Major Cases to Date
Cook County v. United States ex
rel. Chandler,
123 S. Ct. 1239 (2003)
U.S. Supreme Court No. 01-1572
Oral Argument-January 14, 2003
Decided-March 10, 2003
The
following is a summary of the Supreme
Court's opinion in Chandler. The
transcript of the oral argument is
available on the Supreme Court website at
http://www.supremecourtus.gov/oral_arguments/argument_transcripts/01-1572.pdf.
The full text of the opinion is available
at http://www.supremecourtus.gov/opinions/02pdf/01-1572.pdf.
Background of the Case
In
Cook County v. United States ex rel.
Chandler, 123 S. Ct. 1239 (2003), 30
TAF QR 1 (Apr. 2003), the Supreme Court
handed down an important decision holding
that local governments are
"persons" subject to qui tam
liability and clarifying that FCA treble
damages have compensatory as well as
punitive traits and cannot be equated
with classic punitive damages. Dr. Janet
Chandler brought this qui tam
action in 1997 against the Hektoen
Institute for Medical Research (Hektoen),
Cook County, and Cook County Hospital
(CCH). CCH had obtained a grant from the
National Institute of Drug Abuse to study
the treatment of drug-dependent pregnant
women. The grant was later transferred to
Hektoen, which is a CCH affiliate. The
terms of the grant required the grantee
to comply with federal regulations for
research on human subjects. Chandler's
lawsuit alleged that the defendants
forged data pertaining to nonexistent
"ghost" research subjects and
submitted false progress reports to the
Government. She also alleged that they
failed to comply with the human subject
research regulations, failed to obtain
informed consent or thorough medical
histories from participants, and failed
to keep accurate records or provide
proper care. Finally, she alleged that
CCH unlawfully retaliated against her by
firing her for speaking out about these
abuses.
Cook
County moved to dismiss, arguing that it
is not a "person" subject to
liability under the Act. The district
court initially denied the county's
motion, ruling that the term
"person" in the Act's liability
provision includes municipalities.
Furthermore, the court ruled that the
Act's treble damages provision is not
punitive, so the traditional immunity of
municipalities from punitive damages was
not implicated. See United States ex
rel. Chandler v. Hektoen Institute for
Medical Research, 35 F. Supp. 2d 1078
(N.D. Ill. 1999), 16 TAF QR 3 (Apr.
1999). Subsequently, in Vermont Agency
of Natural Resources v. United States ex
rel. Stevens, 529 U.S. 765 (2000), 19
TAF QR 1 (July 2000), the Supreme Court,
per Justice Scalia, ruled that states are
not "persons" for purposes of
FCA qui tam suits, and stated that the
Act's treble damages provision is
"essentially punitive in
nature." In light of Stevens,
Cook County moved for reconsideration of
the district court's decision.
On
reconsideration, the district court found
nothing in Stevens to alter its
conclusion that the county is a
"person" for purposes of FCA
liability. See United States ex rel.
Chandler v. Hektoen Institute for Medical
Research, 118 F. Supp. 2d 902 (N.D.
Ill. 2000), 21 TAF QR 2 (Jan. 2001).
However, in view of Stevens, the
court abandoned the position that FCA
damages are not punitive. Holding that
the county was immune from the imposition
of punitive damages, the court dismissed
the case against it. On appeal, the
Seventh Circuit reversed and remanded,
ordering the district court to reinstate
Cook County as a defendant. See United
States ex rel. Chandler v. Cook County,
277 F.3d 969 (7th Cir. 2002), 26 TAF QR 1
(Apr. 2002). The court of appeals ruled
that municipalities have been
"persons" subject to FCA
liability since the Act was first adopted
in 1863, and that nothing in the 1986
amendments exempted municipalities from
liability.
The
Seventh Circuit's ruling on this point
created a conflict with the Fifth
Circuit's decision in United States ex
rel. Garibaldi v. Orleans Parish School
Board, 244 F.3d 486 (5th Cir. 2001),
22 TAF QR 1 (Apr. 2001), cert. denied,
122 S. Ct. 808 (2002). The Garibaldi
court ruled that municipalities are not
"persons" subject to qui tam
liability. A week after the Seventh
Circuit's ruling in Chandler, the
Third Circuit issued a decision that
followed the approach of Garibaldi
and made no mention of Chandler. See
United States ex rel. Dunleavy v. County
of Delaware, 279 F.3d 219 (3d Cir.
