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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0564%3A02

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2003
- **Citation:** 538 U.S. 119

## Text

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.

il
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)

iV

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

v
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

vi
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).

2

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

3

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

(C) at the time such person furnished the United
States with the information about the violation, no
criminal prosecution, civil action, or administrative

4

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.

(c) Claim defined.—For purposes of this section,
“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.

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).

6

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

7

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)

9

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.

10

“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

11

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

12
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

13

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.

14

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

15

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.

16

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

17

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

18

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

19

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

20

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

21

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

22

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.

23

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

24

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.

25

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).

26

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.

27

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

28

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.

29

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

la
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.

2a

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).

3a

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

4a

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).

Sa

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

6a

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,

7a

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.

A.

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

8a

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.

9a

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.

C.

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
Il
A.

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
B.

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.

ie

~~

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-fa

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0564%3A02. Public record. Not legal advice.