Chandler, Janet v. Cook County IL ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 00-4110 & 01-1810
UNITED STATES of America ex rel.
Janet CHANDLER, Ph.D.,
Plaintiff-Appellant,
Cross-Appellee,
v.
COOK COUNTY, Illinois,/1
Defendant-Appellee,
Cross-Appellant.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 514--Robert W. Gettleman, Judge.
ARGUED SEPTEMBER 5, 2001--DECIDED January 22, 2002
Before FLAUM, Chief Judge, and POSNER and
RIPPLE, Circuit Judges.
RIPPLE, Circuit Judge. Janet Chandler,
Ph.D., brought this quitam action as
relator on behalf of the United States
under the False Claims Act ("FCA"), 31
U.S.C. sec.sec. 3729 et seq., to recover
funds that allegedly were obtained
fraudulently by defendants Hektoen
Institute for Medical Research
("Hektoen") and Cook County, Illinois, in
the administration of a drug treatment
program. The district court dismissed the
suit against Cook County, holding that,
as a municipality, the County was immune
from punitive damages under the FCA. Dr.
Chandler appealed and, for the reasons
set forth in this opinion, we reverse in
case No. 00-4110.
Cook County also appealed or, in the
alternative, requested mandamus, from the
district court’s discovery order
requiring Cook County to turn over
certain drug treatment records. We
believe the district court’s discovery
order does not comply with federal
privacy regulations. Therefore mandamus
will issue requiring the district court
to vacate its discovery order and to
proceed in conformity with this opinion.
I
BACKGROUND
A. Cook County as a Party
Dr. Janet Chandler brought this quitam
action against Hektoen and Cook County
for alleged misconduct in their handling
of a federal research grant./2 Cook
County Hospital ("CCH") applied for, and
received, a $5 million grant from the
National Institute of Drug Abuse ("NIDA")
to study the treatment of drug-dependant
pregnant women. Along with its grant
application, CCH submitted an assurance
of compliance plan to the Department of
Health and Human Services ("HHS"),
representing that CCH would comply with
federal human subject research
regulations. The grant initially was
awarded to CCH, but was transferred to
Hektoen, an affiliate of CCH established
to receive funds and conduct medical
research. The program was dubbed "New
Start"; it was designed to provide
treatment and conduct research. New Start
provided treatment to drug-dependant
pregnant women and studied the effect of
a stepped-up battery of medical and
social services on its patients, compared
with a control group receiving the
typical treatment available in the
community.
On September 1, 1993, Dr. Chandler was
hired as New Start’s project director.
While in this post, Dr. Chandler came to
believe that the defendants were
violating the terms of the grant and
federal regulations. Further, she
believed they were misrepresenting the
success of the New Start program and
submitting false progress reports to the
government, which included information on
"ghost" program participants who did not
exist. Dr. Chandler alleged that CCH did
not follow mandatory protocol for
research on human subjects and for
dispensing methadone to pregnant women,
did not obtain informed consent from
study participants, did not obtain
thorough medical or drug histories,
provided substandard care, failed to keep
accurate records and failed to randomize
participants.
In 1994, Dr. Chandler began to speak up,
informing physicians at CCH that she was
concerned with the handling of the New
Start program. She told them that the
program was violating the terms of the
grant, the assurance of compliance plan
and pertinent federal regulations.
Ultimately Dr. Chandler was discharged
and brought this action. She alleged that
CCH retaliated against her by revoking
some of her responsibilities and then
firing her in January 1995, after she was
accused of lying in her report to NIDA on
the study’s alleged failure.
Cook County moved to dismiss on the
ground that it was not a "person" within
the meaning of the False Claims Act. See
31 U.S.C. sec. 3729(a)./3 The district
court denied Cook County’s motion to
dismiss, holding that the County was a
person within the meaning of the FCA. See
Chandler v. Hektoen Inst., 35 F. Supp.2d
1078, 1084 (N.D. Ill. 1999) (Chandler I).
Specifically, the court was persuaded by
the definition of person within the Civil
Investigative Demand ("CID") provision of
the FCA, added in 1986. See 31 U.S.C.
sec. 3733(l)(4); Chandler I, 35 F.
Supp.2d at 1084. The statute defines
person as "any natural person,
partnership, corporation, association, or
other legal entity, including any State
or political subdivision of a State." 31
U.S.C. sec. 3733(l)(4). The district
court further held that the treble
damages provision of the FCA was not
punitive, so that municipalities’
traditional immunity from punitive
damages was not implicated. See Chandler
I, 35 F. Supp. 2d at 1084-85. Therefore,
Cook County’s motion was denied.
In 2000, the Supreme Court decided
Vermont Department of Natural Resources
v. United States ex rel. Stevens, 529
U.S. 765 (2000). Stevens held that states
were not persons within the meaning of
the FCA and concluded that the
trebledamages provision was punitive. See
id. at 783-84. Cook County filed a motion
to reconsider in light of Stevens. See
Chandler v. Hektoen Inst., 118 F. Supp.2d
902, 902 (N.D. Ill. 2000) (Chandler II).
The district court found nothing in
Stevens to "alter its conclusion that the
County is a ’person’ for purposes of the
FCA" but found that "it is quite clear
that under Stevens the County is immune
from the imposition of punitive damages."
Id. at 903. The court dismissed the case
against Cook County.
B. Discovery
Dr. Chandler brought this action on
January 27, 1997. She sought the records
of the New Start program in discovery.
