C. The MHFA is a "Person" Under the FCA.
The FCA allows a private party to bring a qui tam civil
action against "[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." 31 U.S.C. § 3729(a). In Vermont Agency of Natural
Resources v. U.S., ex rel. Stevens, the Supreme Court
conclusively determined, after a review of the historical
background and the text of the statute, that "the False Claims
Act does not subject a State (or state agency) to liability."
529 U.S. 765, 788, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). In
its motion, the MHFA asserts that K & R's complaint should be
dismissed, because it is a "state agency" free from liability
under the FCA. This Court disagrees.
While this Court agrees with the MHFA that an Eleventh
Amendment analysis is not needed to determine if States and
state agencies are beyond the scope of the FCA, this Court does
believe that a determination of whether the MHFA is an entity
covered by Eleventh Amendment immunity is not only justified,
but is also proper in light of the Supreme Court's reasoning in
Stevens. In that case, as part of its analysis for determining
what entities are liable under the FCA, the Supreme Court relied
on the "longstanding presumption that `person' does not include
the sovereign." Id. at 780, 120 S.Ct. 1858. Because "the
States' immunity from suit is a fundamental aspect of the
sovereignty which the States enjoyed before the ratification of
the Constitution, and which they retain today," Alden v.
Maine, 527 U.S. 706, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999), it
can be deduced that those state entities that do not qualify for
sovereign immunity are not a component of the "sovereign" that
the Supreme Court excludes from liability under the FCA in
Stevens. Therefore, an Eleventh Amendment analysis must ensue.
The Eleventh Amendment extends sovereign immunity to the
States, but the immunity does not extend to suits prosecuted
against a municipal corporation or other governmental entity
which is not an arm of the State. Alden v. Maine,
527 U.S. 706, 756, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999) (citing Mt.
Healthy City Bd. of Ed. v. Doyle, 429 U.S. 274, 97 S.Ct. 568,
50 L.Ed.2d 471 (1977)); Lincoln County v. Luning,
133 U.S. 529, 10 S.Ct. 363, 33 L.Ed. 766 (1890). A number of factors
support a categorization of the MHFA as an "arm" of the
Commonwealth of Massachusetts. First, the MHFA charter describes
the Agency as a "public instrumentality" performing an
"essential public function." Mass.Gen.Laws ch. 23A App. § 1-3
(2000). Second, the governing body of the MHFA consists of "the
director of housing and community development or his designated
representative and the secretary of administration and finance
or his designated representative, ex effaces, and seven
persons to be appointed by the governor." Id. Third, "the
agency has not been separately incorporated . . ." Doyle v.
Dukakis, 687 F. Supp. 18, 19 (Mass. 1988). Fourth, "the Agency
pays no sales tax." Id. And fifth, "the Agency's bonds are
exempt from State and federal taxes." Id.
Other factors weigh against classifying the MHFA as an "arm of
the state." First, the MHFA's charter explains that it is not
"subject to the supervision or control of any executive office,
department, division, commission, board, bureau or agency except
to the extent and in the manner provided by law." Mass.Gen.Laws
ch. 23A App. § 1-3 (2000). Second, the MHFA has the power to
"[s]ue and be
sued in its own name," Id. at 1-4, "[m]ake and execute
contracts," Id., "[a]quire real property," Id., "[a]ppear in
its own behalf before boards, commissions, departments or other
agencies of government, municipal, state or federal," Id., and
"[a]quire, hold and dispose of personal and real property for
its corporate purposes," Id. Third, the Agency exercises
"largely autonomous control over its operations." Doyle,
687 F. Supp. at 19. Fourth, "the bulk of its activities are not
unlike those of a bank — for example, acting as a house
mortgagee, and assisting private homeowners and developers in
constructing low income housing — and thus is proprietary in
nature." See Id. (comparing Ainsworth Aristocrat Intern. Pty.
Ltd. v. Tourism Co. of Com. of Puerto Rico, 818 F.2d 1034,
1037-1038 (1st Cir. 1987) [determining that similar factors
pointed toward the conclusion that an agency is not an arm of
the state]). Fifth, "the Agency does not receive any direct
appropriation of public funds." Burbine Affidavit ¶ 12. And
sixth, "the full faith and credit of the Commonwealth is not
pledged to the repayment of bonds which MHFA issues." Id. at ¶
With this split in evidence as to whether sovereign immunity
should be extended to the MHFA, this Court turns to the Supreme
Courts's decision in Hess v. Port Authority Trans-Hudson
Corp., 513 U.S. 30, 47, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994),
for guidance. In Hess, the Court explained that "when
indicators of immunity point in different directions, the
Eleventh Amendment's twin reasons for being remain our prime
guide." Id. at 47, 115 S.Ct. 394. The first of the two reasons
is to protect the integrity of the state within the federal
system. See Id. This Court does not believe that suit against
the MHFA in federal court to determine whether the Agency, on
its own accord, submitted false claims for payment to a federal
program insults the dignity of the Commonwealth of
The second reason for the Eleventh Amendment is to prevent an
award of damages against a governmental entity from depleting a
State's treasury. Consequently, this consideration has led
Courts of Appeals to recognize "the vulnerability of the State's
purse as the most salient factor in Eleventh Amendment
determinations." Id. at 47, 115 S.Ct. 394. In this case, the
MHFA "raises revenue to finance its lending operations through
the sale of tax exempt bonds and notes to the general public."
