Amicus Curiae Brief — Wilcox v. United States (No. 07-1336)

MOTION FILED

MAY 2 1 2008

oy,

®

No. 07-1336

IN THE

Supreme Court of the United States

COLLEEN B. WILCOX, ET AL.,

Cross-Petitioners

v.

UNITED STATES EX REL. JOHN DAVID STONER,

Cross- Respondent.

ON CROSS-PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MOTION FOR LEAVE TO FILE BRIEF AS AMICI

CURIAE AND BRIEF OF STATE AGENCIES AS

AMICI CURIAE IN SUPPORT OF CROSS-

PETITIONERS

Carolyn F. Corwin

Counsel of Record

Sara B. Cames

Covington & Burling LLP

1201 Pennsylvania Ave. N.W.

Washington, D.C. 20004

(Additional Counsel and (202) 662-6000

Individual Amici Curiae

Listed on Inside Cover) Counsel for Amici Curiae

Of Counsel:

Anne Ruselowski

General Counsel

H. Philip Elwood

Board Counsel

Kansas Health Policy Authority

900 SW Jackson, 9th Floor

Topeka, KS 66612

Howard Pallotta

Director of Legal Services

Oklahoma Health Care Authority

4545 N. Lincoln Boulevard, Suite 124

Oklahoma City, OK 73105

Amici Curiae:

Illinois Department of Healthcare and Family

Services

Kansas Health Policy Authority

Oklahoma Health Care Authority

South Dakota Department of Social! Services

Tennessee Department of Finance and

Administration, Bureau of TennCare

Utah Department of Health

MOTION FOR LEAVE TO FILE BRIEF AS

AMICI CURIAE

Amici curiae are state social service

agencies responsible for administering complex

federal-state programs. (A list of amici appears on

the inside cover of this motion.) Amici respectfully

move for leave to file the attached brief. The

attorney for cross-petitioners has consented to the

filing of this brief. Amici requested the consent of

the cross-respondent, Mr. Stoner, but he refused to

consent.

Amici have a strong interest in this

case. The Ninth Circuit reversed the district court’s

dismissal of counts under the False Claims Act, 31

U.S.C. §§ 3729-33, brought against three public

officials in their individual capacities. The courts

below considered the agencies that employed these

officials to be arms of the State of California. If state

officials can be subjected to the threat of litigation

and held personally liable under the False Claims

Act, the greatest potential liability for such suits will

arise in connection with the federal-state programs

administered by amici.

If allowed to stand, the decision below

will disrupt the state agencies’ implementation of

federal-state programs by undermining the intricate

relationships between the federal and _ state

governments in the administration of these

programs. If state employees responsible for

administering federal-state programs face the threat

of potentially massive personal liability under the

False Claims Act, state agencies will have difficulty

recruiting and retaining qualified candidates for

these essential positions.

Respectfully submitted,

Carolyn F. Corwin

Counsel of Record

Sara B. Cames

Covington & Burling LLP

1201 Pennsylvania Ave. N.W.

Washington, D.C. 20004

(202) 662-6000

Counsel for Amici Curiae

May 21, 2008

TABLE OF CONTENTS %

o

\

INTEREST OF AMICI CURIAE

STATEMENT

SUMMARY OF ARGUMENT

ARGUMENT

I. The Decision Below Is Inconsistent with

Congressional Intent and with the

Approach Taken by Other Federal

Ae aa, ed ovionennvireie 8

A. There Is No Evidence that

Congress Intended the False

Claims Act to Cover State Officials

Sued in Their Personal Capacities.

A State Official Who Is Not Alleged

to Have Acted for Private

Financial Gain Is Not Covered by

the False Claims Act. .....................00. 12

The Ninth Circuit Erred in Relying

OR Fe is IY siticotsncdncansecassiacecasesinss 15

The Decision Below Is Incompatible

with the Framework for Administration

of Federal-State Program.,....................00.00000 16

If Not Reversed, the Decision Below

Will Severely Impact State Program

Nn oc cuwcubenbunsdecka 21

CONCLUSION

TABLE OF AUTHORITIES

CASES

Alexander v. Gilmore, 202 F. Supp. 2d 478

(E.D. Va. 2002)

Bender v. Williamsport Area Sch. Dist., 475

Nee poasengeessns 13, 14

Bowen v. Massachusetts, 487 U.S. 879

(1988) 18, 19, 20

City of New York v. Richardson, 473 F.2d 923

(2d Cir. 1973)

Deal v. United States, 508 U.S. 129 (1993)

Hafer v. Melo, 502 U.S. 21 (1991)...................5, 15, 16

Harlow v. Fitzgerald, 457 U.S. 800 (1982)

Hughes Aircraft Co. v. United States ex rel.

Schumer, 520 U.S. 939 (1997)

Idaho v. Coeur d'Alene Tribe of Idaho, 521

U.S. 261 (1997)

Lizzi v. Alexander, 255 F.3d 128 (4th Cir.

ss snenonnevences 14

Luder v. Endicott, 253 F.3d 1020 (7th Cir.

