Reply Brief — Cook County v. United States Ex Rel. Chandler

| Supreme Court, U.S.

(i) FILED |

No. 01-1572 DEC 4 a:

IN THE

Supreme Court of the United States

CooK COUNTY, ILLINOIS,

Petitioner,

Vv.

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

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

REPLY BRIEF OF PETITIONER

RICHARD A. DEVINE

State 's Attorney of

Cook County. Illinois

500 Richard J. Daley Center

Chicago, Illinois 60602

Of Counsel: (312) 603-6934

JEROLD S. SOLOVY PATRICK T. DRISCOLL, JR.

BARRY SULLIVAN Deputy State’s Attorney

JENNER & BLOCK Chief, Civil Actions Bureau

One IBM Plaza DONNA M. LACH

Chicago, Illinois 60611 (Counsel of Record)

(312) 222-9350 SANJAY T. TAILOR

Special Assistant State's THOMAS M. BURNHAM

Attorneys Assistant State’s Attorneys

Attorneys for Petitioner

TABLE OF CONTENTS

Page

TAREE Ge ATTIRE ee ccccccceccsccescnssvcsesccsnssnesesesenes il

ET daichbccnlldlaidcuinssesnciinncicebopuniasiiasitacenutinidinnindaniniicen l

I. THERE IS NO EVIDENCE THAT THE

1863 ACT SUBJECTED LOCAL GOV-

ERNMENTS TO LIABILITY .................:c:c0000 l

Il. THERE IS NO - EVIDENCE THAT

CONGRESS INTENDED TO IMPOSE THE

FCA’S PUNITIVE DAMAGES ON LOCAL

Se eID U TED itbestnctstvcccersrsnenneneenensnennensecese 12

I eitnadilichiasteienianiccnscininantanmicccniniemsannemmnenesenten 19

(i)

TABLE OF AUTHORITIES

CASES Page

Albanese v. City Federal Sav. and Loan Ass'n,

710 F. Supp. 563 (D. N.J. 1989) oe eeees 8

Barnes v. District of Columbia, 91 U.S. 540

(BB 7S) .ccosssssessccansesessiestatatisiasiiiaimal 5

Barnes v. Gorman, 122 §. Ct. 2097 (2002) ........... 14

Board of Comm'rs v. Aspinwall, 24 How. 376

(| ) ner 2

City of Lafayette, La. v. Louisiana Power &

Light Co., 435 U.S. 389 (1978)........cccccseceeeseeees 12

City of Lincoln v. Ricketts, 297 U.S. 373 (1936)... a

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

BET (BGBE ) ncccosccccssctnstesesiensentaimijmaaaniin sseapina passim

County of Cook v. City of Chicago, 311 Ill. 234

( 1GIDS) ..nccccecccccssantncnsmesnmesinstiiiamaainl 5

Cowles v. Mercer County, 74 U.S. (7 Wall.) 118

( TBP) ..<cascconscsessniensestttsansistatmmaminiemaaiaaaies 2

Hubbard v. United States, 514 U.S. 695 (1995)... 7

Hunt v. City of Boonville, 65 Mo. 620 (1877) ....... 4

Imbler v. Pachtman, 424 U.S. 409 (1976)............. 14

Kurzrok v. United States, 1 F.2d 209 (8th Cir.

Lancaster Cmty. Hosp. v. Antelope Valley Hosp.

Dist., 940 F.2d 397 (9th Cir. 1991), cert.

denied, 502 U.S. 1094 (1992)............cssccecsereeeeees 8

Monell v. Department of Soc. Serv. of City of

New York, 436 U.S. 658 (1978) ........cccccscesseeesees 2, 3,5

New York Central R.R. v. United States, 212 U.S.

SBE (IDB) ccceccsecctssncstinestutinannaiiaiiioneaiaiiamaals - 9

Ngiraingas v. Sanchez, 495 U.S. 182 (1990)......... a

Owen v. City of Independence, Mo., 445 U.S. 622

(BSGG) nnccccsccccccscenssnstitasitentapatenpitanmniiimiaiiaiicass 2,14

Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1869)...... 5

Pierce v. Underwood, 487 U.S. 552 (1988)........... 13

Rainwater v. United States, 356 U.S. 590 (1958).. 8,9

—_— )— —_——

iii

TABLE OF AUTHORITIES—Continued

Page

Rowland v. California Men's Colony, Unit Il

Men's Advisory Council, 506 U.S. 194 (1993).. 4

Smith v. United States, 287 F.2d 299 (1961)......... 15

Tenney v. Brandhove, 341 U.S. 367 (1951)........... 14

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

i enersinenieinnernmeneennenencennnsenenencete 12

United States v. Amedy, 24 U.S. (11 Wheat.) 392

EE TEETER Q

United States v. Bd. of Educ. of City of Union

City, Civil Action No. 83-2651, 1985 U.S.

Dist. LEXIS 14917 (D.N.J. 1985)...............0006 11

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

Te 6, 8, 12, 13

United States v. Erie County Med. Ctr., 02-CV-

030S5E(Sr), 2002 U.S. Dist. LEXIS 22673

(W.D.N.Y. Oct. 30, 2002).............ccccccccseeees 3, 6, 11, 18

United States v. Escondido Union Sch. Dist., No.

ES 11

United States v. Griswold, 24 F. 361 (D. Or.

