For A Stronger False Claims Act

For A Stronger False Claims Act
By Adam Swingle

During the time of great turmoil that was the American Civil War, certain unscrupulous individuals exploited a distracted federal government. Emboldened by the prospect of little to no regulatory oversight by a government that was stretched to its breaking point, these individuals sold the government faulty products, deliberately failed to honor contractual obligations, and in other ways chose to defraud the federal government[1]; in doing so, they illicitly took money from the public treasury for personal gain. In response to this crisis, Congress passed the False Claims Act, which authorizes civil and criminal penalties for fraud committed against the federal government.

An important feature of the Act’s design is its authorization of qui tam suits. Simply put, the Act allows private citizens to sue fraudulent “persons” on behalf of the federal government and also entitles them to 30% of the proceeds from a successful suit.[2] Congress recognized that detecting fraud is enormously difficult when an outside actor, like the government itself, is the one charged with the investigation; however, individuals who are in close proximity to the illicit action should detect it more easily. The hope is that those individuals will take the necessary action to police on behalf of the government.

However, what is of more interest due to its controversial nature is the question of the Act’s scope of liability. The Act’s reach is limited to “persons.” However, because the Act’s liability clause does not provide its own definition of “persons”, the question has consistently been raised as to what entities properly fall within this term. At the end of the twentieth century, many federal courts[3] and many scholars[4] addressed the question of whether or not individual states could be defined as “persons” and could therefore be sued under the Act; there was broad disagreement on the proper answer to this question. The conflict over the Act’s construction eventually made its way to the Supreme Court, where it was resolved in Vermont v. United States ex rel. Stevens.[5]

In this case, Vermont was being sued under the Act by a qui tam relator for allegedly falsifying data that the EPA used in its decision to send the state federal grants.[6] Seeking to avoid liability, the state proffered two arguments to the Court. First, Vermont contended that the term “‘person’ does not ordinarily include the sovereign States.” Since the statute’s “plain language” did nothing to change this order, Vermont asked the Court to assume that “States are not ‘persons’ who may be sued under the Act.”[7] Secondly, Vermont argued that, even if the Court found that the term “persons” included the states, Vermont should be given immunity from the sweep of the Act due to the Eleventh Amendment’s doctrine of state sovereign immunity.[8] A majority of the Court agreed with Vermont’s first argument, holding that the word “persons” in the statute could not include anybody other than individuals and corporations.[9] Yet, a close analysis of the majority’s reasoning reveals the erroneous nature of its holding, and counsels against its further application.

As stated, the Court, in order to reach its conclusion, opted to engage in a statutory interpretation of the Act. Its analysis thereby focused on the statute’s definition of “persons.” When opening its discussion of this term, the majority notes that the courts have a “longstanding interpretative presumption that ‘person’ does not include the sovereign.”[10] While the Court recognizes that this “presumption” is not a “hard and fast rule of exclusion”[11], it then identifies an improper standard for determining when it is appropriate to discard this presumption.

The Court says that the presumption may be “disregarded only upon some affirmative showing of statutory intent to the contrary.”[12] The Court supposedly derived this standard from the earlier case of United States v. Cooper.[13] However, the relevant language, in its entirety, reads as follows: “[t]he purpose, the subject matter, the context, the legislative history, and the executive interpretation of the statute are aids to construction which may indicate an intent, by the use of the term, to bring state or nation within the scope of the law.”[14] While an “affirmative showing of statutory intent” could include the first four of Cooper’s factors, it does not include the final factor: the “executive interpretation of the statute.” It is true that Cooper’s factors are not inherently dispositive as they are simply “aids to construction.” Yet, considering the executive’s position in this case, it is curious why the Court mischaracterized Cooper’s language in order to adopt a standard that expressly ignores the value of the executive’s opinion.

Specifically, the executive in this case, through the Department of Justice, argued that states must be included in the Act’s construction of “persons.”[15] If the Court had recognized the instructive value of the executive’s opinion under Cooper, it should have, pursuant to other controlling authority, afforded the executive’s interpretation a great amount of deference.[16] The Court has explicitly recognized that the executive has the constitutional authority to make “policy choices-resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities.”[17] Considering that the False Claims Act’s definition of “persons” is unclear and that the Department of Justice is charged with the daily administration of the Act, the Court should have viewed as controlling the Department’s policy judgment regarding the scope of the Act’s liability provision. One could speculate regarding the Court’s motives in misconstruing various authorities in order to avoid affording the executive with the deference it deserved; however such speculation is immaterial. All that is probative here is that the Court improperly discarded the executive’s opinion. And if the Court had given this opinion the respect it deserved, the Court would have likely found that there was cause to disregard the interpretive presumption against including states in the definition of “persons.”

The Court then argues that, in another provision of the Act, Congress again used the term “persons” and decided, in this specific instance, to define the term to include the states.[18] Drawing upon this fact, the Court concluded that, since Congress must have expressly chosen not to include this same definition – or any definition at all  – in the relevant liability provision, it must have chosen to exclude states from liability.[19] However, under the Court’s prior precedents, this conclusion is erroneous.