The voluminous records contained inter
alia physicians’ notes, consent forms,
medical records, patient questionnaires
and drug test results. The County
resisted, pointing to federal regulations
requiring researchers to keep drug and
alcohol treatment records confidential.
On January 7, 1999, the district court
granted Dr. Chandler’s motion to compel
and ordered Cook County to produce the
records with patient-identifying
information redacted. Notice was sent to
the former New Start patients, informing
them that "Janet Chandler has been given
permission by the Court to review your
New Start records, so long as all the
identifying information and other
personal information on the records is
blacked out." R.72, Ex.B. The notice also
provided the former patients with forms
to reply if they wanted to object to the
disclosure or if they consented to the
disclosure of identifying information.
The patients were informed that if they
did nothing, the redacted records would
be disclosed to Dr. Chandler and her
representatives.
Over the next year or so, the parties
were contentious about the quality of the
redacted records. Dr. Chandler’s
attorneys claimed that many records were
missing or incomplete. There was a
problem with the index created by Cook
County to obscure patient identifying
information in compliance with the
court’s discovery order. The court
ordered the County to produce a "key" to
cross-reference original and substituted
file numbers because the substituted file
numbers could not be linked with a large
quantity of study data. In early 2001,
Dr. Chandler went back to the district
court seeking access to the unredacted
patient records.
On March 5, 2001, the district court
ordered Cook County to turn over
unredacted patient records to Dr.
Chandler’s representatives and asked the
parties to draft protective orders. On
March 14, 2001, the district court
entered a protective order governing the
disclosure of unredacted patient records
to Dr. Chandler’s attorneys. The order
limited disclosure to three of Dr.
Chandler’s attorneys and one paralegal
for ten days. They were prohibited from
disclosing information to anyone,
including Dr. Chandler and were not
permitted to record any of the
information. Cook County sought an
emergency stay pending appeal. After
briefing from both sides, the motions
panel of this court granted the stay on
June 12, 2001 and denied Dr. Chandler’s
motion to dismiss for want of
jurisdiction. We consolidated the two
appeals.
II
DISCUSSION
The False Claims Act establishes civil
penalties for "[a]ny person" who, inter
alia, "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," or who "conspires to defraud
the Government by getting a false or
fraudulent claim allowed or paid." 31
U.S.C. sec. 3729(a)(1), (3). Such a
person "is liable to the United States
Government for a civil penalty of not
less than $5,000 and not more than
$10,000, plus 3 times the amount of
damages which the Government sustains be
cause of the act of that person." Id.sec. 3729(a). The FCA may be enforced by
the Attorney General, id. sec. 3730(a),
or by a private person, known as a
relator, who brings a quitam suit "for
the person and for the United States
Government . . . in the name of the
Government," id. sec. 3730(b). A quitam
suit is filed in camera, and remains
under seal for sixty days. Id. sec.
3730(b)(2). The relator must present all
material evidence to the Government;
during the sixty day period, the
Government may intervene and proceed with
the action itself. Id. If the Government
declines to assume responsibility for the
suit, the relator may proceed on his own.
Id. sec. 3730(b)(4)(B). If the suit is
successful, the relator receives a
portion of the Government’s award. Id.sec. 3730(d). If the Government takes
over, the relator will receive between 15
and 25 percent of the Government’s
proceeds, "depending upon the extent to
which the person substantially
contributed to the prosecution of the
action," plus reasonable expenses. Id.sec. 3730(d)(1). If the relator proceeds
on his own, he will receive between 25
and 30 percent of the proceeds, plus
reasonable expenses. Id. The quitam
relator is also protected by a
"whistleblower" provision which provides
relief to any employee who suffers
retaliation for bringing a claim under
the FCA or assisting an employee-relator
who does so. Id. sec. 3730(h). The
whistleblower protection extends to any
relator who brings a claim in good faith,
whether or not it is successful.
A.
We must determine whether Cook County is
a "person" within the meaning of the
FCA./4
The issue is one of statutory
interpretation. Therefore we must
ascertain the will of Congress; we must
determine whether Congress, when it
enacted the FCA, intended counties to be
defendants in quitam suits.
We begin, as always, with the text of
the statute. Congress provides no
definition of "person" within sec. 3729.
There have been only cosmetic changes to
this section since the FCA was first
adopted in 1863; therefore, the
definition of person has remained
constant throughout the FCA’s history.
See Stevens, 529 U.S. at 783 n.12. The
Supreme Court has noted that, by 1844,
both private and municipal corporations
were presumptively included within the
meaning of "person." See Monell v. Dep’t
of Soc. Serv., 436 U.S. 658, 685-89
(1978). Nowhere in the text is there an
exception for suits against
municipalities. Nor have the parties
suggested any other statutory provision
that would limit the text before us.
The structure of the statute does not
appear to bar a finding that counties may
be sued under the FCA. The FCA creates a
mechanism designed to discover and
correct fraud against the federal
government. In a quitam suit, the relator
must inform the Department of Justice of
his intention to sue and must keep his
suit under seal for sixty days while the
Justice Department decides whether to
prosecute the action itself./5 The
parties have not suggested anything in
the structure of the FCA, when read as a
whole, that would require anything other
than a straight-forward reading of the
text.