2002), 26 TAF QR 4 (Apr. 2002). To
resolve this split among the courts of
appeals, the Supreme Court granted
certiorari. See 536 U.S. 956
(2002), 27 TAF QR 1 (July 2002).
The Court's Decision
In
an opinion written by Justice Souter, the
Supreme Court unanimously affirmed the
judgment of the Seventh Circuit. The
Court noted that it had recognized as
early as 1826, the Court had expressly
recognized the presumption that the
statutory term "person" extends
to cover corporations, including public
corporations such as municipalities. The
Court noted that both case law and legal
commentary in the nineteenth century
reflected the widespread understanding
that municipal corporations, like private
corporations, are included in the term
"person." Indeed,
municipalities were the archetypal
corporations of the eighteenth century,
and it was not until the nineteenth
century that private corporations became
widespread.
The
Court rejected the defendant's argument
that municipal liability was inconsistent
with the criminal penalties and the
historical context of the 1863 Act.
Although the Act's criminal penalty of
imprisonment clearly could not apply to
municipalities, that was no reason to
exempt them from remedies that sensibly
apply. Moreover, although it is true that
local governments were not recipients of
massive amounts of federal funding in
1863, Congress drafted the FCA
expansively in order to reach all types
of fraud that might result in financial
loss to the Government. Thus, neither the
Act's text nor its history supports the
exclusion of municipalities from
liability.
The
Court also rejected the defendant's
attempt to rely on the Stevens
Court's statement that the current FCA
treble damages are "essentially
punitive in nature" to argue that
even if the 1863 Act provided for
municipal liability, the 1986 amendments
eliminated such liability. Clarifying its
statement in Stevens, the court
observed that "treble damages have a
compensatory side, serving remedial
purposes in addition to punitive
objectives." Although "the
tipping point between pay-back and
punishment defies general
formulation," several features of
the FCA suggest a remedial function.
First
of all, the Court observed, some
liability beyond the amount of the fraud
is unquestionably necessary to compensate
the Government completely for ancillary
costs, such as the costs of detection and
investigation, as well as the delays and
inconveniences occasioned by fraudulent
claims. Moreover, the qui tam
feature, which diverts as much as thirty
percent of the recovery to a private
relator, is the "most obvious
indication that the treble damages
ceiling has a remedial place under this
statute." Once the relator's share
is subtracted, the Government's recovery
is roughly double damages, which the
Court had already recognized as remedial
in prior decisions. Moreover, the FCA has
no separate provision for prejudgment
interest, which is usually thought
essential to compensation. Finally, the
Act does not expressly provide for
consequential damages, which are
typically available in actions for fraud
at common law. In fact, the Court
observed, the Act's legislative history
suggests that Congress adopted the treble
damages provision as a substitute for
consequential damages.
Thus,
the Court concluded, the FCA's treble
damages provision "certainly does
not equate with classic punitive
damages." Classic punitive damages
leave the jury with open-ended
discretion, raising concerns that
municipal defendants, because of their
taxing power, may be unfairly targeted by
unduly generous juries, resulting in the
imposition of liability on blameless or
unknowing taxpayers. These concerns are
much less acute under the FCA. If the
jury finds liability in an FCA case, it
is instructed to return a verdict for
actual damages: the court then determines
any multiplier, and sets any separate
penalty. Moreover, the FCA imposes
liability only on local taxpayers who
have already enjoyed the indirect benefit
of the fraud, to the extent that the
ill-gotten federal money has already been
passed along in the form of lower taxes
or expanded services. The courts, by
exercising their discretion, and the
Government, by deploying its power to
intervene and dismiss or settle, can
determine whether the local taxpayer
should make up for an undeserved benefit,
or the federal taxpayer should be
permanently out of pocket. Thus, the
presumption against "punitive"
damages has only limited vigor in this
context.
At
the same time, working against the
weakened presumption regarding
"punitive" damages was a
different presumption, this one at full
strength: the cardinal rule that repeals
by implication are disfavored. As the
Court observed: "Inferring repeal
from legislative silence is hazardous at
best, and error seems overwhelmingly
likely in the notion that the 1986
amendments wordlessly redefined 'person'
to exclude municipalities." In fact,
in light of the objectives of the 1986
amendments, the Court concluded, it is
impossible to believe that Congress
intended silently to repeal municipal
liability. The purpose of the amendments
was to strengthen the FCA: Thus Congress
abolished the government knowledge
defense, increased the measure of
recovery, and enhanced the incentives for
relators to bring suit. There is also
evidence in the legislative history that
Congress affirmatively endorsed municipal
liability. Thus, the Court ruled,
"[i]t is simply not plausible that
Congress intended to repeal municipal
liability sub silentio by the very
Act it passed to strengthen the
Government's hand in fighting false
claims." Because the term
"person" in the FCA included
local governments in 1863, and nothing in
the 1986 amendments redefined the term,
the Court affirmed the judgment of the
Seventh Circuit.
