. 2748.

However, not all punitive damage regimes are identical.

Indeed, there are important differences between those

available under § 1983 and those imposed by the FCA. Under

the FCA, at least a portion of the recovery will come from the

monies taken by the municipality through its false claims,

whereas under § 1983 both the compensatory and punitive

damages come directly from the tax base. Further, in the FCA

context, the taxpayers themselves have been enriched by the

fraudulent conduct of the municipality. Presumably any ill-

gotten gains from the federal government produce more

services or lower taxes. Thus, even though some of the

burden of the FCA’s treble damages shifts to the local

taxpayers, this shift is not unjust, because the local taxpayers

have already received, without justification, some of the

benefit. Congress’ precision in crafting the FCA’s damage

regime suggests to us that it carefully considered all its

options before enacting this particular system. Unlike § 1983,

the FCA does not need to borrow a common-law conception

16a

of damages; Congress has provided a clear and consistent

remedy for all violations of the FCA. And, unlike under

§ 1983, we need not worry about the “broad discretion

traditionally accorded to juries in assessing the amount of

punitive damages,” Newport, 453 U.S. at 270, 101 S. Ct.

2748, because the FCA affords the judge little discretion in

imposing penalties on offenders.

The FCA damages scheme mandated by Congress is not

divided into compensatory and punitive damages. Under the

FCA, damages are limited to $10,000 per claim plus three

times the amount of the false claims. 31 U.S.C. § 3729(a).

Although the trebling of the actual loss is indeed a significant

enhancement and punitive in nature, it is nevertheless a

response specifically determined by Congress as necessary

for the effective operation of the FCA. It could not be more

clear that Congress, in adopting this approach, addressed the

situation with careful precision as to what sort of damage

scheme was necessary to achieve the goals of the statute.

Notably, Congress did make an exception to the general

measure of damages when the person who has defrauded the

Government cooperates before having learned of the

investigation. 31 U.S.C. § 3729(a)(7)(A)-(C). In such a case,

the court has discretion to impose double, rather than treble,

damages. /d. The damages are imposed by the judge, not the

jury. See In re Schimmels, 85 F.3d 416, 416 n.1 (9th Cir.

1996). By contrast, Congress made no adjustment to the

general scheme for municipal entities.

The Supreme Court has noted that the definition of

“person” has remained unchanged since the adoption of the

FCA in 1863. See Stevens, 529 U.S. at 782-83, 120 S. Ct.

1858. As noted above, counties were subject to suit in 1863.

Were we to hold counties immune from the FCA’s damages

scheme, we would frustrate the clear intention of Con-

gress. The original FCA damages regime was remedial. See

United States v. Bornstein, 423 U.S. 303, 315, 96 S. Ct. 523,

17a

46 L. Ed. 2d 514 (1976). In 1986, in an effort to increase the

effectiveness of the FCA, Congress increased the per claim

penalty from $2,000 to a minimum of $5,000 and the overall

damages from double to treble. To hold that municipalities

are immune, we would have to conclude that, in effecting this

increase, Congress intended to exempt municipalities from

the FCA sub silentio.

Congress was aware of the Court’s decisions in Newport

and Bornstein; it was only in 2000 that the Supreme Court

characterized the FCA’s remedy as punitive. Congress also

was aware of the presumption that municipalities are included

within the meaning of the term “person,” see Monell v. Dep't

of Soc. Serv., 436 U.S. 658, 685-89, 98 S. Ct. 2018, 56 L. Ed.

2d 611 (1978), and that municipalities are treated differently

from states within our constitutional system, see Comm.

Communications Corp. v. Boulder, 455 U.S. 40, 51-53, 102

S. Ct. 835, 70 L. Ed. 2d 810 (1982), superseded by 15 U.S.C.

§§ 34-36; Lafayette v. Louisiana Power & Light Co., 435

U.S. 389, 394-96, 98 S. Ct. 1123, 55 L. Ed. 2d 364 (1978),

superseded by 15 U.S.C. §§ 34-36. In enacting the 1986

changes to the statute, which form the basis of Cook County’s

immunity argument, Congress did not indicate in any way

that it intended to exempt municipal entities from the scope of

the statute. When it desires to exempt municipal entities from

federal statutory schemes, Congress has not hesitated to do

so. See, e.g., 15 U.S.C. §§ 34-36 (exempting local gov-

ernment units from liability for damages under the antitrust

statute); 42 U.S.C. § 198la(b)(1) (exempting govern-

ments from punitive damages under employment discrim-

ination statute).

Dr. Chandler and the United States suggest that, if we hold

Cook County to be immune from punitive damages, we ought

to hold further that Cook County may still be sued under the

FCA, but be held to a lower measure of damages. In our

view, the legislative record affords us no justification for

18a

undertaking such judicial blue-penciling of the statute.

Congress has provided one remedy for violations of the False

Claims Act. If municipalities are immune from punitive

damages, then they are, effectively, immune from liability

under the FCA. There is no indication that Congress intended

the FCA to apply to municipal entities but at a lower penalty.

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

Bd., 244 F.3d 486, 493 (Sth Cir. 2001). As we have just

noted, the penalty scheme is a carefully measured approach

by Congress designed to impose a penalty compatible with

the objectives of the Act. We therefore must either apply the

entire statute to municipal entities or declare them to be

exempt under the FCA.

Billions of dollars flow from the federal government to

municipalities each year. Congress, in creating, in 1863, and

then strengthening, in 1986, a comprehensive mechanism

designed to remedy fraud against the federal government

clearly determined that recipients of federal funds must be

subject to such a deterrent. Given this legislative judgment,

municipalities’ common-law immunity from suit is incon-

sistent with Congress’ purpose in adopting the FCA. Unlike

§ 1983, which creates a cause of action without specifying a

remedy, the FCA includes a carefully crafted remedy for

violations. Accordingly, despite the presumption against the

imposition of punitive damages on municipalities, it is clear

that Congress, in enacting the 1986 changes to the FCA,

made a conscious choice to increase the recoverable damages

while in no way indicating that it wished to exempt

municipalities. Therefore, the interpretive presumption has

been overcome.

Nevertheless, Cook County contends, the Supreme Court’s

decision in Stevens mandates a different result. The district

court, as had the Fifth Circuit, see Garibaldi, 244 F.3d at 493-

94, agreed. We believe that this proposition is unsound and

19a

respectfully disagree with the conclusion reached by our

sister circuit.'° In our view, such a reading of Stevens cannot

be squared with the essential rationale of that opinion nor

with the established doctrinal differences, long recognized in

our jurisprudence, between the status of the states of the

Union and municipal entities. See Stevens, 529 U.S. at

779-80, 120 S. Ct. 1858. Stevens quite appropriately recog-

nizes that the states, as sovereign entities within our federal

union, must be accorded, in their relationships with the

federal government, certain attributes of sovereignty. Cf,

Printz v. United States, 521 U.S. 898, 918-21, 926-28, 117

S. Ct. 2365, 138 L. Ed. 2d 914 (1997) (holding that Congress

could not commandeer state executive officers to enforce

federal gun control law); Seminole Tribe v. Florida, 517 U.S.

44, 55, 70-72, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996)

(holding that Congress cannot abrogate states’ 11th Amend-

ment immunity through the powers granted in Article | of the

federal constitution). Among these attributes is the presump-

tion that states, as sovereigns, are not included within the

term “person.” See Stevens, 529 U.S. at 780, 120 S. Ct. 1858.

