USA ex rel J.Zissler v. Regents of U of MN ( 1998 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
_____________
No. 97-4099MN
_____________
United States of America *
ex rel. James Zissler, and *
United States of America, *
*
Appellants, * On Appeal from the United
* States District Court
v. * for the District of
* Minnesota.
Regents of the University *
of Minnesota, *
*
Appellees. *
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Submitted: June 10, 1998
Filed: September 4, 1998
___________
Before RICHARD S. ARNOLD and MORRIS SHEPPARD ARNOLD, Circuit Judges,
and PANNER,1 District Judge.
___________
RICHARD S. ARNOLD, Circuit Judge.
James Zissler brought this suit against the University of Minnesota on behalf of
the United States as a qui tam relator under the False Claims Act, 31 U.S.C. §§ 3729 -
1
The Hon. Owen M. Panner, United States District Judge for the District of
Oregon, sitting by designation.
3733 (1994). The suit alleged misuse of federal grant money in violation of the Act.
The United States intervened. The District Court dismissed the False Claims Act counts
of Zissler’s and the government’s complaints, holding that States, and hence the
University,2 were not “persons” subject to liability under that law. This interlocutory
appeal under 28 U.S.C. § 1292(b) followed. We reverse.
I.
Between 1969 and 1993, the University of Minnesota received approximately $19
million from the National Institutes of Health for research on organ transplantation. In
1995, Zissler sued the Regents of the University of Minnesota for violating the False
Claims Act, as a qui tam relator.3 The United States intervened in 1996, claiming that
the University had made false and incomplete statements in administering the research
grant, “including false statements regarding program income, patents, human subject
protections, investigator credentials, and descriptions of the research.” Appellant’s App.
at 53. It alleged presentation of false claims in violation of 31 U.S.C. § 3729(a)(1), and
making, using or causing to be made or used a false record or statement for payment, in
violation of 31 U.S.C. § 3729(a)(2), and concealing, avoiding, or decreasing an
obligation to the government, in violation of 31 U.S.C. § 3729(a)(7). It also brought
claims of unjust enrichment, payment by mistake, disgorgement of profits, and breach
of fiduciary duties. Whether any of these allegations can be proved remains to be seen.
The University moved to dismiss both the government’s and Zissler’s suits. The
District Court granted the motions as to the False Claims Act claims because, it held,
2
We agree with the University that it is an instrumentality of the State and is
entitled to whatever immunities or defenses the State would have if sued in its own
name.
3
Zissler also brought other claims, which were later voluntarily dismissed.
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the language and history of the Act did not clearly indicate that it applies to States. The
Court allowed the government to proceed with its other claims.
The sole issue on appeal is whether States are subject to the False Claims Act.
Section 3729(a) imposes liability on “[a]ny person” who makes false statements or
claims to the United States government, without further definition of the term “person.”
We hold that States are “persons” within the liability provision of the Act.
II. Constitutional Balance of Federal and State Powers
The University argues that, to subject States to liability under the False Claims Act,
Congress must have clearly stated its intent to do so in the language of the statute. The
Supreme Court has held 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 v. Michigan Dep’t of
State Police, 491 U.S. 58, 65 (1989) (citations omitted). We thus examine whether suit
by a qui tam relator, in which the United States has intervened, effects such an alteration.
We first hold that, in an action under the False Claims Act, the United States is the
real party in interest because of its significant control over the course of the litigation and
its dominant share of the proceeds thereof. The qui tam provisions of the Act state:
“Actions by Private Persons -- (1) A person may bring a civil action for a violation of
section 3729 for the person and for the United States Government. The action shall be
brought in the name of the Government . . ..” 31 U.S.C. § 3730(b). The action may be
dismissed only with the consent of the Attorney General, and the government may
intervene in the action. Id. If the government intervenes, as it has in this case, “it shall
have the primary responsibility for prosecuting the action, and shall not be bound by an
act of the person bringing the action.” 31 U.S.C. § 3730(c)(1). Section 3730(c)(2)(A)
and (B) give the government considerable control over the
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dismissal and settling of the case, as well as the participation of the relator in it. Further,
the government receives the lion’s share of any recovery: where it has intervened,
between 75% and 85% of the proceeds of the claim. 31 U.S.C. § 3730(d).
