Qui Tam Can; Qui Tam Can't: an Analysis of Vermont Agency of Natural Resources v. United States Ex Rel. Stevens

• Publication year: 2010

Qui Tam Can; Qui Tam Can't: An Analysis of Vermont Agency of Natural Resources V. United States ex Rel. Stevens

Jaime McMahon

Introduction

Rooted in the history of the Civil War and reinvigorated by Congress in 1986, the False Claims Act (FCA)[1] provides a powerful weapon to fight fraud committed against the United States government.[2] The FCA provides a dual enforcement mechanism to recover damages suffered by the United States as a result of fraudulent claims submitted to the federal government for the purpose of procuring federal funds.[3] Under the FCA, either the federal government may bring a civil suit, or a private individual (known as a "qui tam plaintiff" or "relator") may bring a qui tam suit on behalf of and in the name of the United States government.[4] The incentive for private citizens to fight the government's battles lies in the relator's ability to collect a portion of the proceeds from the suit.[5]

Recent cases have revealed constitutional and statutory interpretation problems with the FCA and its enforcement through qui tam actions.[6] For instance, what happens when a state engages in fraudulent conduct to acquire federal grants for its programs? Is the state a "person" subject to liability and suit under the FCA? Does a private citizen have Article III standing to sue under the qui tam provisions of the FCA? Is the state immune from a qui tam suit under the Eleventh Amendment because the plaintiff is a private citizen? In the past decade, several qui tam plaintiffs have brought FCA qui tam suits against states, thus pressing the courts to answer these questions.[7]

Part I of this Comment briefly reviews the FCA by describing its historical context and by outlining the relevant statutory provisions. Part II discusses the disagreement among the federal courts on the issues of whether a qui tam relator has Article III standing, whether a state is a "person" subject to suit and liability under the FCA, and whether states can assert Eleventh Amendment[8] immunity to bar a suit by a private qui tam plaintiff. Part III reviews the history of the case at the district court and court of appeals levels. Part IV presents the parties' arguments in the case that finally put these issues before the U.S. Supreme Court, Vermont Agency of Natural Resources v. United States ex rel. Stevens.[9] Part V discusses the Supreme Court's decision. Finally, Part VI analyzes the Supreme Court's holdings, discussing the implications for the future of qui tam litigation.

I. Overview of the False Claims Act

A. Historical Background

Congress initially enacted the False Claims Act (FCA) in 1863 to combat defense contractors who were defrauding the Union Army during the Civil War.[10] The FCA provides penalties for a person who knowingly presents a false claim to the government, and it offers incentives for "whistleblowers," or "informers," who expose fraud on the government.[11]

Realizing that the United States government could not fight this fraud without the help of private citizens, Congress created a dual enforcement system in the Act.[12] The executive branch, through the Department of Justice, can litigate on behalf of the United States in a civil action under the FCA.[13] Private citizens can also represent the United States in a qui tam action under the FCA.[14] Their involvement is important because private citizens often have inside information on people or agencies that defraud the government.[15]

B. Relevant Provisions of the FCA

The False Claims Act imposes civil liability on "[a]ny person" who knowingly submits for payment a false or fraudulent claim to the United States government.[16] A person who defrauds the United States is liable to the government for a civil penalty of up to $10,000 per claim, plus three times the amount of damages that the government has suffered as a result of the fraud (treble damages).[17]

The Attorney General of the United States can bring a civil action against any person who violates section 3729(a) of the FCA.[18] The FCA also provides that a private person may bring a civil suit in the name of the United States government against a violator.[19] Such action by a private person is called a "qui tam suit,"[20] and the private person, called a "relator," is entitled to a percentage of the damages he recovers for the United States.[21]

Once a private person initiates a qui tam suit, he must give the United States an opportunity to intervene and take control of the action.[22] The FCA requires that the relator provide the government with a copy of the complaint and "substantially all material evidence and information the person possesses."[23] The relator must file the complaint in camera and under seal, giving the government a sixty-day period to investigate and decide whether to intervene.[24] After the government decides to intervene or to allow the relator to proceed alone, the court orders that the complaint be served on the defendant.[25]

