Opposition Brief — United States Ex Rel. Dunleavy v. County of Delaware, Pennsylvania

Soca t ourt Dus

FILED

No. 01-1711 JUN 214 2007

IN THE OFFICE OF THE CLERK

Supreme Court of the United States

UNITED STATES OF AMERICA

ex rel. ANTHONY J. DUNLEAVY,

Petitioner.

U.

THE COUNTY OF DELAWARE. MARIANNE GRACE.

EXECUTIVE DIRECTOR: THE COUNCIL OF

THE COUNTY OF DELAWARE, WALLACE H. NUNN. CHAIR:

MATTHEW HayEs. JR.. ADMINISTRATOR FOR THE ESTATE

OF MATTHEW J. HAYES,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF EIN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

FRANCIS X. CROWLEY. ESQUIRE

Counsel of Record

ELISA COHEN LACIANCA, ESQUIRE

BLANK ROME CoMISKy & MecCauLry LLP

Rose Tree Corporate Center

1400 N. Providence Road, Suite 301

P.O. Box 1210

Media, PA 19063

610-891-7800

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

]

QUESTIONS PRESENTED

I. Did the Third Circuit correctly apply well-estab-

lished principles set forth by this Court in holding that

counties and other local governmental entities are not liable

in suits brought by relators under the False Claims Act

because of the longstanding presumption that local

governmental entities are immune from punitive damages

except where Congress has clearly expressed its intention to

abrogate that immunity?

II. Did the Third Circuit correctly affirm the District

Court’s dismissal of Matthew J. Hayes as an individual

defendant where the District Court found that there was

nothing in Plaintiff's Second Amended Complaint to suggest

that Hayes was sued in anything other than his official

capacity?

TABLE OF CONTENTS

QUESTIONS PRESEN GEES conc cc vec wees eennas

TABLE OF AU'THIOIRES EEO «6.5 cu ces eanwnceeses

COUNTERSTATEMENT OF THE CASE..........

A. Proceedings Below................2..

ARGUMENT — REASONS FOR DENYING THE

WHEE... . sss kn 65 5 oe ee ee

J. Although There Is A “Split” In The Circuits,

The Decision Below Is In Accordance With The

Trend Of Decisions, And The Lone Contrary

Circuit Decision Is An Aberration .........

II. The Decision Below Does Not Threaten The

Government’s Ability To Protect The

fe. | OA ee

III. Review Would Be Premature Here Since Cases

Are Pending Before Two Circuits Which Will

Allow The Court Of Appeals To Further Define

The lag® ...443.6505 080

IV. The Third Circuit’s Decision Was Correct ...

A. This Court has held that the mandatory

treble damages imposed by the False Claims

Act are punitive and that there is a

longstanding presumption against holding

municipalities liable for such damages... .

B. The Third Circuit correctly applied the

holdings of Stevens and City of Newport

in resolving the issues presented in

this CORE... . . 6.4 Jandeaa eee eee

i

TABLE OF CONTENTS

Page

V. The Third Circuit’s Affirmance Of The District

Court’s Decision That Hayes Was Not Individu-

ally Liable Under The False Claims Act Was

Proper And Is In Accordance With Other

RIES it any eye 2 Pe 14

CONCLUSION

ill

TABLE OF AUTHORITIES

Cases: Page

Alexander v. Gilmore, 2002 WL 970650 (E.D. Va. Apr.

ET ee ey oe re ee er 16

Bender v. Williamsport Area School District, 475 U.S.

oe. Peer re re re re rr ery ee 15

Bly Magee v. State of California, 236 F.3d 1014 (9th Cir.

| Serre err re are wey are 9 16

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

| re ere re tere ery ee ee aoe ee passim

Cowles v. Mercer County, 7 Wall 118, 121, 19

eS ff Poe Se or Tee ee rer ee eT 14

Hafer v. Melo, 502 U.S. 21 (1991) ............... 16

Louisville Railway Co. v. Letson, 2 How. 498, 558, 11

ree ne ear eee 14

Monell v. Dept. of Social Services, 436 U.S. 658 (1978) 14

Rowland v. California Men’s Colony Unit II Men’s

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

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

ED oe i ae ee eee ae arate fe)

Tull v. United States, 481 U.S. 412 (1987). ........ 12

United States ex rel. Chandler v. Cook County, 28 F.3d

fy Ee ee re re area 3, 4

United States ex rel. Chandler v. Cook County, 118

F.Supp. 2d 902 (N.D. Ill. 2000), reversed, 28 F.3d

ee Oe Es eae a ee a eee es 5, 8

United States ex rel. Dunleavy v. The County of

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

rehearing denied, (Feb. 22, 2002).......... passim

iv .

TABLE OF AUTHORITIES

Cases: Page

United States ex rel. Garibaldi v. Orleans Parish School

Board, 244 F.3d 486 (5th Cir. 2001), cert. denied,

122 S. Ct. 808, rehearing denied, 122 S. Ct. 1198

SRE ck Wak ag eee a ek ee ee 4,8

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

LEXIS 2021068 (C.D.Cal July 27, 2000)....... 5-

United. States ex rel. Gaudineer & Comito, L.L.P. v.

