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Scott Mason[*]
Although one might not realise it given the recent publicity about a ‘fiscal crisis’ facing the US,[1] the federal government distributes hundreds of billions of dollars to state and local governments every year.[2] According to the US Department of Commerce, in 2002 the federal government distributed $362 billion to state and local governments through over 700 grant programmes.[3] Although scholars have long debated the proper division of fiscal responsibility in this system of intergovernmental dependency known as ‘fiscal federalism,’4 this article will focus on a more practical problem associated with local government access to federal grant money: fraudulent claims presented by employees of municipal corporations[5] who receive these federal funds.
A recent spate of lawsuits brought under the qui tam6 provisions of the federal False Claims Act (FCA)[7] demonstrates that these municipal employees are looting millions of federal taxpayer dollars. For example, in United States ex rel Garibaldi v Orleans Parish School Board, an auditor for the Orleans Parish School Board brought a qui tam suit after discovering that 90 percent of the unemployment and workers’ compensation claims that the board charged to the federal government were false.[8] The claims were for employees who were not working in federally-funded programmes and were therefore ineligible for federal unemployment and workers’ compensation.[9] As a result of these false claims, the federal government lost $7.6 million.[10]
In another case, United States ex rel Chandler v Cook County, Illinois, a doctor at a Chicago hospital brought a qui tam suit after discovering that several other doctors falsified information to keep a $5 million federal grant.[11] The doctors had requested the funds to study the effects of a new form of treatment on drug-addicted pregnant women.12 During the course of the study, the doctors failed to follow numerous procedures stipulated in the terms of the grant.[13] They also misrepresented the success of the study by reporting ‘ghost’ patients and filling out phony ‘progress reports’ to make it appear that these taxpayer funds were put to their intended use.[14]
The FCA’s qui tam provision seemed like the ideal vehicle to expose and prosecute this government waste. The FCA provides liability for any person who makes a false or fraudulent claim for payment by the federal government.[15] Violators are liable for treble damages and are subject to fines ranging from $5,000 to $10,000 for each false claim.[16] To encourage prosecution of suits the federal government would not otherwise know about, Congress included the qui tam provision to give private persons an incentive to blow the whistle on their employers when they discover fraud against the federal government.[17] Under this provision, the qui tam claimant (the relator) may file suit on behalf of the federal government.[18] In the event of a successful suit, the relator may recover between 10 and 30% of the judgment, plus expenses and attorney fees.[19] The amount the relator may recover depends on two factors: the extent he participates in the prosecution of the suit; and the amount of otherwise unavailable information he provides to the government.20
Although relators have successfully used the FCA against private contractors since its enactment in 1863,[21] courts have struggled with recent attempts to apply the FCA to municipal corporations. In particular, two problems prompted disagreement among the courts. One problem was that the FCA provides liability for any ‘person’ violating the statute, but the statute contains no definition of the term ‘person’.[22] Thus, courts disagreed on whether municipal corporations were ‘persons’ subject to FCA liability.[23] The second problem was that the FCA provides treble damages and automatic fines for violators.[24] Because municipal corporations are traditionally immune from punitive damages, courts disagreed on whether the FCA’s treble damages applied to municipal corporations.[25]
During 2001 and 2002, the three federal circuit courts to consider these issues reached opposite conclusions.[26] The Third and Fifth Circuits held that municipal corporations were not subject to FCA liability.27 By contrast, the Seventh Circuit held that municipal corporations could be held liable under the FCA.[28] The United States Supreme Court, in Cook County v Chandler, recently sided with the Seventh Circuit, holding that municipal corporations were ‘persons’ under the FCA and could be subject to its treble damages.[29]
Because of the Chandler ruling, municipal corporations are now subject to the FCA’s treble damages and fines, notwithstanding their status as taxpayer-supported government entities. Considering the fiscal crisis currently facing local governments, it is unfortunate that the court sanctioned this further financial burden on municipal corporations.[30] Furthermore, a closer look at the historical context of the FCA demonstrates that Congress never intended municipal corporations to be targets of the FCA.31 Nevertheless, municipal corporations will remain subject to the Supreme Court’s ruling unless Congress acts to eliminate the problem of excessive damages awards.
This article will outline the process by which America’s highest court came to the conclusion that municipal corporations may be compelled to pay excess damages to the federal government for the wrongdoing of their employees.[32] Next, this article will argue that the proper interpretation of the FCA is that municipal corporations are not included in the FCA’s definition of ‘persons’.[33] Finally, this article will propose a revision to the FCA that subjects municipal corporations only to compensatory damages, rather than treble damages and fines.34 This revision will allow the federal government to continue recovering money wrongfully taken through fraud, without burdening local governments any further with excess damage awards.
