Opposition Brief — United States ex rel. Foulds v. Texas Tech University

. ich Supreme Court, U.S x

ae FILEQ #

Nos. 99-513 & 99-365 DEC 30 1999

Ss

CLERK "765

In the Supreme Court of the SP .

TEXAS TECH UNIVERSITY AND

TEXAS TECH UNIVERSITY HEALTH

SCIENCES CENTER,

Cross-Petitioners,

v.

UNITED STATES OF AMERICA EX REL.

CAROL RAE COOPER FOULDS,

Cross-Respondent,

v.

UNITED STATES OF AMERICA,

Cross-Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit

FOULDS’S BRIEF IN OPPOSITION TO

THE CONDITIONAL CROSS-PETITION

PETER W. CHATFIELD

Counsel of Record

Phillips & Cohen, L.L.P.

2000 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 833-4567

Counsel for Cross-Respondent Foulds

i

TABLE OF CONTENTS

Page

SE Ie SE EE iste siesebciskchovictnisinnsicadsiasiaisnincsinestas i

Se Sr A i ribtictissniipticacinenisuisarsancedeuibnismcsans il

I. TEXAS TECH’S STATUTORY ARGUMENTS

PAPE DOT BER s FUR EVUEEW, oocccsscssssecesessassnesccnsenssnsse 6

Il. STATES ARE "PERSONS" SUBJECT TO FALSE

CePA Stas h GaREMUIIIIEE eiictnicipniclosuniabioivcinvliaccnnmenncanies 9

A. The Purpose, Subject Matter and Legislative

History of the False Claims Act Demonstrate

That Congress Intended the Act to Reach

States That Submit False Claims................... 10

B. The Language and Statutory Framework

and Executive Interpretation of the False

Claims Act Demonstrate that "Person{s]"

PT ah citesniecticanciduinsesenaslinbisensaiepenasanie 15

c.. Congress's Clear Intent to Include States

as Liable "Person[s]" Under the False

Claims Act Should Not Be Overndden.......... 22

il

TABLE OF CONTENTS — Continued

CONCLUSICIN ...::sc:sscesscastonsasssbesseiaesssncetescialeieeriaiaanseninel 24

ill

TABLE OF AUTHORITIES

Page

Cases:

Atascadero State Hospital v. Scanlon,

Fae se CRI hacntahbaiisslis chnisidihinthlncentninatiishahisininn 11,17

California v. United States, 320 U.S. 577 (1944) ........ 9, 13, 16

City of Mesquite v. Aladdin's Castle, Inc.,

I III Dia Sei itacsthiiniccnitadiins icadiedidhscanntnieeienierbiencons 8

Cohen v. Beneficial Industrial Loan Corp.,

Se ee te ID eidiceatikcctbckssiasaaddensntibentinzeinnensishnceschess 6,7

Commissioner v. Lundy, 516 U.S. 235 (1996).......cccccceeeeeees 20

Edelman v. Jordan, 415 U.S. 651 (1974)..........2.cccccceeseeeeeeeees 8

Georgia v. Evans, 316 U.S. 159 (1942).......cccccccccscesseseeteeeeees 13

Helvering v. Stockholms Enskilda Bank,

is inseaherenohniitiliebiade 9

Herman & MacLean v. Huddleston,

i TIE BPI cclisinintsoncinnltinsncinstuesineansioeh Sintanindliasnastutehel 14

Hilton v. South Carolina Public Railways Com'n,

SIS Ie ied hcchk asics) cdahccnapttanantiaibaitbomabincsionnne 12

iv

TABLE OF AUTHORITIES — Continued

International Primate Protection League v.

Administrators of Tulane Educational Fund,

FOP FEE IP Picinnintiiiaanineninnntcniddiebelnmanains

Lorillard v. Pons, 434 U.S. 575(1978)..c..sscssssessessssessseesseessees

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,

GEG UIE, FE Co ves isiaicitininsicansieineetansnigdleiialitdaleciimesaedans

Monell y. Department of Social Services of City of

Pine FO, Fa A. Gre re iviniactnisaniibtiitinains

Ohio v. Helvering, 292 U.S. 360 (1934)........cccssseesceseeenees

Plumbers' Union v. Door County, 359 U.S. 354 ......cccceeeees

Puerto Rico Aqueduct and Sewer Authority v.

Metcalf & Eddy, Inc., 506 U.S. 129 (1993)........ccccccecceteeeseeees

Sims v. United States, 359 U.S. 108 (1959)........cccccecsesseessesees

Swint v. Chambers County Com’'n,

Fe Rca. See Eee sictinidccnsinidaanciacviankecdscmianslonpiaaiaiaion

Thornburg v. Gingles, 478 U.S. 30 (1986).....cscssssssssseesesssesses

TABLE OF AUTHORITIES — Continued

Page

United States v. Bornstein, 423 U.S. 303 (1976).......cccccese0000: 23

United States v. Cooper Corporation,

PEb Bisa EEE Riittitsinivininaisididieee es: 9,21

United States v. Halper, 490 U.S. 435 (1989),

abrogated in other respects, Hudson v. United States,

BREE 2) |p TROPA ST SEN etMeY Ue Gan ts 23

r

United States v. National Treasury Emp. Union,

Fe Gime HON LOTTO iaviaitsssintninipkolscchitisviis cndesdceutadas ta doicaitos 8°

United States v. Neifert-White Co.,

FOE es MEE itstdienibeeicg odessa pti aa 11,19

U.S. ex rel. Marcus v. Hess, 317 U.S. 537 (1943)....cccccceseseee: 23

U.S. ex rel. Wisconsin v. Dean,

Cae Boe COOOCIING, NOG osisiivsvtiiccisnttiin ide 20

U.S. ex rel. Woodard and State of Colorado v.