Even in cases where the United States has declined to intervene, “the structure of
the qui tam procedure, the extensive benefit flowing to the government from any
recovery, and the extensive power the government has to control the litigation” have been
held to “weigh heavily” for holding that it remains the real party in interest. United States
ex rel. Milam v. University of Texas M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th
Cir. 1992). See also Searcy v. Phillips Electronics N. America Corp., 117 F.3d 154 (5th
Cir. 1997); United States ex rel. Hall v. Tribal Dev. Corp., 49 F.3d 1208, 1212 (7th Cir.
1995); United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir.
1994); Minotti v. Lensink, 895 F.2d 100 (2d Cir. 1990); United States ex rel. Long v.
SCS Business & Technical Inst., 999 F. Supp. 78 (D.D.C. 1998). In this structure, the
relator “has no interest in the matter whatever except as [a common informer].” Marvin
v. Trout, 199 U.S. 212, 225 (1905) (explaining that qui tam actions “have been in
existence for hundreds of years in England, and in this country ever since the foundation
of our Government”). Especially where the government has intervened, then, it must be
recognized as the real party in interest. The relator is “essentially a self-appointed private
attorney general,” United States ex rel. Milam, 961 F.2d at 49, whose involvement in a
representational capacity does not raise Eleventh Amendment concerns. In fact, this
Court holds, in an opinion filed today, that a State has no Eleventh Amendment immunity
against a qui tam suit filed under this statute, even when the United States has chosen not
to intervene. United States ex rel. Rodgers v. Arkansas, No. 97-1940EA.
As the real party in interest, the federal government’s power to sue a State is well
within the usual constitutional balance of federal and state powers. The consent of the
States to suit by the United States is “inherent in the [plan of the constitutional]
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convention,” Blatchford v. Native Village of Noatak, 501 U.S. 775, 785 (1991), and
“nothing in [the Eleventh Amendment] or any other provision of the Constitution prevents
or has ever been seriously supposed to prevent a State’s being sued by the United
States.” United States v. Mississippi, 380 U.S. 128, 140 (1965). Contrary to the
University’s assertion, the Supreme Court’s decision in Seminole Tribe v. Florida, 517
U.S. 44 (1996), does not put this principle in question. Seminole Tribe addressed the
question of whether Congress could authorize an Indian tribe, a private party, to sue a
State. It explicitly distinguished, however, the power of the federal government to do so.
Id. at 71 n.14 (“[T]he Federal Government can bring suit in federal court against a State,
see, e.g., United States v. Texas, 143 U.S. 621, 644-45 (1892) (finding such power
necessary to the ‘permanence of the Union’).”). As the Fourth Circuit has explained,
Seminole Tribe does not change our analysis that “the States have no Eleventh
Amendment immunity against the United States ab initio. Therefore, there is no reason
Congress would have displaced it in the False Claims Act.” United States ex rel. Berge
v. Board of Trustees of the University of Alabama, 104 F.3d 1453 (4th Cir. 1997)
(quoting United States ex rel. Milam, 961 F.2d at 50 n.3).
Nor does application of the False Claims Act to States constitute coercion, thereby
disrupting the usual balance of power between the United States and the States. There
is no coercion in subjecting States to the same conditions for federal funding as other
grantees: States may avoid these requirements simply by declining to apply for and to
accept these funds. But if they take the King’s shilling, they take it cum onere. In a case
considering the application of the Hatch Act to the political activities of federally funded
State employees, the Supreme Court found no violation of state sovereignty, because the
State could follow “the ‘simple expedient’ of not yielding to what she urges is federal
coercion. . . . The offer of benefits to a state by the United States dependent upon
cooperation by the state with federal plans, assumedly for the general welfare, is not
unusual.” Oklahoma v. Civil Service Comm’n, 330 U.S. 127, 143-44 (1947). Here, the
only cooperation asked of States is honesty, a mild requirement in light of the fact that
the Tenth Amendment allows even “the indirect
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achievement of objectives which Congress is not empowered to achieve directly,”
through conditional federal funding. South Dakota v. Dole, 483 U.S. 203, 210 (1987)
(upholding the conditioning of federal highway funding on State enforcement of a certain
minimum drinking age). Accordingly, we reject the University’s suggestion that the False
Claims Act’s remedies impermissibly “commandeer the legislative processes of the
States.” New York v. United States, 505 U.S. 144, 161 (1992) (citation omitted).
