# Amicus Curiae Brief — Cook County v. United States Ex Rel. Chandler

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2003
- **Citation:** 538 U.S. 119

## Text

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NO. 01-1572

IN THE

Supreme Court of the United States

Cook COUNTY, ILLINOIS,
Petitioner,

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

On Writ of Certiorari to the United States
Court of Appeals for the Seventh Circuit

BRIEF FOR COUNTY OF DELAWARE,
PENNYSLVANIA AS AMICUS CURIAE
2 IN SUPPORT OF PETITIONER

Michael P. Dignazio
Assistant Solicitor
Government Center Building
Media, PA 19063
(610) 891-4072

Counsel of Record

Francis X. Crowley
Michael L. Maddren
Blank Rome Comisky &
McCauley, LLP

Rose Tree Corporate Center,
Building No. 1

1400 N. Providence Road,
Suite 301

Post Office Box 1210
Media, PA 19063

(610) 891-7800

SL aE
ST IVES BURRUPS/APPELLATE DIVISION, 1617 JFK BOULEVARD, PHILA, PA 19103 (215) 563-9000

15

A

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF THE COUNTY OF DELAWARE,
PENNSYLVANIA

SUMMARY OF ARGUMENT

ARGUMENT

I. THE FALSE CLAIMS ACT PROVIDES FOR
PUNITIVE DAMAGES

II. THE FALSE CLAIMS ACT IS PUNITIVE IN
NATURE BECAUSE THE UNITED STATES
HAS ALTERNATIVE MEANS TO DETECT AND
RECOUP LOSSES

CONCLUSION

TABLE OF AUTHORITIES
Cases: Page
BMY-Combat Sys. Div. of Harsco Corp. v. U.S., 44 Fed.
Gm.. ee 7
City of Newport v. Fact Concerto, Inc., 453 U.S. 247,
.. „ „%/ U 16
Texas Industries, Inc. v. Radcliffe Materials, Inc., 451
Wa GOR, % h.. ᷑ 3
United States v. Bornstein, 423 U.S. 303 (1976) 6-7, 9
United States v. Cabreru- Diaz, 106 F. Supp. 2d 234
nee. nent 7
United States v. Entin, 750 F. Supp. 512 (S. D. Fla.
i ＋9 Lb. „6„%„ é 7
United States v. Hickman County, No. 1:97-0086 (M.D.
venm. Basch GB, BOGE)... + cccsescteeueeeue 13
United States v. Pani, 717 F. Supp. 1013 (S. D. N. V.
191. 7

United States ex rel. Chandler v. Hektoen Institute for
Med. Res., 35 F.Supp. 2d 1078 (N.D. III. 1999).. 12

United States ex rel. Dunleavy v. County of Delaware,
123 F.3d 734 (3d. Cir. 1997)................ 4-6

United States ex rel. Dunleavy v. County of Delaware,
279 F. ad 219 (3d. Cir. 200 2))))) 1

United States ex rel. Graber v. City of New York, 8
F.Supp. 2d 343 (S.D.N.Y. 1998) ............ 8-9, 14

United States ex rel. Honeywell v. San Francisco
Housing Authority, 2002 W.L. 793300 (N.D. Cal.

ph. 15
United States ex rel. King v. Jackson County Hospital
Corporation, 2001 U.S. Dist. Lexis 21708 14

ll

TABLE OF AUTHORITIES — (Continued)
Cases: Page

United States ex rel. Kinney v. Hennepin County
Med. Cent., 2001 WL 930780 (D. Minn. Jan. 22,

eee ̃è ..... ee eee 14
Vermont Agency of Natural Resources v. United States
ex rel. Stevens, 529 U.S. 765 (2000) .......... 3, 7, 9

Statutes and Other Authorities:

5 U.S.C. App 3 581-12 (2002 . 10-11
CC a 1, 3,7
„„ „„ 6
31 U.S.C. 7801-7560ꝶ/· cece 9
, . 9, 10
31 U.S.C. 87504%hĩG ůũryr ee ee error tery 10
, cceeees 13
D 14
D ͥ 15
, 12. 15
D 15
24 C. F. R. $570.900-906 ů . „„ 12
24 C.F-R. 6870. 910-91ũ ss cee ee eee 12
24 CFR. 8068.806233 eee eee 15
, O . 14
D . 14
„„ „„ 14
,, 14
, ˙⁰ eccecens 13
ll

TABLE OF AUTHORITIES — (Continued)

Statutes and Other Authorities: Page
. . 13
r . 13
ene ee eee 12, 14
1 cdacceenaencosbans 12
ITN 6 6 0 800086066 6045600040600 12-13
Legislative History:
Act of October 12, 1978, Pub. L. No. 95-452 1978
U.S.C.C.A.N. (92 Stat. 110177). 11
iv

INTEREST OF THE COUNTY OF DELAWARE
PENNSYLVANIA

The issue before this Honorable Court is whether local
governmental entities are immune from liability under the
False Claims Act, 31 U.S.C. § 3729 et seg. (the “Act”), since
the Act is punitive. The same issue was seminal in United
States ex rel. Dunleavy v. County of Delaware, 279 F.3d 219
(3rd Cir. 2002) (“Dunleavy 2”), in which the Third Circuit
ruled that local governments are immune from damages
under the Act. Relator in that matter has petitioned this
Honorable Court for a writ of certiorari to the Third Circuit
Even absent the propinquity because of the Dunleavy
matter, however, the County of Delaware (the “County”)
would nonetheless have a significant interest in the matter
sub judice, as it is a local government entity that receives
funds from the federal government under various federal
programs and, as such, periodically issues requests for
payment and makes reports to federal government agencies
that may constitute claims as defined by the Act.

2
SUMMARY OF ARGUMENT

The County respectfully submits this brief in support of
Cook County’s argument that because the Act is punitive,
local government entities are immune from liability there-
under, as it contains no clear expression of Congressional
intent to impose liability thereupon.

a. As demonstrated in the Dunleavy case, a relator may
maintain a case under the Act in which the federal
government declines to intervene, but then resolves the
underlying issue with the defendant. Thus, in spite of the
fact that the federal government has resolved to its
satisfaction the issue giving rise to the alleged false claim
by accepting from the grantee what the government
considers to be payment in full, the relator may continue
to prosecute the action. This is particularly punitive in light
of rulings that when determining damages under the Act,
the amount of the alleged claim is trebled before any credit
is assessed for amounts paid as the result of such a
settlement. Since the government is compensated for any
harm resulting from the alleged false claim by way of the
settlement, any additional damages against the alleged

claimant are punitive in nature.

b. Application of the False Claims Act against local
governmental agencies is not necessary to protect the
federal government from alleged fraud by local govern-
mental entities. Rather, there are many alternative means
by which the federal government can protect the public
treasury from fraud by local governments that do not
include the in terrorem threat of punitive damages,
including but not limited to, a panoply of common law
remedies, audits of grantees under various regulatory
previous, and independent audits required under the Single
Audit Act (the “Audit Act”). Regulatory audit provisions are
generally coupled with a wide array of remedies and
sanctions. There has been no showing that fraud by local
governments is rampant or that the alternative means for

3

discovering and remedying any fraud that occurs are
ineffective. As alternative means exist which permit
discovery and recovery of fraudulently usurped federal
funds, the Act, which permits damages up to three times
that amount, plus a civil money penalty, is punitive.

ARGUMENT

I. THE FALSE CLAIMS ACT PROVIDES FOR
PUNITIVE DAMAGES

There can be no doubt that the treble damages imposed
by the Act are punitive. This Court already has so held. See
Vermont Agency of Natural Resources v. United States ex rel.
Stevens, 529 U.S. 765, 784-785 (2000). The holding in
Stevens was consistent with prior decisions of this Court
addressing treble damage provisions. See, eg., Texas
Industries, Inc. v, Radcliffe Materials, Inc., 451 U.S. 630,
639 (1981) (holding that treble damage provision of Clayton
Act is punitive). Delaware County’s experience demon-
strates vividly the punitive nature of the Act.

