Opposition Brief — United States v. Texas Southern University

Supreme Court, U.S.

FILED

WAY 2.5 2000

: IF 566 & 99-1705

IN THE CLERK

Supreme Court of the United States

OCTOBER TERM, 2000

TEXAS SOUTHERN UNIVERSITY;

BARBARA HAYES; ARUN JADHAYV, Doctor,

CURTIS W. MCDONALD; JOSEPH JONES,

Cross-Petitioners,

v.

UNITED STATES OF AMERICA EX REL.

CHANDRA MITTAL, Ph.D.,

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

MITTAL’S BRIEF IN OPPOSITION TO

THE CONDITIONAL CROSS-PETITION

RICHARD S. LONDON

Counsel of Record

London & Schaeffer, LLP

3118 Richmond, Suite 200

Houston, Texas 77098-3016

(713) 524-7300

Counsel for Cross-Respondent Mittal

A AMOR NES A BRINE E LEE BLONDEL! BOOTS AERO OTE AO

Alpha Printing and Lew Brief Company, Houston, Texus. (713) 270-6604.

qQ0F

TABLE OF CONTENTS

Page

I UNITED oo ish c Sie wee ncaa ccieeensss i

TABLE OF AUTHORITIES ................000000. iii

CROSS-RESPONDENT’S STATEMENT

es cee Oe eet Wahi kee td nea nw l

REASONS FOR DENYING THE

ae ee 4

I. TSU’S STATUTORY ARGUMENTS

ARE NOT RIPE FOR REVIEW ................ 4

II. STATES ARE “PERSONS” SUBJECT TO

FALSE CLAIMS ACT LIABILITY .............. 6

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 ........ 7

B. The Language and Statutory Framework

and Executive Interpretation of the False

Claims Act Demonstrate that “Person{s]”

re ek Sak ak Cee 12

c. Congress’s Clear Intent to Include States

as Liable “Person[s]” Under the False

Claims Act Should Not Be Overridden ... 18

TABLE OF CONTENTS — Continued

CONCLUSION

8.8 O26 8 CK 6-8. OPH '4 PS ee £ Se Owe Ce eS Oe

PN Ae aco ee ote

TABLE OF AUTHORITIES

Page

Cases:

Atascadero State Hospital v. Scanion,

NE oa i ee. 9,14

California v. United States,

er, OPP COOe eee. 7, 10, 13

City of Mesquite v. Aladdin’s Castle, inc.,

We og ig oe ve vance. 6

Cohen v. Beneficial Industrial Loan Corp..,

WO es vn ee ck 4,5

Commissioner v. Lundy,

wT ee 17

Edelman v. Jordan,

of.) ee on oe

Georgia v. Evans,

co | a a a 10

Helvering v. Stockholms Enskilda Bank,

OE ise ek vee beeen. 7

Herman & MacLean v. Huddleston,

We ec . 11

Hilton v. South Carolina Public Railways Com’n,

wh ae 9

iV

TABLE OF AUTHORITIES — Continued

Page

International Primate Protection League v.

Administrators of Tulane Educational Fund,

NE PINE 5k ee Soe ook ee a ee 7

Lorillard v. Pons,

ND i Soa bv 9 a ees eas 15

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

ae POE: ooo ion we eee ease ets 11

Monell v. Department of Social Services of City of

Now Yor, 496 U.G. GSO (ISTE)... ee an 10

Ohio v. Helvering,

Se i NOE ks te ne aN hee Aes 7, 10

Plumbers’ Union v. Door County,

Pr ea re he ee Sa es 7

Puerto Rico Aqueduct and Sewer Authority v.

Metcalf & Eddy, Inc., 506 U.S. 139 (1993) ............ 4

Sims v. United States,

rr rat rer ea 7

Swint v. Chambers County Com’n,

Ws bc ks Cadnk Coen eee ck uw ens 4

Thornburg v. Gingles, 478 U.S. 30 (1986) ............ 8

Vv

TABLE OF AUTHORITIES — Continued

Page

United States v. Bornstein,

rE. POR inccis ee 20

United States v. Cooper Corporation,

SIZUS., GOO CUM) . cee ck. 6,7,16

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

abrogated in other respects, Hudson v. United States

322 U.S. 1165 (1997) ...... 2... 20

United States v. National T; reasury Emp. Union,

DIS U.S. 454(1995) ©... 6

United States v. Neifert-White C. 0.,

390 U.S. 228 (1968) .....00. 8, 16

U.S. ex rel. Foulds v. Texas Tech Univ.,

171 F.3d 279 (SthCir.1999) 3.0 a2

U.S. ex rel. Marcus v. Hess, 317 U.S. 537 C7963) ...... 20

U.S. ex rel. Stevens v. State of Vermont Agency

of Natural Resources, 162 F.3d 195

(2nd Cir. 1998), cert. granted, 119 S.Ct.2391....__. 3,17

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

729 F.2d 1100 (7th Cir. OER Rn fuk 17

vi

TABLE OF AUTHORITIES — Continued

Page

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

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

(UGGS Wie oe ia eee ee 17

U.S. ex rel. Zissler v. Regents of Univ. of Minnesota,

$34 FE Gre GG Ce ois Go 19

West Virginia University Hospitals, Inc. v. Casey,

G99 UE. SOLIS 650 ee eee 16

Will v. Michigan Dept. of State Police,

Gi US. FERED si ouak cance eee eee eee 5,9

Zemel v. Rusk,

Set ae. SC7RS) .. ass tte eee .