Under the common law, courts have long considered municipal corporations immune from punitive damages.[35] This is because when punitive damages are assessed against a taxpayer-supported government entity, neither the retributive nor the deterrent goals of punitive damages are furthered.36 The only parties punished by punitive damage awards against municipal corporations are taxpayers, who generally play no part in the wrongdoing that prompts such awards.[37] Furthermore, punitive awards against governments serve no deterrent purpose, because taxpayers exercise very little control over the government officials’ conduct that gives rise to such awards.[38] For these reasons, municipal corporations are generally immune from punitive damages unless a statute provides otherwise.39
However, if Congress, in enacting the FCA, subjected municipal corporations to treble damages, courts would have to apply the FCA to them despite any policy-based objections. Although municipal corporations are immune from punitive damages at common law, nothing in the Constitution prohibits Congress from subjecting them to lawsuits[40] or punitive damages.41 Thus, the issue confronting the courts that faced the new wave of municipal FCA suits was not whether Congress should impose treble liability on municipal corporations, but whether Congress actually did so.[42] To resolve the issue of municipal liability under the FCA, the courts had to determine whether municipal corporations were among the ‘persons’ subject `to FCA liability.[43]
Courts face a difficult task when interpreting statutory terms, and they often aid their understanding by using interpretive presumptions.44 However, the courts found it especially difficult to interpret the term ‘person’ in the FCA, because the FCA’s features implicated two conflicting presumptions. The first presumption was that municipal corporations are included in statutory definitions of ‘person’.[45] The second presumption was that municipal corporations are excluded from statutes that impose punitive damages.[46] Obviously, municipal corporations could not be both included in and excluded from the FCA’s definition of ‘person’. Thus, the courts came to different conclusions with respect to municipal liability depending on which of these presumptions they applied, and whether they determined that the opposing parties successfully rebutted the presumptions.[47]
In the first federal appellate decision to consider the issue, the Fifth Circuit, in United States ex rel Garibaldi v Orleans Parish School Board, found that municipal corporations are not ‘persons’ under the FCA.[48] To reach this conclusion, the court applied only the second rule, the presumption that municipal corporations are not subject to punitive damages.[49] The court noted that imposing punitive damages on municipal corporations is contrary to sound public policy because it punishes taxpayers who had nothing to do with the wrongdoing that prompted the damages.[50] Next, the court determined that the FCA contained no language indicating that municipal corporations could be held liable.51 Thus, the court held that municipal corporations were not included in the FCA’s definition of ‘person’, and therefore were not subject to the FCA’s treble damages.[52]
One year later, the Third Circuit agreed in United States ex rel Dunleavy v County of Delaware, holding that municipal corporations are not ‘persons’ subject to FCA liability.[53] Like the Garibaldi court, the Dunleavy court applied the rule that municipal corporations are presumed immune from punitive damages unless Congress expressly provides otherwise.[54] For two reasons, the court determined that Congress did not provide express authorisation for municipal liability. First, the court noted that in a previous decision involving the federal RICO statute, which also imposes treble damages, the court had determined that municipal corporations are not ‘persons’ under that statute.55 Next, the court pointed out that several federal statutes define ‘person’ to include municipal corporations.[56] The court reasoned that Congress could have likewise amended the FCA to include explicitly municipal corporations if it intended to subject them to FCA liability.57 For these reasons, the court concluded that municipal corporations are not included in the FCA’s definition of ‘person’, and are not subject to the FCA’s treble damages.[58]
However, at the same time the Seventh Circuit reached the opposite conclusion in United States ex rel Chandler v Cook County, Illinois, holding that municipal corporations are ‘persons’ subject to the FCA’s treble damages.[59] To reach this conclusion, the court used a completely different method of interpretation, which incorporated both of the presumptions governing municipal corporations.[60] First, the court noted that municipal corporations are ‘presumptively included in the definition of “person”’.[61] Applying this presumption, the court found that neither the original text of the FCA nor any of its amendments excluded municipal corporations from the definition.62 Thus, because the court applied a rule in which municipal corporations were presumed included, rather than presumed excluded, the court found that municipal corporations were ‘persons’ subject to FCA liability.