Under the False Claims Act, “any person who...
knowingly makes, uses or causes to be made or used, a false
record or statement to get a false or fraudulent claim or
approved by 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 three times the amount of
damages which the Government sustains because of the act
of that person ... 31 U.S.C. S 3729(a) (emphasis added). In
Dunleavy, the federal government and Delaware County
came to a negotiated resolution, allowing the government to
get a full recovery of the amount the County errantly
usurped. Nonetheless, the Third Circuit ruled that
Dunleavy could proceed with his false claims action against
the County.

Dunleavy attempted to state a cause of action under the
Act in connection with the County’s peripheral involvement
in the Pennsylvania Department of Transportation’s

4

(“PennDOT’s”) construction of Route 476 around the
western perimeter of Philadelphia. In the late 1970's, the
County acquired, via condemnation, a 56.6 acre tract of land
adjacent to Smedley Park in Nether Providence Township,
Pennsylvania (the “Penza Tract”). U.S. ex rel. Dunleavy v.
County of Delaware, 123 F.3d 734, 736 (3rd Cir. 1997)
(“Dunleavy 1”). To acquire the Penza Tract, the County
appropriated approximately $1,839,500 in funds it had
received under the Community Development Block Grant
(“CDBG”) program from the United States Department of
Housing and Urban Development (“HUD”), and approxi-
mately $685,000 of its own funds. Id.

The County originally planned to use the Penza Tract
to expand Smedley Park. However, on January 26, 1979, it
sold 26.3 acres of the Tract to PennDOT for $1,988,550, for
the construction of Route 476. Id. The County later sold an
additional 1.9 acre portion of the Penza Tract to PennDOT
for $103,950. Id. Because the County retained certain rights
to repurchase the properties if the construction of Route 476

-was prevented by pending litigation or community opposi-
tion, the proceeds of both sales were held by the County in a
segregated account. Id. In 1988, the County transferred a
final portion of the Penza Tract to PennDOT for $1,000,000.
Id. The litigation blocking construction was resolved and
Route 476 was then constructed, opening in 1991. Id.

Dunleavy, who was the County’s consultant for HUD
grant programs during the years in question, (but whose
contract was terminated by the County in 1992), filed suit
under the Act on November 18, 1994. Dunleavy alleged that
the County failed to report the proceeds from sales of the
portions of the Penza Tract to HUD as program income, and
to use the proceeds for CDBG purposes allegedly as required
by the contractual agreement and grant program through
which the funds were acquired from HUD. Id. at 137.

HUD made an independent investigation of the Penza
Tract Fund in 1996. Id. As a result, it demanded repayment

of approximately $1,900,000 by the County. Id. After

5

negotiation, and over Dunleavy’s protest, HUD settled the
matter with the County for $1,921,699. Jd. HUD then
returned the money to the County’s line-of-credit, making it
available for eligible uses. Id.

In spite of the settlement between the County and
HUD, and although it was not an issue raised on appeal
by the parties, the Third Circuit held that the relator
could proceed with his False Claims action against the
County. Id. at 739. After discussing whether the federal
government intended its settlement with the County to
satisfy the underlying claim or to address an entirely
separate transgression, the Third Circuit went on to state as
follows:

we need not decide whether the settlement terminated
the government’s rights against Delaware County
under the Act, because Dunleavy’s right to proceed
with his qui tam action remains unimpaired. Subsection
(5) preserves a relator’s right to a percentage of the
recovery even when the government chooses to pursue
its claim administratively. Because the government
never exercised its rights to intervene, the settlement
between HUD and Delaware County does not negate
Dunleavy’s ability, as the relator, to proceed indepen-
dently with his qui tam action.