Monroe v. Pape, 365 U.S. 167 (1961)

Nevada Dep’t of Human Resources v. Hibbs,

538 U.S. 721 (2003)

Pennhurst Siate Sch. & Hosp. v. Halderman,

465 U.S. 89 (1984)

Samuel v. Holmes, 138 F.3d 173 (5th Cir.

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

a a dscenepnnteses an

United States ex rel. Burlbaw v. Orenduff,

400 F. Supp. 2d 1276 (D.N.M. 2005)

United States ex rel. Dunleavy v. County of

Del., 279 F.3d 219 (3d Cir. 2002)

United States ex rel. Gaudineer & Comito,

L.L.P. v. Iowa, 269 F.3d 932 (8th Cir.

United States ex rel. Graber v. City of New

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

United States v. McNinch, 356 U.S. 595

EE eeeein snnintiancinigslpsdpdabnessbubeabendsceadedebeccsesiesarcs Saeko il 8

Vt. Agency of Natural Res. v. United States ex

rel. Stevens, 529 U.S. 765

i sss ty OO 20, 41, 12

Will v. Mich. Dep’t of State Police, 491 U.S.

SE Mini ic diecoGudsendabcdadennsiindcduduhsuenbetarsdidectescntabedss 5

STATUTES

7 U.S.C, §§ 2011 et seq

7 U.S.C. § 2020(g)

31 U.S.C. §§ 3729-33

U.S.C, § 3729(a)

U.S.C. § 3730(b)..

U.S.C. § d730(b)(2)

U.S.C. § 3730(b)(A4). .....

U.S.C, § 3730(b)(4)(B).

U.S.C. § 3730(a).

42 U.S.C. &§ 601 et seq

42 U.S.C. § 609

4? U.S.C. §§ 1396 et seq

42 U.S.C, § 1396(c)

42 U.S.C. § 1396b(d),

42 U.S.C. § 1396b(d)(5)

42 U.S.C. § 1983.....

REGULATIONS

42 C.F LR. § 430.30

42 U.P LR. § 430,d0(c)

42 C.F.R. § 430.42

42 C.F.R. § 430,.42(b)

42 C.F.R. § 430.42(c) .......

Se SRE RE MER Pe 19

OTHER AUTHORITIES

62 Cong. Globe 952-58 (1863)

H.R. Rep. No. 2, 37th Cong., 2d Sess., pt. l-a

U.S. Department of Commerce, Bureau of

the Census, Publication FES/97, Federal

Expenditures by State for Fiscal Year

U.S. Department of Commerce, Bureau of

the Census, Publication FAS/05, Federal

Aid to States for Fiscal Year 2005

The state agencies listed below

respectfully submit this brief amicus curiae in

support of cross-petitioners in this case.!

INTEREST OF AMICI CURIAE

Amici curiae are state social service

agencies responsible for administering complex

federal-state programs. States play an important

role in administering many federal programs,

including Medicaid, Temporary Assistance to Needy

Families (TANF), Emergency Assistance, Child

Support Enforcement, Foster Care and Adoption

Assistance, the Child Health Insurance Program,

and Food Stamps. States that choose to operate

within the parameters set out in the governing

federal statute are entitled to claim federal funding

to cover some percentage of their programmatic and

administrative expenditures.

Amici have a strong interest in this

case. The Ninth Circuit reversed the district court’s

dismissal of counts under the False Claims Act, 31

U.S.C. §§ 3729-33, brought against three public

! Pursuant to Rule 37.6, amici state that no counsel for any

petitioner or respondent authored this brief in whole or in part.

No person or entity, other than amici, their members, or

counsel, made a monetary contribution to the preparation or

submission of this brief.

Counsel of record for all parties and cross-respondent received

notice at least 10 days prior to the filing of this brief. Mr.

Stoner did not consent to the filing of this brief. Thus, amici

file this brief with a Motion for Leave to File Brief as Amici

Curiae.

employees in their individual capacities. These

individuals, employees of the Santa Clara County

Office of Education, are responsible for implementing

a federal program — the Individuals with

Disabilities Education Act — as part of their official

duties. The plaintiff (cross-respondent here)

asserted that these employees falsely certified

compliance with this statute to obtain more federal

funds for educational programs. Both the district

court and the court of appeals held that a California

county office of education is an arm of the State for

purposes of this case. Appendix to Cross-Petition

("Pet. App.") 6a-7a.

If state officials can be subjected to the

threat of litigation and held personally hable under

the False Claims Act, the greatest potential liability

for such suits will arise in connection with the

federal-state programs administered by amici.

These are the programs that generate the greatest

volume of claims submitted to the federal

government. State officials are regularly called upon

to interpret and implement numerous federal

statutes and regulations in determining the amount

of federal funds a State may claim in connection with

these programs.