1885), aff'd 30 F. 762 (Cir. Or. 1887) ............... 7

United States v. Hudson & Goodwin, 11 U.S.

a 7

United States v. Jennison, 26 F. Cas. 608 (Cir.

Ct., D. Kan. 1874) (No. 15475) ........cccccceeeees 7

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

United States v. Mississippi Valley Generating

OR 9

United States v. TDC Mgt. Corp., Inc., 24 F.3d

ee 7

United States v. Wells, 519 U.S. 482 (1997).......... 13

United States ex rel. Chandler v. Cook County,

Illinois, 282 F.3d 448 (7th Cir. 2002)................ 8

iV

TABLE OF AUTHORITIES—Continued

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.

ee 12

United States ex rel. Long v. SCS Business and

Technical Inst., Inc., 999 F. Supp. 78 (D.D.C.

1998), rev'd on other grounds, 173 F.3d 870

(D.C. Cir. 1999), cert. denied, 530 U.S. 1202,

ot Rf ee 18

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

ee 9, 12,13

United States ex. rel. Satalich v. Los Angeles,

160 F. Supp. 2d 1092 (C.D. Ca. 2001) .............. 17, 18

Vermont Agency of Natural Resources v. United

States ex rel. Stevens, 529 U.S.765 (2000) ........ passim

FEDERAL STATUTES AND REGULATIONS

Oe | 6

|) 18

CS ee 16, 17

Act of Mar. 2, 1863, ch. 67, 12 Stat. 696............... 6, 7,9

Act of Feb. 25, 1871, 16 Stat. 431 ......................... 3

OTHER FEDERAL LEGISLATIVE MATERIAL

131 Come. Rec. 22,322 (19GS)..........ccorecreressereceeee 15

S. Rep. No. 99-345 (1986), reprinted in 1986,

er eee 15

MISCELLANEOUS

Brief for the United States as Amicus Curiae,

Barnes v. Gorman, (On Petition for a Writ

of Certiorari to the United States Court of

Appeals for the Eighth Circuit) (No. 01-682).... 14, 16

Vv

TABLE OF AUTHORITIES—Continued

Page

G. Field, Law of Damages § 80 (1876) ................. 8

Joan C. Williams, The Invention of the Municipal

Corporation: A Case Study in Legal Change,

34 Am. U.L. Rev. 369 (1985) ........cccccceseseeeseeees 4

ARGUMENT

In 1863, there was no legal presumption that “person”

included local governments for purposes of statutory con-

struction. Moreover, because local governments were not

recipients of federal funding, there was no need for Congress

to include them as “persons” when enacting the 1863 Act.

Indeed, by including criminal provisions in the 1863 Act,

Congress necessarily excluded local governments from its

liability provisions. Understandably, there are no reported

cases of local governments being sued prior to the FCA’s

1986 amendments. When, in 1986, Congress amended the

FCA to add punitive damages, local governments still were

not “persons.” See Vermont Agency of Natural Res. v. United

States ex rel. Stevens, 529 U.S. 765, 783 n.12 (2000)

(“person” has not changed since the 1863 Act). In any event,

Congress’ imposition of mandatory punitive damages,

without a clear expression that such damages were to apply to

local governments, effectively immunized local governments

from FCA liability. The policy considerations for not impos-

ing punitive damages on local governments are obvious—

innocent citizens bear the brunt of such damages either

through an increase in taxes or a decrease in needed services.

The Court’s reasoning in Stevens that “various features of the

FCA, both as originally enacted and as amended,” indicate

that States are not subject to the FCA, id. at 787, compels a

like conclusion that local governments are not subject to

the FCA.

I. THERE IS NO EVIDENCE THAT THE 1863

ACT SUBJECTED LOCAL GOVERNMENTS

TO LIABILITY.

1. Respondent, Relator, urges the statutory construction of

the 1863 Act adopted by the court of appeals, Pet. App. 8a,

in which a presumption is applied to the word “person,”

as used in Congressional enactments, to include local

governments. “Presumption” is a potent concept. Neither a

2

“non-controversial proposition,” Resp. Br., 13, 20, nor a

“contemporaneous understanding” of the suability of

municipal corporations, U.S. Br., 12 n.4, translates into

a “presumption.”

Relator cites a number of nineteenth century cases in which

local governmental bodies were sued in contract or tort, none

of which, with the exception of Cowles v. Mercer County, 74

U.S. (7 Wall.) 118 (1869), interprets the meaning of “person”

as used by Congress. Therefore, those cases shed no light on

the issue before the Court, whether Congress, by using the

term “person,” subjected local governments to liability under

the 1863 Act.

The authorities cited by Relator demonstrate no more than

that the law was still evolving prior to the Court’s decision in

Cowles. See, e.g., Monell v. Department of Soc. Serv. of City

of New York, 436 U.S. 586, 673 (1978) (noting that “Board of

Comm'rs v. Aspinwall, 24 How. 376 (1861), [was] the first of

many cases upholding the power of federal courts to enforce

the Contract Clause against municipalities”). By 1863, “the

state courts did not speak with a single voice with regard to

the tort liability of municipal corporations . . . [and] no state

court had ever held that municipal corporations were always

liable in tort in precisely the same manner as other persons.”