The 1986 amendments to the FCA did not
change the meaning of "person" nor did
these legislative changes explicitly
include or exclude suits against
municipalities. However, three of the
changes to the FCA made by Congress in
1986 are relevant to this case. That
year, Congress adopted what is now 31
U.S.C. sec. 3733, which permitted the
Attorney General to issue a Civil
Investigative Demand ("CID") to "any
person" who "may be in possession,
custody, or control of any . . .
information relevant to a false claims
law investigation." See 31 U.S.C. sec.
3733(a)(1). A CID requires its recipient
to produce documents, answer
interrogatories and give oral testimony.
Id. Political subdivisions of states were
included within the CID provision’s
definition of "person." See id. sec. 3733
(l). Second, Congress adopted a
"whistleblower" statute, protecting
relators and their witnesses from
retaliation by employers. See id. sec.
3730(h). Finally, Congress increased the
penalties for violations, from $2,000 per
claim and double damages to $5,000-
$10,000 per claim and treble damages. Id.sec. 3729(a)./6 We believe that a
proper understanding of each of these
changes points to a finding of continued
municipal liability.
The CID provision was added to provide
the Justice Department with a new weapon
to discover fraud and investigate false
claim suits. That section defines
"person" as "any natural person,
partnership, corporation, association, or
other legal entity, including any State
or political subdivision of a State." Id.sec. 3733(l)(4)./7 The CID’s defini-tion
of person at least demonstrates that
Congress intended that states and their
subdivisions be potential targets of
false claim investigations. Although this
definition does not demonstrate
Congressional intent to impose liability
on municipalities, it certainly does not
support an inference that Congress
intended them to be exempt. Every change
made in 1986 made it more likely for FCA
claims to be filed and to succeed.
Further, the legislative history of the
1986 amendments, in particular that
accompanying the whistleblower provision,
makes it likely that the Congress, when
voting on the amendments, was aware that
the FCA might reach municipalities. The
Senate Judiciary Committee’s report
states that "[t]he 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." S. Rep. 99-345 at 8 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266,
5273./8 In discussing the whistleblower
provision, the Com-mittee report defines
"employers" to "include public as well as
private sector entities." See id. at 34-
35. Unless municipalities are subject to
suit under the FCA, Congress would have
no reason to be concerned that
municipalities might retaliate against
their employees for bringing FCA claims.
Given that states are excluded from the
definition of "person" within the FCA,
the only public entities remaining are
municipal corporations and other
political subdivisions of states which
are not arms or agencies of state
government.
This reading of the 1986 amendments is
compatible with other evidence that
Congress’ purpose in enacting those
amendments was to increase the
effectiveness of the Act. See S. Rep. No.
99-345 at 2 (1986) ("In order to make the
statute a more useful tool against fraud
in modern times, the Committee believes
the statute should be amended in several
significant respects. The proposed
legislation seeks not only to provide the
Government’s law enforcers with more
effective tools, but to encourage any
individual knowing of Government fraud to
bring that information forward.").
Congress also increased the percentage of
the Government’s proceeds a relator may
receive where the Government assumes
responsibility for the action. Before
1986, a relator’s share was capped at ten
percent of the award. See 31 U.S.C. sec.
3729 (c)(1) (1983). Now, a court has
discretion to give the relator between
fifteen and twenty-five percent, but
fifteen percent is the minimum award. 31
U.S.C. sec. 3730(d)(1). Before 1986, if a
relator proceeded on his own, his
potential award was capped at twenty-five
percent, see 31 U.S.C. sec. 3729(c)(2)
(1983); now twenty-five percent is the
minimum he would receive, with a maximum
of thirty percent. 31 U.S.C. sec.
3730(d)(2). These changes both encourage
quitam suits and encourage cooperation
with the Department of Justice.
The 1986 amendments also added several
provisions which deter frivolous suits
and give courts the discretion to
restrict a relator’s participation in
suits when the Government has intervened.
The district court can restrict the
relator’s participation if he remains in
the case for purposes of harassment, 31
U.S.C. sec. 3730(c)(2)(C); the court may
stay discovery if the relator’s actions
interfere with the Government’s
investigation, id. sec. 3730(c)(4). If
the basis for the suit was information
that was already available, a district
court may limit a relator’s recovery to
10 percent of the award, id. sec.
3730(d)(1), or bar the suit entirely
unless the Attorney General prosecutes
the case, id. sec. 3730(d)(4)(A). If the
relator himself planned or was guilty of
violations of the FCA, the court may
dismiss his suit. Id. sec. 3730(d)(3). If
the relator proceeds with the suit
himself and the court finds that the suit
was "clearly frivolous, clearly vexatious
or brought primarily for purposes of
harassment," the court may award the
defendant attorneys’ fees and expenses.
Id. sec. 3730(d)(4). Finally, the FCA
bars suits against members of Congress,
members of the judiciary and senior
executive branch officials. Id. sec.
3730(e)(2). These changes gave courts
more discretion to regulate quitam suits
and to weed out illegitimate actions.
Congress also changed the knowledge
element of the offense, making success
more likely. Some confusion had arisen
about the standard of intent necessary
for a finding of liability under the FCA.
Congress adopted sec. 3729(b) which
defines knowing and knowingly to mean
that a person "(1) has actual knowledge
of the information; (2) acts in
deliberate ignorance of the truth or
falsity of the information; or (3) acts
in reckless disregard for the truth or
falsity of the information, and no proof
of specific intent to defraud is
required." 31 U.S.C. sec. 3729(b). This
definition sets a fairly low standard,
making it easier for the United States to
prevail in FCA actions.