If allowed to stand, the decision below

will disrupt the state agencies’ implementation of

federal-state programs by undermining the intricate

relationships between the federal and _ state

governments in the administration of these

programs. If state employees responsible for

administering federal-state programs face the threat

of potentially massive personal liability under the

False Claims Act, state agencies will have difficulty

.

recruiting and retaining qualified candidates for

these essential positions.

STATEMENT

l. Amici state agencies administer

numerous federal-state programs. These programs,

most of which involve provision of services to

individuals, are largely administered by the States

and are partially supported by the federal

government through federal financial participation.

These programs include, among many others,

Medicaid, 42 U.S.C. §§ 1396 et seg., TANF, 42 U.S.C.

§§ 601 et seg., and Food Stamps, 7 U.S.C. §§ 2011 e¢

seq. Individual state officials must make numerous

policy decisions about how these programs will be

implemented in accordance with a multitude of

federal statutory and regulatory guidelines. State

employees also must determine the amount of

federal funds that may properly be claimed under

these programs. For most federal-state programs,

Congress and the responsible federal agencies have

established extensive schemes governing compliance,

audit, disallowance of claims, and repayment of any

federal funds incorrectly claimed. See, e.g., 42 U.S.C.

§ 1396(c) (Medicaid); 42 U.S.C. § 609 (TANF); 7

U.S.C. § 2020(g) (Food Stamps).

The federal government disburses huge

sums in connection with these federal-state

programs. Federal grants to state and local

governments doubled from $115 billion in 1988 to

$230 billion in 1997. See U.S. Department of

Commerce, Bureau of the Census, Publication

FES/97, Federal Expenditures by State for Fiscal

Year 1997 at 46, Table 11 (April 1998). By 2005, this

figure had grown to over $403 billion. See U.S.

.

Department of Commerce, Bureau of the Census,

Publication FAS/05, Federal Aid to States for Fiscal

Year 2005 at v (2005). Medical assistance programs

(including Medicaid) and TANF accounted for over

half of this amount. See id. at viii, figure 3.

2. The False Claims Act provides that “any

person” who knowingly presents a false or fraudulent

claim for federal funds is liable to the United States

for a civil penalty of up to $10,000 per claim and

treble damages. 31 U.S.C. § 3729(a). Suits under

the False Claims Act may be brought either by the

United States, or by a private individual on behalf of

the United States (a “qui tam relator”), id. § 3730(b).

If a relator brings the suit, the United States has the

opportunity to intervene and direct the case. Id. §

3730(b)(2) & (4). If the United States declines to

intervene, the relator may continue to pursue the

suit on behalf of the government. Id. § 3730(b)(4)(B).

In either case, if the suit is successful, the relator

receives a portion of the recovery, generally between

fifteen and twenty-five percent. Id. § 3730(d).

3. This False Claims Act suit was brought

against the Santa Clara County Office of Education,

the East Side Union High School District, and three

employees of the Santa Clara County Office of

Education who were sued in their official and

individual capacities. Pet. App. lla. The relator,

John David Stoner (cross-respondent here), alleged

that the defendants submitted false certifications of

compliance with the Individuals with Disabilities

Education Act, which in turn allegedly caused the

federal government to provide additional federal

funds for educational programs. Jd. at 3a. The

United States declined to intervene. Id. at 4a. All of

ude

the defendants then moved for dismissal on the

ground that they are not “persons” under the False

Claims Act. Id.

The district court granted dismissal as

to all defendants. The court held that the Office of

Education and the high school district were arms of

the State and thus are not subject to liability under

the False Claims Act. Jd. at 6a-7a; see also Vt.

Agency of Natural Res. v. United States ex rel.

Stevens, 529 U.S. 765, 787-88 (2000) (States are not

“persons” under the False Claims Act). The claims

against the individual defendants in their official

capacities were dismissed under a similar rationale.

Pet. App. lla (citing Will v. Mich. Dep't of State

Police, 491 U.S. 58, 71 (1989) (official capacity suit

for money damages is suit against the State itself)).

Finally, the district court dismissed the personal

capacity claims against the individual defendants

because the relator “could not allege that the

defendants’ actions exceeded the scope of their

official responsibilities.” Pet. App. 12a.

4. The Ninth Circuit agreed that the

claims against the Office of Education, the high

school district, and the individual defendants in their

official capacities were properly dismissed. It held,

however, that the individual defendants could be

sued in their personal capacities under the False

Claims Act for actions taken within the scope of their

duties. Id. at 12a-13a. In reaching this conclusion,

the court of appeals relied heavily on Hafer v. Melo,

502 U.S. 21, 27-31 (1991), in which this Court

construed the term “person” as it is used in a civil

rights statute, 42 U.S.C. § 1983. Pet. App. 13a-15a.