Statutes:

BW.BK. 88 ica vssiveleenses OE eee 9

1S UBC. BS SGN. . os cn vccknecneee eau ae 15

aa U.GS. OTRO" 5 bas deck tee eee . 4

Be UA BGs 65650 catia Baa eee 4

ot UA. Ge OMe. oc 2 eee . 18

vii

TABLE OF AUTHORITIES — Continued

Page

FE Saas 5.90 ko ee POs carreras a

Oe She A os oe eee ee Ce ee 2

Pe eR FOE noc kik Oe s Beene 11,12

Pe A OE 5 ho vd oe os a ee =

PERO SOME oho ths Ce ree halogen eck: 14, 15

PEN i RENTED vo bi oe ed x ke eee 1

Te We Ps 6 oy oe ees ee 18

PA PN ok ons cee heer tse ee. 5

Constitution:

OP. Cen. MO nk. sk howe ccwnnes. 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) .............. 19

TABLE OF AUTHORITIES — Continued

Page

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)... 11

OMe, POW. DEIR (Tee) nw ok cc ive ne eae 18

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

States Code of Congressional and Administrative

Pe Er ca on ee eee eee . passim

Cross-Respondent Mittal submits this Response to Texas

Southern University, Barbara Hayes, Arun Jadhav, Curtis W.

McDonald and Joseph Jones (hereafter collectively “TSU”)

Cross-Petition For a Writ of Certiorari (S.Ct. No. 99-1705).

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.

CROSS-RESPONDENT’S STATEMENT OF THE CASE

1. The False Claims Act (hereafter “FCA”), 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.

2

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 qui 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. /d., § 3730(b)(3). Ifthe 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

Government’s name, albeit with significant Government

oversight and without the United States ever truly relinquishing

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

2. Relator Chandra Mittal filed this gui tam action under

seal on February 21, 1997, in the Southern District of Texas,

Houston Division. Mittal alleged that defendants violated the

FCA by submitting false claims to the United States through the

Research Center in Minority Institutions (“RCMI’) program, a

division of the National Institutes of Health. Specifically, relator

alleged that in violation of applicable laws and regulations,

defendants submitted grant applications to the RCMI

representing that the faculty hired under the program would

become university employees after the funding ended. TSU

obtained at least fourteen million dollars of funding under the

3

RCMI program. TSU then failed to retain the faculty hired, the

essential precondition to obtaining the RCMI funds.

3. On June 17, 1997, the United States filed its election to

decline active intervention at that time. The District Court

unsealed the complaint on June 18, 1997.

After being served with the complaint, defendants moved

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

precludes the suit, and, second, that the state is not a “person”

under the FCA. The District Court denied defendants’ motion

on both grounds.

4. Defendants appealed the District Court’s order to the

Fifth Circuit. The United States intervened in the appeal to

defend the constitutionality of the FCA provisions allowing qui

fam suits as they apply to state defendants.

5. On December 20, 1999, the Fifth Circuit dismissed the

appeal, holding that it was controlled by Foulds. U.S. ex rel.

Foulds v. Texas Tech Univ., 171 F.3d 279, 294 (Sth Cir. 1999)

(“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.”),

petition for cert. filed, 68 U.S.L.W. 3138 (Aug. 23, 1999)

(S.Ct. No. 99-321), petition for cert. filed, 68 U.S.L.W. 315

(Aug. 27, 1999) (S.Ct. No. 99-365), cross-petition jor cert.

filed, (Aug. 27, 1999) (S.Ct. No. 99-513); see also U.S. ex rel.

Stevens v. State of Vermont Agency of Natural Resources, 162

F.3d 195 (2nd Cir. 1998), petition for cert. granted, 119 S.Ct.

2391 (June 24, 1999) (S.Ct. No. 98-1828), argued Nov. 29,

1999.

0

4

REASONS FOR DENYING THE CROSS-PETITION

L TSU’S STATUTORY ARGUMENTS ARE NOT

RIPE FOR REVIEW.

Because it relates to a claimed right of immunity from suit,

TSU’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 trial

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 right 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

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 47.2 While Swint

' States immediately may appeal orders denying claims of

- Eleventh Amendment immunity because the right to immunity from suit “is

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

Eddy, Inc., 506 U.S. at 144. TSU’s statutory claim>however, is a defense

to /iability, 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.

? 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 judicial decision; and that “loosely

ee

5

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 Foulds, 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, ifno Eleventh Amendment impediment to jurisdiction

. exists in qui tam cases against States, there is no compelling

need for appellate courts to expand their jurisdiction to include

questions of statutory 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 v. Jordan, 415 U.S. 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

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

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

6

broader: TSU’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 has 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 amy further issues

may be addressed, any policy of addressing statutory questions

before non-jurisdictional constitutional matters is irrelevant here.

