may be brought against the State of New York because a qui tam suit is commenced on behalf of the United States and the Eleventh Amendment does not bar suits by the federal government against a state.
B. Whether New York and Its Officials Are "Persons" Within the Meaning of the FCA
New York next argues that it is shielded from liability under the FCA because a state cannot be considered a "person" under that statute. The FCA provides, in pertinent part, that "any person" who causes false claims and reports to be presented to the United States for payment, or who forms a conspiracy to have false claims paid by the United States, will be liable for treble damages and civil penalties. See 31 U.S.C. § 3729. This section of the FCA, however, does not define the word "person."
The "fundamental task in interpreting the FCA is 'to give effect to the intent of Congress.'" United States ex rel. D.J. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 681 (D.C. Cir.) (citations omitted), cert. denied, 139 L. Ed. 2d 114, 118 S. Ct. 172 (1997). "The starting point for interpreting a statute is the language of the statute itself." Id. To determine the meaning of the statute, the Court considers the statute's language and structure, and its legislative history. See California State Bd. of Optometry v. Federal Trade Comm'n, 285 U.S. App. D.C. 476, 910 F.2d 976, 979 (D.C. Cir. 1990). Although the word "person" is ordinarily construed to exclude a sovereign, this reading "may . . . be disregarded if 'the purpose, the subject matter, the context, the legislative history, [or] the executive interpretation of the statute . . . indicate an intent, by the use of the term, to bring a state or nation within the scope of the law.'" International Primate Protection League v. Administrators of Tulane Educ. Fund, 500 U.S. 72, 83, 114 L. Ed. 2d 134, 111 S. Ct. 1700 (1991) (internal quotations omitted).
Although Congress did not define the word "person" in § 3729, it did define that term in § 3733 of the FCA.
That section defines a "person," specifically for the purposes of that section, to include a "state." 31 U.S.C. § 3733(1)(4). Moreover, courts have allowed states to act as relators and bring civil suits for violations of § 3729 on behalf of the United States where the qui tam provisions allow a "person" to bring a civil suit. See 31 U.S.C. § 3730(b); United States ex rel. Woodard v. Country View Care Center, Inc., 797 F.2d 888 (10th Cir. 1986) (State of Colorado as relator); United States ex rel. Wisconsin v. Dean, 729 F.2d 1100 (7th Cir. 1984) (State of Wisconsin as relator). In allowing states to act as relators, courts have thus interpreted "person" to include a state in the context of who may commence a qui tam action.
In the absence of express judicial authority as to whether a state may be a defendant in a qui tam action, however, it is necessary to consider the legislative history of the Act. The FCA was originally enacted during the Civil War to combat the rampant fraud being perpetrated on the government by defense contractors. See S. Rep. No. 99-345, at 8. The FCA has been amended three times, with major revisions in 1986. See id. The purpose of the 1986 amendments was to "make the statute a more useful tool against fraud" in the face of continuing fraud against the Government. Id. at 2. The Senate Report accompanying the 1986 amendments to the FCA sets out the broad reach of the statute. "In its present form . . . the False Claims Act reaches all parties who may submit false claims. The term 'person' is used in its broad sense to include partnerships, associations, and corporations . . . as well as States and political subdivisions thereof." See id. at 8 (citations omitted).
On the other hand, New York argues that the Court should be guided by the general understanding that construing the word "person" to include states is generally disfavored. See Will v. Michigan Dep't of State Police, 491 U.S. 58, 64, 105 L. Ed. 2d 45, 109 S. Ct. 2304 (1988) (citing Wilson v. Omaha Tribe, 442 U.S. 653, 667, 61 L. Ed. 2d 153, 99 S. Ct. 2529 (1979)). New York's reliance upon Will is, however, misplaced. First, 42 U.S.C. § 1983 is clearly distinguishable from the FCA because § 1983 establishes a cause of action for individual plaintiffs,
whereas the FCA establishes civil liabilities for frauds at the expense of the United States.
See 31 U.S.C. § 3729. In an FCA action, therefore, the suit is always on behalf of the federal government. See 31 U.S.C. §§ 3729, 3730(b). Since § 1983 creates a private cause of action, the analysis in Will necessarily included Eleventh Amendment considerations. See Will, 491 U.S. at 66-67. The reasoning underlying the Will Court's reluctance to construe "persons" to include States for the purposes of § 1983 was "that if Congress intended to alter the 'usual constitutional balance between the States and the Federal Government,' it must make its intention to do so 'unmistakably clear-in the language of the statute.'" Will, 491 U.S. at 65 (quoting Atascadero State Hospital v. Scanlon, 473 U.S. 234, 242, 87 L. Ed. 2d 171, 105 S. Ct. 3142 (1985)). Because states are not immune from suits by the federal government, however, Congress was not required to state in the FCA that it intended to abrogate the states' sovereign immunity, as Congress would have been required to do if it intended to subject states to private suits by individuals.
