Cook County, IL v. U.S. ex rel. Chandler, Janet (03/10/2003)

Questions presented: Whether local governmental entities are subject to qui tam actions under the False Claims Act (FCA) (31 U. S. C. 3729)?

BY JOHN KOSS, MEDILL NEWS SERVICE

On Sept. 1, 1993, Dr. Janet Chandler was hired as the project director of New Start, a program designed to study the treatment of drug-dependent pregnant woman. The program was funded by a $5 million grant from the National Institute of Drug Abuse (NIDA) and awarded to Cook County Hospital (CCH). The funds were transferred to Hektoen Institute of Medical Research, a CCH affiliate established to receive funds and conduct the research.

In providing treatment to drug-dependent pregnant women, the New Start program studied the effect of a "stepped-up medical battery of medical and social services compared to a control group receiving the typical treatment available in the community."

In 1994, Dr. Chandler informed physicians at CCH that she was concerned with the handling of the New Start program and came to believe that the hospital was submitting false information and progress reports to the government. She observed that CCH did not follow mandatory protocol for research on human subjects and failed to keep accurate records.

After she spoke up, Chandler alleges CCH retaliated against her by revoking some of her responsibilities and ultimately firing her in 1995. Chandler filed suit in federal court against CCH on behalf of the United States under the False Claims Act.

The False Claims Act (FCA), which was enacted in 1863 and later amended by Congress in 1986, establishes civil penalties for "[a]ny 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" or who "conspires to defraud the government by getting a false or fraudulent claim allowed or paid."

Such a person is "liable to the United States Government for a civil penalty of not less than $5,000 and not more then $10,000, plus three times (treble damages) the amount of the damages which the government sustains because of the act of that person."

Soon after Chandler filed suit, issues arose with regard to two FCA stipulations, the word "person" and the awarding of treble damages. In the case, Cook County was sued as the "person" who wronged the government. Cook County, however, denied Chandlers claims of wrongdoing and moved to dismiss on the grounds that it was not a person within the meaning of the FCA, said Assistant States Attorney Donna Naff.

The district court initially denied Cook County's motion to dismiss, ruling that the county was a "person" as defined by the Civil Investigative Demand provision of the FCA, which was added by Congress in 1986. In this provision, a "person" is defined as "any natural person, partnership, corporation, association or legal entity including any political subdivision of a State." The court also determined that the treble damages provision of the FCA was not punitive so that municipalities traditional immunity from punitive damages did not apply.

Chandler's attorney, Judson H. Miner, said the FCA was "very specific" and while the FCA may exclude state governments, which are co-sovereigns, local governments, which are corporations, should "be treated like any other incorporated entity under the Act."

Cook County urged the court to reconsider its ruling, citing the Supreme Courts 2000 opinion in Vermont Department of Natural Resources v. Stevens, in which the Court held 7-2 that states were not persons within the meaning of the FCA and concluded that the treble damages provision was punitive.

While the district court found nothing in Stevens to alter its conclusion that the county was "a person for the purposes of the FCA," it did find that under Stevens, the county was immune from the imposition of punitive damages. As a result, the case against Cook County was dismissed.

A unanimous panel for the 7th Circuit Court of Appeals reversed, holding that because Cook County is a person within the meaning of the FCA, it "does not enjoy immunity from the FCA's damages scheme."

To reach its conclusion, the 7th Circuit sought to interpret the FCA by delving into "the will of Congress" both when it enacted the statute back in 1863 and when it amended it more than 100 years later to add a Civil Investigative Demand to preserve documents, a "whistleblower" provision to protect those providing useful information, and a provision that increased the damages available under the act from double to treble.

"We must conclude that a study of the text and structure of the Act, supported by the available legislative history, leads to the conclusion that Congress intended to include counties within the meaning of person," wrote Judge Joel Flaum.

The 7th Circuit went on to conclude that the Supreme Court's opinion in Stevens did not preclude counties from being assessed the punitive damages.

In pointing out that although the FCA allows for treble damages, it limits damages per claim to three times a maximum of $10,000 per claim. "Although the trebling of the actual loss is indeed a significant enhancement and punitive in nature, it is nevertheless a response specifically determined by Congress as necessary for the effective operation of the FCA." Flaum wrote. "By contrast, Congress made no adjustment to the general scheme for municipal entities."

The appeals court also noted that FCA damages, even when trebled, would not break the banks of counties or cities. "Billions of dollars flow from the federal government to municipalities each year. Congress, in creating, in 1863, and then strengthening, in 1986, a comprehensive mechanism designed to remedy fraud against the federal government clearly determined that recipients of federal funds must be subject to such a deterrent," wrote Flaum. "Given this legislative judgment, municipalities' common-law immunity from suit is inconsistent with Congress' purpose in adopting the FCA."

In its argument that the U.S. Supreme Court review the case, Cook County attorney Naff noted that both the 3rd and 5th circuits have held in similar cases that municipalities could not be sued under the FCA and that FCA damages were punitive.

On June 28, 2002, the Court granted certiorari in the case, and on March 10, 2003, the Court unanimously affirmed.

Writing for the Court, Justice David Souter concluded that local governments were considered "persons" historically under the False Claims Act, and nothing in the 1986 amendments, which raised the ceiling on damages from double to treble, should be construed to eliminate municipal liability.