SUMMARY OF ARGUMENT

The Ninth Circuit’s holding that a False

Claims Act suit may proceed against state employees

in their individual capacities is erroneous and

dangerous. There is no evidence that Congress

intended the term “persons” under the False Claims

Act to include state officials, particularly in view of

this Court’s holding that States themselves are not

covered by the statute. The Ninth Circuit’s holding

is also sharply at odds with the reality that state

employees are likely to be public-spirited individuals

of modest means. It is simply not credible to

conclude that Congress meant to expose such

employees to the threat of massive damages and

penalties under the False Claims Act. At a

minimum, there is no basis for such a suit against a

state employee in his personal capacity where the

employee acted within the scope of his official

responsibilities and not for his own _ personal

financial gain. The Ninth Circuit’s decision is

inconsistent with the approach taken by the Eighth

Circuit and by district courts in other circuits.

Moreover, False Claims Act suits against state

employees would be inconsistent with the statutory

and regulatory framework of numerous programs

jointly administered by federal and state officials.

If the decision below is allowed to stand,

it will impair the administration of federal-state

programs that provide necessary services to citizens

and will cause serious administrative problems for

state agencies. State officials will face the threat of

devastating financial liability when they submit

claims for federal funds to help support social

services 1n accordance with their job duties. Even a

.6-

remote possibility of such crippling hability will

make it difficult for state agencies to recruit and

retain qualified candidates for these positions. These

serious consequences both support grant of the

petition and demonstrate the error of the decision

below to the extent it permits a False Claims Act suit

against state officials.

ARGUMENT

The undersigned state agencies urge

the Court to grant review to address a question of

great significance to them, whether state officials

may be sued in their individual capacities under the

False Claims Act. The decision of the Ninth Circuit,

which holds that such suits may be brought, makes

little sense. States themselves are not covered by

the False Claims Act. There is no reason to think

that Congress intended that state employees —

ordinarily public-spirited individuals of modest

means — would face the threat of onerous lability

under the statute, at least in cases where the

employee has acted within the scope of his or her

official duties and not for personal financial gain.

The Ninth Circuit holding is at odds

with the approach taken by the Eighth Circuit and

other courts. Moreover, if allowed to stand, the

decision below will seriously undermine state

agencies ability to administer numerous federal-

state programs. Amici therefore request that this

Court grant the petition for a writ of certiorari and

reverse the decision below to the extent it permits a

False Claims Act suit against state officials.

The Decision Below Is Inconsistent with

Congressional Intent and. with the

Approach Taken by Other’ Federal

Courts.

A. There Is No Evidence that Congress

Intended the False Claims Act to

Cover State Officials Sued in Their

Personal Capacities.

The Ninth Circuit concluded that the

term “person” in the False Claims Act is broad

enough to include state officials sued in their

individual capacities. But the history and the

broader context of the statute suggest otherwise, as

does common sense. There is no indication that

Congress intended the False Claims Act to reach

state officials, even when they are sued in their

individual capacities.?

While the language of the statute is

broad, “it is. . . clear that the False Claims Act was

not designed to reach every kind of fraud practiced

on the Government.” United States v. McNinch, 356

U.S. 595, 599 (1958). As this Court has recognized,

when Congress enacted the False Claims Act in

1863, its goal was to stop “the massive frauds

perpetrated by large [private] contractors during the

2 This Court has noted that the term “person” “presumptively”

includes natural persons. Stevens, 529 U.S. at 784 n.14; see

also 1 U.S.C. § 1. However, the context of a particular provision

may overcome such a presumption. See, e.g., Deal v. United

States, 508 U.S. 129, 132 (1993); 1 U.S.C. § 1 (definitions in the

Dictionary Act are to be applied unless “the context [of any Act

of Congress] indicates otherwise’).

ee

Civil War.” Stevens, 529 U.S. at 781 (quoting United

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

(alteration in original); see also United States ex rel.

Graber v. City of New York, 8 F. Supp. 2d 343, 352

(S.D.N.Y. 1998) (purpose of False Claims Act was “to

address war fraud by private contractors”). The

United States had been billed for nonexistent or

worthless military goods, and Congress sought to

stem the tide of fraud by enacting the False Claims

Act. See 62 Cong. Globe 952-58 (1863). Thus, the

goal was to reach private contractors. There is no

indication that Congress wanted to cover state

officials who administered federal programs.?

The Ninth Circuit holding makes httle

sense unless one assumes that state employees are

out to bilk the federal government in connection with

their administration of federal programs and that

onerous penalties and treble damages are necessary

deterrents in this setting. But there is no reason to

conclude that Congress would have had this view.

Experience suggests that state employees are

generally public-spirited individuals who are not

looking for personal financial gain at the expense of

the federal government. Moreover, state employees

are not generally wealthy; their personal financial

3 A year before enactment of the False Claims Act, Congress

issued a report on the extensive fraud being perpetrated by

private contractors during the Civil War. H.R. Rep. No. 2, 37th

Cong., 2d Sess., pt. ii-a (1862). That report included mention of

fraud by a state official against the federal government. Zd. at

XXXVil-xxxix. This Court noted, however, that the report in

question “is utterly irrelevant, since it was not prepared in

connection with the 1863 Act, or indeed with any proposed false

claims legislation.” Stevens, 529 U.S. at 783 n.12.

resources are usually quite limited. It is not

sa ge to think that Congress intended that these

public servants would face the threat of devastating

financial liability under the False Claims Act.