Monell, 436 U.S. at 720-21 (Rehnquist, J., dissenting); see

also Owen v. City of Independence, Mo., 445 U.S. 622, 639

(1980) (noting that, although, in 1871, “[{ljocal governmental

units were regularly held to answer in damages for a wide

range of statutory and constitutional violations, . . .

a municipality was not subject to suit for all manner of

tortious conduct”).'

' Relator argues that nothing happened between 1863 and the Cowles

decision in 1869 to lead to the extension of the meaning of “person” to

include local governments. Resp. Br., 12. Actually, a great deal

happened. The Civil War ended, and the Reconstruction period began.

3

In contrast, by the time Congress enacted the Civil Rights

Act of 1871, local governments were considered “persons”

for purposes of statutory construction both under the Court’s

1869 decision in Cowles and by Congress’ 1871 enactment of

the Dictionary Act. Act of Feb. 25, 1871, § 2, 16 Stat. 431.

Yet, in holding that local governments were subject to

liability under Section 1983 of the Civil Rights Act, the Court

in Monell did not rely solely on a “presumption” that local

governments were “persons” in 1871. Rather, the Court also

considered the legislative history for indications of Con-

gressional intent, the general treatment of municipal

corporations in 1871, and the Dictionary Act. See Monell,

436 U.S. at 686-89. As Cook County explained in its initial

brief, Pet. Br., 13-19, applying those same considerations to

the 1863 Act leads to the conclusion that the term “person”

did not include local governments. See United States v. Erie

County Med. Ctr., 02-CV-0305 E(Sr), 2002 U.S. Dist. LEXIS

22673, at *17 (W.D.N.Y. Oct. 30, 2002).

2. The United States argues that local governments “are as

capable as natural persons or commercial corporations of sub-

mitting false claims for payment to the federal government”

and thereby threaten the federal fisc. U.S. Br., 15. Notably,

the United States nowhere explains under what circumstances

local governments could have done so in 1863, or, for that

matter, whether local governments were receiving any money

from the federal government in 1863.

Relator equates municipal corporations with private corpo-

rations, which were presumptively included within the term

“person” by $863. Resp, Br., 15-22. In a broad sense, the

term “corporation” applies to any body politic and corporate,

including even the United States. See Ngiraingas v. Sanchez,

The Thirteenth, Fourteenth, and Fifteenth Amendments became law

between 1865 and 1870. To enforce the Fourteenth Amendment, Con-

gress enacted the Civil Rights Act of 1871, which subjected local govern-

ments to liability. See Monell, 436 U.S. at 665, 685-86.

4

495 U.S. 182, 202 and n.8 (1990) (Brennan, J., dissenting)

(citations omitted). However, Congress does not always use

the tcrm in its broadest meaning. Generally, statutes make

clear, either through express language or clear implication,

whether they refer to municipal or other kinds of corpo-

rations, or to both.? When a statute is not specific as to

Congress’ intent regarding the scope of the term “corpora-

tion,” the Court has looked to other factors to determine the

legislature’s intent. See, e.g., City of Lincoln v. Ricketts, 297

U.S. 373, 374, 376-77 (1936) (examining Bankruptcy Act for

legislative intent before concluding that “corporation” was

being used in a broad sense to include municipal cor-

porations); contrast Rowland v. California Men’s Colony,

Unit Il Men's Advisory Council, 506 U.S. 194, 201-09 (1993)

(despite inclusion of “association” in Dictionary Act’s

definition of “person,” Court found that certain features of in

forma pauperis statute suggested that Congress only intended

for natural persons to proceed under that statute). In neither

Cowles nor Monell did the Court equate public corporations

with private corporations as early as 1863. See also City of

Newport v. Fact Concerts, Inc., 453 U.S. 247, 262 (1981)

(distinguishing between municipal and private corporations)

(citing Hunt v. City of Boonville, 65 Mo. 620, 625 (1877)).

In the early and mid-nineteenth century, the law regarding

the corporate structure of local governments was evolving

differently in the different states, with some local gov-

ernments considered municipal corporations and others quasi-

corporations. See Joan C. Williams, The /nvention of the

Municipal Corporation: A Case Study in Legal Change, 34

Am. U.L. Rev. 369, 372, 392-410 (1985). The liability

* Neither Relator nor her amici curiae disputes that many statutes, such

as those listed in Pet. Br., 26-27, Airport Proprietors Br., 12-13, and

Orange County Br., 7 n.4, demonstrate that Congress makes its intention

clear when it wishes to include local governments within the purview of a

statute.

— see ae

5

of municipal corporations, “made such by acceptance of a

willage or city charter,” was greater than that of involuntary

quasi-corporations, “known as counties, towns, schvol-

districts, and especially the townships of New England.” See

Barnes v. District of Columbia, 91 U.S. 540, 552 (1875).°

Moreover, in the mid-nineteenth century, Congress was

aware that even private corporations were not treated as

“persons” for all purposes. See Monell, 436 U.S. at 720

(Rehnquist, J., dissenting) (noting that while private corpora-

tions were “citizens” for purposes of .\rticle III, they were not

for purposes of the Privileges and Immunities Clause) (citing

Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1869)).

Both Relator and the United States argue that Cowles did

not change the law because the question was “non-

controversial,” Resp. Br., 20, and because Cowles did not

overrule a prior understanding. U.S. Br., 11. The pre-Cowles

cases upon which Relator and the United States rely do

nothing more than show what the law was for certain

purposes in certain states, which is insufficient to establish a

“presumption” that the word “person” included local gov-

ernments for purposes of Congressional enactments as early

as 1863. Indeed, it was not until the Cowles decision in 1869

that the Court first held that local governments could be

treated as natural persons. See Erie County, 2002 U.S. Dist.