As pointed out by the lower court in its analysis of the issue, the Supreme Court has consistently held that if Congress used “the same word in more than one section of a statute…Congress meant the word to have the same meaning.”[20] This rule of statutory construction is instructive here because, if followed, it would counsel that the term “persons” in the Act’s liability provision should be construed to include the states. Specifically, the liability clause is found in § 3730(b)(1). Nearby, the term “persons” is used in § 3729(a) and § 3730(a) and, in both instances, is defined to include the states.

So, when the Court states that the “absence” of a definition in the liability clause along with the “presence” of a definition in the surrounding sections means that the term “persons” must not include the states[21], the Court is wrong. It has disregarded the “normal rule of statutory construction that identical words used in different parts of the same act are intended to have the same meaning.”[22] One could still argue that it is not the position of the clauses that matters but, instead, their content. In other words, if the focus of each clause is entirely different, definitional parity between the clauses need not exist. However, all three of these clauses center on articulating when and against whom qui tam relators may sue under the Act. The focus of these clauses is exactly identical and therefore the definition of “persons” in each should be the same. In other words, since “persons” is defined in two of the clauses to include the states, it should be defined in the same manner in the third clause: the liability provision.

Finally, the Court closes its opinion by “buttress[ing]” its holding with two other points “unnecessary to discuss at any length.”[23] First, it claims to follow “the ordinary rule of statutory construction” that “if Congress intends to alter the usual constitutional balance between States and the Federal Government, it must make its intention to do so unmistakably clear in the language of the statute.”[24] By saying this, the Court is effectively arguing that finding states liable under the Act would offend the concept of federalism[1] . Supposedly, since Congress expressed no concrete desire to do such a thing in its writing of the Act, states must not be held liable. Yet, this argument does not withstand scrutiny.

The argument is not valid because authorizing state liability under the Act would not alter the federal balance in the slightest; in fact, state liability here would only serve to enhance the goals of federalism. By joining the Union, the states consented to the federal government’s position of supremacy.[25] In other words, the states collectively agreed to subordinate themselves to the wishes of the federal government when its wishes did not entrench upon their own constitutionally protected rights.

Thus it is without merit to say that authorizing qui tam suits against states would alter the balance of federalism. This is the case because when states choose to defraud the federal government, they rob the federal treasury, obstruct the constitutionally enacted directives of Congress, and place their interests above those of the federal government. By doing so, the states themselves assume a position of supremacy, say that they ultimately reign, and offend that original charter they signed. To say then that states must be shielded from liability in order to protect the doctrine of federalism lacks all merit. In reality, providing the states immunity from these suits would itself offend federalism since it would foreclose relief to the federal government when its rights, the rights that all of the states agreed to respect, have been violated.

The Court’s second “buttress” is its recognition of the judicial canon of avoidance, that statutes must be construed so as to “avoid difficult constitutional questions.”[26] Notwithstanding this assertion, the Court makes a quick aside that it “doubt[s]” state liability under the Act would comport with the Eleventh Amendment.[27] While the Court did not overtly center its analysis on this issue, this statement provides incredibly illustrative in providing an explanation for the Court’s strained statutory interpretation of the Act.

Taking this statement along with the Court’s earlier “presumption” against abrogating state sovereign immunity, it becomes apparent that the Court truly agreed with Vermont’s second argument. The Court’s statutory interpretation served as nothing more than a guise through which the Court could reach the conclusion it believed the Eleventh Amendment dictated. It reveals a Court wary of expressly resolving a constitutional question, of declaring allegiance with an interpretation of the Eleventh Amendment that had been frequently admonished.[28] But, regardless of the Court’s motivations in applying the Eleventh Amendment, it is clear, in this instance, that such an application is improper.

It is a truism that the Eleventh Amendment does not bar suits prosecuted by the federal government against states.[29] This idea is based on the premise that, as stated earlier, when the states joined the Union, they all recognized the superiority of the federal government. They voluntarily relinquished their claims to sovereign immunity against suits prosecuted by the federal government because they recognized, for the Union to function properly, the federal government must have a mechanism – here, a lawsuit – to enforce the supremacy of its prerogatives.

This is important in the case of the False Claims Act because it is also generally accepted today that qui tam relators – private citizens who sue under the Act on behalf of the federal government – are themselves agents acting on behalf of federal government and its interests.[30] Since lawsuits under the Act can only be prosecuted by these qui tam relators and by the government itself, nowhere under this scheme is a truly private individual suing a state. In all cases, the federal government is the prosecuting party. As such, the states’ sovereign immunity is inapplicable; the states must be held liable under the Act. The Eleventh Amendment, much to the Court’s consternation, provides no bulwark against the states’ inclusion in the Act’s scope of liability.

It is clear, then, that Vermont’s two claims for immunity from liability under the Act do not withstand serious scrutiny. The Court attempted to protect the states from liability by way of a labored attempt at statutory interpretation, an attempt the Court possibly was aware was incapable of success. But the Court pursued this line of analysis anyway, since it felt the Eleventh Amendment dictated that the states be shielded from liability, even though the Court was unwilling to publicly embrace that controversial constitutional argument. Though the Court was comfortable with such an application of the Eleventh Amendment, it is clear that its application was most certainly improper. As a result, the Court or Congress should recognize the error made in Vermont and remove that blotch from the pages of the Supreme Court Reports by authorizing state liability to qui tam suits authorized by the False Claims Act.

Adam Swingle is a first-year in the college majoring in History.