TAF's Amicus Curiae
Brief
Taxpayers
Against Fraud, The False Claims Act Legal
Center, filed a friend-of-the-court brief
in support of the relator Janet Chandler.
TAF's brief was the only one to challenge
the statement in Stevens that FCA
treble damages are "essentially
punitive in nature." The central
holding of Stevens is that states
are not "persons" under the FCA
because of the "long-standing
interpretive presumption that the word
"person" does not include the
sovereign." In TAF's view, the Stevens
Court's statement about punitive damages,
which seems to have been added almost as
an afterthought, was not necessary to
support this holding.
TAF
observed that the Supreme Court has
repeatedly held that the pre-1986 double
damages regime was remedial rather than
punitive. Moreover, the legislative
history of the 1986 amendments clearly
indicates that FCA as amended would be
remedial, not punitive. This history
suggests that the increase from double to
treble damages was effected in order to
ensure that the Government would be fully
compensated for its losses, both direct
and consequential.
As
noted above, the holding in Stevens
was based on the interpretive presumption
that states, which are sovereigns, are
not "persons" subject to suit.
However, TAF pointed out that no such
presumption applies to municipal
corporations because they are not
sovereign. In fact, as the Stevens
court noted, the "presumption with
regard to corporations is just the
opposite" of the presumption with
regard to states: "they are
presumptively covered by the term
person." Therefore, TAF argued that
local governments and governmental
agencies are persons subject to FCA qui
tam liability. Copies of the brief
are available from TAF upon request.
In
its opinion in Chandler, the
Supreme Court accepted many of TAF's
arguments. The Court ruled, just as TAF
had argued, that treble damages are in
many cases purely compensatory, because
they are needed to provide an adequate
incentive for the relator, as well as to
compensate the Government for the costs
of investigation and prosecution,
prejudgment interest, and consequential
damages. The Supreme Court's decision in Chandler
will have an enormous impact on the
Federal Government's fraud-fighting
efforts, because billions of federal
dollars flow to municipalities each year,
creating enormous opportunity-and
enormous temptation-for fraud. The
Court's ruling represents a significant
victory in the effort to combat fraud
against the Government.
Vermont Agency of Natural Resources v.
U.S. ex
rel. Stevens
U.S.
Supreme Court No. 98-1828
Oral Argument - November 29, 1999
Decided - May 22, 2000
The
following is a brief summary of the
Supreme Court's opinion in Stevens.
To see the opinion, log on to http://supct.law.cornell.edu/supct/pdf/98-1828P.ZO.
The following article discusses the
future of qui tam suits against
public entities after Stevens: stevens.pdf.
The
following letter brief addresses how the
holding in Stevens impacts the
question of whether the qui tam
provisions violate the "take
Care" clause of Article II of the
Constitution: riley.pdf
. The brief was filed in the United
States Court of Appeals for the 5th
Circuit on August 31, 2000 in the case of
U.S. ex rel. Joyce Riley v. St. Luke's
Episcopal Hospital et al.
Summary of Court's holding
Reversing
the judgment of the Second Circuit, the
Supreme Court ruled that states and state
entities are not "persons"
subject to qui tam liability under
§ 3729 of the Federal False Claims Act,
31 U.S.C. § 3729 et seq.
Section
3729(a) subjects to liability:
[a]ny
person who," inter
alia, "knowingly presents or
causes to be presented, to an officer
or employee of the United States
Government ... a false or fraudulent
claim for payment or approval."
[emphasis added]
In
reaching its holding, the Court applied
its longstanding presumption that the
term "person" does not include
the sovereign absent an affirmative
contrary showing by Congress. According
to the Court, neither the original 1863
False Claims Act nor subsequent
amendments to the statute manifested such
congressional intent. In reaching its
holding via the statutory construction
issue, the Court never reached the issue
of whether an action in federal court by
a qui tam relator against a state
would violate the Eleventh Amendment.