State of Iowa, 269 F.3d 932 (8th Cir. 2001)..... 16

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

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

United States ex rel. Honeywell v. San Francisco

Housing Authority, 2001 WL 793300 (N.D. Cal.

oe | re re re ee 5, 16

United States ex rel. K & R Ltd. Partnership v.

Massachusetts Housing Finance Agency, 154

F.Supp.2d 19 (D.D.C. 2001), appeal pending, No.

Caen (004). C8). ccc xd eee ee 5, 7

United States ex rel. King v. Jackson County Hospital

Corp., 2001 U.S.Dist. LEXIS 21706 (N.D.Fla.

Aug.17, 2001), appeal pending, No. 02-11471-A

(LER SARS: ss cs aun heer eee 5, 7

United States ex rel. Kinney v. Hennepin County

Medical Center, 2001 WL 930780 (D.MN Jan. 22,

i | PERE Se eee re re re Fe eS 5

United States ex rel. Kinny v. Stoltz, 2002 WL 523869,

No. Civ. 01-1287 (D. Minn. Apr. 5, 2002) ...... 16

United States ex rel. Rosales v. San Francisco Housing

Auth., 173 F.Supp.2d 987 (N.D.Cal.2001) ...... 5

United States ex rel. Satalich v. City of Los Angeles, 160

F.Supp 2d 1092 (C.D.Cal. August 31, 2001) .... 5

Vv

TABLE OF AUTHORITIES

Cases: Page

United States ex rel. Wilson v. Graham County Soil and

Water Conservation District, 2002, WL 487162

(W.D. N.C. Mareh 26, 2002). ......ccccccees 5, 16

United States v. Bornstein, 423 U.S. 303 (1976)... .. 8, 10

United States v. Hickman County, No. 1:97-0086 (M.D.

SOQ, BEOTER BE, BOON vccccsasecesavenves 5

United States v. Mackby, 21 F.3d 821, 830-31 (9th Cir.

Pr rrr er rrr re mM Ay 5

United States v. McNinch, 356 U.S. 595 (958)... ... 10

United States Department of Energy v. Ohio, 503 U.S.

GOT (IGE 6.666000 dss 12

Vermont Agency of Natural Resources v. United States

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

Statutes and Other Authorities:

were emees ~4 me -

16 USC. SD... 3 See 13

15 U.S.C. §3301(26) .. 0... ee eee eee 13

15 USC. CUED... tee 13 |

16 U.S.C. $4903(4) oo... 0. ccc eee eee cecececes 13 |

$1 USC. BIN... eee 1

31 U.S.C. $8790(d(2) .. 0... cece cece nec ceeee 10

$1 USC. 00 9,13

31.USC. 001 .555.6.eeee 9

$3 USC. S190)... ..<i55 eee 13

$3 USC. 1001la) ... 6545554s see 13

USC. WUE... ae 13 - |

$38 USC. MMI 3. ...555. eee 13

vl

ee

TABLE OF AUTHORITIES

Statutes and Other Authorities: Page

42 U.S.C. §300f (12) ..........0.. cece eee eeee 13

Ge Se ED os ch ako een eee den aces ws 13

ea EE oo bac ca Ge eka ee aw kes 13

Oe ee UE 6 ca ssa kavewsupscneedsuwus 13

ae OD 5 kn 645 4 We oe eed Cee eee 13

Ss NE 8 6.008 88 eed eS tata eee 13

PE aaah ee asa ewe es tae 6

AM Oc shyness sv cheers iad neces 6

See GAM ls Is 6 bob cass cdannsbooneceds 6

Re! 6

Legislative History:

Cong. Globe, 37th Cong., 3d Sess. 952 (1863) ..... 10, 11

132 Cong. Rec. 22335, 22336, 22337 (1986)....... 11, 12

False Claims Reform Act: Hearings on S. 1562... .. 11

Treatises and Articles:

Michael L. Colis, Settling for Less: The Department of

Justice’s Command Performance under the 1986

False Claims Amendments Act, 7 Admin Lw.

Am.U. 409 (Summer 1993)................. 11

Kenneth Mann, Punitive Civil Sanctions: The Middle-

ground Between Criminal and Civil Law, 101 Yale

L. J. 1795, 1955, 1861 (June 1992).......... 10, 11

Stern, Gressman, Shapiro & Geller, Supreme Court

Practice (7th ed. 1993) ...........ccccceeee 7,8

Justice Stevens, Some Thoughts on Judicial Restraint,

66 Judicature 177, 183 (1982) .............. 8

vil

COUNTERSTATEMENT OF THE CASE

Despite Petitioner’s attempts to exaggerate the im-

portance of this case, the proceedings below merely

represent the well-reasoned application by the Court of

Appeals for the Third Circuit of long-established precedent

of this Court to a rather unique set of facts. Following the

holdings of this Court in City of Newport v. Fact Concerts,

Inc., 453 U.S. 247 (1981) and Vermont Agency of Natural

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

(2000), the Court of Appeals concluded that Delaware

County, Pennsylvania (“the County”) could not be liable in

a suit brought by a relator under the False Claims Act

because Congress did not manifest an intent to overcome

the common law immunity of municipalities from punitive

damages. Additionally, the Third Circuit affirmed the

District Court’s decision that Matthew J. Hayes, deceased

former Executive Director of the County, could not be liable

because the Plaintiff's Complaint failed to set forth any

claim against him in his individual capacity.