We must conclude that a study of the
text and structure of the Act, supported
by the available legislative history,
leads to the conclusion that Congress
intended to include counties within the
meaning of "person."
B.
Cook County nevertheless urges that we
are prohibited from interpreting the
statute to include counties because of
the municipalities’ traditional, common-
law immunity from punitive damages. The
Supreme Court in Stevens stated that, by
increasing the damages from double to
treble in 1986, the FCA was transformed
from a remedial statute to a punitive
one. See Stevens, 529 U.S. at 785-86./9
Because damages under the FCA are now
considered to be punitive, we turn to the
question of whether Congress has made it
sufficiently clear that municipalities do
not enjoy the traditional common-law
immunity of municipalities from punitive
damages for FCA claims.
We begin with the Supreme Court’s
decision in City of Newport v. Fact
Concerts, 453 U.S. 247 (1981). See Doe v.
County of Centre, 242 F.3d 437, 454 (3d
Cir. 2001) (using City of Newport to
analyze whether municipalities were
immune from punitive damages in suits
brought under the Americans with
Disabilities Act and the Rehabilitation
Act). In Newport, the Court was called
upon to decide whether a municipality was
immune from punitive damages under 42
U.S.C. sec. 1983. See Newport, 453 U.S.
at 249. The Court could find no evidence
that Congress intended to disturb
thesettled common-law immunity of
municipalities from punitive judgments.
See id. at 265. Under the sec. 1983
statutory scheme, there is no guidance
from Congress as to the damages to be
imposed, or to the limits on the amount
of punitive damages a jury may assess.
Compensatory damages, designed to make
the victim of unconstitutional behavior
whole, are a permissible basis of
recovery and, although punitive damages,
properly calculated, serve many salutary
purposes when a truly egregious situation
is presented, they remain a windfall for
the fully compensated plaintiff. There is
always the danger that the "deep pocket"
of the municipality’s tax base will tempt
a jury to succumb to an unprincipled
determination. See Newport, 453 U.S. at
270. In light of these factors, the Court
in Newport found no basis for
disregarding the presumption that a
municipal entity ought not be subjected
to such a liability.
In Newport, the court identified a "two-
part approach" for "scrutinizing a claim
of immunity proffered by a municipality."
Id. at 259. Such a claim requires
"careful inquiry into considerations of
both history and policy" to determine
"both the policies that it [the immunity]
serves and its compatibility with the
purposes" of statutes, id. Earlier, in
Owen v. City of Independence, 445 U.S.
622, 635 (1980), the Court had noted that
"the question of the scope of a
municipality’s immunity from liability .
. . is essentially one of statutory
interpretation." For instance, in the
context of sec. 1983, the Court concluded
in Newport that immunity from punitive
damages was not inconsistent with the
purposes of sec. 1983, see Newport, 453
U.S. at 271; however, in Owen, the Court
held that municipal immunity based on the
good faith of its officers was
inconsistent with sec. 1983, see Owen,
445 U.S. at 657. In both cases, the Court
looked at the fit between the purpose of
the asserted immunity and the
Congressional intent in enacting sec.
1983.
Given the Supreme Court’s analysis in
Newport, we must examine the purpose of
municipal immunity from punitive damages
to determine if it is consistent with the
False Claims Act. In the context of
section 1983, the Supreme Court wrote in
Newport: "Compensation was an obligation
properly shared by the municipality
itself, whereas punishment properly
applied only to the actual wrongdoers."
Newport, 453 U.S. at 263. Punitive
damages are borne by "the very taxpayers
and citizens for whose benefit the
wrongdoer [is] being chastised." Id.Ordinarily, punitive damages "are in
effect a windfall to a fully compensated
plaintiff, and are likely accompanied by
an increase in taxes or a reduction of
public services for the citizens footing
the bill." Id. at 267.
However, not all punitive damage regimes
are identical. Indeed, there are
important differences between those
available under sec. 1983 and those
imposed by the FCA. Under the FCA, at
least a portion of the recovery will come
from the monies taken by the municipality
through its false claims, whereas under
sec. 1983 both the compensatory and
punitive damages come directly from the
tax base. Further, in the FCA context,
the taxpayers themselves have been
enriched by the fraudulent conduct of the
municipality. Presumably any ill-gotten
gains from the federal government produce
more services or lower taxes. Thus, even
though some of the burden of the FCA’s
treble damages shifts to the local
taxpayers, this shift is not unjust,
because the local taxpayers have already
received, without justification, some of
the benefit. Congress’ precision in
crafting the FCA’s damage regime suggests
to us that it carefully considered all
its options before enacting this
particular system. Unlike sec. 1983, the
FCA does not need to borrow a common-law
conception of damages; Congress has
provided a clear and consistent remedy
for all violations of the FCA. And,
unlike under sec. 1983, we need not worry
about the "broad discretion traditionally
accorded to juries in assessing the
amount of punitive damages," Newport, 453
U.S. at 270, because the FCA affords the
judge little discretion in imposing
penalties on offenders.
The FCA damages scheme mandated by
Congress is not divided into compensatory
and punitive damages. Under the FCA,
damages are limited to $10,000 per claim
plus three times the amount of the false
claims. 31 U.S.C. sec. 3729(a). Although
the trebling of the actual loss is indeed
a significant enhancement and punitive in
nature, it is nevertheless a response
specifically determined by Congress as
necessary for the effective operation of
the FCA. It could not be more clear that
Congress, in adopting this approach,
addressed the situation with careful
precision as to what sort of damage
scheme was necessary to achieve the goals
of the statute. Notably, Congress did
make an exception to the general measure
of damages when the person who has
defrauded the Government cooperates
before having learned of the
investigation. 31 U.S.C. sec.
