COOK COUNTY v. UNITED STATES EX REL. CHANDLER
Under the False Claims Act (FCA), "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" is liable to the federal government. A private person may bring a qui tam action "in the name of the Government" under the FCA. After the National Institute of Drug Abuse gave Cook County Hospital a $5 million research grant, Janet Chandler, who ran the study for a nonprofit research institute affiliated with the hospital, filed a qui tam action, claiming that Cook County and the institute had submitted false statements to obtain grant funds. Based on precedent, which held that States are not "persons" subject to FCA qui tam actions, the District Court granted the County's motion to dismiss. The Court of Appeals reversed.
Are local governments "persons" subject to qui tam actions under the False Claims Act?
Legal provision: Federal False Claims
Yes. In a unanimous opinion delivered by Justice David H. Souter, the Court held that the term "person" includes local governments. The Court noted that the County, as a recipient of federal funding, was clearly able to abuse federal spending and was thus subject to the FCA remedy that applied to prevent such abuse. Rejecting the Country's argument that is was not subject to punitive damages, the Court responded that the federal government amended the FCA to make it a more effective tool against fraud. "It 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," wrote Justice Souter.
Argument of Donnal M. Lach
Chief Justice Rehnquist: We'll hear argument now in Number 01-1572, Cook County, Illinois versus United States, Ex Rel.
Mr. Lach: Thank you.
Mr. Chief Justice, and may it please the Court:
The question today... presented today turns on whether Congress intended to include local governments within the meaning of the False Claims Act's undefined term, person, which this Court determined in Stevens has remained unchanged since the original enactment in 1863.
The indications are that Congress did not subject local governments to liability under the 1863 act,...
As this Court observed in Stevens and in Hubbard versus United States, the 1863 act was enacted as a criminal statute.
It imposed criminal fines or imprisonment in addition to civil damages and forfeitures.
As this Court noted in Marcus v. Hess, any language that the civil portion shares in common with the criminal portion must be given careful scrutiny lest those not intended are brought within the act's reach.
The word, persons, subject to liability, is shared by both the civil and the criminal provisions of the 1863 act, thus, a person that could be held liable civilly must, under the 1863 act, necessarily be capable of being subject to the criminal provision as well.
This Court, in City of Newport, noted that municipal corporations were not considered capable of doing a criminal act or a malicious or willful wrong... excuse me.
The... the criminal nature of the statute in itself is a strong indication that Congress did not include local governments within the purview of the statute.
Justice Ginsburg: Ms. Lach, on that point, am I correct in thinking that the Sherman Act does apply to municipalities?
Mr. Lach: This Court determined that the... the antitrust statutes, under the antitrust statutes the term, person, does include municipalities, local governments.
Justice Ginsburg: And isn't it true that in the original Sherman Act, imprisonment was authorized for every person who violates the act?
Mr. Lach: That is true, but we are unaware of any case in which a local government has been prosecuted as a criminal.
Justice Ginsburg: But the interpretation of the law on the civil side...
Mr. Lach: Yes.
Justice Ginsburg: was not nullified because there was a provision that said, every person is subject to imprisonment.
Mr. Lach: That is correct, Your Honor, and this Court in the City of Lafayette and City of Boulder, in analyzing the term, person, and determining that municipalities were included within that term, were also faced with the treble damages of the... of the Clayton Act, and subsequent to those two decisions, Congress enacted the Local Government Antitrust Act of 1984, in which Congress specifically took local governments out of the range of the treble damages, and now local governments are subject to injunctive or declaratory relief.
Justice Ginsburg: My... my simple point is that by putting a clearly penal provision in the statute, that did not make municipalities out of the act, and I thought that's what you were arguing, that the 1863 act is penal in part...
Mr. Lach: Yes.
Justice Ginsburg: and therefore, it could not have in... covered municipalities.
Mr. Lach: Yes, that is... that is what we're arguing.
Justice Ginsburg: But that's not true of the Sherman Act.
Mr. Lach: It does not appear to be true of the Sherman Act, but again, we are not aware of any case in which a local government was prosecuted under that act.
Justice Ginsburg: Any more than this is a case of prosecution.
Mr. Lach: Any more... that's true, but now, ever since 1878, the False Claims Act has been bifurcated.
The criminal provisions are separately codified from the civil provisions.
Also, as this Court noted in Stevens in 1863, the False Claims Act was enacted to combat fraud during the Civil War by private contractors, and there is no indication that in 1863 the Federal Government was buying anything from local governments, or that there were any Federal contracts with local governments, and without a practice of Federal funding to local governments, Congress would have no reason to envision a local government submitting a false claim for payment, nor were local governments firmly established as persons in 19... excuse me, in 1863.
Chief Justice Rehnquist: Well, Ms. Lach, you don't dispute that the word persons extends to some corporations under the act, do you?
Mr. Lach: Not at all.
Not at all, and in fact, in... in 1863, the term, person, presumptively included private corporations, and there is language in the 1863 act, and given the context of the act, it is reasonable to assume that private corporations were included in the provisions.
Chief Justice Rehnquist: Well, but there... there are also cases from about that time that say that a... a municipality is included in the... in the term, corporation, at any rate.
Mr. Lach: The... the cases at that time were... came from State courts, and the State courts were not consistent throughout... throughout the Nation as to when local governments could be held liable.
Some State courts held they could be held liable in contract, others in tort, and even when held liable in tort, there was sometimes the distinction between proprietary and governmental function.
Justice Kennedy: Well, what about Louisville and Letson?