6

Id.“ Thus, in spite of the federal government’s recovery of its
loss, and its satisfaction with that recovery, the Third
Circuit’s decision allows the relator to continue to prosecute
his action under the Act, and to obtain damages as provided
therein.

The method in which damages are calculated in the face
of a credit there against being due to the defendant
emphasizes the punitive nature of the Act. The issue of
how to apply credits against false claims damages was
addressed by the Court in U.S. v. Bornstein, 423 U.S. 303
(1976). In that case, a subcontractor shipped falsely labeled
electron tubes to the prime contractor that did not meet the
specifications for the project in question. Id. at 307. The
prime contractor then incorporated the tubes into radios
produced for the federal government, and requested
payment as though it employed the proper tubes. See Id.

After the fraud was discovered, the federal government
recovered a portion of the costs of the radios from the prime
contractor. Id. The government then brought suit under the
Act against the subcontractor. Jd. at 308. One issue in that
suit was whether the credit against the government’s
damages resulting from its recovery from the prime

1. “Subsection (c)(5)” refers to 31 U.S.C. 3730(c)(5), which reads as
follows:

|Nlotwithstanding subsection (b), the Government may elect to
pursue its claim through any alternative remedy available to the
Government, including any administrative proceeding to determine a
civil money penalty. If any such alternate remedy is pursued in
another proceeding, the person initiating the action shall have the
same rights in such proceeding as such person would have had if the
action had continued under this section. Any finding of fact or
conclusion of law made in such other proceeding that has become
final shall be conclusive on all parties to an action under this section.
For purposes of the preceding sentence, a finding or conclusion is
final if it has been finally determined on appeal to the appropriate
court of the United States, if all time for filing such an appeal with
respect to the finding or conclusion has expired, or if the finding or
conclusion is not subject to judicial review.

7

contractor should be applied before or after the damages
were doubled.” The Court concluded that the purpose of the
Act was best served if the damages were doubled before the
credit was applied for several reasons. Jd. at 311-12. First,
double damages were necessary to completely compensate
the Government for the costs, delays and incenvenience
caused by the fraudulent claims. Id. at 312. That statement
rang particularly true under the version of the Act then in
existence, as the relator was at that time entitled to up to
fifty percent (50%) of the recovery; now, with treble
damages, and the Relator entitled to no more than thirty
percent (30%) of the proceeds, that rationale no longer
applies. Second, the Court feared that fixing damages
against a defendant based upon the actions of a third party
would cause disparate results across cases. Jd. For example,
one subcontractor should not be entitled to a windfall as
compared to another simply because the first prime
contractor was willing to compensate the government for
its loss and the second prime contractor was not. Id. Finally,
the Court did not want to provide a defendant with a way to
avoid double damages by simply tendering the amount of
actual damage before judgment. /d.

Courts have applied Bornstein mechanically, in spite of
the increase in the False Claims multiplier as a result of the
1986 amendment te the Act. See e.g., U.S. v. Cabrera-Diaz,
106 F. Supp. 2d 234, 241 (D.P.R. 2000); BMY-Combat Sys.
Div. of Harsco Corp. v. U.S., 44 Fed. Cl. 141, 150 (1999); U.S.
v. Entin, 750 F. Supp. 512, 519-20 (S.D. Fla. 1990); U.S. v.
Pani, 717 F. Supp. 1013, 1017, 1019 (S.D.N.Y. 1989). This
Court has recognized that the increase from double to treble
damages rendered invalid this Court’s prior suggestion in
Bornstein that the Act was compensatory, and has declared
the treble damage provision of the Act to thus be punitive
rather than compensatory in nature. See Vermont Agency of
Natural Resources v. U.S., 529 U.S. at 785-86. The trebling

2. Prior to the 1986 amendment, the Act provided for double, rather
than treble damages. See 31 U.S.C. § 3729(a).

8

of damages in the original amount in spite of a settlement
between the government and the claimant, provides further
evidence of the Act’s punitive nature.