County View Care Center, Inc., 797 F.2d 888

CERNE GAN. SIMD ciaticsiiccicleccicchccsuccimotiasatieakcud mate 20

West Virginia University Hospitals, Inc. v. Casey,

FF Es Ge Ce iisicicnlibe scsi cities aii ese 20

vi

TABLE OF AUTHORITIES — Continued

Page

Will v. Michigan Dept. of State Police,

GFE UB. FE (aR ph eccccccesccnsnsmsanannnnguntiinesciniamaniasiemaaiiaes 8, 11,12

Samael V, Masel, TBA. US. § CABG ccssnsccscssecsnsccrssopuscnecsesssietnn 15

Statutes:

B ULSLAL. © & cccosccssssvarssnssinsensessaiansensansatiinanaseiianesaaniianannnta 23

BS UB. GE BBD TBS ciicccssisissesmnsodsccnisnsneomsittiniiiisianteiniiaies 18, 19

SB OBA. & BAP .ccxccseccenssicscccniheniiciaitiibaintiiiiainiatiiaiantnatiie 7

28 USA. § Di Fdeunciumucntitianiiiandiiaieiaa 7

38 UBA.. § FUR, Ol OOM, ccciesitinsenmiesstinsiiidiipedidiliiaiias 22

SE UBL. § STAID <oxcccrnsssrrenescastnphiibatioctaghancsiasiainsstiieadsinmainitios 9

31 U.S.C. § 3730(e) : peonnnsniihennnssiigheihenietiinneanmenaiilllin 14, 15, 16

SE UB.G. & STIG cccarsesspsciniscesestinornestinsieniiadianas 16

SE UBL. § STB ccrcemescusiisnsctenenetieinthctiiainiiaiinaaicl 17, 18, 19, 20

ieee

Vii

TABLE OF AUTHORITIES — Continued

Page

FE aA GOO tee hiiitai isidae, 2,3

Ts 0G OE I i icccacinsnitinintinciiictantsisianasili seasecsoseasecced 22

PE PU ehilicatscaslibiiiaccicinancincsdacbbia etd tbedbadne tS, 8

Constitution:

Fa ITs CNN TU Siccliddbicbeekidisbctastbinindericscullea passim

Other Authorities:

Bureau of the Census, U.S. Dept. of Commerce,

Publication FES/96, Table 11, "Federal Expenditures

by State for Fiscal Year, 1996" (1997) ........ccccccccsccceseceseseee. 21

D. Cantelme, Federal Grant Programs to State and

Local Governments, 25 Pub. Cont. L.J. 335 (1996)........0000.«. 21

R. Salcido, Screening Out Unworthy Whistleblower

Actions: An Historical analysis of the Public Disclosure

Jurisdictional Bar to Qui Tam Actions Under the False

Claims Act, 24 Pub. Contract L.J. No. 2 (Winter 1995)........ 14

ioe MU SIPs a Si re ses: 22

Vill

TABLE OF AUTHORITIES — Continued

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

States Code of Congressional and Administrative

DUG Fn censinivlishaeascinnsshinnisimaiaiinasiisaiiinenniinaitatibiaiibaiaiaides passim

Cross-Respondent Foulds submits this Response to

Texas Tech University and Texas Tech University Health

Sciences Center (hereafter “Texas Tech”) Cross-Petition For a

Wnt of Certiorari (S.Ct. No. 99-513), as well as to the United

States’s Petition for a Writ of Certiorari (S.Ct. No. 99-365).'

The issue in the cross-petition is whether State-funded

institutions that engage in precisely the same kinds of

fraudulent conduct affecting the federal treasury as do privately

owned entities should be deemed exempt from the definition of

“persons” that can be held liable under the 1986 amendments to

the Federal False Claims Act. Cross-petitioners ask this Court

to grant them such an exemption. They do so notwithstanding

Congress’s understanding at the time the 1986 amendments

were introduced that States already could be held liable under

the previous terms of the False Claims Act. And they do so

despite Congress’s clear intent to continue to hold States liable

for fraudulent conduct at the time that it introduced major

amendments to the Act in order to significantly strengthen and

expand its usefulness as a weapon for fighting fraud against the

United States.

Foulds filed her petition for certiorari in this matter on August 23,

1999 (S.Ct. No. 99-321). Shortly thereafter, the United States filed its own

petition (S.Ct. 99-321). Before the Fifth Circuit, the United States and

Foulds appeared as co-appellees and advanced the same positions with

respect to the Eleventh Amendment issues currently before this Court.

Foulds’s and the United States’s petitions for certiorari likewise seek

identical relief. This Court nonetheless has directed Foulds to respond to the

United States’s petition as well as to Texas Tech’s cross-petition.

Consistent with the advice of the Clerk of Court, this footnote is provided

to confirm for the Court that Foulds supports the United States’s petition in

Supreme Court Case No. 99-365 for the reasons set for in her own petition.

2

CROSS-RESPONDENT’S STATEMENT OF THE CASE

1. The False Claims Act, 31 U.S.C. §§ 3729-3733, is

the federal Government’s “primary litigative tool for combating

fraud” committed by all “unscrupulous contractors and

grantees.” S. Rep. No. 345 (1986), reprinted in, 1986

U.S.C.C.A.N. 5266, 5273. Under the Act, any “person” who,

inter alia, knowingly presents or causes to be presented a false

or fraudulent claim to the United States for payment or approval

is liable to the Government for three times the amount of

damages which the Government sustains because of that

person’s act plus penalties for each false claim submitted.