Mr. Lach: Louisville and Letson, though, only applied to private corporations, and private corporations were established by that 1844 case, but in... this Court did not extend that principle until the 1869 decision in Cowles, and that was the first time...
Justice Souter: Didn't... didn't we recognize it in the Amity case in 1826?
We... we quoted Sir Edward Cook in including municipal corporations as... as persons.
Mr. Lach: Yes, but still, in terms... this Court, in the Cowles decision in 1869, believed that it still was not a settled issue and... and settled the issue once and for all.
In the Amity case, it was not... it was not... the issue that was before the Court that needed to be decided, whether local governments were persons unlike in the Cowles case...
Justice Scalia: Oh, we... we thought otherwise in... in Monell, certainly.
We said in Monell, and I'm quoting it, the Letson principle in 1869 was automatically and without discussion extended to municipal corporations.
Mr. Lach: Yes, but by saying that, this Court in Monell dated the presumption as firmly established as of the 1869 Cowles decision, rather...
Justice Scalia: So you think there was a... a major change between, when, 1863 and 1869?
Mr. Lach: I think that...
Justice Scalia: In that 6-year period, there was suddenly, whap, it applied to municipal corporations, before that it didn't?
It seems to me most implausible.
Mr. Lach: Well, it doesn't... it wasn't an automatic or a dramatic change, but nonetheless, there was a progression.
There was... there was a transition in law within the States.
Justice Scalia: In 6 years?
Mr. Lach: Those 6 years, of all 6 years in this country's history, of course, were the most significant, but... but in terms of dating a presumption that one can firmly rely on, there is no firm date, other than 1869, in which acts of Congress were determined to include person as a... include municipality within the word, person.
Justice Ginsburg: Ms. Lach, the decision, the opinion in Cowles was very brief, right?
Mr. Lach: Yes, it was.
Justice Ginsburg: And it was sort of like, well, of course.
If this was establishing something that hadn't been just taken for granted, don't you suppose the Court would have engaged in a little more reasoning?
Mr. Lach: Perhaps, but nonetheless the Court did decide the issue, and made... made it clear that for once... once and for all, this issue was being decided, and it was at that point that no ambiguity was left.
The first case that ever... that... in which a local government was ever brought before this Court was in 1861, in the Aspinwall case, and there the issue did not arise, and subsequent to the 1863 act, yes, there were other cases in which local governments were brought before this Court, but the issue never arose.
It wasn't until 1869 that we can firmly date when, in... in Federal... in... in congressional enactments, we can presume that the word person included local governments.
And this Court in Monell observed that it took years of judicial conflict before corporations of all sorts, including municipal corporations, were established as persons that could sue and be sued in Federal court.
Justice O'Connor: Ms. Lach...
Well, if we think that it... that the word, person, includes municipal corporations, as, indeed, I think I do, based on Cowles and Monell, then what changed it in your view?
Why would we now have a different view?
Just because of the change in the punitive damages, the treble damages provision?
Mr. Lach: If this Court determines that the word, person, in 1863 did, in fact...
Justice O'Connor: Yes.
Mr. Lach: include local government, that...
Justice O'Connor: Yes, on that assumption, then what would change that?
Mr. Lach: The... the... what would change it is Congress' imposition of treble damages, which this Court has noted...
Justice O'Connor: But without an accompanying change in the definition of person, right?
Mr. Lach: Exactly.
Exactly, and the 1986 amendments were just that.
They were amendments.
What was not changed in 1986 remained the same.
Nonetheless, when Congress provided for treble damages, which this Court has determined to be punitive, Congress knew what this Court said in City of Newport.
This Court reiterated a presumption that local governments are immune from the imposition of punitive damages unless Congress specifically indicates otherwise.
Chief Justice Rehnquist: Well, it seems to me you would have a better argument if you simply said, the 1983 change does not impose punitive damages on local corporations, than to say it suddenly proscribes an entire escape hatch from any sort of liability at all.
Mr. Lach: Well, under the 1863 act, there were only double damages, which this Court concluded were remedial, and they were not punitive, but there was a big step made in 18... 1986, when Congress changed the remedy to mandatory treble damages and, in addition to that, increased the statutory fines.
Justice Stevens: But it didn't make it clear at that time that the change made them punitive.
It was only in the Stevens opinion that we decided they were punitive.
Mr. Lach: But there were indications prior to that that... that... from which Congress understood that the damages were punitive.
In 1981, this Court, in Texas Industries, a case that was cited in Stevens, stated that treble damages are meant to punish, and also in 1981, in City of Newport, this Court cited an 1877 a Missouri supreme court case that held that a municipality was not subject to treble damages under a trespass statute, notwithstanding that statute's general authorization for such damages against any person, and the reason was, treble damages were exemplary, and...
Justice Ginsburg: Ms. Lach, didn't the Court also, I think in the context of the Clayton Act, characterize treble damages as, quote, remedial?
Mr. Lach: The Court... the Court noted both.
The Court said in... in aspect, they are remedial, but then, also they did have an intent to punish as well, but as I stated, the... the Clayton Act no longer applies to local governments because Congress took affirmative steps...
Justice Ginsburg: Nonetheless, it used the word, remedial to characterize treble damages, and one of the difficulties that your... your argument that you're now making encounters is that this change in 1986, wasn't it a dramatic expansion of qui tam liability?
Mr. Lach: It was a dramatic expansion, but as this Court...
Justice Ginsburg: And then... then you think that at the same time that Congress expanded it, it also cut back, without any indication at all?