Moreover, the Court’s concern in Bornstein that a guilty
defendant could avoid liability simply by tendering an
amount prior to trial is not applicable to Dunleavy. In the
case of Delaware County, the United States conducted an
audit and determined the amount it believed was owed by
the County. After further communication, the United States
and the County determined the amount which they
respectively agreed would make the government whole,
and the government accepted that payment in full
satisfaction of its audit findings. The concern raised in
Bornstein ignored the fact that a settlement would not be
effective unless the government exercised its discretion to
accept payment from the defendant in resolution of the
issue. Unlike the defendant in Bornstein, the County was
not receiving the benefit of a payment made by a third party.
Allowing the relator to proceed for treble damages when the
Government already has accepted and received what it
considers itself to be due, only highlights and exacerbates
the punitive nature of the Act.

II. THE FALSE CLAIMS ACT IS PUNITIVE IN
NATURE BECAUSE THE UNITED STATES HAS
ALTERNATIVE MEANS TO DETECT AND
RECOUP LOSSES.

The Act does not provide the exclusive, or even a
necessary, means for the federal government to recoup
losses incurred because of allegedly fraudulent claims by
municipal entities. There has been no showing that fraud by
local governmental entities is rampant or that alternative
means of discovering such alleged fraud are insufficient or
ineffective. Indeed, although tue Act was passed in 1863,
there were no reported decisions attempting to impose
liability on local governmental entities until the decision in
United States ex rel. Graber v. City of New York, 8 F. Supp.

—=> x

9

2d 343 (S.D.N.Y. 1998). Although Dunleavy and other cases
were filed in the mid-1990’s, the County is not aware of any
False Claims Act cases being filed against local govern-
mental agencies substantially before that time. Moreover,
the number of cases alleging local governmental false claims
is miniscule compared with the overall number of False
Claims Act cases filed and in light of the billions of dollars
disbursed by the federal government to thousands of
municipalities and other local governments annually.

As the Court has stated, the Act “was enacted in 1863
with the principal goal of stopping the massive frauds
perpetrated by large [private] contractors during the Civil
War.” Stevens, 529 U.S. at 781, citing, United States v.
Bornstein, 423 U.S. at 309. However, when addressing the
ability of the federal government to detect fraud in grant
programs by local governments, it is important to note that
in addition to the other investigative tools available to the
federal government for all grantees, local governments are
also subject to an additional layer of scrutiny that does not
apply in the governmental contractor context. All state
governments, local governments and non-profit organiza-
tions (“Non-federal Entities”) that receive $300,000 in
awards from the federal government in a fiscal year are
also subject to the Audit Act. See generally 31 U.S.C.
§$§ 7501-7507. Pursuant to the Audit Act, each such entity
must undergo either a single audit, as set forth in the Audit
Act, or a program specific audit, each fiscal year. 31 U.S.C.
§ 7502(a)(1)(A).* Auditors are required to report the results
of audits made pursuant to the Audit Act, and any federal
agency which provides an award to a Non-federal Entity is
required to review that entity’s audit. 31 U.S.C.
§ 7502(f)(1)(B), (g)(1). The reports generated by the auditors
are submitted to a clearinghouse and made available to the

3. Non-federal entities that receive awards under multiple programs
must undergo a single audit. 31 U.S.C. § 7502(a)1)(B). Non-federal
entities that receive awards under a single program may elect either a

program-specific audit or a single audit.

10

public. 31 U.S.C. § 7502(h). The Director of the Office of
Management and Budget and the clearinghouse are also
responsible for reviewing audits submitted by Non-federal
Entities that receive awards from multiple federal agencies.
See 31 U.S.C. § 7504(b).

In those instances where there may be fraudulent or
false claims, common law remedies are available to the
federal government to recover usurped amounts. The most
obvious action would be for breach of contract resulting
from the grantee’s failure to abide by the terms of the grant
agreement. Actions for fraud or unjust enrichment, among
others, also would be available to the federal government,
depending upon the specific facts, or other contract (such as
the Annual Contributions Contract between HUD and each
public housing authority) governing the receipt, use of and
reporting for federal grants.