Petitioner seriously misstates the rationale of the Third

Circuit’s decision in framing the Question Presented as

whether a municipal corporation is included within the

definition of the term “person” under the False Claims Act,

31 U.S.C. $3729 (a). In concluding that the False Claims Act

is not applicable to the County, the Third Circuit did not

base its holding on the definition (or the absence of a

definition) of “person”; rather it concluded that the punitive

nature of the False Claims Act could not be squared with the

common law immunity that protects local governments

from punitive damages:

2

[T]he mandatory treble damages scheme imposed by

the FCA is punitive and that local governments are

exempt from FCA damages because congress did not

clearly express its intention under the Act to abrogate

local governmental common law immunity against

punitive damages. (A-16)'

Petitioner correctly notes that the facts generally were

not determinative of the Third Circuit’s holding and are not

germane to this Petition. However, Petitioner’s statement of

facts, in many instances, does not accurately reflect the

record below. Given the marginal relevance of these errors,

Respondent will dispense with exhaustively cataloging the

errors of fact in the Petition’s Statement of the Case.”

A. Proceedings Below.

Petitioner ignores one crucial aspect of the proceedings

below. With regard to the claims against Mr. Hayes, the

District Court found that the Complaint failed to state a

claim against Mr. Hayes in his individual capacity because

there was no substantive allegation that he acted outside his

official capacity.

1. Citations to the Petition for Certiorari are designated as

“(Pet. -__)”; citations to the Appendix attached to the Petition for

Certiorari are designated as “(A-__)”.

2. By way of example only, at Pet.-3, n.2, Petitioner refers to an

“uncontroverted expert report” stating that the County should have

retained (for subsequent repayment to the Government) over $5,000,000

but only retained approximately $2,000,000. This statement inexplicably

ignores the fact that Delaware County submitted an expert report

demonstrating that the County repaid the Government within $315.00 of

the appropriate amount. Additionally, Petitioner ignores the voluminous

evidence of record that the County, in its actions concerning the Penza

Tract fund, acted in accordance with and under the guidance of his

professional advice. Furthermore, Petitioner takes serious liberty with

his descriptions and characterizations of the actions of Mr. Hayes, which

are not supported by evidence in the record.

3

ARGUMENT

REASONS FOR DENYING THE WRIT

I. Although There Is A “Split” In The Circuits, The

Decision Below Is In Accordance With The Trend

of Decisions, And The Lone Contrary Circuit

Decision Is An Aberration.

In an attempt to induce review, Petitioner exaggerates

the significance of the “split of authority.” Although the Act

was passed 139 years ago, only three of the twelve circuits

squarely have addressed the Act’s application to local

governmental entities, all within the last fifteen months.

To the extent a “split” exists, it is less than six months old.

Two circuits (the Third and the Fifth) have held that

because the False Claims Act is punitive in nature and

because Congress did not manifest an intent to abrogate

municipalities’ common law immunity to punitive damages,

municipalities are immune from liability in suits brought by

relators under the False Claims Act.

Petitioner asserts that the Third Circuit ruling in this

case perpetuates a sharp conflict with the Seventh Circuit’s

ruling in United States ex rel. Chandler v. Cook County, 28

F. 3d 969 (7th Cir. 2002). Below the level of the result, that

is not the case. Chandler held that municipalities were

“persons” under the False Claims Act. The Third Circuit’s

rationale did not turn on the issue of whether the term

“person” includes municipalities. Rather, the Third Circuit

based its decision in this case on this Court’s holding in

Stevens that the damages imposed under the Act are

punitive in nature, coupled with the holding of Newport

that a municipality’s common law presumption of immunity

shielded a municipality from the imposition of punitive

damages unless Congress clearly manifested its intent to

abrogate that immunity. While Chandler focused on the

definition of “person”, the Third Circuit based its rationale

on the inconsistency of a punitive statute that would impose

treble damages on a municipal entity without a clear

indication from Congress that that is what it intended.