Mr. Lach: Well, we believe that Congress did not cut back, that... that local governments were never subject to the act, but with this dramatic expansion, there was also the dramatic increase in damages, and this Court has made it clear that local governments have an affirmative defense when punitive damages are at stake, and in order to abrogate that immunity from punitive damages, Congress has got to really say that it intends to impose those punitive damages, treble damages in this case, treble damages plus statutory fines in this case on local governments, and there's no indication anywhere on the face of the 1986 amendments that Congress intended to impose such damages on local governments.
Local governments are mentioned twice in the 1986 amendments.
In one provision, it's the jurisdictional provision, 3732(b), which allows local governments and States to bring State court claims in Federal court when... when the transaction arises from the same transaction as a False Claims Act action.
That indicates that Congress was interested in... in preventing frauds against local governments, not in... in imposing punitive damages on local governments, and the other provision is the CID provision which, as this Court noted in Stevens, has a... has a definition.
That definition includes States and political subdivisions of States, but that is for the purpose of investigation...
Justice Ginsburg: I'm... I'm sorry, I didn't fully grasp the point you were just making.
Were you suggesting that Congress was worried about fraud against municipalities, but it didn't think that fraud would be engaged in by municipal units?
I mean, I remember... I'm from New York, and I remember Tammany Hall.
I don't think it was altogether so different in Cook County, was it?
Unidentified Justice: [Laughter]
Mr. Lach: But the... but the point is that where local governments are mentioned in the... in the False Claims Act in the 1986 amendment, there is no indication that Congress was mentioning them because Congress was intending to abrogate the immunity from punitive damages.
Justice Stevens: May I ask whether you think that Cook County could bring a qui tam action?
Mr. Lach: Well, that's less clear under the False Claims Act.
This Court... I... I know that Your Honor, in the dissenting opinion, suggested that the term, person, is different in 30... 3730(b) from 3730(a).
It's less clear, I think, perhaps, but that was an issue that this Court expressly declined to address in Stevens because there was no need to discuss it or to decide it at that point.
Justice Stevens: And there's no... there's no need to decide it here.
I... I was just curious if you did have a position on it.
Mr. Lach: I think perhaps local governments could bring qui tam actions, but... but it is not clear.
There are also the... the policy considerations with respect to the imposition of punitive damages on local governments.
Local governments apply for and use Federal funds for the benefit of their residents and, as this Court noted in Stevens, in City of Newport, the Court was concerned with the imposition of punitive damages on local taxpayers under any circumstances, and here we have a statute that imposes three times the amount of damages and imposes statutory fines, which get very hefty.
Punitive damages against a local government have got to come from someplace, and there are only two places, reduction in services, or an increase in taxes, and the victims of punitive damages are not the wrongdoers.
They're... they're the innocent, and some of those innocents are not even taxpayers or voters, such as schoolchildren or homeless medically indigent.
The United States significantly... significantly has other means to stop fraud by local governments, and to deter local governments from committing fraud.
The United States has common law causes of action to be made whole, and the most effective deterrent is the threat of debarment from participation in Federal funding.
With no indication that Congress ever intended to include local governments in the... in the 1863 act, and with the Dictionary Act not being enacted until 1871, where Congress for the first time created a statutory presumption that the word, person, includes bodies politic and corporate, this case is in a very different posture from the Monell case.
In Monell, this Court did not just look at the word, person.
This Court looked at the historical environment in which section 1983 was enacted, it looked at the legislative history, and it also looked at the Dictionary Act, which was enacted just 2 months prior with the same... by the same Congress that enacted section 1983.
A review of the circumstances around the 1863 enactment, together with the text and the historical context, leads the other way.
There was no concrete presumption.
There were... there were indications, yes, but does that lead... does that add up to a presumption?
There's no concrete presumption until this Court said so in Cowles in 1869, and then we have Congress in 1871.
There were changes.
There were articulations at that... at that point in time.
If there are no further questions, I'll reserve the remainder of my time.
Chief Justice Rehnquist: Very well, Ms. Lach.
Mr. Lach: Thank you.
Argument of Judson H. Miner
Chief Justice Rehnquist: Mr. Miner, we'll hear from you.
Mr. Miner: Mr. Chief Justice, may it please the Court:
I really can't contribute much more to the discussion of what Congress meant by a person in section... in 1863, other than to point out, as we did in our brief, that in fact, the law in the States prior to Letson... and... and indeed, Letson is the origin of the... of the doctrine, because in Letson, what the Court actually said was, a corporation is a natural person for purposes of the suit where it's incorporated or where it does business, and the Court then goes on and says, and that doctrine also applies to all corporations and body politic.
Chief Justice Rehnquist: Before that, they looked at the citizenship of the individual shareholders to decide whether or not there was diversity jurisdiction?
Mr. Miner: The... that's right.
They... they defined corporations by the... by the members, and... and they could have jurisdictions all over.
That then gets cleared up, and... and the law was absolutely clear in all of the States as we... that we could find.
We found no dissenting opinions that... that held, that didn't hold that a local government, whether it was a corporation, whether it was a quasi corporation, a city, a county, wasn't held responsible for any obligations it had, whether by contract, whether by charter, whether... whether by statute, wherever they came from, and they were also responsible for all their wrongful torts.
So that then brings us to really what was Ms. Lach's starting point, this whole question of the implications of the criminal provisions and, in fact, not only the Sherman Act, but the Elkins Act also includes criminal provisions, and this Court has recognized that person, in that act, includes municipal corporations, but the... the question of what is the significance of including criminal penalties in 1863 has to be answered in the context of what was... what was the... the view in 1863.