Moreover, the conclusion that state

officials are subject to suit makes little sense in view

of settled boundaries on the reach of the False

Claims Act. This Court held in Stevens that States

and state agencies are not covered by the term

“person” as it is used in the False Claims Act. 529

U.S. at 787. Thus, States and state agencies are not

subject to liability under the statute in connection

with receipt of federal grant funds.

If States that submit claims for federal

funds under grant programs are not subject to suit

under the False Claims Act, there is no reason to

think that Congress intended the statute to reach

the state officials who administer such programs for

the States. State officials are the instrumentality or

agent by which States submit claims for federal

funding. Like the States themselves, state officials

who claim federal funds on behalf of a State in the

normal course of their duties must be beyond the

reach of the statute. To impose liability on such

officials for undertaking their responsibilities on

behalf of the State would be at odds with this Court’s

conclusion that Congress did not intend to cover

States under the statute.

Indeed, the decision below might be best

described as an end-run around this Court’s holding

in Stevens. In the context of claims for federal

funding under a joint federal-state program, a suit

against a state official in his or her individual

capacity is essentially an attack on state policy and

. &.

state administrative decisions, not on the actions of a

particular state official. The threat of False Claims

Act liability for a state employee's claims for federal

funding could pressure the State to alter its

administrative and policy decisions in connection

with federal programs and to fund settlements with

relators through indemnification. Relators’ efforts to

recover damages from individual state

administrators, in amounts that would clearly be

beyond the capacity of these individuals to bear,

amount to an effort to obtain through the back door a

form of relief against the State that Stevens

precludes.

In the context of the Fair Labor

Standards Act, the Seventh Circuit has recognized

that suits against state officials in their personal

capacities should not be allowed where those suits

are “really and substantially .. . against the state.”

Luder v. Endicott, 253 F.3d 1020, 1023 (7th Cir.

2000) (citing Idaho vu. Coeur d'Alene Tribe of Idaho,

521 U.S. 261, 270 (1997)). This occurs when “the

effect of the judgment fis} to restrain’ the

Government from acting, or to compel it to act.” Id.

(quoting Pennhurst State Sch. & Hosp. ov.

Halderman, 465 U.S. 89, 101 n.11 (1984)). Luder

involved a suit for back wages allegedly owed to state

employees, brought against state officials in their

individual capacities. The court held that this suit,

which sought damages that “obviously exceed[] the

ability of [the state officials] to pay,” id. at 1024, in

fact was aimed at the State, id. If the State did not

indemnify the officials, they would have to declare

bankruptcy and either quit or comply with the

plaintiffs’ demands. If they quit, new employees

oo

would face similar pressures. fd. The court barred

the suit because “[the plaintiffs] are seeking to force

the state to accede to their view of the Act.” Id.

The situation faced by States and state

officials under the False Claims Act is similar to that

in Luder. Because of the treble damages provision of

the statute and because of the magnitude of the

sums that flow from the federal government to fund

joint federal-state programs, no state employee could

personally bear liability for filing a claim that

resulted in an overpayment to the State. Whether or

not the State indemnified the official, it would face

pressure to comply with a relator’s demands that it

alter the administration of a federal-state program.

Accordingly, in the case of the False Claims Act, suit

against a state official in his or her personal capacity

is In essence a suit against the State and should be

barred under Stevens.

B. A State Official Who Is Not Alleged

to Have Acted for Private Financial

Gain Is Not Covered by the False

Claims Act.

At a minimum, state officials should not

be subject to suit in their personal capacities under

the False Claims Act where they acted within the

scope of their duties and not for personal financial

benefit. As discussed above, Congress’s goal in

enacting the False Claims Act was to stop fraudulent

claims by private contractors. Only state employees

acting outside of their official duties and for their

own personal gain could plausibly be considered

analogous to private contractors who submit

fraudulent claims to the federal government.

+; ee

There is no allegation that the

employees here acted in any way outside of their

official duties, or that they were motivated in any

respect by personal financial gain. Stoner alleged

that the supposedly false certifications of compliance

“induce[d] the government to disburse more money

for certain educational programs.” Pet. App. 3a.

Thus, all of the federal funds at issue here were to go

to the benefit of the federal-state program, not to the

benefit of the individual defendants. It is utterly

implausible that Congress would have intended that

state employees be subject to a False Claims Act suit

in these circumstances.

The court of appeals’ conclusion that a

relator need not allege actions outside of an official’s

authority or motivation by personal! financial gain to

maintain a False Claims Act suit against a state

official is inconsistent with the approach taken by

the Eighth Circuit. In United States ex rel.

Gaudineer & Comito, L.L.P. v. Iowa, 269 F.3d 932

(8th Cir. 2001), a relator brought a False Claims Act

suit against a state employee in his individual

capacity. The relator alleged that the employee had

induced the federal government to continue making

Medicaid payments for services to certain individuals

even though he knew they were no longer eligible for

such payments. The Eighth Circuit dismissed the

claim, holding that because the relator did not

“allege{ ] actions outside [the state employee’s]

official duties as administrator of the waiver

program,” the employee could not be personally

liable. Id. at 937.