The central holding of Stevens is that states are not within

the FCA’s definition of “person” because of the “long-

standing interpretive presumption that ‘person’ does not

include the sovereign.” Stevens, 529 U.S. at 780, 120 S. Ct.

1858. “The presumption is ‘particularly applicable where it is

claimed that Congress has subjected the States to liability to

which they had not been subject before.’” Jd. at 781, 120

S. Ct. 1858 (quoting Will v. Mich. Dep’t of State Police, 491

U.S. 58, 64, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989)). This

presumption is applied to protect the states because of their

dignity as sovereigns within our system of federalism. It is

akin to the clear statement rule which requires “that if

'° Because our holding on this point creates an intercircuit conflict, this

opinion has been circulated to the entire court. Circuit Rule 40(e). No

judge in active service has requested a vote to hear this case en banc.

20a

Congress intends to alter the usual constitutional balance

between the States and the Federal Government, it must make

its intention to do so unmistakably clear in the language of

the statute.” Will, 491 U.S. at 65, 109 S. Ct. 2304 (internal

citations and quotations omitted). The presumption cuts the

other way for municipalities. See Monell v. Dep't of Soc.

Serv., 436 U.S. 658, 685-89, 98 S. Ct. 2018, 56 L. Ed. 2d 611

(1978). The Supreme Court has never imposed this same

requirement on Congressional efforts to make municipal

entities amenable to federal legislation. Cf Bd. of Trustees v.

Garrett, 531 U.S. 356, 368-69, 121 S. Ct. 955, 148 L. Ed. 2d

866 (discussing the different requirements for imposing

federal liability on states and municipalities); Monell, 436

U.S. at 701, 98 S. Ct. 2018 (stating that absent a clear

statement to the contrary, municipalities were presumptively

included within the meaning of the term “person”). Such

constitutional concerns applicable to states do not apply to

municipalities. Therefore, there is no such rule of

construction applicable here. Cf, Garrett, 531 U.S. at 368-69,

121 S. Ct. 955 (“[Cities and counties] are subject to private

claims for damages under the ADA without Congress’ ever

having to rely on § 5 of the Fourteenth Amendment to render

them so. It would make no sense to consider constitutional

violations on their part . . . when only the States are the

beneficiaries of the Eleventh Amendment.”); Alden v. Maine,

527 U.S. 706, 756, 119 S. Ct. 2240, 144 L. Ed. 2d 636 (1999)

(“The second important limit to the principle of sovereign

immunity is that it bars suits against States but not lesser

entities. The immunity does not extend to suits prosecuted

against a municipal corporation or other governmental entity

which is not an arm of the State.”). The rationale of Stevens

simply cannot support the interpretation that Cook County

wishes to place on it.

Accordingly, counties are not only amenable to the FCA

but also are subject to the same penalties as other defendants.

2la

In light of the above discussion, Cook County will once

again be a party to this action. We therefore must address its

appeal of the district court’s discovery order of March 14,

2001. Normally, discovery rulings are unappealable, because

the disadvantaged party has a remedy at the end of the district

court proceedings.'' This court has held that a party seeking

to obtain appellate review of a discovery order before

judgment should accept a contempt citation, and then appeal.

See Allendale Mutual Ins. Co. v. Bull Data Sys. Inc., 32 F.3d -

1175, 1179 (7th Cir. 1994), “[RJequiring the complaining

party to take some risk—to back up his belief with action—

winnows weak claims.” Reise v. Bd. of Regents, 957 F.2d

293, 295 (7th Cir. 1992). However, in extraordinary circum-

stances, mandamus may be an appropriate remedy where the

petitioner can show “irreparable harm . . . and a clear right to

the relief sought.” Jn re Sandahi, 980 F.2d 1118, 1119

(7th Cir. 1992). We believe Cook County has made such a

showing here.

“Mandamus may not be used to get around the limitations

on the appealability of interlocutory orders.” Mulay Plas.ics,

Inc. v. Grand Trunk Western R.R. Co., 742 F.2d 369, 371 (7th

Cir. 1984). However, the circumstances here present the

necessary predicate for such an extraordinary remedy. The

district court’s discovery order implicates regulations

protecting the confidentiality and integrity of federally-

funded substance abuse programs. See 42 U.S.C. § 290dd-2;

'' Because Cook County is reinstated, we need not consider the

County’s argument that we have jurisdiction under the doctrine of

Dellwood Farms v. Cargill, Inc., 128 F.3d 1122 (7th Cir. 1997). Dellwood

held that “[wJhen the [discovery] order is directed against a nonparty, as it

is here, he has no appellate remedy at the end of the litigation, so he is

allowed to appeal immediately.” /d at 1125.

22a

42 C.F.R. §§ 2.11, 2.63-64. If Cook County is correct,

allowing Dr. Chandler’s representatives to view the

unredacted patient records would cause serious harm to those

patients’ privacy rights and to the federal programs protected

by a comprehensive regulatory scheme. Congress and the

Department of Health and Human Services have made it clear

that regulations are necessary to protect “the patient, the

physician-patient relationship, and the treatment programs.”

See 42 C.F.R. § 2.64(d). It is not only the privacy rights of

individual patients that are at stake here, but also the

continued effectiveness and viability of important substance

abuse treatment programs. See United States v. Smith, 789

F.2d 196, 205-06 (3d Cir. 1986) (noting that “there is a public

interest in maintaining the confidentiality of patient records”

in drug and alcohol treatment programs). Patients will be less

willing to seek treatment if patient confidentiality is not

strictly protected. The First Circuit, in upholding the validity

of § 2.63 wrote: “The purpose of [the statute] is clear.

Congress recognized that absolute confidentiality is an

indispensable prerequisite to successful alcoholism research.

Moreover, confidentiality is necessary to encourage suc-

cessful alcoholism treatment. Without guarantees of confi-

dentiality, many individuals with alcohol problems would be

reluctant to participate fully in alcoholism programs.” Whyte

v. Conn. Mut. Life Ins. Co., 818 F.2d 1005, 1010 (ist Cir.

1987); see also Mosier v. Am. Home Patient, Inc., 170 F.

Supp. 2d 1211, 1214 (N.D. Fla. 2001) (noting that “this

particular privilege is a strong one”). The same is true of drug

treatment. In short, because important private and public

rights will be irretrievably compromised if the County

is correct but the information is nevertheless released

prior to the entry of a final judgment, mandamus is an

appropriate remedy.

23a

We therefore turn to an assessment of Cook County’s

contention that the district court’s order is violative of the

statute and regulations.

Federal law restricts the disclosure of information obtained

“in connection with the performance of any program or

activity relating to substance abuse education, prevention,

training, treatment, rehabilitation or research” conducted by

the United States or with federal money. 42 U.S.C. § 290dd-

2. Disclosure is permitted with patient con sent, 42 U.S.C.

§ 290dd-2(b)(1), or “[i]f authorized by an appropriate order of

a court of competent jurisdiction granted after application

showing good cause therefor, including the need to avert a

substantial risk of death or serious bodily harm,” id. § 290dd-

2(b\(2)(C). “In assessing good cause the court shall weigh the

public interest and the need for disclosure against the injury

to the patient, to the physician-patient relationship, and to the

treatment services. . . . [T]he court, in determining the extent

to which any disclosure of all or any part of any record is

necessary, shall impose appropriate safeguards against

unauthorized disclosure.” Jd. § 290dd2(b)\(2)(C).