In 1986, Congress substantially amended the False

Claims Act and, in particular, its gui tam provisions. Section

3730(b) allows any person to bring a False Claims Act suit in

the name of the Government to recover damages suffered by the

United States and to share in any recovery obtained as a result

of the suit. The gui tam plaintiff, known as a relator, initiates

a suit, by filing a complaint under seal in a United States

District Court. Simultaneously, the relator must serve a copy

of the complaint on the federal Government together with a

written disclosure statement describing all of the information

and evidence in the relator’s possession relating to the case. 31

U.S.C. § 3730(b)(2).

The United States then has at least 60 days to investigate

the relator’s allegations and determine whether to intervene and

proceed with the action. Jd., § 3730(b)(3). If the United States

intervenes, the action is conducted by the Government. /d.,

§ 3730(b)(4)(A). If the Government does not intervene, the

relator has the right to proceed with the action in the

3

Government’s name, albeit with significant Government

oversight and without the United States ever truly relinquishing

control of the litigation. See Jd.,§§ 3730(c)(2) and (3).

2. Relator Carol Rae Cooper Foulds filed this gui tam

action under seal on August 4, 1995 in the Northern District of

Texas, Lubbock Division. Foulds alleged that defendants Texas

Tech University and Texas Tech University Health Sciences

Center violated the FCA by submitting false claims to the

United States under the federal government’s Medicare and

Medicaid programs (referred to jointly hereafter as

“Medicare”). Specifically, relator alleged that in violation of

applicable laws and regulations, defendants submitted claims to

Medicare for services performed by physicians when in fact

those services were performed by residents or physicians-in-

training outside the presence of, and with little if any direct

oversight by any physician. Because the Medicare program

already separately compensates teaching hospitals for care

provided Medicare patients by residents, such billing constitutes

double-billing of the Medicare program for resident services.

Private institutions, such as the University of Pennsylvania,

have been subjected to False Claims Act liability for precisely

analogous misconduct.

3. On September 12, 1996, the District Court denied the

United States’s ex parte application for an extension of time to

determine whether to intervene and ordered the clerk to unseal

Foulds’s complaint. Defendants were served on October 18,

1996.

After being served with the complaint, defendants

moved to dismiss. They contended, first, that the Eleventh

4

Amendment precludes the suit, and, second, that the state is not

a “person” under the FCA. However, on January 21, 1997,

before that motion was decided, the parties filed a joint motion

for a stay of the proceedings. This motion was made

subsequent to notification to the defendants by the Office of

Inspector General of Health Care Finance Administration

(“HCFA”) that they would be subject to an audit under the

Physicians at Teaching Hospitals (“PATH”) initiative. At that

time, PATH was a nationwide federal effort to investigate

allegations against teaching hospitals like those raised in the qui

tam complaint Foulds had filed. Ultimately, however, Texas

was excluded from the PATH initiative, and no audit took

place.

Upon being notified that they would not be audited

under PATH, defendants moved on August 1, 1997, to have the

stay lifted so that their jurisdictional challenge to the qui tam

action could be decided. Defendants’ motion to lift the stay

was granted. On September 29, 1997, the District Court further

ruled that the designated time for the United States to intervene

in the gui tam action had lapsed without the United States

making an explicit election to do so, and thus that the United

States effectively had waived its nght to intervene. Defendants’

representation at page 2 of its cross-petition that the United

States “declined to participate in the suit” is therefore

inaccurate.

4. The District Court thereafter turned its attention to

defendants’ motion to dismiss based on Eleventh Amendment

immunity and their contention that states do not qualify as

“persons” liable as defendants under the False Claims Act. In

an order dated October 3, 1997, the District Court denied

5

defendants’ motion on both grounds. Defendants appealed, and

the District Court stayed all proceedings pending the outcome

of the appeal.

5. On February 18, 1998, the Fifth Circuit granted the

United States’s motion to intervene as a matter of right under

28 U.S.C. § 2403 as a plaintiff-appellant in the appeal so that it

could defend the constitutionality of the gui tam provisions of

the False Claims Act as they applied to state defendants.

6. On March 29, 1999, the Fifth Circuit panel reversed

the district court’s decision with respect to the Eleventh

Amendment, holding that “when the United States has not

actively intervened in the action, the Eleventh Amendment bars

qui tam plaintiffs from instituting suits against the sovereign

states in federal court.” Because the Fifth Circuit determined

that the Eleventh Amendment presented a “threshold

jurisdictional issue,” it decided that it should not reach the

statutory question of whether the state is a “person” under the

FCA.

7. Foulds filed a petition for a writ of certiorari in this

matter seeking review of the Fifth Circuit’s Eleventh

Amendment decision on August 23, 1999 (S.Ct. No. 99-321).

On August 28, 1999, the United States filed its own petition for

a wnt of certiorari (S.Ct. No. 99-365) which seeks review of the

Fifth Circuit’s ruling on essentially identical grounds as does

Foulds’s petition. Texas Tech University and Texas Tech

Health Science Center filed briefs in opposition to the petitions

for writs of certiorari of Foulds and the United States on

September 20, 1999. At the same time, defendants filed their

current Conditional Cross-Petition for Writ of Certiorari (S.Ct.

6

No, 99-513), asking that —- if the Supreme Court grants

certiorari for purposes of reviewing the Fifth Circuit's ruling

with respect to the Eleventh Amendment immunity defense

defendants have raised — it also agree to hear the statutory

interpretation issue that the Fifth Circuit declined to address.

REASONS FOR DENYING THE CROSS-PETITION

L. TEXAS TECH’S STATUTORY ARGU-

MENTS ARE NOT RIPE FOR REVIEW.

Because it relates to a claimed right of immunity from

suit, Texas Tech's Eleventh Amendment challenge to the

jurisdiction of federal courts to hear claims brought against

state entities by qui tam plaintiffs under the False Claims Act

was properly subject to interlocutory review pursuant to this

Court’s rulings in Puerto Rico Aqueduct and Sewer Authority

v. Metcalf & Eddy, Inc., 506 U.S. 139, 147 (1993), and Cohen

v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546 (1949).