Unfortunately, this argument really doesn't surface until the reply, and so we haven't had a chance really to brief it, but the simple reality is, in... in the period of 18... in the era of 1863, indeed in the 19th Century, local governments were treated just like private corporations, and they were, indeed, subject to indictment, and they were subject to criminal punishment on the same terms as local governments, and they were often found liable for acts that involved both fraud and deceit.
Since... since this was... now, I'd like to read to the Court from Dillon, who is cited repeatedly as... as one of the... the scholars of the era, although we... we have not cited this passage because the issue hadn't come up before, but in his treatise on the law of municipal corporations he states, English law, and in this country... in the English law and in this country, quote, all corporations, municipal as well as private, which owe duties to the public are liable to indictment for malfeasance as well as nonfeasance in respect to their duties.
And, in fact, he goes on to explain that they're responsible for palpable omissions, they're responsible for willful and corrupt acts, and in a... a leading case at the turn of the century called Ludlow versus Commonwealth, 56 S.W. 2d 958, the State supreme court made clear that the purpose of holding cities liable criminally was, indeed, to punish them and to deter future acts.
That really was the law and, in fact, in a leading case from our own State, the Illinois supreme court, in upholding a criminal conviction against the City of Chicago for employing women for more than 10 hours, states in the case of People versus City of Chicago, 100 N.E. 194, the municipality is held to the same degree of responsibility as an individual.
In securing performance of specific duties imposed upon municipal corporations, the State has the same power of coercion and the same method of redress in the case of individuals or purely private corporations.
That was the law in that era.
That was the law when the False Claims Act was passed and, in a battery of cases which I can bring to this Court's attention, a case called Howard versus Crawford County, 12 F cases 637, Chaplain versus The Corporations of the City of New York, 3 Paige, P-a-i-g-e, Chapter 573, or the Town of Plymouth versus the Town of Windsor, 7 Vermont 325, all cases that predate the 1863 False Claims Act, local governments were sued in lawsuits for fraudulent and deceitful conduct usually involving bond issues, or trying to avoid bond obligations, often in terms of their responsibilities to take care of their indigent citizens, and they would then engage in schemes to get their indigents into another jurisdiction so the other jurisdiction would have to pay for the wrong, sometimes they in fact had paid, gotten paid, but they...
Chief Justice Rehnquist: Well, the fact that local governments were sued in these cases under some sort of common law theory, I take it, does not necessarily answer the question of whether statutory language using the word, person includes them.
Mr. Miner: Oh, I'm simply using these as examples.
I understand it's part of the argument that was made in the reply briefs by my opponent that local government simply cannot have the mental state of showing either fraud or intent to deceive, and... and my point is simply, it was not uncommon in those days for local governments to be perceived as doing fraudulent or deceitful acts.
Justice Souter: Well, I'm sure that's true but why... why do you... why is it that, in your opinion, nobody apparently with... just, perhaps no exceptions, or one or two, has ever sued a local government before under this act?
Mr. Miner: Oh, I think... there were suits that were brought, and we brought...
Justice Souter: I mean, a handful, virtually no... none.
Mr. Miner: I think the answer is two-fold.
Number 1, as this Court recognized in Hess, it's really not until the 1940s that money starts...
Justice Souter: Since 1986, that's already 16 years, and there are billions and billions of dollars worth of Federal programs that go to cities, and...
Mr. Miner: Well...
Justice Souter: I imagine somewhere in those billions there are a few false statements being made by people.
Unidentified Justice: [Laughter]
Mr. Miner: But I think the answer is that the money doesn't start coming in until 19... until the 1940s and thereafter, and in... in 1943, after this Court's decision in Hess, the False Claims Act gets emasculated, in the sense that it becomes very difficult to bring false claims, particularly qui tam cases.
The damages are substantially reduced, and there is dramatic fall-off in false claims litigation, and that's the whole purpose of the 1986 amendments, to generate new life into it...
Justice Breyer: Why since 1986 have we seen virtually no suits brought against municipalities?
Mr. Miner: Since 1986?
Oh, there are...
Justice Breyer: There are lots?
Mr. Miner: Oh, there are lots of suits since 1986.
Justice Breyer: Against 19... against municipalities?
Mr. Miner: Oh, sure.
Justice Breyer: See, what I'm worried about in the back of my mind is, if the... assuming that the history in the 1860s is fairly inconclusive, which is the impression the briefs have left me with, you can make a good argument one way or the other, then I'd be worried about suddenly unleashing potentially billions of dollars of liability as lawyers comb through the vast number of Federal programs that give aid to cities, looking for someone, somewhere, who has made a false statement, and I'm sure there are quite a few, at... at which point the cities would suddenly discover vast liability for treble damages that their... their citizens can't avoid.
You can't sell a share in a city, and... and so that's the kind of thing that worries me practically, and I wish you'd talk about it a little.
Mr. Miner: Well, I think there... there are a couple of answers.
Number 1, I think that's... that was Congress' decision that... that it was important to protect...
Justice Breyer: I grant you, if the history of this is clear, you win.
Just in case, though, I'm left absolutely uncertain about what the right result is on the basis of what happened in 1863, I want to, just in case it's relevant, to have in my mind what's likely to occur in the year 2003.
Mr. Miner: Oh, I... I think what is going to... first of all, let's understand that these cases are not now brought on the basis of negligent statements, or slight misrepresentations, but these cases involve... this is a statute unlike section 1983 or the Sherman Act, that really does not involve itself in imposing any new obligations, any new or unanticipated responsibilities on local governments.