In
addition to its ruling on the meaning of
"person" as it is used in §
3729 of the False Claims Act, the Court
also ruled that private individuals have
standing under Article III of the
Constitution to maintain qui tam
suits where the Government has declined
to intervene. The Court held that
relators have Article III standing as
partial assignees of the Government's
damages claim to remedy the injury
suffered by the United States. Justice
Scalia wrote the opinion.
TAF's Amicus Curiae
Brief
Taxpayers
Against Fraud, The False Claims Act Legal
Center, submitted briefs as amicus
curiae supporting Jonathan Stevens,
the respondent, on both the state
liability and Article III issues. Copies
of the briefs are available from TAF upon
request.
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Hughes Aircraft Company v. U.S. ex rel.
Schumer
Supreme Court No. 95-1340
Oral Argument - February 25, 1997
Decided - June 16, 1997
(View
the Argument Transcript Online.) The
Supreme Court decided only the narrow
threshold issue of retroactivity and left
all other issues unaddressed. Reversing
the 9th Circuit, the Court unanimously
held that the 1986 FCA amendment
permitting qui tam suits based on
information in the Government's
possession does not apply retroactively
to qui tam suits regarding
pre-1986 conduct. Therefore, the case at
hand should have been dismissed, as
required by the pre-1986 version of the
Act. Because of this retroactivity
holding, the Court expressed no opinion
on the "public disclosure" and
"harm to the public fisc"
issues that also were presented. The
Court vacated the judgment below and
remanded for further proceedings
consistent with its opinion. Justice
Thomas wrote the decision.
Hughes
Aircraft Company and seven amici
filed briefs supporting reversal of the
9th Circuit's decision in U.S. ex rel.
William Schumer v. Hughes Aircraft
Company, 63 F.3d 1512 (9th Cir. 1995).
The relator William Schumer and four
amici, including Taxpayers Against Fraud,
The False Claims Act Legal Center, filed
briefs urging affirmance of the circuit
court decision. The Solicitor General of
the U.S. Department of Justice also filed
an amicus brief supporting
affirmance.
Amici supporting respondent
- National
Employment Lawyers Association
(NELA)
- Taxpayers
Against Fraud, The False Claims
Act Legal Center (TAF)
- National
Health Law Program, Inc. (NHeLP)
- Project
on Government Oversight (POGO)
A
short summary of some of the arguments in
TAF's brief appears below. Copies of the
complete brief may be obtained by
contacting TAF.
Additional
summaries of arguments made in briefs
filed by the Petitioner, Respondent,
Solicitor General, and amici on both
sides may be found in TAF's January 1997
issue of the False Claims Act and Qui
Tam Quarterly Review.
TAF's Amicus Curiae
Brief
- "Public
disclosure" issue
According to TAF's brief, the
legislative history of the 1986
FCA Amendments shows that the qui
tam provisions of the Act
were amended in response to
pervasive fraud against the
Government and several weaknesses
in the Government's
fraud-fighting efforts. TAF
argues that Congress envisioned
that qui tam relators
could substantially contribute to
anti-fraud efforts by exposing
and bringing forward evidence of
fraud, activating and advancing
cases to prosecution, and
providing financial and human
resources. In short, the brief
concludes, Congress' primary aim
in amending the Act was to
bolster anti-fraud efforts by
encouraging more private
enforcement suits.
The brief analyzes the plain
meaning of "public
disclosure" under [back
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3730(e)(4) in the context of the
statute as a whole and its
purposes. It argues that a
"public disclosure"
requires an affirmative act of
exposure to the people as a
whole. The determination of
whether a "public
disclosure" has occurred,
according to TAF, involves an
objective analysis of both the
means of disclosure and the
audience that has received the
disclosure. The first part of the
inquiry examines whether the
means by which a disclosure was
made rendered it likely that it
would reach the people as a
whole. The second part of the
inquiry examines whether the
actual audience to which the
disclosure was made constitutes
the general public. Since the
audits in question were never
disseminated in a manner designed
to reach the people as a whole,
the brief concludes that the 9th
Circuit's holding should be
affirmed.
- Injury
to the public fisc issue
TAF's brief also argues that the
text of the statute, legislative
history, and prior Supreme Court
decisions make clear that proof
of damage to the public fisc is
not an element of an FCA
violation. Further, the brief
contends that submission of
claims for payment while
knowingly violating an explicit
cost accounting disclosure
requirement can form the basis
for FCA liability.
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