State Schools Gain Protection From Whistleblower/Qui Tam Suits
November 30, 2000
Richard O. Duvall- Northern Virginia
In Vermont Agency of Natural Resources v. United States ex rel. Stevens, 120 S. Ct. 1858 (2000), the Supreme Court recently held that states and state agencies are not “persons” that can be sued under the Federal Civil False Claims Act (FCA) by qui tam relators—“whistleblowers” — suing on behalf of the United States. State schools have been occasional targets of whistleblowers who allege that the school has submitted a false claim or is otherwise liable to the United States under the FCA, and who seek a percentage of the amount recovered through the litigation. Stevens is of great importance to state universities and other state agencies because it significantly limits, and possibly eliminates, their exposure from whistleblower suits under the FCA. Stevens thus reduces the legal exposure that state schools incur when they accept federal grant money or submit claims under federal government contracts.
Private educational institutions, by contrast, have been hurt by the ruling in Stevens. The Court’s “no person” holding does not apply to them. Moreover, the Court confirmed that whistleblowers have standing under Article III of the U.S. Constitution to bring an action under the FCA. Thus, individuals can continue to bring FCA actions against private schools, colleges and universities.
The Civil False Claims Act
The FCA establishes liability for “any person” who, inter alia, knowingly presents a false claim for payment upon the U.S., or who uses a false record or statement to get a false claim approved. 31. U.S.C. §§ 3729(a), et. seq. There are severe penalties for violating the FCA, including a monetary award of three times actual damages and a civil penalty of $5,000 to $10,000 per violation, plus attorneys fees and costs. To encourage reporting, the FCA, in certain circumstances, provides that a private person, as a relator, may commence an action on behalf of the U.S. These “relators” or whistleblowers are eligible to receive a portion of the amount recovered, plus attorneys fees and costs: 15-25% where DOJ intervenes, and 25-30% where DOJ does not take over the action.
Supreme Court’s Analysis
The Court focused on whether the Vermont Agency was a “person” within the meaning of the basic liability provision of the FCA, i.e., 31 U.S.C. §3729(a)—entitled “Liability for certain acts” and beginning with the phrase “Any person who.” If the Vermont Agency was not a “person,” it could not be liable under §3729(a).
Because the FCA did not expressly define “person” for purposes of §3729(a), the Court construed the FCA in light of its history, the statute as a whole, and the language of a sister statute (the Program Fraud Civil Remedies Act of 1986). The Court noted that in 31 U.S.C. §3733(l)(4) of the FCA, dealing with civil investigative demands, Congress defined “person” to mean “any natural person...or other legal entity, including any State or political subdivision of a State.” The Court found that the “presence of such a definitional provision in §3733, together with the absence of such a provision from the definitional provisions contained in §3729...suggests that States are not ‘persons’ for purposes of qui tam liability under §3729.”
Key Issues Not Decided
The Court’s decision leaves open two significant questions concerning when, if at all, states might be liable for violations of the FCA under § 3729(a). The first is whether a “person” includes a state or state agency when the DOJ itself, instead of a whistleblower, brings suit under the FCA. Stevens relied heavily on the inclusion of a “State” within the definition of a “person” for purposes of the civil investigative demand procedure set forth in §3733(l)(4). Arguably, if Congress intended states (and agencies thereof) not to be liable for violations of the FCA, states would not have been made subject to the civil investigative demands. The logical extension of this argument is that Congress must have intended that “states” be considered “persons” if the action is initiated by the DOJ.
As a matter of common sense, however, whether a state or state agency is a “person” should turn on status of the defendant, not on the status of party filing the action. Congress could have intended that states be subject to civil investigative demands under §3733(l)(4), without also intending that states be liable under §3729(a). For example, there could be situations where DOJ needed documents or information in the hands of a state agency relevant to the investigation of false claims. Thus, under a common sense extension of Stevens, there is a strong argument that Congress does not intend state universities and other state agencies to be considered “persons” liable under §3729(a) — even if the DOJ, and not a whistleblower, brings the action.
A second question is whether a whistleblower can initiate a suit against a state and avoid dismissal under Stevens if the U.S. takes over the action. Until this question is resolved, whistleblowers might still be tempted to file FCA actions in the hope that DOJ would take over the action and thereby avoid a dismissal under Stevens. Although the possibility of such suits cannot completely be ruled out, Stevens greatly increases the chances that a whistleblower’s qui tam case against a state school under the FCA will be dismissed whether the DOJ takes over.
Conclusion
Stevens significantly reduces the risks that state schools incur when contracting with the federal government or when receiving money through federal grant programs. At the very least, Stevens means that if a qui tam whistleblower brings suit against a state school, and the DOJ does not take over the action, the action will be dismissed. The statutory analysis used in Stevens may also lead to a future ruling that states and state agencies are not “persons” liable under §3729(a) even if the action were initiated by the DOJ.