It merely says, when you entered into a contract with us, we're going to hold you to the deal that you made, and if you breach that deal in material ways, we're going to try to get our money back, so there is... there are protections in the sense that it's not any statement that gets litigated here.
It's got to be a serious, essential misrepresentation about how that money was used that is at the core of these lawsuits, so that...
Justice Breyer: All right.
I mean, if that's the only answer, though, I... I begin to think... I don't know how much money is involved, but I was trying to make a guess and say, leaving out social security, food stamps and that kind of thing, which are individuals, my guess is there... probably it's in the range of hundreds of billions of dollars that go to cities, leaving those things out, and you have a few bad actors in every program that maybe purposely make a lie in a statement...
Mr. Miner: Well, I think...
Justice Breyer: to help preserve their job, I don't know why they do it, and... and there we have suddenly a huge liability imposed on citizens.
Now, I'm overstating this perhaps, but I want you to tell me what the true dimension of that problem is.
Mr. Miner: Well, I don't think that... first, as part of that answer, Congress has made a decision by the... by increasing damages from double to treble, there will be a deterrent effect, and that one response of this is going to be, in fact, less fraud.
There's going to be... the money will be used for the purposes for which it was given to the states, and there will be a deterrent effect in terms of government officials not actually engaging in fraud and... and a related interest in the act is, in fact, promoting representative, responsive democracy, and by disclosing frauds to the public, you can correct them.
But the reality still is the contract, the lawsuit is only brought if, in fact, there's been an essential misrepresentation, something really basic about what was done by a local government that has actually misused the money.
Local government has gotten the money, and, in fact, all the local government is giving back is, it's giving back the money it wrongfully got, if it's shown that it got it by... got it falsely or... or fraudulently.
It's giving back prejudgment interest and, within the statute of limitations of 10 years, that is always virtually going to exceed the basic laws, and it's going to have to pay back the... give a share to the relator, which is an important piece of this, because Congress has also recognized that, in this area, where you do have large amounts of fraud out there, there are no private victims.
There is nobody who steps forward and says, I was hurt, and therefore I'm going to bring a lawsuit to protect myself and the Government will benefit, and the Government, the Court... the Congress recognized, doesn't have the research... the resources to deal with all this, so it desperately needs the... the private Inspector Generals who are willing to step forward oftentimes, not as bounty hunters, but as... as really offended citizens who, like Dr. Chandler, who brought it to the attention of the county and said, you're not doing what you're supposed to do, and they took responsibilities from him and he said again, and you're not supposed to... you're supposed to be providing these services, and suddenly she wasn't responsible for that.
They need these people to come in and blow the whistle, because otherwise, the Government's not going to find it, and they... they recognize that oftentimes they're... they're terminated, so we've got to pay them something for coming forward, so what the Government is really paying in many of the claims is not much more than what, in fact, the government... what the... the local government is paying is not much more than what the... the Federal Government paid in this case...
Justice Scalia: Don't paint too rosy a picture.
I mean, if qui tam actions were as desirable as you assert, they would not have been eliminated in England totally, and vastly reduced in the United States, because they are an invitation to shakedowns.
Unidentified Justice: That's... that's why they've been largely eliminated from our law.
Mr. Miner: That... that's a...
Justice Scalia: So you know, if... if loving qui tam actions is... is what you need to win your case, you're... you're...
Mr. Miner: No, I don't... I don't want to suggest that, and... but I... to be honest, I'm a little offended, but the treatment their... plaintiffs in here are no different than plaintiffs in antitrust cases, or securities cases.
Many are truly wronged and are outraged, and there are always some who will take advantage of it, but the reality is that...
Justice Scalia: Most cases don't have a treble damage situation, and most... most cases don't deal with... well, as this one does, with municipalities, where it's really... you know, it's play money, right?
It's not really money out of your pocket.
Mr. Miner: Oh, I don't...
Justice Scalia: So better to pay this fellow off and get on with the business of the city, and... I mean, those are problems with... with a qui tam action.
Let's not... let's not minimize...
Mr. Miner: We're here in the United States Supreme Court because Cook County wasn't about to simply say this is play money, and we're going to pay you.
That isn't really what happens very often.
If they're wrong, they agree and they... they pay, but they... they also fight you tooth and nail, and... and you have to prove, in fact, they didn't do what they said they were going to... what they committed themselves to do, but the... the reality is that there are no... in 1863, I think persons clearly included municipal corporations, as it included all corporations.
There is nothing in... in the act itself that in any way suggests that Congress did not want to apply it to... to municipal...
Justice Ginsburg: Were there any grant in aid... I mean, it may be kind of an academic question if, in 1863, the Federal Government was not giving out money to municipalities.
Mr. Miner: It wasn't, but that doesn't mean that, first of all, again going back to Lafayette, this Court recognized the fact that Congress in 1890 was concerned about private corporations didn't preclude including municipal corporations as persons under the Sherman Act, and... and the fact of the matter is, local governments in that day did commercial activities.
They built bridges, they took care of the indigent at the request of States, and they were held responsible for their actions and, in fact, when they didn't live up to their responsibilities, they were routinely sued, and they could well have been reached by Federal Government.
I guess my time is up.
Argument of Malcolm S. Stewart
Chief Justice Rehnquist: Thank you, Mr. Miner.
Mr. Stewart, we'll hear from you.
Mr. Stewart: Mr. Chief Justice, and may it please the Court:
The False Claims Act is the primary mechanism for addressing deliberate efforts to cheat the Federal Government out of money and property.
Petitioner has identified no legitimate ground for excluding local governments from the coverage of the act.