LEXIS 22673, at *13.

The United States, U.S. Br., 13, points to the Court's

comment in Stevens that corporations were “presumptively

* Relator hastily concludes that Cook County was a “full-blooded

‘corporation’ as of 1863.” Resp. Br., 17 n.3. In fact, the distinction

between municipal corporations and quasi-corporations existed in Illinois,

and, as late as 1924, the Illinois Supreme Court explained that, in contrast

to municipal corporations, which existed at the request of the people,

counties were involuntary quasi-municipal corporations, “rank{ed] low in

the scale or grade of corporate existence.” County of Cook v. City of

Chicago, 311 Il. 234, 239-41 (1924).

6

covered by the term ‘person.”” Stevens, 529 U.S. at 782

(emphasis in original) (citing | U.S.C. § 1). Because the

presumption that municipal corporations are embraced in the

word “person” for purposes of statutory construction did

not exist in 1863, see Erie County, 2002 U.S. Dist. LEXIS

22673, at *17 n.19, the Court’s reference in Stevens to

“corporations” in the Dictionary Act is limited to private

corporations. Indeed, quoting United States v. Bornstein for

the proposition that “the FCA was enacted in 1863 with the

principal goal of ‘stopping the massive frauds perpetrated by

large [private] contractors during the Civil War,’” the Court

in Stevens added “private” to make clear that private corpo-

rations, not public ones, were targeted by Congress in the

1863 Act. See Stevens, 529 U.S. at 781 (quoting Bornstein,

423 U.S. 303, 309 (1976)). Moreover, the 1863 Act itself

specifically referenced an “officer or agent of any banking or

other commercial corporation, and . . . member of any

mercantile or trading firm,” barring such individuals from

employment by the United States “for the transaction of

business with such corporation or firm.” Act of Mar. 2, 1863,

ch. 67, § 8, 12 Stat. 696, 698-99. Pet. Br. App. 36a. Clearly.

Congress itself made a distinction in the 1863 Act between

municipal and commercial corporations.

There was no presumption by 1863 that local governments

were included in the term “person” in Congressional enact-

ments or that all local governments had a uniform corporate

identity that equated with a private corporation. Thus, the

term “person” in the 1863 Act did not presumptively include

local governments.

3. Even if the Court finds that the term “person”

presumptively included local governments in 1863, the

mandatory criminal penalties imposed under the 1863 Act

establish that Congress did not intend that presumption to

apply to the 1863 Act. Relator and the United States contend

that this argument proves too much, noting that, just as a local

7

government cannot be imprisoned, neither can a private

corporation. Resp. Br., 23; U.S. Br., 13. However, it is the

fact that a local government cannot be subject to any criminal

penalty that distinguishes it from a private corporation. Thus,

contrary to Relator’s and the United States’ assertions, the

County’s interpretation of the 1863 Act does not exclude

private corporations from liability.

Federal crimes are created solely by statute, as opposed to

common law. See United States v. Hudson & Goodwin, \1

U.S. (7 Cranch) 32, 33 (1812). The 1863 Act “made it a

criminal offense for any person, whether a civilian or a

member of the military services,” to present upon the United

States any claim for payment “‘knowing such claim to be

false, fictitious or fraudulent."” Hubbard v. United States,

514 U.S. 695, 704 (1995) (quoting 1863 Act). Among other

things, Section | of the 1863 Act provided that any person

who “shall steal, embezzle, or knowingly and willfully

misappropriate” shall be subject to criminal punishment. Act

of Mar. 2, 1863, ch. 67, 12 Stat. 696, 697. Pet. Br. App. 33a.

Not only did the 1863 Act impose an actual knowledge of

fraud and/or willfulness element, in other parts of Section |, it

also imposed an “intent to defraud” and “intent to cheat”

element. /d. at 696-97; Pet. Br. App., 33a; see also United

States v. Jennison, 26 F. Cas. 608, 610 (Cir. Ct., D. Kan.

1874) (No. 15475) (judge charging jury that under 1863 Act

they must find that defendant intended to defraud govern-

ment); Kurzrok v. United States, | F.2d 209, 211 (8th Cir.

1924) (rejecting defendant’s contention that there was insuf-

ficient evidence upon which jury could have found that

defendant “intended to defraud the United States” in violation

of FCA); United States v. Griswold, 24 F. 361, 365 (D. Or.

1885), aff'd 30 F. 762 (Cir. Or. 1887) (“A forfeiture cannot

occur under section 5438, Rev. St. [codification of criminal

provision of 1863 Act], without the party incurring the

same being guilty of both fraudulent intent and conduct.”);

United States v. TDC Mgt. Corp., Inc., 24 F.3d 292, 297

8

(D.C. Cir. 1994) (intent to deceive is element of fraud under

pre-1986 version of FCA).* As local governments were not

thought capable of forming criminal intent, the word “person”

in the 1863 Act cannot sensibly be interpreted to include

local governments. See City of Newport, 453 U.S. at 264

n.23 (quoting G. Field, Law of Damages § 80 (1876))

(“*[Municipal corporations] cannot . . . be supposed capable

of doing a criminal act.””).°

While the 1863 Act originally provided both criminal and

civil sanctions in the same statute, those provisions were

subsequently bifurcated. Rainwater v. United States, 356

U.S. 590, 592 n.8 (1958). In the Revised Statutes of 1878,

the civil sanctions were codified as Sections 3490-3494 and

the criminal sanctions as Section 5438. /d.° The Court has

narrowly interpreted Section 5438 of the Revised Statutes,

which was largely a re-enactment and codification of Sec-

tion | of the 1863 Act. See United States ex rel. Marcus v.

