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Article: April 2001

THE QUI TAM PROVISIONS OF THE FALSE CLAIMS ACT PASS CONSTITUTIONAL MUSTER

The Supreme Court's recent decision in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000), dealt government contractors and healthcare providers a serious blow by closing one defense in the increasingly common suits brought under the qui tam provisions of the federal Civil False Claims Act (31 U.S.C.  3729-3733).

Briefly, the False Claims Act ("FCA") makes it unlawful for anyone to present the government with a claim -- traditionally contract claims but also including claims for government benefits -- knowing that the claim is false or that any statement made to get the claim paid is false. Under the FCA, the government, through the Attorney General, can sue contractors to recover civil penalties and treble damages. In addition, the FCA authorizes private individuals -- called qui tam plaintiffs or "relators" -- to sue contractors on behalf of the government for alleged FCA violations. When a relator files suit (which is initially under seal), the government has 60 days to decide whether or not to intervene as a party. If the government decides not to proceed with the suit, the relator can conduct the suit alone. In either event, the relator is generally entitled to a share of any recovery -- a larger share if conducting the action alone. Since the FCA's qui tam provisions were liberalized in 1986, these private suits -- commonly called "whistleblower" suits -- have mushroomed.

In an attempt to stem this burgeoning tide of lawsuits, contractors have routinely challenged the constitutionality of the FCA's qui tam provisions in cases where the government decides not to intervene and therefore leaves the relator to pursue the case alone. Contractors have relied on arguments based on two different articles of the Constitution. In Vermont, the United States Supreme Court decisively rejected one of those sets of arguments and called the second into serious question.

As a quick background, Congress, in 1986, amended the FCA in several ways that opened wide the door for qui tam plaintiffs to bring actions against alleged FCA offenders. ("Qui tam" is short for a Latin phrase meaning "who pursues this action on the King's behalf as well as his own.") For one thing, the 1986 amendments made it easier for a private individual to qualify as a relator. The amendments also increased the financial incentives for the relator: The total penalties and damages recoverable are now larger (up to $10,000 per false claim plus treble damages, versus the earlier $2,000 per false claim plus double damages), the bounty for the relator is a larger percentage of the total recovery (now up to 30%), and the successful relator is entitled to recover attorneys' fees. Add the fact that the 1986 amendments lowered the threshold for violating the FCA in the first place. Now, "knowing" that a claim is false so as to trigger a violation does not require that the defendant have had actual knowledge of the falsity, but only that there was "deliberate ignorance" or "reckless disregard" of the truth or falsity of the claim. In practice, this standard is leading some courts to find FCA violations where a false claim is submitted through little more than negligence.

The results of these changes speak for themselves. In 1985, the year before the amendments, there were 4 qui tam decisions reported nationwide. In 1999, there were over 150 qui tam decisions reported nationwide, and this number does not include the many cases that either settled and never went to trial or simply were never included in an official reporter. According to Department of Justice statistics, in 1987, 33 qui tam suits were filed in federal courts, while in 1998, 471 were filed, and FCA recoveries for the government between 1986 and 1998 amounted to nearly $3 billion, with qui tam plaintiffs collecting about $244 million in FCA bounties. Moreover, the focus of FCA suits has shifted dramatically in recent years; by the late 1990's the number of FCA suits against healthcare providers matched those against defense contractors.

In light of this avalanche of qui tam lawsuits, a constitutional defense would seem ideal. It would stop in their tracks the many qui tam suits where the government chooses not to intervene. These are often the cases with the least merit but that nonetheless can be expensive and time-consuming to defend in protracted litigation.

One constitutional defense (believed to be the strongest by many commentators) is the argument that the relator does not have standing, under Article III of the United States Constitution, to maintain a suit. Article III empowers federal courts to hear and decide only matters that qualify as "Cases" and "Controversies." U.S. Const. art. III, 2. This has long been held to require, among other things, that a plaintiff, in order to have standing to bring a suit in federal court, suffer an injury in fact, i.e., that a complaining party demonstrate an actual, concrete injury. Vermont, 529 U.S. at 771. But in a qui tam suit, since it is the government's injury that is being redressed, and not any injury to the relator (who is merely acting in effect as a private prosecutor), the relator arguably fails this "injury in fact" test and therefore has no standing to maintain a suit under Article III.

The second constitutional defense raised against the qui tam provisions is that they violate several aspects of Article II of the Constitution by improperly encroaching upon the authority of the Executive. These arguments are advanced under the "Appointments" Clause, the "Take Care" Clause and the related separation-of-powers doctrine. The Appointments Clause provides generally that the President shall act through duly appointed "officers." Contractors have argued that relators are not Appointment-Clause officers and therefore should be barred from exercising powers -- such as conducting litigation on behalf of the United States -- that are properly confined to Article II officers. See Buckley v. Valeo, 424 U.S. 1, 140 (1976). The Take Care Clause states that the President, i.e., the Executive branch, "shall take Care that the Laws be faithfully executed." U.S. Const. art. II, 3. And the separation-of-powers doctrine "requires that a branch [of government] not impair another in the performance of its constitutional duties." Clinton v. Jones, 520 U.S. 681, 701 (1997). Together, the Take Care Clause and separation-of-powers doctrine restrict, if not prohibit, encroachment on the Executive's exclusive power to conduct litigation on behalf of the United States. See Morrison v. Olson, 487 U.S. 654, 696 (1988); United States v. Nixon, 418 U.S. 683, 693 (1974). The argument continues that the FCA qui tam provisions, by permitting a private citizen to sue on behalf of the government, encroach on two aspects of the Executive's authority: (1) the discretion to decide whether to prosecute a claim and (2) the control over litigation brought to protect the government's interests.