Local governments receive very substantial amounts of Federal money, and fraud by local governments causes precisely the same harms as comparable misconduct committed by a private party.
Moreover, local governments are presumptively encompassed by the term, person, and qui tam suits against local governments raise no constitutional concerns.
Now, with respect to the 1863 act, to begin, it's true that as of 1863, there was no square holding of this Court to the effect that a municipal corporation would presumptively be treated as a person for purposes of Federal statutes.
However, given the materials available at that time, Congress would certainly have reasonably concluded that municipalities were covered.
As Justice Souter pointed out, as early as 1826, this Court quoted with approval Lord Cook's observation to the effect that the term, person, presumptively includes both municipal and private corporations and, again, because fraud by municipal corporations in the procurement of Federal...
Chief Justice Rehnquist: There... that... that case, though, was dealing with a private corporation, was it not?
Mr. Stewart: That... that's correct.
There was no square holding to that effect, but certainly all the indications in the Court's opinions would have supported Congress in its view that the term, person, would include local governments.
The... the Court in Monell held that as of 1871 a clear understanding to that effect had been established, and petitioner has identified no evidence that would suggest that the prevailing consensus changed during the years between 1863 and 1871.
It... it may also be the case that, as Justice Ginsburg suggested, the question would have been a largely academic one in 1863, because local governments wouldn't have received a significant amount of Federal money.
The Congress deliberately drafted the act in a broad fashion so that it would encompass spending programs that were adopted in the future, even if they were unknown in 1863, and... and the Court...
Chief Justice Rehnquist: Now, aren't you gilding the lily a little bit to say that Congress in 1863 contemplated that there would be massive Federal spending programs in the future?
Mr. Stewart: Oh, I'm not suggesting that Congress contemplated that.
I'm saying Congress wrote the statute in a way that would cover whatever spending programs came to be adopted in ensuing years, and... and the Court addressed essentially that situation in U.S. ex rel. Marcus versus Hess, in which it said the type of financial assistance that we're dealing with here would not have been undertaken in 1863, yet Congress drafted the act broadly, and these funds are in... as much in need of protection as other Federal money, and Congress did, in some significant, some relatively minor respects, continue to amend the False Claims Act at intervals during the period between 1863 and 1986, and during that period, it became increasingly apparent that local governments were beginning to receive enhanced shares of Federal money.
It also became increasingly apparent that the term, person would be construed generally to encompass local governments, yet Congress retained the word, person, even as it amended other features of the act, and I think petitioner's primary argument is that even if the statute included municipalities up to 1986, the 1986 amendments took local governments out of the act's coverage by adding a punitive component to the damages available, and... and this seems implausible for, essentially for two reasons.
First, the whole thrust of the 1986 amendments generally was to make the act more effective, to expand its coverage, to give the Government greater weapons in fighting fraud, so it seems very unlikely that at the same time Congress would have removed from the act's coverage...
Justice O'Connor: Well, we do have the presumption in the City of Newport situation of not treating punitives as applicable to municipal corporations.
Mr. Stewart: That's correct.
The City of Newport involved a different sort of statute.
That is, the statute at issue in City of Newport was 42 U.S.C. 1983, and it provided an express cause of action, but it said nothing about the remedies that would be available, and essentially this Court's holding was, where the statutory directive is for courts to use their own best judgment as to what remedies are appropriate, punitive damages should generally not be imposed upon municipalities, but here, Congress has spoken precisely to the remedies that will be applied at the end of a successful suit.
Justice Breyer: Does it give the Government any remedy that... suppose that you think that the particular qui tam action is causing a lot of trouble in a Medicare area, or Medicaid area, and there are hospital grants, or... you know, there are vast numbers of grants.
Can you do anything about it?
Mr. Stewart: Yes.
Justice Breyer: What?
Mr. Stewart: The statute does authorize the Government to intervene to take over the... the prosecution of a case and to settle or dismiss it, and at least on occasion, the Department of Justice has intervened...
Justice Breyer: Okay, so then, in other words the city would have to come to you and say, this is a real mess here, there's nothing to it, and let's settle it, and then you'd have to get involved and... and deal with it.
Mr. Stewart: That...
Justice Breyer: You could do it, though.
Mr. Stewart: That's correct.
I... I don't want to represent that this is done often, but it is an available...
Justice Breyer: Well, have there been a lot of cases since 1986 against municipalities?
Mr. Stewart: Yes.
The figures I've been given by the Civil Division are that 138 qui tam suits have been filed against local governments since 1986.
In 13 of those, the United States has intervened.
Justice Breyer: And settled, or...
Mr. Stewart: I don't know what the disposition of those... sometimes we might intervene to settle, sometimes we might intervene because we believe the claim is meritorious and we want to... to prosecute the suit to its conclusion.
Justice Kennedy: Do you have some dollar figures in those?
Mr. Stewart: I don't have dollar figures with respect to municipalities.
I know overall since 1986 the Treasury has realized a little over $10 billion in recoveries from False Claims Act suits.
That includes both qui tam suits and suits that were initiated by the United States.
Justice Souter: You sort of federalized this action.
I mean, you're going to let the private plaintiffs go out, sue all the cities, and if you think there's something wrong here, you will step in and deal with it?
Mr. Stewart: Well, I don't... I don't want to represent we will do this on a regular basis.
I just want to say, it is an available mechanism under the False Claims Act in extreme situations, where public policy concerns cause the Department of Justice to conclude that it's not in the public interest for the suit to go forward.
The other point I would make with respect to the City of Newport is, again, if... the City of Newport dealt with a statute that didn't specifically address the question of remedies at all.