* In 1986, Congress amended the FCA so that “proof of specific intent

to defraud” was no longer required, making it easier for the federal

government and relators to prevail. United States ex rel. Chandler v.

Cook County, 277 F.3d 969, 976 (7th Cir. 2002) (citing 31 U.S.C.

§ 3729(b)). Pet. App. 12a-13a.

* Even RICO’s expansive reach, Resp. Br., 25, does not extend to local

governments, which cannot form the requisite intent. See Lancaster

Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 404 (9th Cir.

1991), cert. denied, 502 U.S. 1094 (1992) (civil RICO claim against

public hospital fails “because government entities are incapable of

forming a malicious intent,” an element of the predicate criminal act);

Albanese v. City Fed. Sav. and Loan Ass'n, 7\0 F. Supp. 563, 567 (D.N_J.

1989) (township cannot form criminal intent to commit predicate acts and

thus cannot be held liable under civil RICO statute).

* Section 5438, titled Crimes, made certain acts to defraud the United

States crimes punishable by imprisonment or fine, while Section 3490

made the violation of Section 5438 subject to forfeitures of $2,000 per

false claim and double damages. Rainwater, 356 U.S. at 592 n.8; see also

Bornstein, 423 U.S. at 306.

9

Hess, 317 U.S. 537, 542 (1943) (Ҥ 5438 is criminal and for

that reason in interpreting so much of its language as it shares

in common with § 3490 we must give it careful scrutiny lest

those be brought within its reach who are not clearly in-

cluded”); United States v. McNinch, 356 U.S. 595, 598 (1958)

(noting that in construing Section 5438 it is “actually con-

struing the provisions of a criminal statute” and that “[s}uch

provisions must be carefully restricted, not only to their literal

terms but to the evident purpose of Congress in using those

terms, particularly where they are broad and susceptible [of]

numerous definitions”); see also Rainwater, 356 U.S. at

592-93.

This same reasoning would not have excluded private

corporations from liability under the 1863 Act. While both

local governments and private corporations cannot be

imprisoned, a private corporation, unlike a local government,

can be held criminally liable. See, e.g., New York Central

R.R. v. United States, 212 U.S. 481, 492-94 (1909). Indeed,

as the United States correctly points out, a corporation was

held to be a person subject to a penal statute as early as 1826.

U.S. Br., 10 n.3 (citing United States v. Amedy, 24 U.S. (11

Wheat.) 392, 412-13 (1826)). Moreover, Section 8 of the

1863 Act provided that “no officer or agent of any banking or

other commercial corporation, and no member of any

mercantile or trading firm . . . shall be employed or shall act

as an officer or agent of the United States for the transaction

of business with such corporation or firm.” Act of Mar. 2,

1863, ch. 67, § 8, 12 Stat. 696, 698-99. Pet. Br. App. 36a.

By its express terms, a violation of Section 8 occurred simply

by virtue of the conflict of interest with no showing that the

corporation submitted a false claim to the United States. Cf.

United States v. Mississippi Valley Generating Co., 364 U.S.

520, 549-50 (1961) (“the statute [restatement of Section 8 of

1863 Act] is more concerned with what might have happened

in a given situation than with what actually happened”).

That Congress would have prohibited conflicts of interest in

10

transactions between commercial corporations and the United

States but not have prohibited commercial corporations from

submitting false claims defies common sense.

Thus, even if the Court finds that the term “person”

presumptively included local governments in 1863, the

criminal context in which the term was used in the 1863 Act

overcomes that presumption.

4. Recognizing that “person” has remained in the FCA

unchanged since 1863, see Stevens, 529 U.S. at 783 n.12, the

United States cites the FCA’s 1982 amendments for the

proposition that they “reinforce” the conclusion that Con-

gress, in 1863, intended local governments to be subject to

the 1863 Act. The United States bases this proposition on

Monell’s holding that local governments were persons under

Section 1983 as well as the Court’s holdings that the FCA

covered all forms of fraud against the United States and that

the damages available at that time were compensatory. U.S.

Br., 15-16. The United States reads too much into the 1982

amendments.

First, Monell’s holding is limited to Section 1983, enacted

eight years after the 1863 Act. Second, while the 1863 Act

was intended to cover all types of fraud, it was not “intended

to cover all types of fraudsters.” See Stevens, 529 U.S. at 781

n.10 (emphasis in original). Third, the Court’s holdings

regarding the FCA’s double damages are not controlling

because those damages simply provided the federal gov-

ernment with full compensation, not punitive damages.

Finally, as the Court in Stevens noted, “[i]n 1982, Congress

made «a housekeeping change” which resulted in the

incorporation of “the term of art ‘member of an armed force’

throughout Title 10 of the United States Code.” Stevens, 529

U.S. at 782. Therefore, the 1982 amendments neither create a

presumption nor reinforce that local governments were

included as “persons” under the 1863 Act.