In Vermont, the relator Mr. Stevens brought an FCA action against the Vermont Agency of Natural Resources, alleging that this state agency (his former employer) submitted false claims in connection with federal grant programs administered by the U.S. Environmental Protection Agency. The government declined to intervene, leaving Mr. Stevens to pursue the case by himself. The defendant then moved to dismiss the case on the grounds that a state, or state agency, is not a "person" subject to liability under the FCA.

After both the District Court and the Court of Appeals for the Second Circuit denied the agency's motion, the Supreme Court agreed to review the case. Soon after the initial briefing was completed, however, in a rather surprising move, the Court requested that the parties address an issue they had not previously argued: the constitutional issue of standing under Article III. Usually avoiding constitutional issues if possible, the Supreme Court here sought out, tackled head-on and squarely rejected one of the two constitutional arguments made by private defendants in qui tam suits -- that the qui tam provisions violate Article III.

In the majority opinion, authored by Justice Scalia, the Court held that "a private individual has standing to bring suit in federal court on behalf of the United States under the [FCA] . . . ." Vermont, 529 U.S. at 787. The Court analogized the qui tam relator to an assignee, who, although not himself or herself injured, can bring suit by virtue of the assignment of a claim by someone who was in fact injured. The Court also recited a rather lengthy history of qui tam provisions going back to 13th Century England, which the Court stated confirms the conclusion that a qui tam plaintiff has standing to sue. "We think this history well nigh conclusive . . . ." Vermont, 529 U.S. at 777.

Indeed, each of the concurring and dissenting justices agreed with the majority on this issue: Justices Ginsburg and Breyer, in concurrence, "agree with the Court that the qui tam relator is properly regarded as an assignee of a portion of the Government's claim for damages" and further "agree that history's pages place the qui tam suit safely within the 'case' or 'controversy' category." Vermont, 529 U.S. at 788; and Justices Stevens and Souter, though dissenting from the ultimate result of the case, nonetheless agreed that "[t]he historical evidence summarized by the [majority] is obviously sufficient to demonstrate that qui tam actions are 'cases' or 'controversies' within the meaning of Article III." Vermont, 529 U.S. at 801.

Thus, all nine justices found that the FCA qui tam provisions satisfied the Article III test for a case or controversy. Where the justices differed was on the separate issue of state sovereignty: whether a state or state agency can be sued by a qui tam plaintiff under the FCA. The five majority- and two concurring-justices together reversed the decision of the Court of Appeals and held that a state or state agency is not a "person" that is subject to liability under the FCA's qui tam provisions. Since this was the main issue in the case, the Court could have simply held that the FCA did not authorize private suits against states and left it at that, yielding the same result. But the Court did not stop there, perhaps because the issue of Article III standing is key to the Court even having jurisdiction to decide a case. The fact that there was a recent split among Circuit Courts on the constitutionality of qui tam provisions probably also was a factor: the Supreme Court likely realized that it would have to address the issue sooner or later.

Interestingly, when the Court requested additional briefing, it asked the parties to address only the constitutional issue of standing under Article III, and not any of the "Appointments," "Take Care" or separation-of-powers issues under Article II. Indeed, the majority explicitly stated that "we express no view on the question whether qui tam suits violate Article II, in particular the Appointments Clause of 2 and the "take Care" Clause of  3." Vermont, 529 U.S. at 778 n.8. The dissent, however, written by Justice Stevens, disagreed and asserted that the majority introduced this issue on its own. Although the majority denied that it introduced any Article II issues, Justice Stevens nevertheless went on to state that the historical evidence that the majority set forth in addressing the Article III argument, together with evidence "that private prosecutions were commonplace in the 19th century, . . . is also sufficient to resolve the Article II question . . ." in favor of finding qui tam suits constitutional. Vermont, 529 U.S. at 801. Thus, it is clear that at least two justices -- Stevens and Souter (who joined in the dissent) -- think the Article II arguments are as unfounded as the Article III argument.

In sum, the Supreme Court snatched one arrow from the defense quiver -- the Article III "case or controversy" argument -- and at the very least eyed warily the Article II arguments. While defendants will likely continue to make the Article II arguments, the chance of success on that ground, given the remarks by Justice Stevens and the unanimous agreement on the Article III argument, seems slight indeed. As a result, cases brought under the qui tam provisions of the FCA will be decided not on whether these types of suits are lawful or not in general, but on the details of the facts and circumstances of each particular case.

_______________________________

April 2001

by William J. Kelley, III and Pamela A. Kelley

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