The tral court's determination that States are “persons” subject

to potential liability under the Act, however, does not raise an

issue that normally would give rise to the night to an immediate

appeal.’ In Swint v. Chambers County Comm'n, 514 U.S. 35,

49-50 (1995), this Court held that appellate courts lack

States ummediately may appeal orders denying claims of Eleventh

Amendment ummunity because the mght to immunity from suit “is

effectively lost if a case is erroneously permutted to go to trial.” Metcalf &

Eddy, Inc., 506 U.S. at 144. Texas Tech's statutory claim, however, is a

defense to liability, not an immunity from suit. It thus may be asserted on

appeal from a final judgment without loss of any essential benefit of the

defense.

y

discretion “to append to an * * * appeal from a collateral order

further rulings of a kind neither independently appealable nor

certified by the district court.” 514 U.S. at 47... While Swint

leaves room to invoke “pendent appellate jurisdiction” to permit

appellate review of an otherwise non-appealable ruling that is

“inextricably intertwined” with a properly appealable interlocu-

tory order, or that must be decided to ensure “meaningful

review” of the issue properly before the court, those circum-

stances do not exist in this case.

The Eleventh Amendment issue raised in this case is not

“inextricably intertwined” with the statutory question decided

by the court of appeals. Courts could — and, as the Fifth

Circuit properly recognized in its decision below, properly

should -~ determine the constitutional issue regarding

jurisdiction before considering whether States are “persons”

under the False Claims Act. If there is no jurisdiction over the

claim, there is no proper case before the courts in which to

reach non-jurisdictional issues. Similarly, if no Eleventh

Amendment impediment to jurisdiction exists in gui tam cases

against States, there is no compelling need for appellate courts

to expand their jurisdiction to include questions of statutory

q

The Swint Court reasoned that the statutory scheme of 28 U.S.C.

§§ 1292(a)-(b) contemplates that district courts have “first line discretion”

to determine which orders not enumerated in 28 U.S.C. § 1291 or otherwise

appealable under Cohen are appropriate for interlocutory review; that the

Rules Enabling Act empowers the Court to expand the list of orders

appealable on an interlocutory basis only through the rule-making process

of 28 U.S.C. § 2072 and not through judicia! decision; and that “loosely

allowing pendent appellate jurisdiction would encourage parties to parlay

Cohen-type collateral orders into multi-issue interlocutory appeal tickets.”

514 U.S. at 47, 49-50.

8

interpretation before final judgment has been entered below.

Indeed, this Court has followed precisely such a course of

separating Eleventh Amendment jurisdictional questions from

statutory interpretation questions in the past. In Edelman vy.

Jordan, 415 US. 651 (1974), for example, the Court

adjudicated the scope of a State’s Eleventh Amendment

immunity without addressing whether States are “persons”

under 42 U.S.C. § 1983, an issue that the Court only decided

fifteen years later. See Will v. Michigan Dept. of State Police,

491 U.S. 58, 63 n.4 (1989). Moreover, the Eleventh Amend-

ment question is not coterminous with the statutory question,

nor does it subsume it: The statutory question is substantially

broader: Texas Tech’s arguments on that question, if accepted,

would preclude all False Claims Act suits against state-run

entities, including those brought directly by the Attorney

General, who clearly is not subject to Eleventh Amendment

immunities that justified an interlocutory appeal in this case.

While this Court has adhered in the past to a “policy of

avoiding the unnecessary adjudication of federal constitutional

questions,” City of Mesquite v. Aladdin's Castle, Inc., 455 U.S.

283, 294 (1981) (emphasis added); see also United States v.

National Treasury Emp. Union, 513 U.S. 454, 477 (1995), that

prudential doctrine presupposes that the Court Aas jurisdiction

to review both grounds of decision. Because answering the

question whether courts have jurisdiction over a claim is a

necessary first step in determining whether any further issues

may be addressed, any policy of addressing statutory questions

before non-jurisdictional constitutional matters is irrelevant

here.

9

II. STATES ARE "PERSONS" SUBJECT TO FALSE

CLAIMS ACT LIABILITY.

Texas Tech asserts that States are not among the

“person(s]" that can be held liable under the False Claims Act

for defrauding the United States. Specifically, Texas Tech

contends that because "person" is not defined in § 3729(a), and

— according to Texas Tech — Congress never intended States

to be included among those that could be held liable under the

Act, neither gui tam plaintiffs nor the United States itself can

sue States for False Claims Act violations. Texas Tech is

wrong.

"[T]here is no hard and fast rule" that the term "person"

should be construed to exclude States when it is used in federal

statutes. See United States vy. Cooper Corporation, 312 U.S.

600, 604-05 (1941). Indeed, the term "person" has frequently

been held to include States and their political subdivisions even

where Congress did not define the term in a statute. See, e.g.,

Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 91-92

(1934)("It has been held many times that the United States or a

state is a ‘person’ within the meaning of statutory provisions

applying only to persons."); Ohio v. Helvering, 292 U.S. 360,

371 (1934)("The state itself, when it becomes a dealer in intoxi-

cating liquors, falls within the reach of a tax either as a 'person'

under the statutory extension of that word to include a

corporation, or as a person’ without regard to such extension.");

California v. United States, 320 U.S. 577, 585 (1944)(Oakland

and California each held to be among "entities other than tech-

nical corporation, partnership and associations [that] are

included among 'persons™ subject to Shipping Act); Plumbers'

Union v. Door County, 359 U.S. 354, 359 (1959)("This Court

has many times held that government bodies not expressly

10

included in a federal statute may, nevertheless, be subject to the

law.").