Now, if we're correct about the law as it existed before 1986, that local governments were covered, and that they were subject to the double damages remedy that this Court had held to be essentially remedial, if Congress had wanted to exclude municipalities from the act's coverage, it... it really seems outlandish to think that Congress would have attempted to achieve that objective by leaving the word, person, in the act unchanged, and by amending the act's liability provisions.
If Congress had believed that it was appropriate either to take the municipalities out of the scope of the act altogether, or at least to subject them to remedies less than those available against private corporations, the natural thing to do would have been to amend the act so to provide.
It... it seems unlikely that Congress would have attempted to achieve that objective by so indirect a means.
The other point we would make is that there may be isolated situations in which an award of treble damages under the act will far exceed the harm that was done to the United States, but the alternative that petitioner contends we believe is much worse, because it would leave the act entirely unavailable for redressing all manner of fraud committed by local governments against the United States.
When we have a contract action, when we have an ordinary suit of a dispute about money, and we regard it as a good faith controversy, even if we prevail at the end of the day, it's often the case that the United States won't be made completely whole, because we incur costs of investigation, costs of prosecuting the suit, we may lose the time value of money.
When we're dealing with good faith disputes, Congress and the executive branch have been content to treat that undercompensation simply as a cost of doing business.
Justice Kennedy: Do any Government grants or contracts have attorney's fees provisions in them?
Mr. Stewart: I... I don't know that any do.
It certainly would not be the norm.
I mean, the... the American rule is that each party bears its... its own attorney's fees, and so absent some express statutory authority, we would not be able to recover our fees, even if we prevailed, and so again, Congress is willing...
Justice Kennedy: Well, if it's a problem, you can put it in your grant.
Mr. Stewart: I don't think with... certainly as to municipalities I think we would have a hard time, without express statutory authority, arriving at a contractual agreement that municipalities would be subject to such an unusual remedy and, as I say, Congress and the executive branch are willing to live with that form of undercompensation when we're dealing with a good faith dispute.
The False Claims Act is reserved for that narrow category of cases that involve people who don't simply ask for money that, in fact, they're not entitled to, but who ask for it knowing they're not entitled to it, and Congress reasonably concluded that different remedies were necessary to address efforts to defraud and cheat the Federal Government.
Chief Justice Rehnquist: Is a false statement a necessary prerequisite to an action under these qui tam?
Mr. Stewart: There... a false statement is one category.
There... there is a knowing requirement.
That is, the individual entity has to knowingly submit a false claim.
There... there are instances in which the claim may be false even if it doesn't contain an express false statement.
For instance, if it's very clear that it's necessary, for instance, that medical services be medically necessary in order to be reimbursable, and the...
Rebuttal of Donnal M. Lach
Chief Justice Rehnquist: Thank you, Mr. Stewart.
Ms. Lach, you have 11 minutes remaining.
Mr. Lach: Thank you.
The first point I'd like to address is Mr. Miner's point that local governments were sued in all types of tort actions across the board.
Congress' understanding of the suability of municipalities, and municipalities as persons in 1863 was really dependent on State law, because there had been no Federal expression up until that time, and across the board in the States, local governments were viewed differently.
Some... some local governments were viewed as quasi corporations and some as municipal corporations with different levels of liability and, as I noted earlier, some States made a distinction between proprietary and Government functions, so Congress' understanding based on State law at that time was not consistent enough to be evidence that Congress understood person to include local governments.
As for State criminal actions, in some States there were misdemeanor actions against local governments for nuisance actions such as failure to maintain a bridge, but there is no common law with respect to... to Federal statutes.
When... when Congress enacts a criminal statute, the States' understanding of... of who is a person subject to State criminal statutes is not dispositive of what Congress had in mind, and if it is ambiguous and it is inconclusive, as Justice Breyer suggested, it might be what... what Congress was actually thinking in 1863.
Criminal statutes are interpreted narrowly, and...
Justice Ginsburg: Ms. Lach, there's one point that you didn't cover in your opening argument...
Mr. Lach: Yes.
Justice Ginsburg: and I'm curious how you read this statute.
With regard to Dr. Chandler, she claimed that when she blew the whistle, there was retaliation against her.
There is a retaliation provision in the False Claims Act.
On your reading of it, would she have recourse to that provision against the county?
Mr. Lach: Well, under the facts of this case, the county was not her employer.
The... our codefendant, Hektoen Institute for Medical Research, was her employer.
Cook County has been dismissed from that count, but... but...
Justice Ginsburg: Well, whatever, the municipal employer, would... you say that there is no municipal liability for the allegedly ill-gotten gains, but what about retaliation against the whistleblower?
Would the act apply against the municipal unit to that extent?
Mr. Lach: Well, the term employer is not defined in the False Claims Act, but just very recently, 2 weeks ago, on December 31, the Eighth Circuit reached this issue and, without reaching the question of what person means under the False Claims Act, the Eighth Circuit determined that employer has a broader meaning, and allowed an action to proceed against a local government, in that case the St. Louis Housing Authority under, only under the whistleblower provision, and so the whistleblower provision in itself does not indicate that local governments, even if an employee can sue a municipal entity under the whistleblower provision, that does not automatically mean that...
Justice Ginsburg: If... if the employer... employee could do that, the... the retaliation provision refers to retaliation against an employee for conduct in furtherance of a False Claims Act action, so if there is no viable False Claims Act claim against a municipality, then I don't see how the retaliation provision could be available.
Mr. Lach: The False Claims Act actions may be caused by another party.
Justice Ginsburg: But I'm talking about this very case.