Further, the University should not have needed explicit notice of the basic understanding
that the grants were to be obtained and administered without fraud.
The University argues that the False Claims Act’s remedies alter the usual
constitutional balance of federalism because they are extracompensatory. Though the
ability of private citizens to recover more than compensatory damages from state
defendants has been limited in some instances -- see, e.g., Employees of Dep’t of Public
Health and Welfare v. Dep’t of Public Health and Welfare, 411 U.S. 279 (1973), we do
not understand the federal government to be so restricted. In any case, “the Supreme
Court has determined that ‘the Government is entitled to rough remedial justice, that is,
it may demand compensation according to somewhat imprecise formulas, such as
reasonable liquidated damages or a fixed sum plus double damages . . ..’ . . . We do not
see how the treble-damages provision of the False Claims Act is different . . . and we
hold that the [False Claims Act] civil case was compensatory rather than punitive.”
United States v. Brekke, 97 F.3d 1043, 1048 (8th Cir. 1996) (citations omitted) (holding
that a False Claims Act suit did not bar subsequent criminal prosecution), cert. denied,
117 S. Ct. 1281 (1997).
We hold that a False Claims Act action against a State falls within “the usual
constitutional balance between the States and the Federal Government.” Will, 491 U.S.
at 65 (citations omitted). Therefore, Congress’s intent to include States as liable parties
need not be manifest in “unmistakably clear” language. Id.
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III. Statutory Analysis
We proceed to interpret the statute under the ordinary canons of statutory
construction. The University first argues that we should presume the Act to exclude
States because they are sovereigns. By it own terms, however, the presumption of
sovereign exclusion applies only to “the enacting sovereign,” in this case the United
States. United States v. California, 297 U.S. 175, 186 (1936) (“[A] sovereign is
presumptively not intended to be bound by its own statute unless named in it.”).
Moreover, this canon is invoked only when the statute’s purpose is in doubt. Id. In this
case, however, we believe that “[t]he purpose, the subject matter, the context, the
legislative history, and the executive interpretation of the statute . . . indicate an intent,
by the use of the term, to bring state or nation within the scope of the law.” United States
v. Cooper Corp., 312 U.S. 600, 605 (1941) (considering whether the United States was
a “person” within the meaning of the Sherman Anti-Trust Act). Accord, Will, 491 U.S.
at 74.
The purpose of the original False Claims Act, enacted in 1863, was broad: “the
Act was intended to reach all types of fraud, without qualification, that might result in a
financial loss to the Government.” United States v. Neifert-White Co., 390 U.S. 229,
232 (1968). Moreover, the purpose of substantial amendments in 1986 was further “to
enhance the Government’s ability to recover losses sustained as a result of fraud against
the Government” and “to make the statute a more useful tool against fraud in modern
times.” S. Rep. No. 99-345, at 1, reprinted in 1986 U.S.C.C.A.N 5266. In “modern
times,” States have received a significant and increasing amount of federal funding:
federal grants to state and local governments more than doubled from $108 billion in
1987 to $228 billion in 1996. Bureau of the Census, U.S. Department of Commerce,
Publication FES/96, Federal Expenditures by State for Fiscal Year 1996 at 46, Table 11
(1997). In this context, “[w]e can perceive no reason . . . to exempt a business carried
on by a state from the otherwise applicable provisions of an act of Congress, all-
embracing in scope and national in its purpose, which is as capable of
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being obstructed by state as by individual action.” United States v. California, 297 U.S.
at 186 (holding the Federal Safety Appliance Act to apply to a state-run railroad). See
also New York v. United States, 505 U.S. at 167 (noting that federal funding to States
is “not unusual today”).