"[WJhether the word ‘person' when used in a federal

statute includes a State cannot be abstractly declared, but

depends upon its legislative environment." Sims v. United

States, 359 U.S. 108, 112 (1959). If the purpose, subject

matter, context, legislative history, or executive interpretation

of the statute reveal such an intent, States and other sovereigns

should be construed to fall within the meaning of the term.

International Primate Protection League v. Administrators of

Tulane Educational Fund, 500 U.S. 72, 83 (1991); Cooper

Corporation, 312 U.S. at 605.

The "legislative environment" of the False Claims Act

leaves no doubt that States are intended to be among the

“persons” who can be held liable for defrauding the Federal

Government. Every relevant factor leads to that conclusion.

A. The Purpose, Subject Matter and Legislative

History of the False Claims Act Demonstrate

that Congress Intended the Act to Reach

States that Submit False Claims.

The Supreme Court "has repeatedly recognized that the

authoritative source of legislative intent lies in the Committee

Reports on the bill." Thornburg v. Gingles, 478 U.S. 30, 44 n.7

(1986). When the False Claims Act was substantially amended

in 1986, Congress unequivocally expressed its understanding

and intention that the liability provisions of the Act apply to

States as well as to any other recipient of federal funds. The

Senate Report that accompanied those amendments specifically

noted:

11

"The False Claims Act reaches all parties who

may submit false claims. The term ‘person’ is

used in its broad sense to include partnerships,

associations, and corporations ... as well as

States and political subdivisions thereof."

S. Rep. No. 99-345, at 8 (emphasis added, internal citations

omitted). This statement of the reach of the statute is entirely

“consistent with the broad remedial purpose of the Act. In

addition, the Senate Report "strongly endorse[d]" the opinion

offered by the Supreme Court in United States v. Neifert-White

Co., 390 U.S. 228, 232 (1968), that, since its inception, the

False Claims Act “was intended to reach all types of fraud,

without qualification, that might result in financial loss to the

Government.” S. Rep. No. 99-345, at 19. Indeed, Congress’s

primary purpose for overhauling the statute in 1986 was to

make it more effective in redressing and deterring fraudulent

claims that permeate "all Government programs" ranging from

welfare and food stamp benefits, to multibillion dollar defense

procurements, to crop subsidies and disaster relief programs, to

Medicare and Medicaid programs. Id., at 2-3, 21.

Texas Tech contends that this Court's ruling in Will v.

Michigan Dept. of State Police, 491 U.S. 58 (1989), requires

that Congress make its intent “‘unmistakably clear in the

language of the statute’ if it intends to subject a state to

liability.” Texas Tech Pet. at 13, quoting Will, 491 U.S. at 65.

In fact, no such broad-based restriction has ever been imposed

on Congress. Texas Tech conveniently omits key language

from its quotation which demonstrates that Will's discussion of

the "clear statement" ruije is a mere reference to the uniquely

high standard for abrogating the Eleventh Amendment that was

established in Atascadero State Hospital v. Scanlon, 473 U.S.

12

4

234, 242 (1985).* Read in their entirety, the relevant passages

of Atascadero and Will plainly limit the requirement that

congressional intent be unmistakably clear "in the language of

the statute" to circumstances in which Congress intends “to

alter the ‘usual constitutional balance between States and the

Federal Government.’” Will, 491 U.S. at 65, quoting Atasca-

dero, 473 U.S. at 242 (emphasis added). Indeed, this Court has

expressly disavowed the notion that Will extended the

requirement set forth in Alascadero to apply where the issue to

be determined is one of statutory construction and not one of

altering the constitutional balance between States and the

Federal Government. See Hilton v. South Carolina Public

Railways Com'n, 502 U.S. 197, 205-206 (1991).

The gui tam provisions of the False Claims Act do not

“alter the usual constitutional balance between States and the

Federal Government." Whether it initiates a suit itself or

permits a gui tam plaintiff to proceed on its behalf, the United

States is a/ways the real party in interest in False Claims Act

action and, since the inception of the Union, has had the inher-

ent right to sue States for violating federal law. There is thus no

basis to limit the means of ascertaining Congress's intent with

respect to potential State liability under the Act to "unmistak-

ably clear" language in the text of the Act itself.

Texas Tech also errs in suggesting that Congress was

mistaken in its understanding of the reach of the False Claims

Act prior to its 1986 amendments. This argument ignores the

= See also, Atascadero, 473 U.S. at 253-54 (Brennan, J., dissent-

ing)(majority in Atascadero creates, solely with respect to abrogating the

Eleventh Amendment, a uniquely high hurdle for Congress to overcome in

making its legislative intent manifest).

13

three Supreme Court cases cited in Senate Report No. 99-345

in support of the conclusion that the False Claims Act applies

to States. While the cited cases were not False Claims Act

decisions, each holds that, where appropriate to fully implement

the remedial purposes of an act, the term "person" is properly

construed to include States and their political subdivisions. See

Ohio v. Helvering, 292 U.S. at 370 (a State is a liable "person"

where its activity in selling liquor brings its conduct within area

of concern of federal statute); Georgia v. Evans, 316 U.S. 159,

161-62 (1942)(state victim is a “person” under terms of the

antitrust laws where harm it suffers from an antitrust violation

is the same as that suffered by private persons); Monell v.

Department of Social Services of City of New York, 436 U.S.

658, 690 (1978)(local governments are accountable "persons"

under § 1983 where they violate the policies underlying that

act). In light of the False Claims Act's broad-based objective of

fighting a// types of fraud against the United States, the cases

cited in the Senate Report fully support application of the term

to cover any state entity that engages in such misconduct.

Indeed, this Court has concluded that States must be considered

"persons" within the meaning of a statute if “its plain purposes

preclude their exclusion." California v. United States, 320 U.S.

at 585.