After reviewing the language and purpose of the statute, this Court finds no indication that Congress sought to create an exception for state actors to perpetrate fraud upon the federal government, especially since states are not immune to suits by the federal government in federal court. See United States v. Rockwell Int'l Corp., 730 F. Supp. 1031, 1035 (D. Colo. 1990) (holding that state defendants are not entitled to Eleventh Amendment immunity from suits brought pursuant to the FCA and noting that to "hold otherwise would render meaningless the FCA's provision authorizing qui tam actions against state agencies and officials operating under government contracts"). Consistent with the intent and purpose of the FCA, the Court therefore concludes that states are "persons" for the purposes of § 3729 and that Congress did not intend to exempt states from the FCA.
C. Whether the FCA's Damages Provisions Are Punitive and Therefore Inapplicable to a State
As a final point, New York argues that the damages provision of the FCA suggests that the statute has a punitive purpose, and consequently, that the FCA cannot apply to the states because states enjoy a common law immunity to punitive damages which can only be overcome by a clear congressional statement of abrogation.
The purpose of the FCA is to enable the federal government to recover losses it sustains as a result of fraud. See S. Rep. No. 99-345, at 2-8. In interpreting the pre-1986 version of the FCA, which provided for double damages and penalties, the Supreme Court held that the FCA was a remedial, rather than punitive statute. See United States v. Halper, 490 U.S. 435, 446, 449, 104 L. Ed. 2d 487, 109 S. Ct. 1892 (1988) (the FCA's damages provision represents "rough remedial justice" as long as rational relation exists between the government's loss and the damages imposed); United States v. Bornstein, 423 U.S. 303, 314-315, 46 L. Ed. 2d 514, 96 S. Ct. 523 (1976) (FCA's damages provision are remedial except under extreme circumstances); United States ex rel. Marcus v. Hess, 317 U.S. 537, 551-52, 87 L. Ed. 443, 63 S. Ct. 379 (1943) (purpose of the FCA is to make the government whole for its losses and therefore statute not punitive). The Court further reasoned that the federal government is entitled to "rough remedial justice" and declined to impose a more exact method of accounting on the Congress. United States v. Bornstein, 423 U.S. at 314-315.
With regard to the treble damages provision of the amended FCA, the Eighth Circuit has held that the amended provision does not transform the statute from a remedial to a punitive one. In United States v. Brekke, 97 F.3d 1043 (8th Cir. 1996), the court held that the FCA's treble damages were compensatory rather than punitive. Id. at 1047. The court based its decision upon the Supreme Court's reasoning in Halper that the "'Government is entitled to rough remedial justice, that is, it may demand compensation according to a somewhat imprecise formula.'" Brekke, 97 F.3d at 1047 (quoting Halper, 490 U.S. 435 at 446). This Court agrees with the reasoning in Brekke and concludes that the federal government's recovery of treble damages gives it "rough remedial justice" and therefore that the FCA is a remedial statute.
Furthermore, there is no indication that Congress intended to change the purpose of the statute from a remedial to a punitive one when it enacted the 1986 Amendments. See S. Rep. No. 99-345, at 7 (noting that the Committee clarified that knowing standard did not require actual knowledge of fraud or specific intent to commit the fraud in order to make it more appropriate for remedial actions) (emphasis added).
Rather, the damages provision was amended for other reasons. First, Congress saw the need to modernize the provision, which had not been changed since the FCA was originally enacted 123 years ago. See id. at 2. Second, the provision was changed to make it consistent with the false claims provision in the 1986 Department of Defense Appropriations Act. See id. at 17. Third, the increased damages provision gives effect to the overall purpose of the 1986 amendments to make the FCA more effective and to encourage qui tam actions. See id. at 2. Although the amended FCA does not provide for a significant increase in the percentage of the recovery to a qui tam relator,
by virtue of the increased damages, the relator stands to receive a larger recovery. This increased recovery therefore serves the purpose of encouraging qui tam actions.
The Court therefore concludes that the FCA's penalties are not punitive, but rather remedial, as long as a rational relation exists between the government's loss and the damages assessed.
Given the Court's conclusions that New York may be sued under the FCA, that New York may be considered a "person" within the context of the FCA, and that the damages provisions of the FCA are not punitive, the Court goes on to consider the subject matter jurisdiction provisions of the FCA.
D. Whether this Court Has Subject Matter Jurisdiction Under the FCA
Long brings his action under the FCA against New York and against his supervisor, Joseph P. Frey. New York, in its motion to dismiss, argues that the FCA precludes this Court from asserting subject matter jurisdiction over this action. The Court must look to the language of the statute itself to assess the merits of defendant's contention. Consumer Product Safety Comm'n v. GTE Sylvania Inc., 447 U.S. 102, 64 L. Ed. 2d 766, 100 S. Ct. 2051 (1980).
The FCA sets out a two-part test to determine whether a court has subject matter jurisdiction over plaintiff's qui tam action and prohibits
private plaintiff suits based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.