I. STATES ARE “PERSONS” SUBJECT TO FALSE

CLAIMS ACT LIABILITY.

TSU 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, TSU contends that because

“person” is not defined in § 3729(a), and — according to TSU

— Congress never intended States to be included among those

that could be held liable under the Act, neither qui fam plaintiffs

nor the United States itself can sue States for False Claims Act

violations. TSU 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 v. 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

a2

7

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 technical 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 included in a federal statute may, nevertheless, be

subject to the law.”).

“[W]hether 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:

“The False Claims Act reaches ail 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. /d., at 2-3, 21.

TSU 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.” TSU Pet.

at 13, quoting Will, 491 U.S. at 65. In fact, no such broad-

based restriction has ever been imposed on Congress. TSU

conveniently omits key language from its quotation which

demonstrates that Will s discussion of the “clear statement” rule

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. 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 Govern-

ment.’” Will, 491 U.S. at 65, quoting Atascadero, 473 U.S. at

242 (emphasis added). Indeed, this Court has expressly

disavowed the notion that Will extended the requirement set

forth in Atascadero 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 qui 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 qui tam plaintiff to proceed on its behalf, the United

States is always the real party in interest in False Claims Act

3 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).

10

action and, since the inception of the Union, has had the inherent

nght 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.

TSU 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 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. 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.

TSU 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

11

\

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, TSU is simply wrong in

asserting that Congress’s understanding of the scope 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

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

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

the qui tam provisions.” Robert Salcido, Screening Out Umworthy

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.

12

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 laws, Congress did not seek to overturn prior

administrative interpretations of existing provisions. See, eé.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

comprehensively reviewed and has otherwise substantially

amended.

When Congress overhauled the False Ciaims 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 Ciaims

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 ail 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

13

Congress placed on the exclusions it 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 Acct 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 treasury 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] public

14

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

TSU 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 TSU 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

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

® 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, e.g., Atascadero, 473 U.S. at 253-54

(Brennan, J., dissenting)(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).

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, e.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 pro-

visions of the False Claims Act deviate substantively from their

antitrust predecessor is their inclusion of States and States’ poli-

tical 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.’

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

16

An additional weakness of TSU’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. 3733012). 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 indi-

cates 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 quali-

fication, that might result in financial loss to the Government.”

Id., at 19; Neifert-White Co., 390 U.S. at 232.

In contrast, to sustain TSU’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 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 University 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

a i

be held liable under the Act and to whom CID requests might be

directed, 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’ right to act as qui 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);

see generally Stevens, 162 F.3d at 204-05. Indeed, when the

1986 Amendments were drafted, Congress expressly acknow-

ledged 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 fam 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.

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 U.S. at 605

(listing “executive interpretation of the statute” among the

relevant considerations). To exclude States from the reach of

the Act would dramatically undermine the ability of the United

States to protect the federal treasury. 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.

GC 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 TSU 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 TSU 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 to ignore Congress’s

stated intent that False Claims Act 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 administrative procedures

was appropriate. Likewise, the fact that the definition of

“person” under the Anti-Kickback Act is narrower than under

* 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 seq. 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.

19

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” |

TSU argues that it is “not sound public policy to burden

blameless taxpayers” with rewards under the FCA. TSU Pet. at

7-8. However, it would be poor public policy to allow the

States to loot the Federal treasury at will. Fraud consumes as

much as ten percent of the Federal budget, up to $100 billion

annually. S. Rep. No. 345, at 3, 1986 U.S.C.C.AN at 5268.

Federal grants to state and local governments more than

doubled from $108 billion in 1987 to $228 billion in 1996. U.S.

ex rel. Zissler v. Regents of Univ. of Minnesota, 154 F.3d 870,

874 (8th Cir. 1998), citing Bureau of the Census, U.S. Dept. of

Commerce Publication FES/96, Federal Expenditures by State

for Fiscal Year 1996 at 46, Table 11 (1997). The dollar cost of

state fraud runs in the billions. The cost of exempting the States

from the enforcement reach of the False Claims Act will

continue to rise with the reality of increasing Federal grants to

the States. Furthermore, fraud undermines public confidence in

the Federal government. S. Rep. No. 345, at 3, 1986

US.C.CAN. at 5268. TSU protests that forcing state

taxpayers to repay fraudulently obtained grants is against public

policy. By implication, TSU’s argument is that forcing the

Federal taxpayer to subsidize their fraud is acceptable. Clearly,

it is not. Allowing fraud to run unchecked is poor public policy

-... Im general.

20

Nor can the reluctance TSU 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 to override Congress’s manifest intent to treat

state institutions the same as any other entity that knowingly

defrauds the United States.

CONCLUSION

For all the reasons set forth above, TSU’s Conditional

Cross-Petition for Writ of Certiorari should be denied.

Respectfully submitted.

RICHARD S. LONDON

Counsel of Record

London & Schaeffer, LLP

3118 Richmond, Suite 200

Houston, Texas 77098-3016

(713) 524-7300

Counsel for Cross-Respondent Mittal

May, 2000