This Court’s decision in Bender ov.

Williamsport Area Sch. Dist., 475 U.S. 534 (1986),

ee

supports the Eighth Circuit approach. In Bender, a

school board member sought to appeal in his

personal capacity a decision allowing a prayer club to

meet during school hours. Jd. at 541. The Court

held that the member did not have standing to

appeal in his personal capacity. Although the

complaint alleged claims against the member “in

{his} individual and official capacities,” the Court

held that the “course of proceedings” indicated that

no relief was actually sought against the member in

his personal capacity. Id. at 543; see also Lizzi v.

Alexander, 255 F.3d 128, 137 (4th Cir. 2001) (quoting

Bender, 475 U.S. at 543) (“{t]he mere incantation of

the term ‘individual capacity’ is not enough to

transform an official capacity action into an

individual capacity action”), overruled on other

grounds, Nevada Dep’t of Human Resources v. Hibbs,

538 U.S. 721 (2003).

Other courts have dismissed False

Claims Act suits against officials in their individual

capacities where there was no allegation of personal

profit. See, e.g., United States ex rel. Dunleavy v.

County of Del., 279 F.3d 219, 221 (8d Cir. 2002) (local

government employee not subject to False Claims

Act suit when employee does not personally benefit

from transaction constituting violation), rev'd on

other grounds, 538 U.S. 918 (2003); Alexander uv.

Gilmore, 202 F. Supp. 2d 478, 482 (E.D. Va. 2002)

(complaint failed to state cause of action under False

Claims Act where no allegation that defendants

converted funds to their personal use); Graber, 8 F.

Supp. 2d at 356 (rejecting individual capacity suit

under False Claims Act where there was no

suggestion that official personally profited from

=.

alleged fraud and ail monies were used for foster

care program). The decision below is inconsistent

with these decisions. The Court should grant review

to clarify that state employees who do not seek

personal benefit or otherwise act outside the scope of

their official duties are not subject to a False Claims

Act suit.

C. The Ninth Circuit Erred in Relying

on Hafer v. Melo.

Presumably recognizing that there is no

support in the statute itself or in its history for

allowing False Claims Act suits against state

officials, the Ninth Circuit turned to this Court’s

precedent regarding a different cause of action:

claims under 42 U.S.C. § 1983. Pet. App. 13a-15a.

This Court has held that Section 1983 imposes

liability for actions taken under the color of state law

that violate constitutional or statutory rights

“whether [officials] act in accordance with their

authority or misuse it.” Hafer v. Melo, 502 U.S. 21,

22 (1991). Under Hafer, state officials acting under

the color of state law are not shielded from personal

liability for violation of constitutional or statutory

rights simply because they acted in the course of

their duties. Jd. at 31. The Court concluded that

holding that officials were not subject to personal

lability under Section 1983 where they acted within

the scope of their duties would be equivalent to

granting them absolute immunity. Jd. at 28-29.

Because absolute immunity is granted only to those

“whose special functions or constitutional status

requires complete protection from suit,” Harlow uv.

Fitzgerald, 457 U.S. 800, 807 (1982), the Court

declined to read Section 1983 to preclude lability for

state officials sued in their individual capacities.

The court below erred in relying on

Hafer. Section 1983 and the False Claims Act are

very different statutes. In enacting Section 1983,

Congress specifically intended to reach actions by

state officials. Hafer, 502 U.S. at 28 (quoting

Scheuer v. Rhodes, 416 U.S. 232, 243 (1974)); see also

Monroe v. Pape, 365 U.S. 167, 172 (1961). In

contrast, Congress enacted the False Claims Act to

reach fraud committed by private contractors against

the federal government. See page 8-9, supra. Thus,

there is no reason to construe the two statutes in a

similar way.

Moreover, the framework of the False

Claims Act itself suggests that Ha/fer is irrelevant

here. Hafer addressed actions of a state official

acting within the scope of her authority. It would be

impossible, however, for a state official acting within

the scope of her authority to violate the False Claims

Act, which addresses actions knowingly taken to

defraud the federal government. 31 U.S.C. § 3729(a).

Only a state official acting outside of the scope of her

authority could knowingly submit a false claim to the

federal government. Because conduct of state

officals acting within the scope of their authority

could not constitute a knowing act of fraud against

the federal government, Hafer is inapplicable.

Il. The Decision Below Is Incompatible with

the Framework for Administration of

Federal-State Programs.

The Ninth Circuit’s interpretation of the

False Claims Act to apply to state officials sued in

- 16-

their individual capacities is incompatible with

Congress’s framework for joint federal-state

programs. The programs jointly financed by the

federal and state governments represent the largest

source of federal funds paid to (and claimed by) the

States. In general, federal officials oversee such

programs, but state officials are responsible for

filling in details and administering the program on a

day-to-day basis. The governing federal laws and

regulations and implementing state laws and

regulations that together provide the framework for

federal-state programs are notoriously complicated.