4

The Seventh Circuit is the only Court of Appeals

addressing this issue to have overlooked the importance of

the punitive nature of the False Claims Act and to conclude

that local governmental entities are “persons” under the

False Claims Act. The first circuit court decision to address

this issue was United States ex rel. Garibaldi v. Orleans

Parish School Board, 244 F. 3d 486 (5th Cir. 2001), cert.

denied, 122 S. Ct. 808, rehearing denied, 122 S. Ct. 1198

(2002)? in which the Fifth Circuit held that a school board,

as a local government unit, is not subject to False Claims Act

liability in suits by relators. The Fifth Circuit held that

municipalities are not “persons” under the False Claims Act

because there was no clear indication that Congress

intended to impose the False Claim Act’s punitive sanctions

upon local governmental entities. The Fifth Circuit rejected

Relator’s argument that the Dictionary Act requires the

definition of “person” to include local governments and held

that, by its own terms, the Dictionary Act’s definitions do

not apply when the context of a statute indicates that

Congress “intends” another meaning. Id. at 492, citing,

Rowland v. California Men’s Colony Unit II Men’s Advisory

Council, 506 U.S. 194 (1993). The Fifth Circuit determined

that, even if it were clear that “the definition of ‘person’ in

the Dictionary Act included local governments, the punitive

damages regime of the False Claims Act ‘indicates’ a

congressional intent that local governments not be subject

to liability under the False Claims Act.” Id at. 492.

(Emphasis added).

Similarly, although it did not directly address the

question of municipal liability under the False Claims Act,

the Ninth Circuit held that the Act’s civil fines provision

3. Certiorari originally was denied on January 7, 2002, before the

decisions by the Third and Seventh Circuits in Dunleavy and Chandler.

However, after Chandler was issued, the Relators in Garibaldi filed a

petition requesting rehearing on the basis that Chandler created a split in

the Circuits. This Court denied the Relator’s Petition for rehearing on

February 25, 2002, several weeks after the issuance of the decisions in

Dunleavy and Chandler.

|

5

“clearly has a punitive purpose” and that the treble damage

scheme likewise is at least partially punitive. United States

v. Mackby, 261 F.3d 821, 830-31 (9th Cir. 2001) (remanding

case for an excessive fines clause analysis of both the civil

fines and treble damages, under the Eighth Amendment).*

Id.

The small number of circuits that have addressed the

applicability of the False Claims Act generally have reached

the same result for the same reason — immunity — except

for the one circuit, the Seventh, which recently reached a

different result on a distinct rationale — the statutory

interpretation of the term “person”. The possibility or

4. The majority of District Courts addressing this issue likewise have

concluded that, because of the punitive nature of the False Claims Act,

municipalities are not subject to suits under that statute. See United

States ex rel. Wilson v. Graham County Soil and Water Conservation

District, 2002 WL 487162 (W.D. N.C. March 25, 2002); United States ex

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

31, 2001); United States ex rel. Honeywell v. San Francisco Housing

Authority 2001 WL 793300 (N.D.Cal. July 12, 2001); United States ex. rel.

Kinney v. Hennepin County Medical Center, 2001 WL 930780 (D. MN.

Jan. 22, 2001); United States v. Hickman County, no. 1:97-0086 (M.D.

Tenn. March 29, 2001); United States ex. rel. King v. Jackson County

Hospital Corp., 2001 U.S. Dist. Lexis 21706 (N.D.Fla. Aug. 17, 2001);

United States ex. rel. Graber v City of New York, 8 F. Supp. 2d 343

(S.D.N.Y. 1998); United States ex rel. Chandler v. Cook County, 118 F.

Supp.2d 902 (N.D. Ill. 2000), reversed, 28 F. 3d 969 (7th Cir. 2001).

Only a few of District Courts have disregarded the punitive nature of

the Act and held municipalities liable. See United States ex rel. Giles v.

Sardie, 2000 U.S. Dist. Lexis 2021068 (C.D.Cal. July 27, 2000); United

States ex. rel. Rosales v. San Francisco Housing Authority, 173 F. Supp.2d

987 (N.D. Cal. 2001); United States ex rel. K & R Ltd. Partnership v.

Massachusetts Housing Finance Co., 154 F.Supp. 2d 19 (D.D.C. 2001).

The determination by the Ninth Circuit Court of Appeals in Mackby,

that the False Claims Act has a punitive purpose, should resolve the

dichotomy in the District Courts of the Ninth Circuit, as the Ninth Circuit

will necessarily begin from the proposition that the False Claims Act is at

least partially punitive. Of the four cases in the Northern and Central

Districts of California, both cases holding that municipalities could be

liable under the False Claims Act (the Rosales and Giles cases) were

decided before Mackby.

6

likelihood remains that, in light of the unanimity of the

other circuits, the Seventh Circuit in future cases would

reconsider the immunity aspect and reevaluate its contrary

result.

II. The Decision Below Does Not Threaten the

Government’s Ability to Protect the Treasury.

The alleged “conflict” in the lower courts does not

threaten the Government’s ability to protect the United

States Treasury from frauds wrought by local governmental

entities. First, it is significant that, as Petitioner acknowl-

edges, the United States, having been provided the

opportunity, declined to intervene concluding that no fraud

had been committed. (Pet. - 4). Second, the Government has

many other means to protect the public treasury from fraud

by local governments that do not include the in terrorem

threat of punitive damages. The most obvious of these are

the audit commonly performed by the Government and

include a wide array of remedies and sanctions. See, e.g., 24

C.F.R. §85.42 (requiring grant recipients to provide access to

the Comptroller General and HUD representatives, such as

the Inspector General, to conduct audits and examinations);

§§570.900-906 (requiring HUD to conduct reviews of

grantee performance on an annual or more frequent basis);

§§570.910-913 (governing the sanctions available to HUD to

remedy grantee non-compliance).” Indeed, in this case, the

Government performed an audit and, in response, the

County did repay $1,921,699 to the Government, which

payment the federal government then returned to the

County for use in its Community Development Block Grant

Program.