1]

If anything, by not explicitly expressing an intent to subject

local governments to liability, the amendments to the FCA in

1982, as well as in 1986, in fact, reinforce that “person” in the

1863 Act never included local governments. Indeed,

Congress’ imposition of mandatory punitive damages in

1986, from which local governments are immune, further

confirms that the term “person” in the FCA does not include

local governments. See Erie County, 2002 U.S. Dist. LEXIS

22673, at *20-21.

5. A more compelling indication that Congress subjected

local governments to liability under the 1863 Act would be a

history of lawsuits brought against local governments. How-

ever, none exists prior to the 1986 amendments. Neither of

the two matters that Relator cites, Resp. Br., 32, establishes

that local governments were sued, let alone held liable, under

the FCA prior to the enactment of the 1986 amendments.

United States v. Bd. of Educ. of City of Union City was a suit

for violations of the FCA, common law fraud, breach of

contract, unjust enrichment, and conversion brought against

multiple defendants, including a number of individuals who

had been convicted for the same conduct. Civil Action No.

83-2651, 1985 U.S. Dist. LEXIS 14917 (D.N.J. 1985). It is

not clear under which cause of action the Board of Education

was being sued; however, insofar as the Board of Education,

as a third-party plaintiff, attempted to join in the United

States’ summary judgment motion on the FCA claims against

the individual defendants, id., it seems extremely unlikely

that the United States was pursuing an FCA claim against the

Board of Education. United States v. Escondido Union Sch.

Dist., No. 78-0845-S (S.D. Cal.), has no opinion from which

one can glean the cause of action brought against the

defendant School District or whether the question regarding a

local government's status as a “person” under the FCA was

raised. Notably, the United States has not commented on

either of these cases.

12

ll. THERE IS NO EVIDENCE THAT CONGRESS

INTENDED TO IMPOSE THE FCA’S PUNITIVE

DAMAGES ON LOCAL GOVERNMENTS.

The Court presumes “that Congress expects its statutes to

be read in conformity with this Court’s precedents.” United

States v. Wells, 519 U.S. 482, 495 (1997). Therefore, when,

in 1986, Congress increased the FCA’s civil remedy from

double to treble damages and the fines from $2,000 to

between $5,000 and $10,000, it knew that the double

damages of the FCA were not punitive. Marcus, 317 U.S. at

550; Bornstein, 423 U.S. at 531 n.11. Congress also knew

that treble damages, like those in the antitrust laws, would

have been punitive. Stevens, 529 U.S. at 785-86 (citing

Marcus, 317 U.S. at 550); see also Texas Indus., Inc. v.

Radcliff Materials, Inc., 451 U.S. 630, 639 (1981) (“[t}he

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

and to deter future, unlawful conduct”).’ Congress also knew

that the Court recognized a long-standing immunity from the

imposition of punitive damages against governmental entities

and that Congress must expressly manifest its intention

to abrogate the immunity. City of Newport, 453 U.S.

” That treble damages can be assessed against local governments under

the antitrust laws does not compel a different result. “Antitrust laws in

general, and the Sherman Act in particular, are the Magna Carta of free

enterprise.” City of Lafayette, La v. Louisiana Power & Light Co., 435

U.S. 389, 398 n.16 (1978). In City of Lafayette, the Court determined that

the antitrust laws were drafted with the purpose of reaching all

commercial activity, including a municipality's commercial activity. /d

at 408 (“If municipalities were free to make economic choices counseled

solely by their own parochial interests and without regard to their

anticompetitive effects, a serious chink in the armor of antitrust protection

would be introduced at odds with the comprehensive national policy

Congress established.”). “The [FCA] and the antitrust laws are not

analogous in this regard” because the FCA does not have “the same broad

scope as the antitrust laws.” L/nited States ex rel. Garibaldi v. Orleans

Parish Sch Bd, 244 F.3d 486, 494 (Sth Cir. 2001), cert. denied, 122 S.

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

13

at 259, 260 n.21, 263. Finally, Congress knew that the United

States had remedies other than the FCA to recover damages

from local governments. Thus, Congress was aware of

the consequence of trebling the damages with no indication

of an intent to impose the mandatory damages on local

governments.

1. Relator downplays the punitive nature of the FCA’s

mandatory treble damages plus fines plus relator’s attorneys

fees, arguing that the increase “was necessary to assure full

compensation to the federal government” since the percent-

tage paid to relators was increased. Resp. Br., 39. However,

unlike the double damages at issue in Marcus, 317 U.S. 537,

or Bornstein, 423 U.S. 303, under the 1986 amendments, the

federal government’s share of the damages far exceeds the

amount necessary to make it whole. Even though a relator

may receive up to 30% of both the treble damages and fines,

the federal government receives in excess of double the

damages. Where the United States brings an action itself, it

receives the full treble damages plus fines. The rationales of

Marcus and Bornstein, thus, do not justify the windfall to the

United States under the current mandatory treble damages.

Relator also argues that Congress intended the treble

damages to be compensatory, but “ultimately settled on the

simpler scheme of treble damages.” Resp. Br., 38. Simpler

or not, the FCA’s damages are punitive. See Stevens, 529

U.S. at 784-85. “[I}t is the function of the courts and not the

Legislature . . . to say what an enacted statute means.” Pierce

v. Underwood, 487 U.S. 552, 566 (1988). For example, it is

safe to assume that Congress always intends to enact a

constitutional statute, but that well-meaninged intent does not

prohibit the Court from holding that an enactment is

unconstitutional. Likewise, even if Congress considered the

treble damages scheme in the 1986 amendments to be com-

pensatory, the Court in Stevens has determined otherwise.