The regulations divide information into two categories—

confidential and non-confidential communications. The New

Start records contain both. In both situations, when a court is

preparing to order disclosure, notice must be sent to the

patients and they must be afforded “[a]n opportunity to file a

written response to the application, or to appear in person, for

the limited purpose of providing evidence on the statutory

and regulatory criteria for the issuance of the court order.” 42

C.F.R. § 2.64(b). Such notice must be “adequate.” /d. Notice

was sent in 1999, after the district court’s ruling on January 7

of that year granting Dr. Chandler’s motion to compel. That

notice informed patients that redacted copies of their records

would be disclosed to Dr. Chandler’s counsel. By contrast,

patients have not been notified, and the March 14 order does

24a

not contemplate such notice, that unredacted copies of their

records will be disclosed to Dr. Chandler’s representatives.

To be adequate, notice must inform patients both of the

nature of the disclosure and to whom the information will be

disclosed. Patients must know what is at stake before they can

make an informed decision about their potential intervention

in Dr. Chandler’s lawsuit. Patients who may not have been

concerned enough about the disclosure of redacted records to

intervene may well wish to be heard if the court is prepared to

order disclosure of unredacted records.

Once notice has been given, with respect to both con-

fidential and other communications, the district court must

find that “(1) other ways of obtaining the information are not

available or would not be effective; and (2) the public interest

and need for disclosure outweigh the potential injury to the

patient, the physician-patient relationship and the treatment

services.” 42 C.F.R. § 2.64(d). If a patient does not consent,

confidential communications may only be disclosed by court

order if:

(1) The disclosure is necessary to protect against an

existing threat to life or of serious bodily injury . . . (2)

The disclosure is necessary in connection with

investigation or prosecution of an extremely serious

crime, such as one which directly threatens loss of life or

serious bodily injury, including homicide, rape,

kidnapping, armed robbery, assault with a deadly

weapon, or child abuse and neglect; or (3) The dis-

closure is in connection with litigation or an ad-

ministrative proceeding in which the patient offers

testimony or other evidence pertaining to the content of

42 C.F.R. § 2.63(a). Because none of those conditions apply

here, any confidential communications must be redacted

before Dr. Chandler’s representatives may view the records.

25a

The district court’s discovery order violates these regu-

lations. It permits four individuals, three of Dr. Chandler’s

attorneys and a paralegal, to view all of the records for ten

days. It places no restrictions on the type of information that

will be made available to them. The statute and regulations do

not contemplate even limited disclosure of non-confidential

communications without notice or of confidential commun-

ications without one of the conditions of § 2.64 being

satisfied.'? Dr. Chandler maintains that she has no need to

view confidential materials, therefore, the court should be

able to craft an order which satisfies both the regulations and

Dr. Chandler’s legitimate need to view some of the non-

confidential communications.

Mandamus will issue requiring the district court to vacate

its discovery order. Given the lapse of time between the 1999

notice and the disclosure, new notice should be sent to all

patients whose records might be examined by Dr. Chandler’s

representatives. Further, notice must be sufficiently clear that

the New Start patients will understand, without the aid of

counsel, what is at stake and what they must do to assert their

rights. No disclosure may be made until sufficient time has

passed to give the patients an opportunity to decide whether

to intervene and to seek legal assistance.

Conclusion

Cook County is a person within the meaning of the False

Claims Act and does not enjoy immunity from the FCA’s

"2 The regulations provide that:

Disclose or disclosure means a communication of patient

identifying information, the affirmative verification of another

person’s communication of patient identifying information, or the

communication of any information from the record of a patient who

42 C.F.R. § 2.11.

26a

damages scheme. Therefore, the district court’s decision in

00-4110 is REVERSED and the case is REMANDED with

orders to reinstate Cook County as a party to this action. The

district court’s discovery order runs afoul of federal privacy

regulations and violates important private rights and public

policies. Therefore, MANDAMUS will issue in 01-1810, and

the district court is ordered to enter a new protective order

consistent with this opinion. Each party shall bear its own

costs in these appeais.

No. 00-4110 REVERSED and REMANDED.

No. 01-1810 MANDAMUS ISSUED.

27a

APPENDIX B

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 97 C 514

UNITED STATES OF AMERICA ex rel.,

JANET CHANDLER, Ph.D.,

Plaintiff,

Vv.

THE HEKTOEN INSTITUTE FOR MEDICAL RESEARCH

and COOK COUNTY, ILLINOIS,

Defendants.

October 30, 2000, Decided

November |, 2000, Docketed

JUDGE: ROBERT W. GETTLEMAN, United States

District Judge.

OPINION AND ORDER

Plaintiff/relator, Janet Chandler, has brought this qui tam

action on behalf of the United States under the False Claims

Act (“FCA”), 31 U.S.C. § 3729 et seq. The claims and the

facts of the case are described in the court’s previous opinion,

U.S. ex rel. Chandler v. Hektoen Institute, 35 F. Supp. 2d

1078 (“Chandler I’), and will not be repeated here.

In Chandler I, the court dismissed defendant Cook County

Hospital, and denied the remaining defendants’ motions to

dismiss, finding that, (1) Cook County was a “person” for

purposes of the FCA, and that the FCA’s treble damages

provision is compensatory rather than punitive. /d., at 1086.

28a

Cook County has filed a motion to reconsider those con-

clusions in light of the recent decision in Vermont Agency of

Nat. Resources v. United States ex rel. Stevens, 52° U.S.

1858, 120 S. Ct. 1858, 144 L. Ed. 2d 836 (2000), issued after

this court’s ruling Chandler I, in which the Supreme Court

held that a state is not a “person” subject to qui tam liability

under the FCA, and that the treble damages provisions of the

FCA are (contrary to this court’s holding in Chandler /)

punitive rathe; than compensatory. /d., 120 S. Ct. at 1869; see

also Perez v. Z Frank Oldsmobile, Inc., 223 F.3d 617 (7th

Cir. 2000). The court ordered briefing by the parties, and

allowed the United States to file an amicus curiae brief in

support of plaintiff's position.

Although this court finds no reason to alter its conclusion

that the County is a “person” for purposes of the FCA, it is

quite clear that under Stevens the County is immune from the

imposition of punitive damages, which are mandatory if

liability is found under the FCA. Plaintiff and the United

States argue that, assuming the court reaches this conclusion,

the court would be authorized to award lesser damages in

order to allow this case to be continued against the County,

suggesting that the court could award double damages (which

have been held to be remedial rather than punitive; see United

States v. Bornstein, 423 U.S. 303, 315, 96 S. Ct. 523, 46

L. Ed. 2d 514 (1976)). The court agrees with the County,

however, that the court has no authority to rewrite the FCA in

such a manner. As noted by the Stevens Court, the FCA

allows a reduction in the mandafory treble damages only in

certain instances, none of which are present in the instant

case. See Stevens, 120 S. Ct. at 1869, n. 16.

The arguments advanced by plaintiff and the United States

in the instant case were recently presented to and rejected by

the United States District Court for the Eastern District of

Pennsylvania. In a well-reasoned decision, which this court

29a

adopts, Judge O’Neill, relying on®Stevens and noting this

court’s earlier decision in Chandler 1, held that the treble

damages mandated by the FCA are punitive and may not be

imposed on a county. United States ex. rel. Dunleavy v. The

County of Delaware, 2000 WL 1522854, 2000 U.S. Dist.