Texas Tech also asserts that Senate Report No. 99-345

is irrelevant with respect to the meaning of "person" because it

does not describe the 1986 amendments but is rather part of the

Report’s description of the history of the Act. First, as noted

above, in light of the broad remedial purposes that have always

formed the foundation of the False Claims Act, Congress's

interpretation in 1986 of the prior reach of the Act is entirely

sound. More fundamentally, however, Texas Tech is simply

wrong in asserting that Congress’s understanding of the scope

14

of the Act at the time it substantially amended the statute is

unimportant. In fact, that understanding and how Congress

chose to act in light of it are controlling.

In 1986, Congress dramatically reworked the FCA so as

to maximize its effectiveness in fighting fraud.’ As part of its

overhaul of the Act, Congress made adjustments to the very

provision of the Act at issue here — which persons might be

held liable for fraud — by narrowing the exclusion that had

previously existed for members of the armed forces and by

adding new exclusions (under some circumstances) for

Members of Congress, members of the Judiciary, and senior

executive branch officials. See Senate Report No. 99-345, at

39, 43; 31 U.S.C. § 3730(e). Although it obviously could,

Congress did not provide any similar sort of exclusion for

States. That decision is significant.

This Court has noted repeatedly that where, in making

major changes to a statute, Congress does not seek to overturn

an interpretation it knows the courts have applied to retained

provisions of pre-existing legislation, it can be inferred that

Congress has ratified the courts’ interpretation of that aspect of

the law. See, e.g., Herman & MacLean v. Huddleston, 459 U.S.

375, 385-86 (1983); Merrill Lynch, Pierce, Fenner & Smith,

Inc. v. Curran, 456 U.S. 353, 381-82 & n.66 (1982). A similar

inference has been drawn where, in substantially reenacting

s

“Beginning in 1985 and ending in 1986, Congress undertook a

major overhaul of the False Claims Act, covering both the substantive and

the gui fam provisions." Robert Salcido, Screening Out Unworthy

Whistleblower Actions: An Historical analysis of the Public Disclosure

Jurisdictional Bar to Qui Tam Actions Under the False Claims Act, 24 Pub.

Contract L.J. No. 2 (Winter 1995), 250 (citations omitted). See also S. Rep.

No. 99-345, passim.

eee

15

laws, Congress did not seek to cverturn prior administrative

interpretations of existing provisions. See, ¢.g., Zemel v. Rusk,

381 U.S. 1, 11-12 (1965). There is no reason to afford any less

weight to Congress's decision to leave intact its own

interpretation of the reach of a statute that it has comprehen-

sively reviewed and has otherwise substantially amended.

When Congress overhauled the False Claims Act in

1986, it specifically addressed the definition of liable "persons"

under the Act and reaffirmed the inclusive reach of that term.

The intent of Congress in 1986 is manifest and controlling.

B. The Language and Statutory Framework and

Executive Interpretation of the False Claims

Act Demonstrate that "Person{s]" Include

States.

The explicit reference to States and their political

subdivisions in the Senate Report coupled with the broadly-

stated purpose of the Act to reach all fraud against the United

States are the clearest indication of congressional intent to hold

States liable for any fraud they commit. They are by no means,

however, the only aspects of the "legislative environment" of

the False Claims Act that support that conclusion. Congress's

intent to define "person" to include States is evidenced as well

by the text and statutory framework of the Act.

As noted above, although the amended statute

specifically provides certain categories of persons partial

exclusions from liability, see 31 U.S.C. § 3730(e)(relating to

certain qui tam actions), it does not include States or their

political subdivisions among the excluded groups. Moreover,

the narrow limitations Congress placed on the exclusions it

16

granted military personnel and certain high-ranking federal

officials® to False Claims Act liability serve only to underscore

the breadth of the Act. If Congress was willing, with only

limited restrictions, to extend False Claims Act liability to

members of the military, Members of Congress, members of the

Judiciary, and senior executive branch officials in the Federal

Government, there is no reason to presume that it intended to

give States and their political subdivisions any greater leeway

in defrauding the Federal Government.

Congress’s intent to protect the federal fisc from any

individual! or entity that would advance fraud against the federal

government is evident as well by its stated intent to include

States and their political subdivisions among “employers” that

could be held liable under the 1986 amendments for retaliating

against their employees for taking lawful action to expose and

remedy False Claims Act violations. See 31 U.S.C. § 3730(h).

The Senate Report that accompanied the 1986 amendments

explained that the definitions of "employee" and "employer"

under the new whistleblower protection provisions of the FCA

were meant to be "all-inclusive" and that the term "employers"

was meant to include “public as well as private sector entities."

S. Rep. No. 99-345, at 34-35 (emphasis added). Cf. California

v. United States, 320 U.S. at 586 (holding that legislative

history stating that the Shipping Act should apply "no less [to]

s The exclusion for members of the armed forces relates only to

actions brought against them by other former or present members of the

armed forces for claims arising out of service in the armed forces. See 31

U.S.C. § 3730(e){1). Members of Congress and members of the judiciary

are immune only from gui tam actions. Id., § 3730(e)(2). And senior

executive branch officials are granted an exclusion only with respect to qui

tam actions that are "based on evidence or information already known to the

Government when the action was brought." Id.

17

public than [to] private owners" of waterfront terminals shows

congressional intent to hold cities and States accountable under

that act).’

The provision of the False Claims Act that was added in

1986 to authorize civil investigative demands ("CIDs") likewise

confirms that Congress contemplated that States and their

political subdivisions could be held liable for fraud under the

statute. In 31 U.S.C. § 3733(1)(4), "person" is defined to

include “any State or political subdivision of a State." While

Texas Tech has argued that the inclusion of the phrase "(flor

purposes of this section" at the beginning of the definitions set

forth in § 3733(1) indicates that Congress intended the

definition of "persons" to be different for CIDs than for the

liability provisions of the Act, see Texas Tech Pet. at 8-9, the

legislative history of § 3733 shows that precisely the opposite

is true.