5. Section 85.42 relates generally to “Federal grants and cooperative

agreements and subawards to state, local and Indian tribal governments.”

24 C.F.R. $85.1. Sections 570.900-913 relate specifically to the grantee

under the Community Development Block Grant program. However,

similar provisions can be found in the regulations governing many other

grant programs.

7

In addition to audits accompanied by statutory or

regulatory remedies, the Government may employ the full

panoply of common law remedies, such as actions for breach

of contract, and fraud, to obtain compensation for improper

acts by municipalities or their officials. The False Claims Act

clearly is not the only, or even the most effective, weapon in

the Government’s arsenal to combat potential fraud by local

governments.

III. Review Would Be Premature Here Since Cases

Are Pending Before Two Circuits Which Will

Allow the Court of Appeals to Further Define

the Issue.

Review at this time would be premature not only

because the circuits have not yet arrived at a single

analytical approach to the Act’s applicability to local

governmental entities but also because not all of the circuits

have yet had the opportunity to address this issue and

several cases raising this issue are pending. At least two

other Courts of Appeals, the Eleventh and the District of

Columbia Circuits, will soon have the opportunity to address

the issue of municipal immunity from liability under the

False Claims Act. See United States ex rel. King v. Jackson

County Hospital Corp., 2001 U.S. Dist. LEXIS 21706 (N.D.

Fla. Aug. 17, 2001), appeal pending, No. 02-11471-A (11th

Cir.); United States ex rel. K&R Limited Partnership v.

Massachusetts Housing Finance Agency, 154 F.Supp. 2d 19

(D.D.C. 2001), appeal pending, No. 02-5043 (D.C. Cir). Thus,

in the near future, at least two more Courts of Appeal will

have the opportunity to consider the decisions of the Third,

Fifth and Seventh Circuits and confirm that, since this

Supreme Court already has found the False Claims Act to be

punitive in nature, and because Congress failed to manifest

a clear intent to pierce municipal common law immunity

from punitive damages, the Third and Fifth Circuits are

correct on the ground of immunity. This, therefore, is a

classic case in which premature review is to be avoided. See

Stern, Gressman, Shapiro & Geller, Supreme Court Practice

8

(7th ed. 1993) at 171, quoting Justice Stevens, Some

Thoughts on Judicial Restraint, 66 Judicature 177, 183

(1982) (“The doctrine of judicial restraint teaches us that

patience in the judicial resolution of conflicts may some-

times produce the most desirable result.”)

Additionally, the novelty and recent emergence of this

issue in the False Claims Act context weighs in favor of

judicial restraint at this time. The False Claims Act initially

was enacted in 1863. It was not until four years ago, in 1998,

that the issue of whether a municipality was liable under the

Act first was addressed by any court. See United States ex

rel. Graber, supra. It was not until March, 2001 that any

Circuit Court issued an opinion on the issue. See United

States ex rel. Garibaldi, supra. Chandler was issued in

January, 2002. The “split” — if there is one — is less than

six months old.

IV. The Third Circuit’s Decision Was Correct.

The Third Circuit’s decision below represents the

correct and well-reasoned application of this Court’s prior

decisions in Stevens and Newport. Thus, there is no need to

grant review here.

A. This Court has held that the mandatory treble

damages imposed by the False Claims Act are

punitive and that there is a longstanding pre-

sumption against holding municipalities liable

for such damages.

This Court in Stevens decided that a relator cannot

bring suit against a state or state agency under the False

Claims Act. Beginning with a review of the historical context

of the Act, the Court acknowledged that the Act “. . . was

enacted in 1863 with the principal goal of ‘stopping the

massive frauds perpetrated by large [private] contractors

during the civil war” and noted that the statute’s original

did not even make clear that private corporations were

covered, let alone States. Stevens, 529 U.S. at 781, citing,

United States v. Bornstein, 423 U.S. 303, 309 (1976)

9

(bracketed materials in Stevens). This Court stated that the

term “person” in the statute has remained materially

unchanged since 1863; thus any analysis as to Congress’

intent necessarily leads back to the 1863 Congress. Id., 529

U.S. at 782 n.12.

In Stevens, the Court reiterated the presumption that

the term “person” does not include states, which can be

rebutted only by clear evidence of Congress’ intent to do so.

Although the same presumption does not apply to

municipalities, the Court identified several other important

factors supporting its conclusion that states are not subject

to qui tam liability, which factors do apply to local

governmental agencies. Most relevant to this Petition, the

Court recognized the punitive nature of the Act’s damages:

[T]he current version of the FCA imposes damages that

are essentially punitive in nature, which would be

inconsistent with state qui tam liability in light of the

presumption against imposition of punitive damages on

governmental entities. See e.g., Newport v. Fact

Concerts, Inc., 453 U.S. 247, 262-263 (1981).