LEXIS 14980 (E.D. Pa., Oct. 12, 2000). This court cannot

improve on Judge O’Neill’s reasoning, and therefore

concludes that the County is immune from prosecution under

the FCA because it is immune from any award or claim for

punitive damages.

Accordingly, Cook County’s motion to reconsider the

ruling of February 8, 1999, is granted, and this action is

dismissed with prejudice against the County. This matter is

set for a report on status regarding the remaining defendant

on November 2, 2000, at 9:00 a.m.

ENTER: October 30, 2000

Robert W. Gettleman

United States District Judge

30a

APPENDIX C

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 97 C 514

UNITED STATES OF AMERICA ex rei.

JANET CHANDLER, Ph.D..,

Plaintiff,

Vv.

THE HEKTOEN INSTITUTE FOR MEDICAL RESEARCH;

CooK COUNTY HOSPITAL; and COOK COUNTY, ILLINOIS,

Defendants.

February 8, 1999, Decided

February 9, 1999, Docketed

JUDGE: ROBERT W. GETTLEMAN, United States

District Judge.

MEMORANDUM OPINION AND ORDER

Relator/plaintiff Janet Chandler (“plaintiff”) has brought a

three-count complaint against defendants the Hektoen Insti-

tute for Medical Research (“Hektoen”), Cook County Hos-

pital (“CCH”), and Cook County (together, “the County

Defendants”). Plaintiff alleges: (1) presentation of false

claims in violation of the False Claims Act (“FCA”), 31

U.S.C. § 3729 et seg. (Count I); (2) retaliation in violation of

the FCA (Count II); and (3) retaliatory discharge in viola-

tion of Illinois law and public policy (Count III).

Defendant Hektoen moves to dismiss Counts I and III,

arguing that: (1) the FCA’s qui tam provisions are uncon-

3la

stitutional; and (2) plaintiff does not allege that Hektoen’s

actions violated clearly established Illinois public policy.

Hektoen has also moved for an extension of time in which to

answer Count II, pending the court’s decision on the County

Defendants’ motion to dismiss Count II. The United States

has filed an amicus brief in opposition to Hektoen’s argument

that the qui tam provisions of the FCA are unconstitutional.

The County Defendants have likewise filed a motion to

dismiss the complaint, arguing that: (1) CCH is not a suable

entity under Illinois law; (2) Count II fails to state a claim

against the County Defendants because plaintiff was

employed by Hektoen, not by the County; (3) the County

Defendants are immune from punitive damages for Count III;

(4) Count III fails to state a claim for retaliatory discharge;

and (5) the qui tam provisions of the FCA are uncon-

stitutional. The County Defendants have filed a supplemental

motion to dismiss, arguing that they are not “persons” who

can be sued under the FCA.

FACTS

This action arises out of defendants’ * alleged misconduct

in implementing a federal research grant. In 1989, the

National Institute of Drug Abuse (“NIDA”) issued a request

for proposals for a study investigating the treatment of drug-

dependant pregnant women. In response, CCH submitted a

'On Janyary 7, 1999, the court issued an opinion compelling

defendants to produce certain documents and denying defendants’ request

that the court stay its discovery decision pending its decision on

defendants’ motions to dismiss. On January 13, 1999, the County

Defendants filed a Motion for Reconsideration of a portion of the court’s

January 7 opinion, requesting that the court stay discovery pending its

decision on the immunity claim defendants raised in their supplemental

motion to dismiss.

? The court does not differentiate between Hektoen and the County

Defendants when discussing parts of plaintiff's complaint where she uses

the term “defendants” to refer jointly to all defendants.

32a

grant application seeking $5 million to study 300 such

women over the course of five years (the “New Start study”).

CCH also submitted an Assurance of Compliance plan to a

division of the United States Department of Health and

Human Services (“HHS”). In this plan, CCH represented that

its study would comply with federal regulations governing

research on human subjects. NIDA initially awarded the grant

to CCH (which developed the protocol to be used in

performing the study), and later transferred the administration

of the grant to Hektoen. Plaintiff was hired by Hektoen as

New Start’s project director on September 1, 1993.

The federal grant had two components. The clinical

component was designed to provide the research subjects

with a comprehensive medical and social service program

that included drug treatment and prenatal care. The re-

search component was designed to study whether the

research subjects had benefitted from the comprehensive

treatment program.

Plaintiff alleges that during her employ, she became aware

that defendants were not complying with the terms of the

grant or with federal regulations and were misrepresenting the

progress of the New Start study. Specifically, plaintiff alleges

that defendants: did not follow the mandatory protocol asso-

ciated with research on human subjects and the dispensing of

methadone to pregnant women; did not obtain informed

consent from study participants; did not obtain thorough

medical or drug histories from the participants; provided the

participants with substandard care; failed to keep accurate

records; and failed to randomize participants. Plaintiff also

alleges that defendants reported “ghost” research subjects and

submitted false progress reports to the government. Finally,

plaintiff alleges that defendants violated the grant and federal

law because they did not have procedures in place to protect

whistleblowers from retaliation.

33a

Plaintiff alleges that in 1994, she began informing doctors

employed by CCH of her concerns that the study was

violating the terms of the grant, the Assurance of Compliance

plan, and federal regulations. She alleges that after reporting

her concerns, Dr. Mason, an employee of CCH, rescinded a

number of her responsibilities. Plaintiff also alleges that

Hektoen retaliated against her by recalculating her vacation

and sick time. According to plaintiff, after she reported in a

draft of her paper for NIDA that the study had not been

successful, she was further chastised by employees of both

CCH and Hektoen. On January 24, 1995, John Prochaska

(“Prochaska”), the administrator of Hektoen, accused plaintiff

of lying in her monograph on the study and fired her. On

February 21, 1995, plaintiff was formally removed as co-

principal investigator of the study. Plaintiff subsequently

testified at an HHS Commission on Research Integrity

hearing, and in August 1996, a subdivision of HHS issued a

report on the research conducted by CCH and Hektoen that

identified “multiple failures to comply with requirements of

the HHS human subjects regulations.”

DISCUSSION

I. Defendant Hektoen’s Motions

A. Motion to Dismiss Count I

Hektoen moves to dismiss Count I on the grounds that the

qui tam provisions of the FCA are unconstitutional.’ Hektoen

argues: (1) qui tam relators do not have Article III standing to

bring an FCA claim; (2) the qui tam provisions violate

separation of powers principles by encroaching on the

authority of the executive branch, U.S. Const., Art II, § 3; and

(3) the qui tam provisions violate the Constitution’s Appoint-

ments Clause, U.S. Const., Art II, § 2. Defendants rely

> The County Defendants incorporate this argument by reference in

their motion to dismiss.

34a

primarily on the reasoning of a lone decision trom the Eastern

District of Texas, United States ex rel. Riley v. St. Luke’s

Episcopal Hospital, 982 F. Supp. 1261 (S.D. Tex. 1997). The

overwhelming majority of courts that have considered the

issue have upheld the qui tam provisions of the FCA in the

face of identical constitutional challenges.

1. Standing

Defendants argue that plaintiff does not have Article III

standing to bring suit under the qui tam provisions of the

FCA because she does not allege an injury-in-fact, one of the

three elements of Article III standing, see Lujan v. Defenders

of Wildlife, 504 U.S. 555, 559-61, 112 S. Ct. 2130, 119 L. Ed.