In explaining the CID provisions that were added to the

False Claims Act in 1986, Senate Report No. 99-345 notes that

the provisions of § 3733 are "nearly identical" to CID authority

that had already been granted the Antitrust Division of the

- While this Court held in Atascadero, 473 U.S. at 244, that — to

effect any necessary abrogation of Eleventh Amendment immunity that

might apply to individual’s personal suits against States — Congress must

clearly specify in the language of the statute itself its intent to affect such

abrogation, no such restriction can properly be imposed on where Congress

may effectively demonstrate its intent for purposes of deciding the broader

question of whether Congress understood and intended to include state

entities among those who could be liable to the United States for fraud

under the False Claims Act. See, ¢.g,, Atascadero, 473 U.S. at 253-54

(Brennan, J., dissenting {majority in Atascadero creates, solely with respect

to abrogating the Eleventh Amendment, a vniquely high hurdle for Congress

to overcome in making its legislative intent manifest).

18

Department of Justice under the Hart-Scott-Rodino Antitrust

Improvements Act of 1976, and that it was intended that "the

legislative history and case law interpreting that statute (15

U.S.C. [§§] 1311-14), fully apply to this bill." Id., at 33.

Where Congress explicitly intends precedent interpreting one

statute to control another, its decision to have the language in

the newer bill track that of the older law as closely as possible

is only prudent. Moreover, where Congress has announced

such an objective, substantive variations from the prior statute

that are introduced in the new law must be understood to indi-

cate areas in which Congress intended to deviate from the

standards that apply under the older statute. See, ¢.g,, Lorillard

v. Pons, 434 U.S. 575, 581-82 (1978)(noting importance in

ascertaining legislative intent of examining where Congress

incorporated the text of an older statute verbatim and where it

made changes to the language that had been used in the prior

legislation).

It is thus noteworthy that one of the ways that the CID

provisions of the False Claims Act deviate substantively from

their antitrust predecessor is their inclusion of States and States'

political subdivisions within the definition of the term "person."

Because antitrust CID law does not include state entities within

its definition of a "person," Congress's specific decision to add

States and their political subdivisions to definition of "person"

in § 3733 conforms — rather than distinguishes — the use of

that term in § 3733 to Congress's understanding of the term

"person" in the liability provisions of the Act.*

The intended connection between the CID section of the False

Claims Act and pre-existing antitrust legislation also clarifies why Congress

included of the phrase "[f]or purposes of this section” as an introduction to

the definitions contained in § 3733. The phrase tracks the substantively

19

An additional weakness of Texas Tech's analysis

regarding how to interpret Congress's decision to include a

definition of "person" in the CID provisions of the False Claims

Act is the fact that the term is used within those provisions to

refer both to "person{s]" to whom CIDs might be served and to

person(s] .. . engaged in any violation of a false claims law."

See 31 U.S.C. 3733(1)(2). Section 3733(1)(2) defines the term

"false claims act investigation" as “any inquiry conducted by

any false claims act investigator for purposes of ascertaining

whether any person is or has been engaged in any violation of

a false claims law." (Emphasis added.) Thus, read in its

entirety, § 3733 indicates that States and their political

subdivisions may be both recipients of CID requests and

entities whose knowing submission of false claims to the

United States can result in liability under the FCA. Such a

reading of § 3733 is consistent with Senate Report No. 99-345

and with the broad remedial purpose of the Act to reach "all

types of fraud, without qualification, that might result in

financial loss to the Government." I[d., at 19; Neifert-White

Co., 390 U.S. at 232.

In contrast, to sustain Texas Tech's position, this Court

would need to conclude that Congress "got it wrong" twice —

first, when it stated in the legislative history of the False Claims

Act that it intended to include States among the "persons"

whose fraud could be remedied under the Act, and again when

it included the term "person" in its definition of a "false claims

identical passage introducing definitions in the chapter of the Antitrust Act

dedicated to CIDs, see 15 U.S.C. § 1311, and thus simply carries forward

Congress's stated plan to model the language and meaning of the FCA's new

CID provisions wherever possible directly upon the language used in their

antitrust predecessor.

20

law investigation" under § 3733. Where rational alternatives

exist, this Court should not adopt a reading of a statute that

assumes that Congress was sloppy or ill-informed. In

interpreting the law, it is the role of courts "to make sense rather

than nonsense out of the corpus juris." West Virginia Univer-

sity Hospitals, Inc. v. Casey, 499 U.S. 83, 101 (1991).

Other aspects of the "legislative environment"

demonstrate as well that Congress intended to include States in

the definition of a "person." In addition to using the term to

define who can be held liable under the Act and to whom CID

requests might be «tirected, the False Claims Act also uses the

term "person" to define who is eligible to act as a qui tam

plaintiff in such actions. No one denies States' nght to act as

gui tam relators under the Act. See, e.g., U.S. ex rel. Woodard

and State of Colorado v. County View Care Center, Inc., 797

F.2d 888 (10th Cir. 1986); U.S. ex rel. Wisconsin v. Dean, 729

F.2d 1100 (7th Cir. 1984). Indeed, when the 1986 Amendments

were drafted, Congress expressly acknowledged that fact and

acted upon the request of the National Association of Attorneys

General to overrule a lower court ruling that the States believed

unduly restricted their ability to bring qui tam suits under the

Act. See S. Rep. No. 99-345, at 12-13. "Identical words used

in different parts of the same statute are intended to have the

same meaning." Commissioner v. Lundy, 516 U.S. 235, 249

(1996). Having successfully urged Congress to strengthen

their standing as "persons" for purposes of reaping the rewards

of filing qui tam actions under the False Claims Act, it is

disingenuous for States now to argue that the one and only time

they should be excluded from the definition of a "person" in the

False Claims Act is when the term is used to refer to those who

may be held responsible for having defrauded the Federal

Government.