3729(a)(7)(A)-(C). In such a case, the
court has discretion to impose double,
rather than treble, damages. Id. The
damages are imposed by the judge, not the
jury. See In re Schimmels, 85 F.3d 416,
416 n.1 (9th Cir. 1996). By contrast,
Congress made no adjustment to the
general scheme for municipal entities.
The Supreme Court has noted that the
definition of "person" has remained
unchanged since the adoption of the FCA
in 1863. See Stevens, 529 U.S. at 782-83.
As noted above, counties were subject to
suit in 1863. Were we to hold counties
immune from the FCA’s damages scheme, we
would frustrate the clear intention of
Congress. The original FCA damages regime
was remedial. See United States v.
Bornstein, 423 U.S. 303, 315 (1976). In
1986, in an effort to increase the
effectiveness of the FCA, Congress
increased the per claim penalty from
$2,000 to a minimum of $5,000 and the
overall damages from double to treble. To
hold that municipalities are immune, we
would have to conclude that, in effecting
this increase, Congress intended to
exempt municipalities from the FCA sub
silentio.
Congress was aware of the Court’s
decisions in Newport and Bornstein; it
was only in 2000 that the Supreme Court
characterized the FCA’s remedy as
punitive. Congress also was aware of the
presumption that municipalities are
included within the meaning of the term
"person," see Monell v. Dep’t of Soc.
Serv., 436 U.S. 658, 685-89 (1978), and
that municipalities are treated
differently from states within our
constitutional system, see Comm.
Communications Corp. v. Boulder, 455 U.S.
40, 51-53 (1982), superseded by 15 U.S.C.
sec.sec. 34-36; Lafayette v. Louisiana
Power & Light Co., 435 U.S. 389, 394-96
(1978), superseded by 15 U.S.C. sec.sec.
34-36. In enacting the 1986 changes to
the statute, which form the basis of Cook
County’s immunity argument, Congress did
not indicate in any way that it intended
to exempt municipal entities from the
scope of the statute. When it desires to
exempt municipal entities from federal
statutory schemes, Congress has not
hesitated to do so. See, e.g., 15 U.S.C.
sec.sec. 34-36 (exempting local
government units from liability for
damages under the antitrust statute); 42
U.S.C. sec. 1981a(b)(1) (exempting
governments from punitive damages under
employment discrimination statute).
Dr. Chandler and the United States
suggest that, if we hold Cook County to
be immune from punitive damages, we ought
to hold further that Cook County may
still be sued under the FCA, but be held
to a lower measure of damages. In our
view, the legislative record affords us
no justification for undertaking such
judicial blue-penciling of the statute.
Congress has provided one remedy for
violations of the False Claims Act. If
municipalities are immune from punitive
damages, then they are, effectively,
immune from liability under the FCA.
There is no indication that Congress
intended the FCA to apply to municipal
entities but at a lower penalty. See
United States ex rel. Garibaldi v.
Orleans Parish Sch. Bd., 244 F.3d 486,
493 (5th Cir. 2001). As we have just
noted, the penalty scheme is a carefully
measured approach by Congress designed to
impose a penalty compatible with the
objectives of the Act. We therefore must
either apply the entire statute to
municipal entities or declare them to be
exempt under the FCA.
Billions of dollars flow from the
federal government to municipalities each
year. Congress, in creating, in 1863, and
then strengthening, in 1986, a
comprehensive mechanism designed to
remedy fraud against the federal
government clearly determined that
recipients of federal funds must be
subject to such a deterrent. Given this
legislative judgment, municipalities’
common-law immunity from suit is
inconsistent with Congress’ purpose in
adopting the FCA. Unlike sec. 1983, which
creates a cause of action without
specifying a remedy, the FCA includes a
carefully crafted remedy for violations.
Accordingly, despite the presumption
against the imposition of punitive
damages on municipalities, it is clear
that Congress, in enacting the 1986
changes to the FCA, made a conscious
choice to increase the recoverable
damages while in no way indicating that
it wished to exempt municipalities.
Therefore, the interpretive presumption
has been overcome.
C.
Nevertheless, Cook County contends, the
Supreme Court’s decision in Stevens
mandates a different result. The district
court, as had the Fifth Circuit, see
Garibaldi, 244 F.3d at 493-94, agreed. We
believe that this proposition is unsound
and respectfully disagree with the
conclusion reached by our sister
circuit./10 In our view, such a
reading of Stevens cannot be squared with
the essential rationale of that opinion
nor with the established doctrinal
differences, long recognized in our
jurisprudence, between the status of the
states of the Union and municipal
entities. See Stevens, 529 U.S. at 779-
80. Stevens quite appropriately
recognizes that the states, as sovereign
entities within our federal union, must
be accorded, in their relationships with
the federal government, certain
attributes of sovereignty. Cf., Printz v.
United States, 521 U.S. 898, 918-21, 926-
28 (1997) (holding that Congress could
not commandeer state executive officers
to enforce federal gun control law);
Seminole Tribe v. Florida, 517 U.S. 44,
55, 70-72 (1996) (holding that Congress
cannot abrogate states’ 11th Amendment
immunity through the powers granted in
Article 1 of the federal constitution).