Given the complexity of the statutory

and regulatory framework for federal-state

programs, it is almost inevitable that States on

occasion will claim more federal funds than federal

officials think is authorized. Congress and federal

agencies have developed a comprehensive

administrative framework to handle disagreements

about whether a State claimed the proper amount of

federal funds. Disputes that cannot be handled

through negotiation (most of them are) move through

a multi-step administrative process in which the

position of the federal agency is fully aired and

evaluated before the matter proceeds to federal

court. It is not unusual for some issues of particular

importance to the States or the federal government

to be resolved politically or through legislation.

This system of cooperative federalism is

well illustrated by the Medicaid system, “as complex

a legislative mosaic as could possibly be conceived by

man.” City of New York v. Richardson, 473 F.2d 923,

926 (2d Cir. 1973). States received over $172 billion

in federal funds for Medicaid alone in 2005. See U.S.

08.

Department of Commerce, Bureau of the Census,

Publication FAS/05, Federal Aid to States for Fiscal

Year 2005, at Appendix A, A-7 (2005). The

Department of Health and Human Services (“HHS”)

and its Centers for Medicare and Medicaid Services

(“CMS”) oversee the program, but the States

administer the program and receive federal funds to

match amounts the States spend for medical

assistance to low-income individuals. The Secretary

of HHS is charged with approving state plans and

state plan amendments, and regional offices of CMS

serve as the States’ primary contact in their

respective regions.

A CMS regional office works with the

States in its region to ensure that they are in

compliance with federal statutory and regulatory

requirements. The regional offices are also

responsible for approving the States’ claims for

federal financial participation. As this Court noted,

“fajithough the federal contribution to a State's

Medicaid program is”- referred to as a

‘reimbursement,’ the stream of revenue is actually a

series of huge quarterly advance payments that are

based on the State’s estimate of its anticipated

future expenditures.” Bowen v. Massachusetts, 487

U.S. 879, 883-84 (1988); see also 42 U.S.C. §

1396b(d). These estimates are periodically adjusted

to reflect actual experience, so that overpayment

amounts from one period are withheld from advances

in a subsequent period. 42 U.S.C. § 1396b(d)(5).

A State reconciles its quarterly

advances and actual expenditures through a

quarterly expenditure report submitted to its

regional office. 42 C.F.R. § 430.30(c). If the regional

=e

office questions the allowability of a State’s claim,

CMS may “defer” payment of the claim. 42 C.F.R. §

430.30(c). Deferral is accomplished by excluding the

questioned amount from the grant award pending

further review. 42 C.F.R. § 430.40(b).

If a regional office ultimately

determines that a State’s claim is improper, CMS

will “disallow” the claim. 42 C.F.R. § 430.42. The

State may appeal the disallowance to the HHS

Departmental Appeals Board. 42 C.F.R. § 430.42(b),

(c). If the Board’s decision requires an adjustment of

the amount received by the State, either upward or

downward, a subsequent grant award will reflect the

amount of increase or decrease. In the event of a

decrease (i.e., a “repayment” due to the disallowance

of federal funds the State had previously drawia), the

regulations specify various timetables for repayment

that ensure that the financial integrity of the State’s

program will not be threatened. 42 C.F.R. § 430.48.

A State may seek review of a disallowance decision

in federal district court. Bowen, 487 U.S. at 892.

There is no reason to think that

Congress anticipated that the orderly processes

Congress itself and federal agencies established for

dealing with overpayments under federal-state

programs would be supplemented (and distorted) by

a qui tam relator’s suit. Such suits will interfere

with the proper administration of federal-state

programs. False Claims Act suits against state

officials, even in their personal capacities, may

create pressure for changes in the States’

administration of their policies as States attempt to

resolve such suits. Where the United States does not

intervene in a suit brought by a relator, these

- 46.

changes will be directed not by the federal

government in accordance with Congress’s intent

regarding money granted to the States; rather, they

will be directed by a private citizen. Relators will not

be motivated to ensure that federal funds provided to

the States are spent consistently with congressional

intent; instead, they will focus on their own

monetary interests. See Hughes Aircraft Co. v.

United States ex rel. Schumer, 520 U.S. 939, 949

(1997) (“relators are motivated primarily by

prospects of monetary reward rather than the public

good”). The result will be an overlay of private

interests on the administrative schemes that govern

joint federal-state programs.

Moreover, the framework of the False

Claims Act is antithetical to the approach Congress

has taken to complex federal-state programs. The

False Claims Act is a litigation-based scheme, with a

focus on hability, penalties, and treble damages and

largely enforced by _ private citizens. The

administrative framework for handling

overpayments of federal funds in federal-state

programs is quite different. As this Court has noted,

administrative disallowances are not “damages,” but

instead simply “adjustments” in the amount of a

federal grant to the State. Bowen, 487 U.S. at 892.