Mr. Lach: Yes.
Justice Ginsburg: I mean, if you're right that there's no municipal liability...
Mr. Lach: But... but in this case...
Justice Ginsburg: especially by Dr. Chandler, do I understand from your last answer that you are saying, no, she's out of luck, the statute would not cover her?
Mr. Lach: Not against the county, but she still has a retaliation claim against her employer.
Justice Ginsburg: Under what law?
Mr. Lach: Under the False Claims Act.
There were two defendants in this case, Cook County and the institution that administered the grant, and that institution employed Janet Chandler, and so...
Justice Ginsburg: And was that a private corporation?
Mr. Lach: It's a not-for-profit.
It's a not-for-profit corporation, and so that defendant is in the case, and...
Justice Ginsburg: But as far as a municipal employer is concerned, a municipal employer, having retaliated, would be, on your reading of the statute, just as free from responsibility as it would be for the underlying qui tam action.
Mr. Lach: No, under the Eighth Circuit case a municipality can be held liable under the whistleblower provision, even though... I mean to sound very exact...
Justice Ginsburg: That's what I was asking you about.
Mr. Lach: Yes.
Justice Ginsburg: That's what one court has said.
How does that court say that the employee's action was in furtherance of a False Claims Act action if there is no False Claims Act action?
Mr. Lach: The cases that have addressed this have noted there... a local government can be in cahoots with another... another entity that submits false claims, the... the local government is aware of it, and the whistleblower is an employee of the local government.
In that case, it is... in that scenario, the whistleblower is blowing the whistle on someone else and yet is employed by the local government and, under this... under the Court's reasoning in... in the Eighth Circuit case and in the two cases that we cited, Satalich and Erie County, an action can still proceed against a local government under 3730(h), even though a local government is not necessarily a person subject to suit.
To get... to get back to the points, a lawsuit under the False Claims Act can be brought if a statement is made in reckless disregard.
Mr. Miner suggested that the statement has to be clearly false, deliberately false, and under the 1986 amendments, the standard has been reduced to reckless disregard.
As for deterrent, by the time some of these actions are filed, the wrongdoer is not even in office any more.
It is the local taxpayers, the local residents that bear the brunt of... of any False Claims Act action and penalty, not... not the person that actually perpetrated the wrong.
When... when in 1986 Congress expanded the coverage of the False Claims Act, it did not expand the fraudsters.
As this Court noted in Stevens, the False Claims Act covers just all kinds of fraud, but it does not cover all kinds of fraudsters, and there's no indication, under our view, that local governments were among fraudsters that are included under this act.
In response to Mr. Stewart, we are not aware of any dismissals of False Claims Act actions that are brought against local governments.
The... the Government has not intervened, obviously, in... in a number of these False Claims Act actions, but we're not aware of any situation in which the Government has actually dismissed a claim against a local government.
These actions proceed and, even if... even if the United States wanted to dismiss an action, they would have to justify their dismissal before the court, and the same with a settlement.
It has to be approved by the court.
In sum, I would like to say that Congress knows what language it needs to impose punitive damages.
If this Court finds that local governments are included in the 1863 act, Congress did not use the requisite language to indicate that it meant to impose punitive damages on local governments in 1986.
Chief Justice Rehnquist: Thank you, Ms. Lach.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 01-1572, Cook County Illinois versus United States ex rel Chandler will be announced by Justice Souter.
Argument of Justice Souter
Mr. Souter: This case comes to us on writ of certiorari to the Court of Appeals for the Seventh Circuit.
The respondent, Janet Chandler, used to supervise a medical research study for Cook County Hospital funded by $5,000,000 grant from the national institute of drug abuse.
Because Chandler believed that the County had violated certain terms of the grant relating to research protocols, she sued the County under the False Claims Act.
So far as it concerns us here, the False Claims Act imposes civil penalties on any person, those are its words, who knowingly presents a fraudulent claim to the Federal Government.
The Government itself can sue for fraud but a private plaintiff like Chandler may sue also by bringing what is known as a qui tam suit on the Government's behalf.
If she succeeds, she may get up to 30% of the proceeds for herself.
The question presented in this case is whether local governments like Cook County are persons subject to qui tam suits under the False Claims Act.
In the Steven’s case decided three terms ago, we held that person does not include States.
The Seventh Circuit held that municipalities are nonetheless covered, and in an opinion filed with the Clerk today we affirm.
The term "person" is not defined in the Act but the word has been in the statutes since it was enacted in 1863.
We have no trouble concluding that the term then included municipalities.
The common understanding going back at least to Cook’s Institute was that corporations including municipal corporations were deemed to be artificial persons for statutory purposes.
Of course Congress could have given a word a narrower definition than the usual one just described but nothing in the Act's text or history leads us to think that it did.
We also conclude that nothing in the 1986 amendments to the False Claims Act repealed municipal liability.
To be sure those amendments raised the ceiling on damages from double to treble damages, the change that the Steven’s case described has turned what had been a remedial provision into a punitive one.
The County argues that because local governments enjoy common law immunity from punitive damages, Congress' adoption of treble damages should be read as implied repeal of municipal liability, but the punitive nature of the treble damages under the Act is modest and it therefore offers only limited support for the argument that Congress must have repealed the Act in so far as it covered municipalities.
To the contrary, the clear purpose of the 1986 amendments was to strengthen the Government’s hand in fighting all fraud which local Governments are capable of committing when they receive and administer federal funding.
We conclude that municipal liability existed under the original False Claims Act and that the 1986 amendments did not implicitily eliminate it.
The opinion of the Court is unanimous.