2d 351 (1992). The Seventh Circuit has held that because the

United States is the real party in interest in a qui tam action, a

relator has standing to pursue the suit as long as the federal

government has suffered an injury-in-fact. See United States

ex rel. Hall v. Tribal Development Corp., 49 F.3d 1208, 1214

(7th Cir. 1995) (“It is enough . . . that the United States, as the

entity on whose behalf and in whose name this suit was

brought, has suffered an injury in fact under Article III.

Requiring an additional showing of injury on the part of the

qui tam relator would be an analytical redundancy.”).

Although defendants acknowledge the existence of Hall,

they urge this court to abjure binding precedent in favor of

the reasoning of Riley, a district court decision from another

circuit that explicitly disagreed with Hall. See Riley, 982 F.

Supp. at 1266. Defendants also argue that Hall is not binding

on this court because it did not arise under the FCA.

However, Hall relied on FCA cases to draw its ultimate

conclusion that qui tam relators need not demonstrate an

injury-in-fact. See Hall, 49 F.3d at 1214 (quoting the Second

Circuit’s holding in United States ex rel. Kreindler &

Kreindler v. United Technologies Corp., 985 F.2d 1148, 1154

(2d Cir. 1993): “[iJn a qui tam action [under the False Claims

Act], the plaintiff sues on behalf of and in the name of the

35a

government and invokes the standing of the government

resulting from the fraud injury.”). The FCA comports with

the principle that “if an injured person assigns his right of

action to someone else, the assignee has standing to enforce

the right even though he is not the one who was injured by

the defendant’s wrongdoing.” National Ass'n of Realtors v.

National Real Estate Ass'n, Inc., 894 F.2d 937, 941 (7th

Cir. 1990).

Other courts have used similar reasoning to hold that qui

tam relators have standing to bring suit under the FCA. See,

e.g., United States ex rel. Kelly v. Boeing Co., 9 F.3d 743,

748 (9th Cir. 1993) (“the FCA effectively assigns the

government's claims to gui tam plaintiffs such as Kelly, who

then may sue based upon an injury to the federal treasury.”);

United States ex rel. Lamers v. City of Green Bay, 924 F.

Supp. 96, 98 (W.D. Wis. 1996) (agreeing with Kelly); United

States ex rel. Robinson v. Northrop Corp., 824 F. Supp. 830,

836 (N.D. Ill. 1993) (“Congress . . . can transfer the rights of

the United States to private citizens, and because it did just

that through the FCA, plaintiffs have standing to sue.”). The

court finds that plaintiff has standing to bring this suit.

2. Separation of Powers

Hektoen also argues that the FCA’s qui tam provisions

violate the principle of separation of powers because they

grant Congress exclusive control over executive functions.

Article II vests the executive branch with the power to

execute the laws. Because the FCA includes a number of

provisions that enable the executive branch to maintain

control over qui tam suits, the statute does not arrogate the

executive function to Congress. Section 3730(b)(2) explicitly

gives the Attorney General the authority to intervene and

protect the interests of the executive branch, and § 3730(c)(2)

gives the government the authority to dismiss or settle the

action even if the relator objects. Although Hektoen argues

that the government no longer retains control over the present

ee eee

36a

litigation because it has declined to intervene, the FCA grants

the government the right to intervene at any time upon a

showing of good cause. See 31 U.S.C. § 3730(c)(3).

This court follows the vast majority of courts that have

considered this issue and finds that the FCA does not run

afoul of the separation of powers doctrine. See United States

ex rel. Taxpayers Against Fraud v. General Elec. Co., 41

F.3d 1032, 1041 (6th Cir. 1994); Kelly, 9 F.3d at 755 (“[T)he

FCA gives the Attorney General sufficient means of

controlling or supervising relators to satisfy separation of

powers concerns.”); Kreindler, 985 F.2d at 1155 (“[T}he FCA

qui tam provisions do not usurp the executive branch's

litigating function because the statute gives the executive

branch substantial control over the litigation.”); see also

Robinson, 824 F. Supp. at 837. But see Riley, 982 F. Supp. at

1269 n.5 (noting in a footnote that “the qui tam provisions of

the False Claims Act also raise serious constitutional

concerns as to whether Congress may delegate the executive

powers of law enforcement to private parties . . .”).

3. Appointments Clause

Finally, Hektoen argues that the FCA’s qui tam provisions

violate the Appointments Clause, which vests the executive

branch with the exclusive power to appoint officers to

execute the laws of the United States. Numerous other courts

have held that qui tam relators are not officers within the

meaning of the Appointments Clause. See, e.g., Taxpayers

Against Fraud, 41 F.3d at 1041 (holding that relators are not

“officers” because the government may take control of such

cases whenever it wishes, and because the relator’s position is

without tenure or continuous duties); Kelly, 9 F.3d 743, 757

(holding that unappointed qui tam relators do not wield so

much governmental power that their appointments must

conform to the requirements of the Appointments Clause);

37a

Robinson, 824 F. Supp. 830, 836 (holding that relators are not

officers because they seek to vindicate not only public rights,

but their own private rights as well).

Hektoen argues that qui tam relators are officers by

analogizing them to special prosecutors. The court notes that

the Seventh Circuit has likewise analogized relators to

prosecutors, see Hall, 49 F.3d at 1213, and has never

expressed any concern that these private parties are “officers”

appointed by Congress in violation of the Appointments

Clause. The court finds that relators are unlike prosecutors

because they are suing to protect private rights, not just the

public interest, and because they stand to reap private

financial gain. Moreover, because the government retains the

right to intervene in a relator’s suit at any time, relators do not

wield enough governmental power to be officers under the

Appointments Clause. The court finds that the FCA’s qui tam

relator provisions are constitutional, and therefore denies

Hektoen’s and the County Defendant’s motions to dismiss

Count I.

B. Motion to Dismiss Count III

Hektoen moves to dismiss Count III of plaintiff's

complaint, arguing that plaintiff cannot state a claim for

retaliatory discharge under Illinois law. Hektoen asserts that

plaintiff does not allege a violation of a clearly mandated

public policy, and that even if she could allege such a

violation, the FCA provides her with an adequate remedy.

An employee can state a claim for retaliatory discharge

only if she can demonstrate that she was terminated in

retaliation for her actions, and that the discharge contravenes

a clear mandate of public policy. See Palmateer v. Inter-

national Harvester Co., 85 Ill. 2d 124, 52 Ill. Dec. 13, 421

N.E.2d 876 (1981); Kelsay v. Motorola, Inc., 74 Ill. 2d 172,

23 Ill. Dec. $59, 384 N.E.2d 353 (1978). “[P]ublic policy

. . is to be found in the State’s constitution and statutes and,

38a

when they are silent, in its judicial decisions.” Palmateer, 85

Ill. 2d at 130, 52 Ill. Dec. 13, 421 N.E.2d 876. A plaintiff can

survive a motion to dismiss only if she can show that the cited

provision embodies a public policy and that the plaintiff's

termination violates this public policy. See Callozzo v. Office

Depot, Inc., 1998 WL 111628, at *2 (N.D. Ill. Mar. 6, 1998)

(citing Barr v. Kelso-Burnett Co., 106 Ill. 2d 520, 527, 88 Ill.