Stevens, 529 U.S. at 784-785. In support of its decision, this

Court specifically relied upon the seminal case establishing

that political subdivisions are immune from _ punitive

damages. This Court went on to state that: “[t]he very idea

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

future, unlawful conduct, not to ameliorate the liability of

wrongdoers.” Stevens, 529 U.S. at 786, quoting, Texas

Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630,

639 (1981).°

6. The Court held that its conclusion that states are not “persons” also

was buttressed by the facts that: (a) the civil investigative demand

provisions of the Act, 31 U.S.C. §3733(a)(1), specifically defines “person”

to include states and political subdivisions for that limited purpose; and

(b) the Program Fraud Civil Remedies Act, 31 U.S.C. $3801 eft seq.

explicitly excluded states and political subdivisions from its liability

provisions. Stevens, generally. These same factors establish that Congress

likewise did not intend to vitiate the common law immunity from punitive

liability that protects municipalities.

10

) Petitioner attempts to distinguish the False Claims Act

punitive damages from those at issue in Newport by arguing

that “under the FCA there is no diversion of public money to

an individual private plaintiff in the form of damages. . .”

(Pet.-17). Petitioner blatantly ignores the fact that a relator,

in cases in which the Government does not intervene (such

as this case), receives 25% to 30% of the total proceeds,

which “shall be paid out of such proceeds.” 31 U.S.C.

§3730(d)(2). Thus, an amount almost equal to the Govern-

ment’s actual damages (before trebling) would be paid from

local governments tax revenues to private persons —

relators; this does not include the relator’s attorneys’ fees

which must be paid, again, from local governmert funds. Id.

This Court’s decision in Stevens leaves no doubt that

the Act is punitive, despite Petitioner’s contrived argu-

ments. Stevens accurately reflects the legislative intent

behind the original False Claims Act and the i986

Amendments, as well as well-established judicial precedent.

The False Claims Act was enacted in 1863 during the Civil

War, to address widespread and blatant fraud by private

military contractors, who had been billing the United States

for nonexistent or worthless goods, charging exorbitant

prices for goods, and generally plundering the public

treasury. See United States v. McNinch, 356 U.S. 595, 599

(1958). Its purpose was not merely to compensate the

federal government; rather its “stringent provisions are

required for the purpose of punishing and preventing these

frauds.” McNinch, 356 U.S. at 600, quoting Cong. Globe,

37th Cong., 3d Sess. 952 (1863).’ See also Kenneth Mann,

7. Petitioner cites U.S. v. Bornstein, 423 U.S. 303 (1976), at footnote

16 of its Petition for the proposition that the FCA was remedial rather

than punitive; however, that case was decided before the Act was

amended to provide for treble damages and a civil penalty of up to $10,000

per claim. Indeed, given this Legislative history and Congressional intent

to punish wrongdoers, the False Claims Act, with double damages and

civil penalties of $2,000.00 per violation, arguably was punitive in nature

even before the 1986 Amendments, which have clearly been found by

Stevens to be punitive. Moreover, this Court in Bornstein specifically

11

Punitive Civil Sanctions: The Middleground Between

Criminal and Civil Law, 101 YALE L. J. 1795, 1855, 1861

(June 1992)(intent of False Claims Act to punish wrong-

doers). Congressman Fish, a sponsor of the 1986 amend-

ments, acknowledged that the purpose of the unamended

Act’s double damages recovery, and civil fines, were

intended to be a “substantial penalty” to “forcefully

discourage individuals and companies . . . from engaging

in fraudulent practices” and that the “dual purpose of any

such law should always be to deter as well as punish

fraudulent conduct.” 132 Cong. Rec. 22336, 22337 (1986).

The 1986 amendments to the Act enhanced the punitive

nature of the statute’s remedies by establishing the current

treble damages, increasing fines from $2,000 to $5,000-

$10,000 per false claim and requiring defendants to pay

relators’ attorneys’ fees. Making this change, “Congress

understood very well that it was instituting new ‘punitive

sanctions.” Mann, 101 YALE L.J. at 1860.

Prior to the passage of the 1986 Amendments, the

Department of Justice warned Congress that treble damages

and increased penaities would render the False Claims Act

more likely to be considered punitive. See Michael L. Collis,

Settling For Less: The Department of Justice’s Command

Performance under the 1986 False Claims Amendments Act,

7 Admin. L. J. Am. U. 409 (Summer 1993), citing, False

Claims Reform Act: Hearings on S. 1562 Before the

Subcommittee in Administrative Practice and Procedure of

the Senate Committee on the Judiciary, 99th Cong., Ist

Sess. 2 (1985) (statement of Jay B. Stephens, Deputy

Associate Attorney General, U.S. Department of Justice)

132 Cong. Rec. 22336, 22337 (1986). Cognizant of this

warning, Congress increased penalties precisely to accom-

modate the perceived need to increase the Act’s deterrent

acknowledged that “lalecording to its sponsor, the False Claims Act was

adopted “for the purpose of punishing and preventing . . . frauds.” /d., 423

USS. at 309 n.5, citing, Cong. Globe, 37th Cong. 3d Sess., 952 (remarks of

Sen. Howard), 955 (remarks of Sen. Wilson).