In addition to the common law remedies, there is an
entire regulatory scheme that has been established to
govern the policing of federal grants to grantees. The
Inspector General Act of 1978, 5 U.S.C. App. 3 §§ 1-12
(2002) (the “IGA”) and the regulations of the various
executive departments and agencies, each provide sufficient
means for the discovery and recovery of funds fraudulently
usurped from the government. The discrepancy between the
amount recoverable via the Act and that recoverable via the
IGA and the various administrative audit provisions further
evidences the punitive intent of the Act.

In enacting the IGA, Congress stated that among the
purposes of the Offices of Inspector General is prevention
and detection of fraud and abuse in the programs and
operations of the various executive agencies. See 5 U.S.C.
App. 3 § 2(2) (2002). The Inspectors General are to conduct
audits and reviews to prevent fraud in federal programs. See
5 U.S.C. App. 3 § 2(1) (2002). To the extent any program
regulations are insufficient for the discovery and prevention
of fraud, the Inspectors General have a duty to inform the
heads of their respective agencies and Congress, and to

11

make recommendations for corrections. See 5 U.S.C. App. 3
$$ 2(3), 4(a)(5) (2002). The legislative history of the IGA
recognizes the effective role Inspectors General and similar
auditors have played in uncovering grantee problems and
makes it clear that Congress desired that the position
created thereunder be charged with discovery and recovery
of grantee fraud:

In testimony supporting H.R. 8588 and an appropriate
balance between audit and investigative responsibil-
ities, the General Accounting Office endorsed each of
the auditing provisions proposed by the committee, and
recommended that the title of Inspector General be
_amplified to reflect the importance of the audit
function. The Comptroller General testified that ‘the
name of the organizations established by the bill will set
the tone for how they operate,’ and suggested a title
such as inspector and auditor general. The GAO also
stated its finding that ‘internal auditors nearly always
pay their own way many times over by performing audit
work that leads to: recovery of overpayments from
grantees and contractors, adoption of more efficient and
economical ways of conducting agency operations, and
tightening of controls over cash and other assets to
make fraud and abuse more difficult.’ The irony of
inadequate attention to proper auditing by many
program officials is underscored by GAO’s estimate
that audit-related savings run into many billions even
though agencies do not always take full advantage of
internal auditors’ work.

Act of October 12, 1978, Pub. L. No. 95-452, 1978
U.S.C.C.A.N. (92 Stat. 1101) 2676, 2685-86.

Agencies that are susceptible to False Claims also have
promulgated audit and reporting regulations that provide
sufficient means to discover and prevent fraud in their
réspective programs. As stated above, in the Dunleavy
matter HUD actually exercised its audit prerogative, and as
a result was able to obtain a $1,921,699 settlement with the

12

County. Among the provisions available to HUD to audit
and recover funds dispersed under the Community Block
Development Grant program are 24 C.F.R. § 85.42
(requiring grant recipients to provide access to records to
the Comptroller General and HUD representatives),
§§ 570.900-.906 (requiring HUD to conduct reviews of
grantee performance on an annual or more frequent basis)
and §§ 570.910-.913 (governing the sanctions available to
HUD to remedy grantee non-compliance).

A survey of some of the cases filed against local
governments under the False Claims Act shows that for
each program under which false claims were allegedly made,
federal regulations similarly provide adequate provisions for
the detection and recovery of fraudulently usurped funds,
which regulatory audits and investigations would have been
available to the government had it chosen to utilize these
methods in those cases.

In the matter sub judice, Relator attempts to state a
cause of action under the Act for fraud in connection with a
grant from the National Institute of Drug Abuse (“NIDA”).
See U.S. ex rel Chandler v. Hektoen Institute for Med. Res.,
35 F. Supp. 2d 1078, 1079-80 (N. D. Ill. 1999) (“Chandler 1”).
Part 92 of Title 45 of the C.F.R. sets forth uniform
administrative requirements for HHS grants to local
governments. See 45 C. F. R. § 92.1.