14

Relator’s distinction between “common-law punitive dam-

ages” and treble damages that are “essentially punitive in

nature,” Resp. Br., 44-45, leads nowhere. “Punitive damages,

by definition, are damages in excess of those necessary to

provide recompense.” Brief for the United States as Amicus

Curiae at *16, Barnes v. Gorman (On Petition for a Writ of

Certiorari to the United States Court of Appeals for the

Eighth Circuit) (No. 01-682). Whether punitive damages are

imposed against a local government by a jury award or by a

mandatory punitive damages scheme, the result is the same:

they punish “only the taxpayers, who took no part in the

commission of the tort . . . and are likely accompanied by an

increase in taxes or a reduction of public services for the

citizens footing the bill.” City of Newport, 453 U.S. at 267.

2. By using terms such as “sub silentio,” “repeal,” Resp.

Br., 32, 33, “oust,” U.S. Br., 17, and “remove,” K&R Br., 8,"

Relator and her amici curiae ask the Court to invert the well-

established standard for the imposition of punitive damages

on local governments from one requiring an explicit indi-

cation of abrogation from Congress to one requiring a mere

inference. See, e.g., Barnes v. Gorman, 122 S. Ct. 2097,

2103 (2002) (Stevens, J., concurring) (“absent clear congres-

sional intent to the contrary, municipalities are not subject to

punitive damages”) (citing City of Newport, 453 U.S. 247);

Owen, 445 U.S. at 704 (“immunities ‘well-grounded in his-

tory and reason’ [were not] abrogated ‘by covert inclusion in

the general language’) (quoting /mbiler v. Pachtman, 424

U.S. 409, 418 (1976) (quoting Tenney v. Brandhove, 341 U.S.

367, 376 (1951)). To begin with, since local governments

were not “persons” under the 1863 Act, there was nothing in

*The Taxpayers Against Fraud further argue that the 1986 amend-

ments changed the meaning of “person” to broaden it and that the FCA’s

treble damages are not punitive. Taxpayers Br., 9, 12-23. Those argu-

ments run directly counter to the Court's conclusions in Stevens. Stevens,

529 U.S. at 783 n.12, 784-85.

1S

1986 to “oust” or “repeal.” Moreover, the inferences that

Relator and her amici curiae have pressed do not indicate any

Congressional intent to impose punitive damages on local

governments.

The Senate Committee Report’s citation to Smith v. United

States, 287 F.2d 299 (1961), Resp. Br., 32, does not constitute

a clear expression of Congressional intent to impose punitive

damages on local governments. In Smith, the executive

director of a governmental housing project was convicted

under the FCA. /d. at 300. Not only does Smith have nothing

to do with liability of local governments under the FCA, the

Senate Report did not cite Smith for Relator’s proposition that

Congress understood that local governments could violate the

FCA. S. Rep. No. 99-345, at 18-19, reprinted in 1986

U.S.C.C.A.N, at 5283-84.

Nor does Congress’ 1985 increase of damages for false

claims involving contracts with the Department of Defense

infer a Congressional intent to impose punitive damages on

local governments. U.S. Br., 25-26. In 1985, Congress

decided that some fraudsters could be held liable for double

damages under the FCA and others for treble damages under

the Department of Defense Authorization Act. Also, in 1985,

Congress first proposed to add mandatory treble damages to

the FCA for all fraud claims. 131 Cong. Rec. 22,322 (1985).

Thus, Congress’ adoption of a treble damages scheme in the

FCA to comport with the same scheme under the Department

of Defense Authorization Act, see S. Rep. No. 99-345, at 17,

reprinted in 1986 U.S.C.C.A.N. at 5282, is not an explicit

indication of Congressional intent to impose the FCA’s

punitive damages on local governments.

The United States’ argument that, given “Congress's

overriding intent to strengthen and expand” the FCA, it is

“unlikely” that Congress would have exempted local gov-

ernments from the 1986 amendments, U.S. Br., 19, is partic-

ularly curious in light of the position it took earlier this year

16

in another case before the Court. There, the United States, as

amicus curiae, argued: “A court should not impute to Con-

gress an intent to allow a punitive damages remedy absent a

clear congressional directive,” and even when “punitive

damages are found to be available in certain circumstances,

this Court has declined to recognize a punitive damages

remedy against municipalities.” Brief for the United States as

Amicus Curiae at *7, *17, Barnes v. Gorman (On Petition for

a Writ of Certiorari to the United States Court of Appeals for

the Eighth Circuit) (No. 01-682). In that case, the United

States correctly stated: “the Court in Fact Concerts did not

presume that punitive damages were available against munic-

ipalities unless Congress said otherwise, . . . Instead, in Fact

Concerts, the Court first looked to whether there was any

evidence that in enacting Section 1983, Congress had

intended to override the ‘common-law tradition’ that punitive

damages were not available against a municipality.” /d. at

*17 (citing City of Newport, AS3 U.S. at 261). The United

States’ position in Barnes v. Gorman that “the proper

presumption in the absence of clear Congressional guidance

is against inference of a punitive damages remedy,” id. at *11

(heading for its first argument), is directly applicable to this

case. Without a clear indication from Congress that the

FCA’s punitive damages are to be imposed on local govern-

ments, the federal government is left to resort to more

traditional causes of action against local governments.