Among these attributes is the presumption
that states, as sovereigns, are not
included within the term "person." See
Stevens, 529 U.S. at 780.
The central holding of Stevens is that
states are not within the FCA’s
definition of "person" because of the
"longstanding interpretive presumption
that ’person’ does not include the
sovereign." Stevens, 529 U.S. at 780.
"The presumption is ’particularly
applicable where it is claimed that
Congress has subjected the States to
liability to which they had not been
subject before.’" Id. at 781 (quoting
Will v. Mich. Dep’t of State Police, 491
U.S. 58, 64 (1989)). This presumption is
applied to protect the states because of
their dignity as sovereigns within our
system of federalism. It is akin to the
clear statement rule which requires "that
if Congress intends 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 (internal citations and
quotations omitted). The presumption cuts
the other way for municipalities. See
Monell v. Dep’t of Soc. Serv., 436 U.S.
658, 685-89 (1978). The Supreme Court has
never imposed this same requirement on
Congressional efforts to make municipal
entities amenable to federal legislation.
Cf. Bd. of Trustees v. Garrett, 531 U.S.
356, 368-69 (discussing the different
requirements for imposing federal
liability on states and municipalities);
Monell, 436 U.S. at 701 (stating that
absent a clear statement to the contrary,
municipalities were presumptively
included within the meaning of the term
"person"). Such constitutional concerns
applicable to states do not apply to
municipalities. Therefore, there is no
such rule of construction applicable
here. Cf., Garrett, 531 U.S. at 368-69("[Cities and counties] are subject to
private claims for damages under the ADA
without Congress’ ever having to rely on
sec. 5 of the Fourteenth Amendment to
render them so. It would make no sense to
consider constitutional violations on
their part . . . when only the States are
the beneficiaries of the Eleventh
Amendment."); Alden v. Maine, 527 U.S.
706, 756 (1999) ("The second important
limit to the principle of sovereign
immunity is that it bars suits against
States but not lesser entities. The
immunity does not extend to suits
prosecuted against a municipal
corporation or other governmental entity
which is not an arm of the State."). The
rationale of Stevens simply cannot
support the interpretation that Cook
County wishes to place on it.
Accordingly, counties are not only
amenable to the FCA but also are subject
to the same penalties as other
defendants.
III
A.
In light of the above discussion, Cook
County will once again be a party to this
action. We therefore must address its
appeal of the district court’s discovery
order of March 14, 2001. Normally,
discovery rulings are unappealable,
because the disadvantaged party has a
remedy at the end of the district court
proceedings./11 This court has held
that a party seeking to obtain appellate
review of a discovery order before
judgment should accept a contempt
citation, and then appeal. See Allendale
Mutual Ins. Co. v. Bull Data Sys. Inc.,
32 F.3d 1175, 1179 (7th Cir. 1994).
"[R]equiring the complaining party to
take some risk--to back up his belief
with action--winnows weak claims." Reise
v. Bd. of Regents, 957 F.2d 293, 295 (7th
Cir. 1992). However, in extraordinary
circumstances, mandamus may be an
appropriate remedy where the petitioner
can show "irreparable harm . . . and a
clear right to the relief sought." In re
Sandahl, 980 F.2d 1118, 1119 (7th Cir.
1992). We believe Cook County has made
such a showing here.
"Mandamus may not be used to get around
the limitations on the appealability of
interlocutory orders." Mulay Plastics,
Inc. v. Grand Trunk Western R.R. Co., 742
F.2d 369, 371 (7th Cir. 1984). However,
the circumstances here present the
necessary predicate for such an
extraordinary remedy. The district
court’s discovery order implicates
regulations protecting the
confidentiality and integrity of
federally-funded substance abuse
programs. See 42 U.S.C. sec. 290dd-2; 42
C.F.R. sec.sec. 2.11, 2.63-64. If Cook
County is correct, allowing Dr.
Chandler’s representatives to view the
unredacted patient records would cause
serious harm to those patients’ privacy
rights and to the federal programs
protected by a comprehensive regulatory
scheme. Congress and the Department of
Health and Human Services have made it
clear that regulations are necessary to
protect "the patient, the physician-
patient relationship, and the treatment
programs." See 42 C.F.R. sec. 2.64(d). It
is not only the privacy rights of
individual patients that are at stake
here, but also the continued
effectiveness and viability of important
substance abuse treatment programs. See
United States v. Smith, 789 F.2d 196,
205-06 (3d Cir. 1986) (noting that "there
is a public interest in maintaining the
confidentiality of patient records" in
drug and alcohol treatment programs).
Patients will be less willing to seek
treatment if patient confidentiality is
not strictly protected. The First
Circuit, in upholding the validity of
sec. 2.63 wrote: "The purpose of [the
statute] is clear. Congress recognized
that absolute confidentiality is an
indispensable prerequisite to successful
alcoholism research. Moreover,
confidentiality is necessary to encourage
successful alcoholism treatment. Without
guarantees of confidentiality, many
individuals with alcohol problems would
be reluctant to participate fully in
alcoholism programs." Whyte v. Conn. Mut.
Life Ins. Co., 818 F.2d 1005, 1010 (1st
Cir. 1987); see also Mosier v. Am. Home
Patient, Inc., 170 F. Supp.2d 1211, 1214
(N.D. Fla. 2001) (noting that "this
particular privilege is a strong one").
