DATE: May 24, 2000

FROM: Barry McVay, CPCM

SUBJECT: Supreme Court Decision 98-1828, Vermont Agency of Natural Resources v. United States ex rel. Stevens

SOURCE: U.S. Supreme Court Decision 98-1828, Decided May 22, 2000

ACTION: Decision

SYNOPSIS: In a 7 to 2 decision handed down on May 22, 2000, the Supreme Court decided that a private individual has standing to bring suit in federal court on behalf of the United States under the False Claims Act (so called "qui tam" suits), but that a state or agency is not a "person" subject to qui tam liability. Qui tam suits have been used with increasing frequency to recover funds fraudulently obtained in business with the government (particularly in the health care and defense industries), and the constitutionality of such suits has been questioned.

SUPPLEMENTAL INFORMATION: Originally enacted in 1863 to help stop fraud being perpetrated by private contractors during the Civil War, the False Claims Act (FCA) created a form of civil action known as "qui tam". The FCA imposes civil liability upon "any person...[who] 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." The defendant is liable for up to treble damages and a civil penalty of up to $10,000 per claim. (EDITOR'S NOTE: "Qui tam" is short for the Latin phrase "qui tam pro domino rege quam pro se ipso in hac parte sequitur", which means "who pursues this action on our Lord the King's behalf as well as his own.")

An FCA action may commence in one of two ways: the government may bring a civil action against the alleged false claimant, or a private person (the "relator") may bring a qui tam civil action "for the person and for the United States Government" against the alleged false claimant, "in the name of the Government." When a relator brings a qui tam suit, he or she receives a share of any proceeds from the action -- generally between 15% to 25% if the government intervenes, and between 25% and 30% if the government does not intervene (plus attorney's fees and costs).

This particular qui tam suit was brought by Jonathan Stevens against his former employer, the Vermont Agency of Natural Resources, alleging that the agency had submitted false claims to the Environmental Protection Agency (EPA) in connection with various federal grant programs administered by the EPA. Specifically, Mr. Stevens claimed that the agency had overstated the amount of time spent by its employees on federally funded projects, so the government disbursed more grant money than the agency was entitled to receive. The United States declined to intervene in the action.

The agency moved to have the suit dismissed, arguing that a state (or state agency) is not a "person" subject to liability under the FCA, and that a qui tam action in federal court against a state is barred by the 11th Amendment ("the judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state"). The District Court denied the motion, and the Court of Appeals for the Second Circuit affirmed the denial. The agency appealed to the Supreme Court.

The decision, which was written by Justice Antonin Scalia, cites the history of qui tam suits, which apparently originated in the 13th century in England when private individuals who had suffered injury began bringing actions in the royal courts on both their own and the Crown's behalf. Parliament enacted statutes that explicitly provided for qui tam suits, and they were prevalent in the American colonies immediately before and after the framing of the Constitution. "We think this history [is] well nigh conclusive with respect to the question before us here: whether qui tam actions were 'cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process,'" wrote Justice Scalia.

To establish Article III standing, a plaintiff must: (1) demonstrate "injury in fact" -- a harm that is both "concrete" and "actual or imminent, not conjectural or hypothetical"; (2) establish causation -- a "fairly traceable" connection between the alleged injury and the alleged conduct of the defendant; and (3) demonstrate redressability -- a "substantial likelihood" that the requested relief will remedy the alleged injury. The question in all qui tam suits brought by individuals is whether the relator has suffered an "injury", since the alleged fraud has been perpetrated against the government, not the relator.

"We believe, however, that adequate basis for the relator's suit...is to be found in the doctrine that the assignee of a claim has standing to assert the injury in fact suffered by the assignor. The FCA can reasonably be regarded as effecting a partial assignment of the Government's damages claim...We conclude, therefore, that the United States' injury in fact suffices to confer standing on respondent Stevens."

However, the agency asserted that a state is not a "person" subject to qui tam liability under the FCA, and, even if it is, the 11th Amendment bars such a suit. Citing the FCA language that "any person" who knowingly presents a false or fraudulent claim to the government is subject to FCA liability, the Court states that "we must apply to this text our longstanding interpretive presumption that 'person' does not include the sovereign...The presumption is, of course, not a 'hard and fast rule of exclusion,' but it may be disregarded only upon some affirmative showing of statutory intent to the contrary." Examining the text of the FCA and its amendments, the Court finds that the FCA "bore no indication that states were subject to its penalties. Indeed, far from indicating that states were covered, it did not even make clear that private corporations were...Although the liability provision of the original FCA has undergone various changes, none of them suggests a broadening of the term 'person' to include states." Since the state agency is not subject to the FCA, the court dismisses the case, and the court does not address the 11th Amendment issue. (EDITOR'S NOTE: In a separate concurrence, Justices Ginsburg and Breyer question "whether the word 'person' encompasses states when the United States itself sues under the False Claims Act.")

In a dissent, Justices Stevens and Souter find that states should be considered "persons" under the FCA, citing the fact that it was enacted shortly after a congressional subcommittee "decried the 'fraud and peculation' by state officials in connection with the procurement of military supplies and government contracts -- specifically mentioning the purchase of supplies by the states of Illinois, Indiana, New York, and Ohio." Also, they cite the 1986 FCA Amendments, finding "in a section of the 1986 Senate Report describing the history of the Act, the committee unequivocally stated that the Act reaches all parties who may submit false claims and that "the term 'person' is used in its broad sense to include partnerships, associations, and corporations...as well as states and political subdivisions thereof."

EDITOR'S NOTE: In a footnote to the decision, the Court states that it is not expressing any view at this time on "whether qui tam suits violate Article II, in particular the Appointments Clause of Section 2 and the 'take Care' Clause of Section 3." The Appointments Clause states that the president "shall appoint...all other officers of the United States," and many argue that qui tam relators are not appointed officers, though they seek to enforce federal law on behalf of the government. The "take Care" clause requires the president to "take care that the laws [are] faithfully executed," and the argument is that relators are not under the control of the president, so the president cannot "take care" that the relators are faithfully executing the laws. Though Vermont Agency of Natural Resources is a significant ruling, the Court leaves open the question of whether it will knock down the FCA on these constitutional grounds. Look for more FCA challenges to be filed in the near future.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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