12

effect. See statements of Rep. Glickman and Rep. Brooks,

132 Cong. Rec. 22335, 22336 (1986).

The civil penalties imposed by the Act likewise are

punitive. See e.g. United States Department of Energy v.

Ohio, 503 U.S. 607 (1992) (civil penalties under the Clean

Water Act and the Resource Conversation and Recovery Act

of 1976 were intended to be punitive); Tull v. United States,

481 U.S. 412, 422 n. 7 (1987) (“the remedy of civil penalties

is similar to remedy of punitive damages”).

B. The Third Circuit correctly applied the holdings

of Stevens and City of Newport in resolving the

issues presented in this case.

The Third Circuit began its own analysis in this case by

citing City of Newport for the well-settled presumption that

“lulnless Congress clearly provides otherwise, a_ local

governmental entity is immune from punitive damages

awards”. (A-7). Because Stevens definitively and affirma-

tively answered the “threshold question” of “whether the

damages imposed by the Act are punitive,” the Third Circuit

next focused on whether Congress expressed a clear

indication that it intended to abrogate local governmental

immunity under the False Claims Act. (A 9-10). After

careful consideration, the Third Circuit found no evidence of

any congressional intent to abrogate that well settled

common law immunity either in the statute itself or in the

legislative history; thus, holding that Congress did not

intend to disturb local governmental immunity from

punitive damages by clearly including local governments

within the meaning of the term “person”, and that the

County is immune from claims under the False Claims Act

due to the mandatory nature of the treble damages

provision. (A-15).

Congress is aware of this immunity and can take action,

if it so chooses, to abrogate this presumption. The Third

Circuit found no evidence that Congress had taken any

action to authorize the imposition of these punitive damages

13

against municipalities under the Act. There is nothing in the

statute itself that indicates that Congress intended abrogate

it. Unlike numerous other statutes,” the liability provisions

of the False Claims Act do not define the term “persons” to

include counties, municipalities or other political subdivi-

sions; indeed, it does not define the term “person” in any

way. Newport teaches that general language within a statute

does not overcome the longstanding and well-established

presumption against imposing punitive sanctions upon

counties and other municipal entities.

Petitioner attempts to obscure this issue by arguing

that the common law immunity from punitive damages does

not shield the County or other municipalities because

Congress used the term “person” without definition in the

statute and because, Petitioner argues, it was “thoroughly

established” that Congress intended the term “person” to

include municipal corporations at the time when the FCA

was adopted.” (Pet. - 11.) This argument fails for two

reasons. First, the Civil Rights Act, like the False Claims

Act, uses the term “person” without definition. Yet, this

Court in City of Newport explicitly held that Congress did

not intend to impose punitive damages upon municipalities

under the Civil Rights Act. Therefore, the mere use of the

8. See, e.g., the Clean Water Act, 33 U.S.C. $1362(5)(“person” defined

to include “. . . State, municipality, commission or political subdivision of

a State . . .”); Resource Conservation and Recovery Act, 42 U.S.C.

$6903(15) (defining “person” to include “. . . corporation (including a

government corporation), partnership, association, State, municipality,

commission, political subdivision of a State, or any interstate body”). See

also the following statutes which incorporate the terms “municipality”,

“government” or “political subdivision” in specific definitions of “person”:

15 U.S.C. §1691(f); 15 U.S.C. §3002(i); 15 U.S.C. $3301(26); 33 U.S.C.

§$2001(i); 16 U.S.C. $4903(4); 42 U.S.C. §2000e(a); 42 U.S.C. §2014(5); 42

U.S.C. §7602(e); 42 U.S.C. §300f(12); 33 U.S.C. §1901(a); 33 USC.

§2701(27); 50 U.S.C. §167(2). The Civil Investigative Demand section of

the False Claims Act itself demonstrates that, when Congress intends to

include political subdivisions, it knows how to do so since, for purposes of

that section of the Act only, Congress explicitly defined “person” to

include political subdivisions. See 31 U.S.C. $3733.

14

term “person” in the False Claims Act likewise does not

pierce municipal immunity.

Second, the scope of the term “person” was not well

established at the time the False Claims Act was passed. In

Monell v. Department of Social Services, 436 U.S. 658 (1978),

this Court considered whether the members of Congress in

1871 understood the term “person” to include municipal

-corporations. It observed that by 1844, the Supreme Court

had abandoned the principle that corporations were not

persons. Id. at 688, citing Louisville Railway Co. v. Letson, 2

How. 498, 558, 11 L.Ed 353 (1844). However, it was not until

1869 when the Supreme Court extended its holding in

Letson to municipal corporations. Id., citing Cowles uv.