Taking what might otherwise be a disallowance and

trebling it and imposing large penalties on top

plainly distorts the division of financial

responsibility and the cooperative system that

underlies the administration of federal-state

programs. The distortion is even more extreme when

the extra financial lability is imposed on an

individual state official responsible for administering

the program.

False Claims Act suits brought by

relators against state officials are a manifestly

unsuitable means to answer questions regarding the

proper division of financial obligations between the

state and federal governments. There is no need to

add the threat of such suits to existing federal

schemes to ensure compliance with federal law.

III. If Not Reversed, the Decision Below

Will Severely Impact State Program

Administration.

Unless this Court grants review and

reverses the holding that state officials may be sued

in their individual capacities, the decision below will

cause severe negative consequences for state

agencies and _ state officials charged with

administering federal-state programs. Damages and

penalties under the False Claims Act are potentially

massive, particularly in connection with

administration of a large federal program like

Medicaid. An individual state employee could never

pay such amounts from his or her own pocket. At

least in the Ninth Circuit, state officiais will likely

perceive that any action to draw down federal funds

under a federal-state program could lead a relator to

file a False Claims Act suit. State officials in other

circuits may well fear that other courts will follow

the Ninth Circuit's lead.

Even a remote threat of massive

personal liability under the False Claims Act will

likely dissuade qualified professionals from public

service. State agencies need expert administrators

|

to manage the many complex federal-state programs

that provide services to millions of state residents.

Decisions about what federal funds the State may

properly claim in connection with a program or about

policies that will affect the amount of such claims

require state officials to interpret complex federal

laws and regulations, and reasonable minds can

differ regarding federal requirements. It will be

difficult for state agencies to administer such

programs efficiently with the threat of massive

personal damages looming for state officials who

implement the programs. The federal government,

too, will be harmed if the threat of personal liability

dissuades qualified state professionals from

accepting positions as _ federal-state program

administrators.

The Ninth Circuit suggested that a

state official sued in his or her individual capacity

under the False Claims Act might be able to assert a

qualified immunity defense. Pet. App. 15a n.3; see

also Gaudineer, 269 F.3d at 940 (dissent). The

prospect that a state official might ultimately be able

to prevail on a qualified immunity defense is not

sufficient to avoid the harms identified above. The

application of the qualified immunity doctrine to a

False Claims Act suit against state officials is not

well established. Indeed, the only court of appeals to

consider the issue to date held that state officials are

not entitled to qualified immunity under the False

Claims Act, at least in connection with the anti-

retaliation provisions of the statute. See Samuel v.

Holmes, 12° F.3d 173, 178 (5th Cir. 1998). A federal

district court has held that qualified immunity is

available to state officials sued under the False

~ 22.

Claims Act, but that decision is on appeal. See

United States ex rel. Burlbaw v. Orenduff, 400 F.

Supp. 2d 1276, 1281-89 (D.N.M. 2005), appeal

docketed, No. 05-2393 (10th Cir. argued Mar. 5,

2007).

Moreover, in Burlbaw the court decided

the qualified immunity issue only after discovery and

development of a factual record. See id. Qualified

immunity is meant to be an immunity from suit, not

merely a defense to hability. See Mitchell v. Forsyth,

472 U.S. 511, 526 (1985). But under the district

court’s analysis in Burlbaw, it is difficult for a state

official to establish qualified immunity at the outset

of litigation. Rather, state officials may be required

to undergo discovery and multiple adjudications

before the immunity defense is resolved.

Even if application of the qualified

immunity doctrine to False Claims Act suits were

well defined, the mere threat of liability under the

statute would likely interfere with the state agencies’

ability to implement federal-state programs by

deterring qualified professionals from accepting

responsibility for administering these programs.

Because application of the qualified immunity

doctrine is not clearly effective as a protection, it is

even more important that this Court clarify that the

False Claims Act does not reach state officials sued

in their individual capacities.

CONCLUSION

For the foregoing reasons, the petition

for a writ of certiorari should be granted and the

decision below reversed to the extent it holds that

state officials may be sued in their individual

capacities.

Of Counsel:

Anne Ruselowski

General Counsel

H. Philip Elwood

Board Counsel

Kansas Health Policy

Authority

900 SW Jackson, 9th Floor

Topeka, KS 66612

Howard Pallotta

Director of Legal Services

Oklahoma Health Care

Authority

4545 N. Lincoln Boulevard

Oklahoma City, OK 73105

May 21, 2008

Respectfully submitted,

Carolyn F. Corwin

Counsel of Record

Sara B. Cames

Covington & Burling LLP

1201 Pennsylvania Ave. N.W.

Washington, D.C. 20004

(202) 662-6000

Counsel for Amici Curiae

Illinois Department of

Healthcare and Family

Services

Kansas Health Policy

Authority

Oklahoma Health Care

Authority

South Dakota Department of

Social Services

Tennessee Department of

Finance and

Administration, Bureau

of TennCare

Utah Department of Health