Cook County and Cook County Memorial Hospital, the
latter of which was the recipient of the NIDA grant, are local
governments as defined under Part 92. See 45 C.F.R. § 92.3.
See also Chandler 1 at 1086 (stating that Cook County
Hospital does not have a separate legal existence from Cook
County). The regulations in Sections 92.40 through 92.44
set forth a series of reporting requirements imposed upon
local government grantees, including but not limited to,
annual (and, in some instances, quarterly) performance
reports and periodic financial statements, whose frequency
is to be determined by HHS depending on the program. See,
e. g., 45 C. F. R. § 92.40, § 92.41. Section 92.42 requires

13

grantees to retain records and provide access to same to
HHS and the Comptroller General. See 45 C.F.R. § 92.42.
Finally, section 92.43 sets forth remedies to the federal
government if a grantee fails to comply with any term of an
award. See 45 C.F.R. § 92.43. Those remedies include
withholding payment to a grantee, disallowing credit for the
cost of a non-complying activity, terminating the grantee’s
award, withholding further awards, suspension and debar-
ment from participation in federal programs, and any other
remedies available at law. Id.

U.S. v. Hickman County arose from the federal
government’s allegation that Hickman County received
disaster funds under the 42 U.S.C. § 5121, et seq. (the
“Stafford Act”), to repair flood damaged bridges from the
Federal Emergency Management Agency, but did not spend
the funds on any of the bridges for which relief was sought.
U.S. v. Hickman County, no. 1:97-0086 at 3 (M.D. Tenn.
March 29, 2001). Hickman County was declared a disaster
area by President Clinton. Id.

Pursuant to 44 C.F.R. § 206.16(a)*, the Associate
Director or Regional Director of FEMA:

shall conduct audits and investigations as necessary to
assure compliance with the Stafford Act, and in
connection therewith may question such persons as
may be necessary to carry out such audits and
investigations.

Under section 206.16(b), auditors may also access books and
records of any person relating to any activity undertaken or
funded pursuant to the Stafford Act. 44 C.F.R. § 206.16(b).
Section 206.14 provides for a fine for misuse of Stafford Act
funds equal to one and one-half times the misapplied
amount, plus a civil penalty of up to $5,000 for each
violation of the Stafford Act. See 44 C. F. R. § 206. 1400 and

4. Title 44, Part 206, subpart A of the Code of Federal Regulations
governs grants made pursuant to a declaration by the President of a
major disaster or emergency. See 44 C.F.R. § 206.1.

14

(d). That section also preserves the federal government’s
right to initiate a civil action for violations of the Stafford
Act. See 44 C.F.R. § 206.14(b).

In U.S. ex rel. Kinney v. Hennepin County Med. Cent.,
2001 WL 930780 (D. Minn. Jan. 22, 2001) the relator alleged
that the medical center submitted false statements seeking
reimbursement related to ambulance transportation from
Medicare and Medicaid. Jd. at *1. Similarly, in U.S. ex rel.
King v. Jackson County Hospital Corporation, 2001 U.S.
Dist. Lexis 21706, the relator alleged that defendants
submitted or conspired to submit false Medicare and
Medicaid claims, submitted duplicate claims and altered
claim documents. Id. at 4.

Title 42 of the C.F.R. sets forth several provisions for
the detection of such alleged violations of the Medicare and
Medicaid programs. See 42 C.F.R. § 1004.30 (requiring that
Peer Review Organizations report violators to the HHS
Office of Inspector General). See also 42 C.F.R. § 447.202
(requiring state Medicaid agencies to assure appropriate
audits of provider records for payments based on costs of
services or fee plus cost of materials bases). Additionally,
Parts 1003 and 402 provide for civil money penalties,
assessments and exclusions from federal programs for
violations of the Medicaid and Medicare provisions of the
Social Security Act. See 42 C.F.R. §§ 402.1, et seq., 1003.100,

et seq.