Dec. 628, 478 N.E.2d 1354 (1985)).

Although plaintiff alleges retaliatory discharge, she does

not identify the source of the public policy that defendants

allegedly violated in terminating her. Plaintiff has not cited

any statutory, constitutional, or other provision in her com-

plaint. Rather, she merely alleges that she was terminated

because she took steps to promote the health and safety of the

research subjects, their fetuses, their offspring, and the public

at large. Efforts to promote health and safety, standing alone,

are not enough to make out a claim for retaliatory discharge.

In United States ex rel. Dihu v. IIT Research Institute, 1998

WL 299390 (N.D. Ill. May 21, 1998), for example, a plaintiff

brought an FCA claim and alleged retaliatory termination

under both the FCA and state law. Although the plaintiff was

concerned that certain practices at IIT were jeopardizing the

health and safety of the workers, the only provision he cited

was an internal Army regulation. See id. at *8. The court held

that the plaintiff did not state a claim for retaliatory discharge

because the regulations he cited did not have enough of a

widespread impact on the state’s citizens to embody public

policy. See id. Plaintiff must invoke a rule that defendants

violated in terminating her in order for the court to evaluate

whether the violation of that rule violates state public policy.

Plaintiff may be attempting to argue that her termination

contravened a public policy embodied in the FCA. However,

the Illinois Supreme Court generally finds that only those

statutes that impact the health and safety of citizens in general

truly express public policy. See Hamros v. Bethany Homes

39a

and Methodist Hosp. of Chicago, 894 F. Supp. 1176, 1179

(N.D. Ill. 1995) (citing cases). Plaintiff does not argue that the

FCA affects the health and welfare of citizens in general. The

intent of the FCA is to protect the federal government, not

individual citizens. Moreover, plaintiff does not advance any

state law or public policy that prohibits fraud against the

federal government. See, e.g., Adler v. Continental Ins. Co.,

1996 WL 677085, at *10 (D. Kan. Nov. 1, 1996) (finding that

alleged retaliation in violation of the FCA did not contravene

Kansas public policy because “there is no clearly established

Kansas public policy aimed at preventing fraud against the

federal government”).

Even if plaintiff could properly allege that her discharge

violated some clearly mandated state public policy, the court

finds that Illinois courts would not expand the tort of

retaliatory discharge to this case because the remedies

embodied in the FCA serve as an adequate deterrent to future

employer misconduct. As this court explained in Hamros:

“Historically, courts have recognized the [retaliatory dis-

charge] claim where the otherwise available remedies would

not serve as an effective deterrent . . . .” 894 F. Supp. at 1179

(citing cases). Plaintiff argues that the Seventh Circuit has

allowed plaintiffs to proceed with state retaliatory discharge

claims that are supported by the same facts as federal claims,

citing Wright v. Illinois Dep't of Children & Family Services,

40 F.3d 1492, 1508 (7th Cir. 1994) (arising under § 1983);

and Gooden v. Neal, 17 F.3d 925, 929 (7th Cir. 1994).

Gooden held that the plaintiff's retaliatory discharge claim

was distinct from his First Amendment claim. See 17 F.3d at

929 (“To prevail under state law Gooden did not have to

establish that his reports were protected speech, and the tort

of retaliatory discharge in Illinois has not developed in

precisely the same way as constitutional torts . . . .”).

Unlike the First Amendment, the FCA contains a specific

provision that punishes employers who discharge employees

40a

in retaliation for exercising their rights under the statute. See

§ 3730(h). In this respect the FCA is analogous to the FMLA,

which this court and other courts have held provides a remedy

that adequately deters retaliatory discharge. See Callozzo,

1998 WL 111628, at *5; Hamros, 894 F. Supp. at 1179. Like

the FMLA, the FCA provides for a number of statutory

remedies, including liquidated damages (in the form of a

double back pay award) designed to deter the employer from

future unlawful conduct. See Hamros, 894 F. Supp. at 1179;

see also Dihu, 1998 WL 299390, at *8 (“In this case, Dihu’s

Illinois claim essentially mirrors his retaliatory discharge

claim under § 3730(h) of the FCA, and thus recognition of the

Illinois common law claim is not necessary for Dihu to obtain

the relief he seeks”). The court concludes that plaintiff has

failed to demonstrate that her discharge controverts estab-

lished Illinois public policy, and that even if she had shown a

violation of public policy, the FCA provides her with an

adequate remedy. The court grants Hektoen’s motion to

dismiss Count III of plaintiff's complaint.

Il. County Defendants’ Motions

A. Supplemental Motion to Dismiss FCA Claims

(Counts { and II)

The County Defendants argue that they cannet be sued

under the FCA because: (1) the County is not a “person”

under the FCA; anc (2) the FCA’s treble damages provision

is punitive, and municipalities are exempt from punitive

darnages. Defendants rely primarily on a New York district

court decision, United States ex rel. Graber v. City of New

York, 8 F. Supp. 2d 343 (S.D.N.Y. 1998). Although this is a

case of first impression in this circuit, the weight of authority

in other circuits holds that states are persons within the

meaning of the FCA and that the FCA’s treble damages

provision is not punitive.

4la

!. The County is a “Person” Under the FCA

The court considers two factors in determining whether the

County is a “person” under the FCA: (1) the text of the

statute; and (2) its legislative history. The statute renders

liable “any person who” submits false claims to the federal

government. 31 U.S.C. § 3729(a). The PCA does not define

the term “person” as used in § 3729((a). However, the civil

investigative demand provision of the act imcludes in its

definition of person “any State or political subdivision of a

State.” 31 U.S.C. § 3733(1)(4). In addition, courts have

interpreted the statute to include states among the “person|s]”

who may file qui tam actions under § 3730(b). See, e.g.,

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

Natural Resources, 162 F.3d 195, 205 (2d Cir. 1998) (holding

that in light of the legislative history of § 3730(b), “Congress

viewed the States as persons who could be qui tam plain-

tiffs”); United States ex rel. Woodard and State of Colorada

v. Country View Care Center, Inc., 797 F.2d 888, 893 (10th

Cir. 1986): United States ex rel. Hartigan and State of Illinois

v. Palumbo Brothers, Inc., 797 F. Supp. 624, 631 (N.D. Ih

1992) (“We conclude that the FCA was specifically amendeo

to provide jurisdiction for qui tam plaintiffs like Illinois.”).

The court conciudes that Congress intended the word

“person” to have the same meaning in each section in which

it is used. See Commissioner v. Lundy, 516 U.S. 235, 250,

i116 S. Ce. 64", 133 L. Ed. 2d 611 (1996) (applying the

“norma: rule «f statuto y construction that identical words

used in differem: parts of the same act are intended to have the

same meaning”) (internal citations omutted). The text of the

statute and other federal courts’ interpretation thereof suggest

that states and ‘their political subdivisions are “person|s]”

under § 3729(a). Accord Stevens, 162 F.3d at 205; United

42a

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

Minnesota, 154 F.3d 870, 875 (8th Cir. 1998)."

The legislative history of the FCA likewise suggests that

Congress intended to include states and other units of local

government as “persons” who can be sued under the act. The

Senate Report accompanying the 1986 amendments to the

FCA, in a section describing the history of the act, states:

“The False Claims Act reaches all parties who may submit

false claims. The term ‘person’ is used in its broad sense to

include partnerships, associations, and corporations . . . as

well as States and political subdivisions thereof.” S. Rep. No.