Mercer County, 7 Wall 118, 121, 19 L.Ed.86 (1869). Thus,

the clarification regarding municipal corporations came six

years after the False Claims Act was enacted. This analysis,

coupled with the fact that the Dictionary Act was not

enacted until 1871, shows that the term “person” was not

well settled so as to include municipalities in its definition

when the False Claims Act was passed in 1863.

Thus, the Third Circuit correctly concluded that

Congress did not manifest a clear intent to pierce local

governmental immunity through the False Claims Act.

V. The Third Circuit’s Affirmance Of The District

Court’s Decision That Hayes Was Not Liable

Individually Under The False Claims Act Was

Proper And Is In Accordance With Other Deci-

sions.

Petitioner also challenges the Third Circuit’s decision

to affirm the District Court’s holding that former County

Executive Director Matthew J. Hayes was not liable under

the False Claims Act as an individual because he did not

personally benefit from the transactions constituting

violations of the Act. The Third Circuit’s ruling on this

issue is merely a routine application to the facts and

Le Pence nn HALO BR AIBA EY AO Si <

15

pleadings of this case of well-established principles of

pleading personal capacity.

The Third Circuit properly resolved the issue of Mr.

Hayes’ individual liability, and there is no need for this

Court to review that issue. In the matter sub judice, the

Third Circuit agreed with the District Court that Hayes was

not liable because there was no allegation that Hayes

personally benefited from any of the transactions constitut-

ing alleged violations of the Act. However, the sum and

substance of the District Court’s opinion was that there

“was nothing in Plaintiff's Second Amended Complaint to

suggest that Hayes is sued in anything other than his official

capacity.” (A-41) . The District Court specifically stated that

“while Plaintiff avers that Hayes had detailed knowledge of

many of the transactions at issue, Plaintiff does not allege

that Hayes acted for his own benefit, profited at the public’s

expense, spent the money at issue for any non-public

purpose, or acted in any capacity other than his official

one.” (A-41). Thus, the District Court held, Dunleavy failed

to state a claim upon which relief could be granted against

Hayes by failing to even allege facts that could possibly

constitute an individual capacity suit against the former

Executive Director. In reviewing the District Court’s

decision on this issue, the Third Circuit agreed and

determined that no additional analysis has been necessary

to support its determination to affirm the decision.

This Court has ruled that the mere incantation of the

term “individual capacity” is insufficient to transform an

official capacity action into an individual capacity action. See

e.g., Bender v. Williamsport Area School District, 475 U.S.

534, 543 (1986). Courts around the country have had no

16

difficulty in applying this principle of pleading to suits under

the Faise Claims Act and uniformly have adopted the same

approach as the Third Circuit.”

Petitioner cites only Hafer v. Melo, 502 U.S. 21 (1991), a

Civil Rights Act case, to support its argument that

municipal officers in their individual capacities can be held

as proper defendants. However, Petitioner has identified no

valid reason why this Court should review the Third

Circuit’s application of well-established pleading rules to

the pleadings in this case. Petitioner can point to no alleged

conflict among the Circuits regarding the issue of individual

capacity suits under the False Claims Act, and the Third

Circuit’s decision clearly was correct.

9. See United States ex. rel. Gaudineer & Comito, L.L.P. v. State of

Iowa, 269 F. 3d 932 1936 (8th Cir. 2001) (court “should look at whether

the alleged conduct of the defendant was outside his official duties” and

“not rely wholly on the elementary mechanics of captions and pleadings”);

Bly Magee v. State of California, 236 F. 3d 1014 (9th Cir. 2001) (former

attorney general and other attorneys who worked for the attorney general

would be immune under False Claims Act for conduct during the

performance of their official duties); Alexander v. Gilmore, 2002 WL

970650 (E.D.Va. Apr. 30, 2002), (dismissed because complaint did not

allege that defendants there were acting in anything other than their

official capacities, and nothing in complaint suggested that the individual

defendants converted funds for their personal use); United States ex rel.

Honeywell v. San Francisco Housing Authority, 2001 WL 793300

(N.D.Cal. July 12, 2001) (False Claims Act claims against governmental

officials in their personal capacities must contain allegations of personal

gain); United States ex rel. Kinny v. Stoltz, 2002 WL 523869 at *7 n. 3, No

Civ. 01-1287 (D. Minn. Apr. 5, 2002) (same); United States ex rel. Wilson

v. Graham County Soil & Water Conservation District, 2002 WL 487162 at

*11, No 2:01 CV 19-R 2002 (WD N.C. Mar. 25, 2002) (same).

ENED BAT AEB Sa Di BE LALOR BF 0S Ae IO

17

CONCLUSION

For the foregoing reasons, Delaware County respect-

fully requests that the Court deny the Petition for Writ of

Certiorari in this matter.

Respectfully submitted,

Francis X. Crowley, Esquire

Counsel of Record

Elisa Cohen Lacianca, Esquire

BLANK ROME CoMISsky & McCAULEY LLP

1400 N. Providence Road, Suite 301

P.O. Box 1210

Media, PA 19063

610-891-7800