In U.S. ex rel. Graber v. City of New York, 8 F. Supp. 2d
343 (S.D.N.Y. 1998), relator alleged that the City submitted
false statements to obtain federal incentive funding and
reimbursement for foster care expenditures. Id. at 344. As
set forth above, Part 92 of Title 45 of the C.F.R. sets forth
uniform administrative requirements for HHS grants to
local governments. See 45 C.F.R. § 92.1. Foster care
reimbursement is made through grants, in this case grants
to the City. See 42 U.S.C. § 670, et seq. Therefore, the same
requirements and remedies described in the above discus-

15

sion of the matter sub judice are applicable in the New York
City matter as well.

In U.S. ex rel. Honeywell v. San Francisco Housing
Authority, 2001 WL 793300 (N.D. Cal. July 12, 2001), arose
out of a contract dispute between Honeywell, Inc.
(“Honeywell”) and the San Francisco Housing Authority
(“SFHA”). Id. at *1. SFHA received funds from HUD for
utility consumption. Id. To encourage energy conservation,
SFHA and other public housing authorities (“PHAs”) were
permitted to freeze their consumption funding for a period
of time. Jd. Under HUD regulations, PHAs were permitted
to retain fifty percent (50%) of the savings achieved through
energy saving improvements, and were required to remit
the remainder to the contractor making the improvements.
Id.

PHA grantees are subject to both energy and financial
audits. Energy audits must be completed at least once every
five years, and must list all conservation measures and
indicate the payback period for such measures. 24 C.F.R.
§ 965.302. 24 C.F.R. § 85.26. Grantees are required to retain
records for a period of at least three years for the purpose of
audits and litigation. 24 C. F. R. § 85.42. The regulations set
forth remedies for failure to comply with the terms of an
award, statute or regulation which include: withhold of cash
payments pending remedy of a violation; disallowance of a
non-complying activity; suspension or termination from the
program; withholding of future awards from the program;
debarment or suspension; or any other remedy available at
law. 24 C.F.R. § 85.43.

As each of the above cases illustrates, administrative
regulations provide federal agencies with the ability to audit
grantees and recover any improperly usurped funds.
However, none of the remedies set forth in such regulations
are as drastic as the treble damage provisions of the Act.
Because the administrative agencies have deemed the
regulatory provisions to be sufficient means to recoup losses
of program funds, more drastic False Claim remedies extend

16

beyond mere compensation and are punitive. While punitive
sanctions against private entities may be permissible, the
longstanding precedents of this Court prohibit such
sanctions against local governmental entities absent the
express intent of Congress to the contrary. See City of
Newport v. Fact Concerts, Inc., 453 U.S. 247, 262-263 (1981).

17

CONCLUSION

The treble damage provision of the Act, coupled with
the availability to federal entities of less harsh remedies,
provide clear evidence of the Act’s punitive intent. Relators
are permitted to proceed with qui tam actions in spite of
settlement of the underlying dispute between the federal
government and the defendant. The punitive effect of the
Act is emphasized by the fact that damages under the Act
are trebled before any credit for such a settlement is
calculated.

Moreover, subjecting local government entities to False
Claims Act liability, in addition to contravening the common
law immunity against punitive damages, is not necessary to
enable the United States to discover and rectify false claims
by local governmental agencies. Rather, there are well
developed statutory, regulatory and common law remedies
available to insure that the government has the means to
protect the federal treasury from any alleged false claims by
local governmental entities.

Respectfully submitted,
MICHAEL P. DIGNAZIO FRANCIS X. CROWLEY

Counsel of Record MICHAEL L. MADDREN
Assistant Solicitor Blank Rome Comisky &
County of Delaware McCauley, LLP
Government Center Building 1400 North Providence Road,
Media, PA 19063 Suite 301
(610) 891-4072 Post Office Box 1210

Media, PA 19063
(610) 891-7800

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0564%3A17. Public record. Not legal advice.