The same is true of drug treatment. In
short, because important private and
public rights will be irretrievably
compromised if the County is correct but
the information is nevertheless released
prior to the entry of a final judgment,
mandamus is an appropriate remedy.
B.
We therefore turn to an assessment of
Cook County’s contention that the
district court’s order is violative of
the statute and regulations.
Federal law restricts the disclosure of
information obtained "in connection with
the performance of any program or
activity relating to substance abuse
education, prevention, training,
treatment, rehabilitation or research"
conducted by the United States or with
federal money. 42 U.S.C. sec. 290dd-2.
Disclosure is permitted with patient con
sent, 42 U.S.C. sec. 290dd-2(b)(1), or
"[i]f authorized by an appropriate order
of a court of competent jurisdiction
granted after application showing good
cause therefor, including the need to
avert a substantial risk of death or
serious bodily harm," id. sec. 290dd-
2(b)(2)(C). "In assessing good cause the
court shall weigh the public interest and
the need for disclosure against the
injury to the patient, to the physician-
patient relationship, and to the
treatment services. . . . [T]he court, in
determining the extent to which any
disclosure of all or any part of any
record is necessary, shall impose
appropriate safeguards against
unauthorized disclosure." Id. sec. 290dd-
2(b)(2)(C).
The regulations divide information into
two categories-- confidential and non-
confidential communications. The New
Start records contain both. In both
situations, when a court is preparing to
order disclosure, notice must be sent to
the patients and they must be afforded
"[a]n opportunity to file a written
response to the application, or to appear
in person, for the limited purpose of
providing evidence on the statutory and
regulatory criteria for the issuance of
the court order." 42 C.F.R. sec. 2.64(b).
Such notice must be "adequate." Id.Notice was sent in 1999, after the
district court’s ruling on January 7 of
that year granting Dr. Chandler’s motion
to compel. That notice informed patients
that redacted copies of their records
would be disclosed to Dr. Chandler’s
counsel. By contrast, patients have not
been notified, and the March 14 order
does not contemplate such notice, that
unredacted copies of their records will
be disclosed to Dr. Chandler’s
representatives. To be adequate, notice
must inform patients both of the nature
of the disclosure and to whom the
information will be disclosed. Patients
must know what is at stake before they
can make an informed decision about their
potential intervention in Dr. Chandler’s
lawsuit. Patients who may not have been
concerned enough about the disclosure of
redacted records to intervene may well
wish to be heard if the court is prepared
to order disclosure of unredacted
records.
Once notice has been given, with respect
to both confidential and other
communications, the district court must
find that "(1) other ways of obtaining
the information are not available or
would not be effective; and (2) the
public interest and need for disclosure
outweigh the potential injury to the
patient, the physician-patient
relationship and the treatment services."
42 C.F.R. sec. 2.64(d). If a patient does
not consent, confidential communications
may only be disclosed by court order if:
(1) The disclosure is necessary to
protect against an existing threat to
life or of serious bodily injury . . .
(2) The disclosure is necessary in
connection with investigation or
prosecution of an extremely serious
crime, such as one which directly
threatens loss of life or serious bodily
injury, including homicide, rape,
kidnapping, armed robbery, assault with a
deadly weapon, or child abuse and
neglect; or (3) The disclosure is in
connection with litigation or an
administrative proceeding in which the
patient offers testimony or other
evidence pertaining to the content of
confidential communications.
42 C.F.R. sec. 2.63(a). Because none of
those conditions apply here, any
confidential communications must be
redacted before Dr. Chandler’s
representatives may view the records.
The district court’s discovery order
violates these regulations. It permits
four individuals, three of Dr. Chandler’s
attorneys and a paralegal, to view all of
the records for ten days. It places no
restrictions on the type of information
that will be made available to them. The
statute and regulations do not
contemplate even limited disclosure of
non-confidential communications without
notice or of confidential communications
without one of the conditions of sec.
2.64 being satisfied./12 Dr. Chandler
maintains that she has no need to view
confidential materials, therefore, the
court should be able to craft an order
which satisfies both the regulations and
Dr. Chandler’s legitimate need to view
some of the non-confidential
communications.
Mandamus will issue requiring the
district court to vacate its discovery
order. Given the lapse of time between
the 1999 notice and the disclosure, new
notice should be sent to all patients
whose records might be examined by Dr.
Chandler’s representatives. Further,
notice must be sufficiently clear that
the New Start patients will understand,
without the aid of counsel, what is at
stake and what they must do to assert
their rights. No disclosure may be made
until sufficient time has passed to give
the patients an opportunity to decide
whether to intervene and to seek legal
assistance.
Conclusion
Cook County is a person within the
meaning of the False Claims Act and does
not enjoy immunity from the FCA’s damages
scheme. Therefore, the district court’s
decision in 00-4110 is REVERSED and the
case is REMANDED with orders to reinstate
Cook County as a party to this action.
The district court’s discovery order runs
afoul of federal privacy regulations and
violates important private rights
andpublic policies. Therefore, MANDAMUS
will issue in 01-1810, and the district
court is ordered to enter a new
protective order consistent with this
opinion. Each party shall bear its own
costs in these appeals.
No. 00-4110 REVERSED and REMANDED
No. 01-1810 MANDAMUS ISSUED
FOOTNOTES
/1 The Hektoen Institute for Medical Research, a
defendant in this action in the district court,
filed a motion for non-involvement in this
appeal. The court granted that motion.