Doyle v. Dukakis, 634 F. Supp. 1441, 1445-1446 (Mass. 1986).
"Thus from all appearances any judgment will be satisfied by the
Agency's own treasury." Doyle, 687 F. Supp. at 19. Because of
the structure and nature of the MHFA's functions, the Agency is
not an "arm of the state" to which sovereign immunity should be
extended. Consequently, in accordance with the Supreme Court's
reasoning in Stevens, the MHFA cannot be deemed a "state
agency" free from liability under the FCA.
Moreover, various reports produced by the Commonwealth of
Massachusetts refrain from identifying the MHFA as a "state
agency." The organization chart of the Massachusetts Government
presented on page 17 of the "Statutory Basis Financial Report"
for the fiscal year ending on June 30, 1999, does not include
the MHFA in its list of "state agencies." K & R Exhibit A. And
the "Fiscal Year 1999 Comprehensive Annual Financial Report" of
Massachusetts openly states, when referring to the MHFA, that
"the Commonwealth is responsible for appointing a voting
majority of the members of each entity's board, but the
Commonwealth's accountability does not extend beyond the
appointments." K & R Exhibit B at 56. It appears to this Court
that Massachusetts does not view the MHFA as a "state agency."
Furthermore, in the past, the MHFA has contradicted its
current contention that it is a "state agency." In Doyle v.
Dukakis, 634 F. Supp. 1441, 1445-1446 (Mass. 1986), the MHFA
argued that it was "not a public agency but rather a hybrid,
quasi-public corporate entity with substantial private-sector
functions, organized pursuant to Mass. Gen. Laws ch. 23A App,"
and that the bonds and notes it submits "are not debts of the
Commonwealth." In light of these circumstances, the MHFA is a
"person" that can be held liable under the False Claims Act.
D. The MHFA is not Immune as a Result of the Nature of the
Damages Awarded by the False Claims Act.
The MHFA next argues that K & R's complaint should be
dismissed as a result of the Supreme Court's determination in
Stevens that the civil penalties and treble damages awarded
under the FCA are "essentially punitive in nature" and
"inconsistent with state qui tam liability in light of the
presumption against imposition of punitive damages on government
entities" 529 U.S. at 784-785, 120 S.Ct. 1858 (citing Newport
v. Fact Concerts, Inc., 453 U.S. 247, 101 S.Ct. 2748, 69
L.Ed.2d 616 (1981)). This Court disagrees.
In Stevens, the Supreme Court conclusively determined that
the state and state agencies are not "persons" who can be held
liable under the FCA. As discussed above, the MHFA is not a
"state agency" of the Commonwealth of Massachusetts. If this
Court were to now dismiss K & R's complaint on the grounds that
the MHFA is immune from the damages awarded under the FCA, it
would, in effect, accept a loophole in the Act that would allow
entities with some connection to the state, but that are
considered "persons" subject to suit under the FCA, to escape
liability for any false claims made to the federal government.
Although Congress has made the damages awarded under the current
version of the FCA punitive in nature, this Court does not
believe that in doing so Congress intended to create such a gap
in the statute.
Moreover, as discussed above, the MHFA will use the money
amassed in its own treasury to satisfy any award of damages in
this case. Therefore, the Commonwealth of Massachusetts will not
be required to open its own purse to satisfy an adverse judgment
against the MHFA. While there is a potential that the citizens
of Massachusetts may have to endure a higher cost of borrowing
from the MHFA if the Agency is required to pay the damages
awarded under the FCA, if entities like the MHFA are allowed to
submit false claims for payment to the federal government
without the threat of penalty, all citizens of the United States
will be deprived of the monies used to satisfy the deceitful or
erroneous demands that will amass.
Furthermore, the Massachusetts Legislature never attempted to
limit the damages that can be awarded against the MHFA when the
Agency engages in activities such as submitting false claims for
payment to HUD. The MHFA's charter states that:
The MHFA shall be liable on all claims made as a
result of the activities, whether ministerial or
discretionary, of any member, officer, or employee of
the MHFA acting as such, except for willful
dishonesty or intentional violation of the law, in
the same manner and to the same extent as a private
person under like circumstances; provided, however,
that the MHFA shall not be liable to levy of
execution on any real or personal property to satisfy
interest prior to judgment, for punitive damages or
for any amount in excess of one hundred thousand
Mass.Gen.Laws ch. 23A App. § 1-16A (2000). While the Legislature
specifically limits the damages awarded against the Agency when
its members, officers, and employees engage in some activities,
it prescribes no such limit for when such a party engages in
"willful dishonesty or intentional violation of the law."
Presenting the federal government with false claims for payment
undoubtedly represents an intentional violation of the FCA.
Therefore, the MHFA's liability is not limited by the treble
damages and civil penalties awarded under the current version of
the Act. As a result of these factors, the MHFA is not immune
from the damages awarded under the FCA.