As for the whistleblower provision, it is not at all implau-

sible that Congress may have subjected local governments to

liability for retaliation but not for submitting a false claim.

Relator ignores the range of other actions that could be taken

by the United States against a local government in response to

disclosures of fraud, such as threatening the withdrawal of

federal funding, which can be the death knell of a program.

Thus, that local governments may be subject to retaliation

liability under 31 U.S.C. § 3730(h) does not lead to the

17

inexorable conclusion that they may also be subject to

liability for submitting a false claim.

Relator’s amicus curiae, K&R Limited Partnership, cites a

line of cases holding that an employee must show a distinct

possibility that a viable FCA suit can be brought against her

employer to state a claim for retaliation under Section

3730(h). K&R Br. 19. However, the only courts to have

considered whether a local government is an “employer”

under Section 3730(h) held that a local government could be

sued for retaliating against its employee, despite the fact that

it cannot be sued for submitting a false claim. In United

States ex. rel. Satalich v. Los Angeles, 160 F. Supp. 2d 1092

(C.D. Ca. 2001), the court, after observing that the whistle-

blower provision applied to “any” employer, explained:

While it may seem unlikely that a non-target employer

would engage in retaliatory conduct, this case dem-

onstrates the propriety of interpreting section 3730(h)

literally, and permitting the action to go forward.

Specifically, this case presents a circumstance where an

employer without FCA liability could be in cahoots with

other non-municipal entities that are potentially liable,

and for that reason may be motivated to silence a

whistleblower. Moreover, the remedies provision of

section 3730(h) does not impose punitive damages.

Thus, the Court is not confronted with the considerations

of history and policy which support municipal immunity

from section 3729 liability. Given the obvious policy

considerations that underlie the enactment of section

3730(h), the Court concludes that Plaintiff should be

18

permitted to maintain this action, irrespective of whether

the City bears any potential liability under section 3729.

Id. at 1107-08; see also Erie County, 2002 U.S. Dist. LEXIS

22673, at *13.” As Cook County argued in its initial brief,

Pet. Br., 30, the Senate Committee Report’s definition of

“employer” in the whistle-blower provision, upon which

Relator places great reliance, Resp. Br., 31, is too thin a reed

to support a finding that Congress abrogated the common-law

local governmental immunity from punitive damages. C/

United States ex rel. Long v. SCS Business and Technical

Inst., 999 F. Supp. 78, 93 (D.D.C. 1998), rev'd on other

grounds, 173 F.3d 890 (D.C. Cir. 1999), cert. denied, 530

U.S. 1202 (2000) (“Congress' intent to protect whistleblowers

does not extend to whistleblowers whose employer is a state

because Congress did not clearly state such intention in

the statute, even if the legislative history suggests such an

intention.”’).

Neither Cook County nor its amici curiae have suggested

that local governments cannot be held accountable for fraud

upon the United States. The FCA, however, with its punitive

damages, is not the appropriate remedy for fraud committed

by a local government in its use of federal funds. Nothing

about the real punishment inflicted by the FCA is “hyper-

bolic.” Resp. Br., 46. Funds used to satisfy a punitive

damages judgment against a local government necessarily

means less money to spend on schools, hospitals, airports,

roads, and numerous other programs and services provided by

local governments. Thus, the burden of the FCA’s punitive

damages is felt by innocent people throughout this country,

from school children to the medically indigent to the users of

* As in Satalich, Relator, here, alleges that Cook County was in

cahoots with its co-defendant, the Hektoen Institute for Medical Research

(“Hektoen”), a suable entity under the FCA. Because Hektoen employed

Relator, her retaliatory discharge claim against Cook County was dis-

missed. Pet. App. 48a.

_ eee ee

19

public airports, to name but a few. These innocent victims of

the FCA’s punitive damages have no means of “avoid[ing]

such dilemmas.” Resp. Br., 46. While Congress has the

power to impose punitive damages on local governments, the

Court has always required a clear indication of Congressional

intent. No clear indication exists anywhere in the history of

the FCA of a Congressional intent to subject local govern-

ments to liability under the FCA, much less punitive

damages.

Consistent with the Court’s analyses in Stevens and City of

Newport, the Court should reverse the judgment of the court

of appeals.

CONCLUSION

For the reasons set forth above and in Petitioner’s Brief, as

well as for the reasons set forth in the briefs filed by the amici

curiae in support of the Petitioner, Cook County, Illinois, the

court of appeals’ decision should be reversed.

Respectfully submitted,

RICHARD A. DEVINE

State 's Attorney of

Cook County, Illinois

500 Richard J. Daley Center

Chicago, Illinois 60602

Of Counsel: (312) 603-6934

JEROLD S. SOLOVY PATRICK T. DRISCOLL, JR.

BARRY SULLIVAN Deputy State’s Attorney

JENNER & BLOCK Chief, Civil Actions Bureau

One IBM Plaza DONNA M. LACH

Chicago, Illinois 60611 (Counsel of Record)

(312) 222-9350 SANJAY T. TAILOR

Special Assistant State's THOMAS M. BURNHAM

Attorneys Assistant State’s Attorneys

Attorneys for Petitioner