/2 Dr. Chandler initially sued Cook County Hospital
in addition to these defendants. The hospital was
found to have no identity independent of Cook
County and was dismissed from the case. See
United States ex rel. Chandler v. Hektoen Inst.,
35 F. Supp.2d 1078, 1086 (N.D. Ill. 1999).
/3 Sec. 3729 provides:
(a) Any person who--
(1) knowingly presents, or causes to be present-
ed, to an officer or employee of the United
States Government or a member of the Armed Forces
of the United States a false or fraudulent claim
for payment or approval;
(2) knowingly makes, uses, or causes to be made
or used, a false record or statement to get a
false or fraudulent claim paid or approved by the
Government;
(3) conspires to defraud the Government by get-
ting a false or fraudulent claim allowed or paid;
. . .
is liable to the United States Government for a
civil penalty of not less than $5,000 and not
more than $10,000, plus 3 times the amount of
damages which the Government sustains because of
the act of that person.
31 U.S.C. sec. 3729(a).
/4 Under Illinois law, Cook County is a "home rule"
unit. Secretary of State of Illinois, Illinois
Counties & Incorporated Municipalities 30 (1993);
see also Ill. Const. Art. VII sec. 6; Nevitt v.
Langfelder, 623 N.E. 2d 281, 285 (Ill. 1993)
(noting that Cook County and the City of Chicago
are the only home rule units in Illinois with
populations in excess of 1 million people).
"Except as limited by this Section, a home rule
unit may exercise any power and perform any
function pertaining to its government and affairs
including, but not limited to, the power to
regulate for the protection of the public health,
safety, morals and welfare; to license; to tax;
and to incur debt." Ill. Const. Art. VII, sec.
6(a). Home rule status is automatically granted
to any municipality with a population greater
than 25,000 and any county with a chief executive
elected by the voters, or any municipality who
chooses such status by referendum. Id. The legis-
lature may preempt the taxing power of a home
rule unit by a three-fifths vote of both houses.
See id. sec. 6(g). The legislature may also
preempt, by ordinary majority vote, "any power or
function of a home rule unit other than a taxing
power" or certain local improvements and special
services. Id. sec.sec. 6(h), (l).
/5 There is no reason to presume that a decision by
the Justice Department not to assume control of
the suit is a commentary on its merits. The
Justice Department may have myriad reasons for
permitting the private suit to go forward includ-
ing limited prosecutorial resources and confi-
dence in the relator’s attorney.
/6 This change shifted the FCA’s damages regime from
a compensatory system to a punitive one, see
Stevens, 529 U.S. at 785-86, thereby implicating
municipalities’ common-law immunity from punitive
damages. See infra sec. II(B).
/7 The Supreme Court in Stevens found that this
definition militated against a finding that
states were within the definition of "person."
See Stevens, 529 U.S. at 784. The court reasoned
that if Congress wanted to include states within
the ambit of sec. 3729, it could have provided a
similar definition within that provision. Id.Given the presumption that States are not includ-
ed within the definition of "person," "the fail-
ure to add States to sec. 3729 suggests that
States are not subject to quitam liability under
sec. 3729." Id. at 784 n.14. Municipalities and
other political subdivisions, however, are pre-
sumptively within the meaning of "person." Con-
gress’ inclusion of "political subdivision of a
State" within sec. 3733’s definition of person
and its exclusion from sec. 3729’s definitions
section does not have the same meaning as Con-
gress’ similar action with regard to states. We
need not draw the same inference the Supreme
Court drew from this aspect of the statute’s
structure because Cook County does not enjoy the
same privilege of place within our constitutional
structure enjoyed by states.
/8 The Supreme Court in Stevens found this statement
to be erroneous. See Stevens, 529 U.S. at 783
n.12. The committee’s error, however, was in
presuming that "person" in its broad sense in-
cluded states which, as Stevens points out, is
not the case. Given the sovereign status of
states, Congress must do something more to bring
states within the coverage of a federal law than
enact a law aimed at "persons," even if that term
is used in its broadest sense. See id. at 780-81.
The same is not true of municipal corporations
and other governmental bodies within state bound-
aries. Therefore, while the committee report was
incorrect with respect to the liability of states
under the FCA before 1986, we believe it was
correct in asserting that political subdivisions
of states were, and are, subject to suit under
the FCA so long as they are not properly consid-
ered arms of the state itself.
/9 The Supreme Court had held that the double damag-
es recoverable before 1986 were remedial. See
United States v. Bornstein, 423 U.S. 303, 315
(1976).
/10 Because our holding on this point creates an
intercircuit conflict, this opinion has been
circulated to the entire court. Circuit Rule
40(e). No judge in active service has requested
a vote to hear this case en banc.
/11 Because Cook County is reinstated, we need not
consider the County’s argument that we have
jurisdiction under the doctrine of Dellwood Farms
v. Cargill, Inc., 128 F.3d 1122 (7th Cir. 1997).
Dellwood held that "[w]hen the [discovery] order
is directed against a nonparty, as it is here, he
has no appellate remedy at the end of the litiga-
tion, so he is allowed to appeal immediately."
Id. at 1125.
/12 The regulations provide that:
Disclose or disclosure means a communication of
patient identifying information, the affirmative
verification of another person’s communication of
patient identifying information, or the communi-
cation of any information from the record of a
patient who has been identified.
42 C.F.R. sec. 2.11.