99-345, at 8-9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266,

5273-74. Other courts have held that this language indicates

that Congress interpreted the FCA as applying to states and

other local governments. Stevens, 162 F.3d at 207; Zissler,

154 F.3d at 874-75; United States ex rel. Long v. SCS

Business & Technical Institute, 999 F. Supp. 78, 85 (D.D.C.

1998). The County Defendants rely heavily on Graber, the

one case that has held otherwise. The district court’s decision

in that case, however, was issued after Stevens had been

argued but before the Second Circuit issued its opinion,

which effectively overruled Graber by holding that the FCA

applied to states and local governments.”

‘ Only Graber has held that states were not “person[s}” who could be

sued under the act, and even Graber conceded that “{e]ither proffered

construction arguably would be consistent with the text of the statute.”

8 F. Supp. 2d at 355. Moreover, Graber relies on the district court's

decision in Zissler, which was reversed by the Eighth Circuit on appeal as

cited above.

5 The district court in Graber, after a thorough analysis of the caselaw

referenced in the Senate Report, concluded that the report was incorrect

because it misinterpreted that caselaw. /d. at 352. Regardless of whether

Congress misunderstood the way courts had interpreted the term “person”

before the 1986 amendments, however, “this understanding was that the

False Claims Act applied to the States, and would, after the 1986

amendments, continue to apply to the states.” Ziss/er, 154 F.3d at 874-75.

43a

2. The Damages Imposed by the FCA Are Not

Punitive

The County Defendants argue that even if the County is a

“person” under § 3729, the County is immune from suit under

the FCA because the act imposes punitive damages. The

Supreme Court has held that municipalities are immune from

punitive damages in § 1983 suits. See City of Newport v. Fact

Concerts, Inc., 453 U.S. 247, 271, 101 S. Ct. 2748, 69 L. Ed.

2d 616 (1981). The Court found that imposing punitive

liability on municipalities does not fulfill the traditional

purposes of punitive damages, deterrence and retribution. /d.

453 US. at 267-71, 101 S. Ct. 2748.° Defendants concede

that the Supreme Court has held that the FCA is not a

punitive statute. See, e.g., United States v. Halper, 490 U.S.

435, 449, 109 S. Ct. 1892, 104 L. Ed. 2d 487 (1989) (holding

that the FCA’s “fixed-penalty-plus-double-damages provi-

sions” does not, in most cases, constitute punishment for the

purposes of double jeopardy), overruled on other grounds by

Hudson v. United States, 522 U.S. 93, 118 S. Ct. 488, 139 L.

Ed. 2d 450 (1997) (rejecting Halper’s definition of “pun-

ishment” in the double jeopardy context because double

jeopardy merely prohibits the imposition of additional

criminal sanctions, not of all additional sanctions that might

be termed punishments); United States v. Bornstein, 423 U.S.

303, 314-15, 96 S. Ct. 523, 46 L. Ed. 2d 514 (1976); United

States ex rel. Marcus v. Hess, 317 U.S. 537, 551-52, 63 S. Ct.

379, 87 L. Ed. 443 (1943) (“(T]he chief purpose of the

statute[] here was to provide for restitution to the government

of money taken from it by fraud, and that the device of

double damages plus a specific sum was chosen to make sure

° The parties do not dispute that City of Newport applies to counties as

well as municipalities. See Erwin v. County of Manitowoc, 872 F.2d 1292,

1299 (7th Cir. 1989) (“On a custom and policy claim a governmental

body such as the County cannot be held liable under 42 U.S.C. § 1983 for

punitive damages.”).

44a

that the government would be made completely whole.”).

Defendants argue, however, that the foregoing cases are no

longer apt, because they were decided before the 1986

amendments to the FCA. According to the County Defend-

ants, Congress transformed the FCA into a punitive statute by

revising its damages provisions to allow for treble damages

rather than a fixed penalty plus double damages.

Although the Seventh Circuit has yet to address the issue, a

number of other circuit and district courts have held that the

FCA’s treble damages provision is not punitive. See, e.g.,

Stevens, 162 F.3d at 207; United States v. Brekke, 97 F.3d

1043, 1048 (8th Cir. 1996); United States v. Barnette, 10 F.3d

1553, 1559-60 (11th Cir. 1994); Long, 999 F. Supp. at 85-86.

But see Graber, 8 F. Supp. 2d at 349. The Supreme Court has

held that the federal government “is entitled to rough

_ remedial justice.” Halper, 490 U.S. at 446, 109 S. Ct. 1892.

Halper reasoned that the multiple recovery allowed under the

FCA was compensatory, not punitive, because it was

rationally related to the government’s loss. /d. 490 U.S. at

449, 109 S. Ct. 1892.

Under Halper, “proportionality is the key.” Barnette, 10

F.3d at 1560. The compensation the government requested in

Halper was vastly disproportionate to its losses: Although the

government had suffered only $16,000 in actual damages, it

requested an additional fine of $130,000, a ratio of 8 to 1. See

Barnette, 10 F.3d at 1560 (discussing Halper, 490 U.S. at

452, 109 S. Ct. 1892). In the present case, plaintiff claims $5

million in actual damages to the government and seeks $15

million in compensation, plus between $5,000 and $10,000

per false claim, far less than the ratio in Halper. Raising the

stakes from double to treble damages does not render the rela-

tionship between loss and recovery irrational in the present

case. See Brekke, 97 F.3d at 1048 (holding that a post-

amendment FCA case was compensatory and not punitive)

(“We do not see how the treble damages provision of

the False Claims Act is different from the ‘ordinary case’

45a

discussed in Halper,” the case in which the damages were a

fixed penalty plus double damages); Barnette, 10 F.3d at

1560 (holding that a 3.2 to | ratio of compensation to actual

damages is not punitive).

In an attempt to argue that the FCA’s treble damages

provisions are penal, the County Defendants analogize the

statute to the civil Racketeer Influenced and Corrupt

Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. Both

RICO and the antitrust laws authorize treble damages. The

Seventh Circuit has held that “a treble damage antitrust suit is

most appropriately characterized as an action for a penalty,”

and has likewise held that “[bjecause a civil RICO claim is

best characterized as an action for treble damages, . . . such an

action is penal in nature.” TJellis-~v. United States Fidelity &

Guaranty Co., 805 F.2d 741, 746 (7th Cir. 1986), vacated

Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483

U.S. 143, 107 S. Ct. 2759, 97 L. Ed. 2d 121 (1987). However,

the Seventh Circuit has addressed the nature of treble

damages in antitrust and RICO actions for the narrow purpose

of electing the state statute of limitations to apply to such

actions. See, e.g., id. (holding that becausé civil RICO is

penal in nature, Illinois’ two-year statute of limitations for

actions based on a statutory penalty applies to civil RICO

claims); Schiffman Bros. v. Texas Co., 196 F.2d 695, 696 (7th

Cir. 1952) (“[T]he real question facing us, therefore, was not

whether the action was one to recover a statutory penalty

within the meaning of any federal statute but whether actions

such as this are limited to a period of two years under the

Illinois statutes. . . . We are not concerned at all, then,

with anything other than the question of what statute of

limitations of Illinois is applicable to actions to recover

treble damages.”).