21

A final factor favoring inclusion of States within the

definition of "person" under the Act is the fact — evidenced by

its intervention and position on this and other appeals —- that

the Department of Justice has consistently interpreted the

statute in that manner. See Cooper Corporation, 312 USS. at

605 (listing "executive interpretation of the statute" among the

relevant considerations). The Department's position reflects

sound public policy and a common sense view of congressional

intent. Federal grants to state and local governments have risen

from a reported $2.4 billion in 1950,’ to about $108 billion in

1987, to approximately $228 billion in 1996.'° To exclude

States from the reach of the Act would dramatically undermine

the ability of the United States to protect the federal fisc.

It also would be wholly illogical to interpret the False

Claims Act to exempt state institutions from liability when the

Unites States has already successfully prosecuted private

institutions for the same fraudulent practices. Yet that will be

the result if Texas Tech's interpretation of the False Claims Act

prevails. In December 1995, the United States announced the

settlement of a False Claims Act suit against the University of

Pennsylvania, a private nonprofit corporation, for $30 million.

The misconduct charged against the University of Pennsylvania

was essentially the same as that Texas Tech is alleged to have

committed in this matter. Other teaching hospitals have since

paid similar claims. Thus, in Texas Tech's view, Congress

° See D. Cantelme, Federal Grant Programs to State and Local

Governments, 25 Pub. Cont. L.J. 335-336 (1996).

si Bureau of the Census, U.S. Dept. of Commerce, Publication

FES/96, Table 11, "Federal Expenditures by State for Fiscal Year, 1996" 46

(1997). These amounts do not include federal funds other than grants

received by state agencies, such as contracts.

ae en ne CMe

22

intended to subject private institutions to False Claims Act

liability but to exempt state institutions, even though both

engaged in the same fraudulent practices. A more sensible and

sound reading of the statute is that Congress intended the False

Claims Act to ferret out and fight fraud against the United

States wherever it occurs.

ef Congress's Clear Intent to Include States as

Liable "Person[{s]" Under the False Claims

Act Should Not Be Overridden.

In light of the overwhelming evidence that Congress

intends False Claims Act liability to extend to the wrongdoing

of States and state entities, the other arguments Texas Tech

offers in support of its position are entitled to no weight. It is

irrelevant that, in passing the Program Fraud an Civil Penalties

Act ("PFCPA") and the Anti-Kickback Act of 1986,'' Congress

elected to include a definition of "person" that does not include

States. See Texas Tech Pet. at 11. Although the PFCPA

provides an administrative compliment to the False Claims Act,

it was not intended to be co-extensive with it. See Senate

Report 99-212, at 4-5, 34 (1985)(PFCPA procedures for

adjudicating program fraud claims apply only to "small-dollar"

claims; larger dollar claims "should be prosecuted in court"

~ under the FCA). Thus, far from suggesting that courts are free

? The PFCPA permits federal agencies that are victims of false

claims to proceed administratively to recover damages where the amount in

controversy is less than $150,000 and where the Department of Justice has

elected not to pursue the matter in federal court under the provisions of the

False Claims Act. See 31 U.S.C. § 380, et seg. The Anti-Kickback Act of

1986 makes it unlawful for government contractors to pay, solicit, or charge

the Federal Government for kickbacks associated with the bidding or

performance of federal government contracts See 41 U.S.C. § 51, et seq.

23

to ignore Congress's stated intent that False Claims Acct liability

should extend to States, the fact that a narrower definition was

added to the text of PFCPA merely confirms the more limited

circumstances in which Congress believed reliance on adminis-

trative procedures was appropriate. Likewise, the fact that the

definition of "person" under the Anti-Kickback Act is narrower

than under the False Claims Act provides no basis whatsoever

to ignore the clear statement of congressional intent that States

may be held liable under the broader provisions of the FCA."”

Nor can the reluctance Texas Tech attributes to courts

with respect to imposing punitive damages on States justify

overriding Congress's intent to include them among the

"persons" subject to the False Claims Act. As this Court has

previously discussed at length, the multiple damages and civil

penalty provisions of the False Claims Act are not "punitive

damages" but rather "rough remedial justice." United States v.

Halper, 490 U.S. 435, 446 (1989), abrogated in other respects,

Hudson v. United States, 522 U.S. 1165 (1997); see also United

States v. Bornstein, 423 U.S. 303, 314-15 (1976)(purpose of

FCA remedies is to make government completely whole); U.S.

ex rel. Marcus v. Hess, 317 U.S. 537, 551-53 (1943)(same).

There is no basis override Congress’s manifest intent to treat

state institutions the same as than any other entity that know-

ingly defrauds the United States.

. Section 1 of the United States Code-Rules of Construction also

requires no different result. The definition of “person” included in 1 U.S.C.

§ 1 is one to be used by default only where the context of a particular statute

does not indicate otherwise. The Supreme Court has never applied that

section to override a different definition of the term that the "legislative

environment" shows Congress intended to apply with respect to a specific

statute.

24

CONCLUSION

For all the reasons set forth above, the Texas Tech’s

Conditional Cross-Petition for Writ of Certiorari should be

denied.

Respectfully submitted.

PETER CHATFIELD

Counsel of Record

JOHN R. PHILLIPS

Phillips & Cohen, L.L.P.

2000 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 833-4567

Counsel for Cross-Respondent Foulds

December, 1999