The legislative history of the False Claims Act as amended in 1986 supports the
inclusion of States as liable “persons.” In a section entitled “History of the False Claims
Act and Court Interpretation,” the Senate report accompanying the 1986 amendments
stated that “[t]he False Claims Act reaches all parties who may submit false claims. The
term ‘person’ is used in its broadest sense to include partnerships, associations, and
corporations . . . as well as States and political subdivisions thereof.” S. Rep. No. 99-
345, at 8 (citations omitted). The University asserts that this statement should be given
little weight, because it was not the view of the enacting 1863 Congress, and “had no
substantive relationship to the then-pending amendments.” Appellees’ Br. at 42. We
disagree. Before the 1986 amendments, Section 3729(a), the provision defining liability,
began: “A person not a member of an armed force of the United States is liable to the
United States government . . . if the person -- . . ..” It now reads, “Any person who -- .
. ..” The change evidenced consideration of whom to hold liable under the strengthened
Act, to which that Congress’s understanding (whether right or wrong) of court
interpretations of “person” was relevant background. Notwithstanding the University’s
challenge of its legitimacy, this understanding was that the False Claims Act applied to
the States, and would, after the 1986 amendments, continue to apply to the States.
Interpreting Section 3729’s “person” to include States is consistent with the use
of “person” in other provisions of the False Claims Act. “[T]he normal rule of statutory
construction [is] that identical words used in different parts of the same act are intended
to have the same meaning.” Commissioner v. Lundy, 516 U.S. 235, 250 (1996) (citations
omitted). Section 3730, “Civil actions for false claims,” authorizes “private persons” to
enforce the Act. States have acted as qui tam plaintiffs under this
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provision. See, e.g., United States ex rel. Woodard and Colorado v. Country View Care
Ctr., 797 F.2d 888 (10th Cir. 1986); United States ex rel. Wisconsin v. Dean, 729 F.2d
1100 (7th Cir. 1984). In the absence of language to the contrary, they should also be
“persons” when sued as defendants. Further, Section 3733 of the Act, “Civil
investigative demands,” expressly includes States in its definition of “person.” 31 U.S.C.
§ 3733(l)(4). We acknowledge the University’s point that the definition of “person” in
Section 3733 is said to be “for purposes of this section.” This argument is a good one,
but we do not consider it strong enough to carry the day in the context of all the other
considerations we are discussing in this opinion.
The University contends that the treatment of States in the Program Fraud Civil
Recoveries Act (PFCRA) indicates legislative intent to exclude States from liable
“persons.” The PFCRA, 31 U.S.C. §§ 3801 - 3812 (1994), is the administrative
counterpart to the False Claims Act. It expressly omits States from its list of liable
“persons.” 31 U.S.C. § 3801(a)(6). “Where Congress uses the same form of statutory
language in different statutes having the same general purpose, courts presume that
Congress intended the same interpretation to apply in both instances.” Imazio Nursery,
Inc. v. Dania Greenhouses, 69 F.3d 1560, 1568 (Fed. Cir. 1995). However, in this case,
the presumption is outweighed by the stronger evidence, in the False Claims Act itself,
that Congress intended “persons” to include States.
“[A] section of a statute should not be read in isolation from the context of the
whole Act, and . . . in fulfilling our responsibility in interpreting legislation, ‘we must not
be guided by a single sentence or member of a sentence, but [should] look to the
provisions of the whole law, and to its object and policy.’ ” State Highway Comm’n v.
Volpe, 479 F.2d 1099, 1111-12 (8th Cir. 1973) (citations omitted). We believe that
interpreting “person” in 33 U.S.C. § 3729 to include States as liable parties fulfills these
objectives.
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IV.
We reverse the order of the District Court and remand the case for further
proceedings.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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