If the United States decides not to intervene at the beginning of the suit, the relator has the "right to conduct the action," subject to a few limitations.[26] However, the United States government still retains significant control over the suit,[27] and it may intervene at any time upon a showing of "good cause."[28] When the government intervenes, it assumes complete control of the suit.[29] The relator has a right to continue as a party, subject to some restrictions,[30] but no act of the qui tam relator can bind the government.[31] Furthermore, the government can dismiss or settle the suit at any time, regardless of the relator's objections, provided that the government notifies the relator and the court provides the relator an opportunity for a hearing on the motion to dismiss or proposed settlement.[32]

Generally, in a qui tam suit, the proceeds of the action or settlement belong principally to the United States government, even if the government does not intervene in the action.[33] If the government intervenes, the qui tam relator receives between fifteen and twenty-five percent of the government's recovery, plus attorneys' fees and costs.[34] If the relator proceeds alone, he receives between twenty-five and thirty percent of what he recovers for the government, plus attorneys' fees and costs.[35]

II. Recent Developments in False Claims Act Litigation

Before the summer of 2000, one question was the subject of much disagreement in the circuit courts of appeals: Can states and state agencies be defendants in qui tam actions under the False Claims Act? To answer this question, several courts of appeals considered two issues: (1) whether states and state agencies can assert Eleventh Amendment immunity to FCA qui tam suits brought by private citizens, and (2) whether states and state agencies are "persons" subject to liability and suit under the FCA.[36] The federal courts of appeals were split on both issues.[37] Many courts have held that states do not enjoy Eleventh Amendment immunity because the United States is the real party in interest in a qui tam action under the FCA, and states are not immune from suits brought by the United States.[38] However, at least one court has held that the Eleventh Amendment bars a private citizen from bringing a qui tam action against a state when the United States does not intervene.[39] The courts also differed on whether the state is a "person" subject to liability and civil suit under the FCA.[40] Some courts have held that the definition of "person" in the FCA includes states.[41] Other courts have excluded states from the reach of the FCA.[42]

Another related issue was yet to be decided by the Supreme Court: whether qui tam relators have Article III standing to litigate fraud upon the government. Unlike the disagreement over whether states could be sued by qui tam relators under the FCA, every court of appeals to consider the question of standing concluded that suits by qui tam relators satisfy Article III.[43]

The United States Supreme Court finally answered at least two of these questions, and hinted about the third, in Vermont Agency of Natural Resources v. United States ex rel. Stevens.[44]

III. United States ex rel. Stevens v. Vermont Agency of Natural Resources: The District Court and Court of Appeals for the Second Circuit

A. Facts of the Case

The United States Environmental Protection Agency (EPA) provides federal grants to the Vermont Agency of Natural Resources (VANR).[45] Specifically, through its Department of Environmental Conservation (DEC) and a subdivision called the Water Supply Division (WSD), the VANR receives funds to administer its Clean Water Act[46] and Safe Drinking Water Act[47] programs.[48] The grants provide funds to pay only "allowable costs" incurred while implementing or enforcing federal laws concerning ground water protection and public water system management.[49] One such "allowable cost" was the salary and wage expenses for work performed on an hourly basis by DEC/WSD employees in connection with public water supply projects.[50] In this funding relationship, the EPA required the VANR to submit time and attendance records of its employees who worked on federally funded projects.[51]

Jonathan Stevens was an employee of the VANR during the time relevant to the claim in this case.[52] During his employment, Stevens noticed that the DEC estimated and pre-allocated the time to be worked on federally funded programs during the upcoming fiscal year.[53] When employees completed their biweekly time and attendance reports for submission to the EPA to justify the federal grants, the DEC instructed all WSD employees to use the advance estimates for time and attendance, regardless of the actual time worked.[54] DEC employees "did not work the hours which were arbitrarily assigned to them, nor did they record the hours they actually worked . . . ."[55] Mr. Stevens and other employees notified the DEC that the reports were inaccurate and that the...