The Seventh Circuit has never held that treble damages are,

by definition, punitive. See, e.g., Adler v. Northern Hotel Co.,

175 F.2d 619 (7th Cir. 1949) (holding that treble damages

under the Housing and Rent Act are remedial in nature). The

46a

reach of Tellis’ holding is further undermined by language in

Agency Holding Corp., which held that the Clayton Act’s

four-year statute of limitations applies to RICO claims as

well, overruling 7e/lis and other cases that had applied state

law statutes of limitations to RICO claims. See Agency

Holding Corp., 483 U.S. 143, 107 S. Ct. 2759, 97 L. Ed. 2d

121. Agency Holding Corp. described RICO and the Clayton

Act as “designed to remedy economic injury by providing for

the recovery of treble damages, costs, and attorney’s fees,”

and explained that “both statutes aim to compensate the

same type of injury.” /d. 483 U.S. at 151, 107 S. Ct. 2759

(emphasis added). The Court’s use of compensatory, rather

than punitive, language to discuss the purpose of civil RICO

and the antitrust laws suggests that the two statutes’ treble

damages provisions are not wholly punitive in nature.

Finally, according to the legislative history, the purpose of

the 1986 amendments was “to enhance the Government’s

ability to recover losses sustained as a result of fraud against

the Government” and “to make the statute a more useful tool

against fraud in modern times.” S. Rep. No. 99-345, at 1,

reprinted in 1986 U.S.C.C.A.N 5266; see also Zissler, 154

F.3d at 874. These broad goals suggest that Congress did not

intend to place beyond the reach of the statute a large class of

potential wrongdoers—municipalities, counties, and other

units of local government. Taking the allegations of the

complaint as true for the purposes of the present motion to

dismiss, the County defendants fall within this class of

wrongdoers.

The court finds that: (1) the County is a “person” for the

purposes of the FCA; and (2) the FCA’s treble damages

provision is more compensatory than punitive. See Stevens,

162 F.3d at 207; Zissler, 154 F.3d at 875; Taxpayers Against

Fraud, 999 F. Supp. at 78; see also Brekke, 97 F.3d at 1048

(“A multiple recovery of this type is compensatory rather

than punitive, even though it contains a penalty element

....”). The FCA applies to the County.

47a

B. Motion to Dismiss CCH

The County Defendants move to dismiss CCH from the

complaint because the hospital does not have a legal

existence separate from that of Cook County. See Payne v.

Cook County Hosp., 719 F. Supp. 730, 734 (N.D. Ill. 1989).

Because Cook County is the appropriate defendant in this

action, the court grants the motion to dismiss the hospital as a

separate defendant.

C. Motion to Dismiss FCA Retaliatory Discharge Claim

(Count IT)

The County Defendants move to dismiss Count II, arguing

that it does not state a claim against them. The FCA’s

retaliatory discharge provision reads:

Any employee who is discharged, demoted, suspended,

threatened, harassed, or in any other manner discrim-

inated against in the terms and conditions of employ-

ment by his or her employer because of lawful acts done

by the employee on behalf of the employee or others in

furtherance of an action under this section, including

investigation for, initiation of, testimony for, or assist-

ance in an action filed or to be filed under this section,

shall be entitled to all relief necessary to make the

employee whole.

31 U.S.C. § 3730(h). The County Defendants argue that

plaintiff cannot state a claim under § 3730(h) because she

does not allege that she was employed by the County.

Plaintiff does not allege sufficient facts from which the

court can infer that the County Defendants were her

employers. Plaintiff alleges that Hektoen hired her as the New

Start project director on October 1, 1993, that she was

employed by Hektoen, and that Prochaska, Hektoen’s

administrator, ultimately fired her. Although plaintiff alleges

that Dr. Mason, an employee of CCH, removed medical and

48a

childcare matters from plaintiff's responsibilities as project

director, these allegations do not prove that CCH was

plaintiff's employer.

At best, plaintiff alleges that Dr. Mason conspired with

Hektoen to retaliate against plaintiff. The County Defendants

cite a well-reasoned district court case holding that § 3730(h)

liability cannot be extended to non-employers on the basis of

a conspiracy. See Mruz v. Caring, Inc., 991 F. Supp. 701, 709

(D.N.J. 1998). The court agrees that the plain language of

§ 3730(h) “reflects a legislative intent to operate exclusively

in the area of the ‘employment relationship.’” /d. at 708.

Although plaintiff argues that Cook County should be liable

for the acts of its employees whether or not they are key

decisionmakers, she does not establish as an initial matter that

Cook County or any of its employees were her “employer”

under the plain language of the statute. The County Defend-

ants’ motion to dismiss Count II is granted.

D. Motion to Dismiss State Law Retaliation Claim

(Count II)

The County Defendants move to dismiss Count III of

plaintiff's complaint, arguing that plaintiff cannot state a

claim for retaliatory discharge under Illinois law. The County

Defendants also move to strike from Count III plaintiff's

request for punitive damages against them. Because the court

has found that plaintiff cannot state a retaliatory discharge

claim and that she does not allege that the County Defendants

employed her, the County Defendants’ motions are granted.

CONCLUSION

The court denies Hektoen’s and the County Defendants’

motions to dismiss Count I on the ground that the FCA’s qui

tam provisions are unconstitutional. The court likewise denies

the County Defendants’ supplemental motion to dismiss

Count I against them on the ground that they are not suable

“persons” under the FCA.

49a

The court grants the County Defendants’ motion to dismiss

CCH because Cook County is the appropriate defendant in

this action. Because plaintiff does not allege that she was

employed by the County, the court grants the County

Defendants’ motion to dismiss Count II against them. Finally,

the Court grants Hektoen’s and the County Defend-

ants’ motions to dismiss Count III because plaintiff does not

allege that her discharge violated clearly established IIlinois

public policy.

The court declines to stay discovery pending Cook

County’s appeal of the court’s immunity decision. This case

is already two years old. Moreover, this case will proceed

against Hektoen regardless of the outcome of an appeal by the

County. Even if the County were not a party to this suit, the

documents plaintiff requests would be subject to sub-

poena, and as a non-party the County would have no claim

of immunity.

February 8, 1999

Robert W. Gettleman

United States District Judge

50a Sla

APPENDIX D APPENDIX E

UNITED STATES COURT OF APPEALS $28 U.S. 931. 145 L.Ed.2d 257

FOR THE SEVENTH CIRCUIT 120 S. Ct. 329

my Oe, See Oct. 12, 1999

Before HON. JOHN L. CorFrey, Circuit Judge

HON. FRANK H. EASTERBROOK, Circuit Judge No. 99-266

HON. ILANA DIAMOND ROVNER, Circuit Judge Cook COUNTY,

Petitioner,

No. 99-1415 v.

JANET CHANDLER, Doctor, JANET CHANDLER,

Plaintiff-Appellee, Defendant.

Vv.

Cook COUNTY, ILLINOIS P cine eo - writ of certiorari to the United States Court of

Defendant-Agpeliant. ppeals for the Seventh Circuit denied.

Appeal from the United States District Court

for the Northern District of Illinois,

Eastern Division

No. 97 C 514—Robert W. Gettleman, Judge

ORDER

On consideration of the jurisdictional papers, submitted by

the parties,

IT IS ORDERED that this appeal is DISMISSED for lack

of jurisdiction. Cook County seeks to appeal an interlocutory

order denying its motion to dismiss. There is no arguable

immunity issue and no basis for appellate jurisdiction over

Cook County’s appeal. Cook County must await a final

decision in order to appeal.

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