The Chandler court also considered the presumption that municipal corporations are excluded from liability under the FCA because of its punitive damages.[63] However, the court determined that because of certain features of the FCA’s damages, municipal corporations were included in the FCA’s definition of ‘persons’ despite this presumption.64 First, the court found that the policy reasons for protecting taxpayers from punitive damages awards were not applicable because the taxpayers themselves were enriched by the municipal employees’ fraudulent conduct.[65] Secondly, the court found that the concern over excessive damages did not apply because the FCA provided fixed treble damages and did not give courts discretion to award excessive damages.[66] Thus, the court held that, despite the presumption that municipal corporations are immune from treble damages, they are among the ‘persons’ subject to liability under the FCA.[67]
As the preceding discussion reflects, the courts’ determinations of municipal liability varied depending on how each court approached its analysis of the FCA’s text. Courts that applied only the presumption of municipal immunity from punitive damages held that municipal corporations are not liable under the FCA.[68] However, the Seventh Circuit, which applied both the presumption of municipal personhood and the presumption of municipal immunity, determined that municipal corporations are ‘persons’ subject to FCA liability.[69] The circuits remained split on the issue of municipal liability under the FCA until early in 2003, when the United States Supreme Court finally resolved the issue in the appeal from the Seventh Circuit’s ruling in United States ex rel Chandler v Cook County, Illinois.70
In Chandler, the Court affirmed the Seventh Circuit’s ruling, holding that municipal corporations are ‘persons’ subject to FCA liability.[71] The court applied the presumption that municipal corporations are ‘persons.’[72] However, the court also noted that the presumption is ‘not immutable’ and that municipal corporations may be excluded from the definition of ‘persons’ if the circumstances indicate that they should be excluded.[73] The court then addressed Cook County’s arguments that municipal corporations were not included in the definition of ‘person’.[74]
First, Cook County argued that municipal corporations were not among the parties targeted by the FCA, which were private Civil War defence contractors.[75] However, the court rejected that argument, finding that the FCA should be construed broadly to reach all types of fraud.76 The county also argued that municipal corporations were not capable of committing the frauds the FCA was designed to remedy.[77] The court rejected this argument as well, finding that municipal corporations were capable of committing the harms to be remedied by the FCA.[78] Thus, the court determined that Cook County did not overcome the presumption that municipal corporations are included in the FCA’s definition of ‘person’.[79]
Next, the court considered the presumption that municipal corporations are excluded from punitive damages.[80] The court found that the presumption did not prevent municipal corporations from being held liable for treble damages under the FCA.[81] Like the Seventh Circuit, the court found that the FCA’s treble damages differed from punitive damages because the FCA did not allow courts discretion to award large damages.[82] The court also found that treble damages were ‘necessary for complete recovery’ for the federal government because part of the damages go to the relator and make up for pre-judgment interest.
However, the primary reason the court determined that the presumption of municipal immunity did not apply was that it conflicted with yet another presumption: that ‘repeals by implication are disfavoured’.83 According to the court, to hold that municipal corporations are exempt from the FCA’s treble damages would require a finding that Congress impliedly excluded them from liability.84 The court explained that the original FCA, which included municipal corporations as ‘persons’, only provided double damages.[85] Next, the court noted that in 1986, Congress amended the FCA to include treble damages, but did not change the term ‘person’.[86] Therefore, according to the court, because municipal corporations were included in the definition of ‘person’ when the FCA was enacted, the only way they could have been excluded from the 1986 revision’s treble damages would be if Congress ‘wordlessly redefined “person” to exclude municipalities’ when it amended the FCA.[87] Because the court deemed such a finding ‘implausible’, it found that municipal corporations are not excluded from the FCA’s definition of ‘person’ and are therefore subject to its treble damages.88
As Karl Llewellyn long ago demonstrated, for every rule of statutory construction, there is another one that will compel the opposite conclusion.[89] The Chandler decision is a perfect illustration of this phenomenon. When the presumption of municipal immunity suggested that municipal corporations are not persons,[90] the court countered it by invoking the presumption against repeals by implication,[91] which would not have applied but for the court’s initial use of the presumption of municipal personhood.[92] The court’s application of this bewildering array of presumptions led to the conclusion that municipal corporations may be compelled to pay treble damages under the FCA.93
However, the crucial flaw in the Chandler court’s ruling was not the court’s selection of which presumptions to use, but the court’s use of a presumption not found in the authorities it cited. A presumption is a legal assumption that a fact is true unless its opponent proves it false.94 The Chandler court cited Monell v Dep’t of Social Services,[95] and several other authorities, in support of the ‘presumption’ that municipal corporations are persons.96 But Monell merely used the ‘presumption’ of municipal personhood as one of several extrinsic aids to interpret the statute at issue in the case, the Civil Rights Act of 1871.[97] The Monell court did not assume that municipal corporations were persons absent a contrary showing.[98] Thus, the Chandler court took a rule designed to be an interpretive aid and converted it into prima facie proof of municipal personhood.[99] As the following discussion will illustrate, the result is an interpretation of the FCA that is inconsistent with the statute’s purpose and beyond anything contemplated by the Congress that enacted it.
The proper use of the municipal personhood rule is best illustrated by the most recent decision the Chandler court cited, Monell v Dep’t of Social Services.[100] In Monell, the Supreme Court held that municipal corporations are ‘persons’ under the Civil Rights Act of 1871.[101] To support its holding, the Monell court cited several reasons that specifically related to the historical context of the Civil Rights Act:
1 Congress had expressly stated, in pre-enactment debates, that the Act should be construed as broadly as possible because it was designed to secure ‘the preservation of human liberty and human rights’;102
2 municipal corporations were capable of inflicting the harms that the Civil Rights Act was designed to remedy;[103] 3 Congress expressly stated in pre-enactment debates that members of Congress understood ‘persons’ to include municipal corporations;[104] and
4 when the Civil Rights Act was enacted in 1871, municipal corporations were presumed persons for virtually all statutory construction purposes.105
After considering all four of these factors, the Monell court concluded that municipal corporations were included in the Civil Rights Act’s definition of ‘person’.[106]
As the foregoing discussion reflects, the ‘presumption’ that municipal corporations are persons was simply one of several extrinsic aids the Monell court used to interpret the Civil Rights Act of 1871.107 Yet the Chandler court considered this ‘presumption’ prima facie proof that municipal corporations are included in the FCA’s definition, and placed the burden on Cook County to prove otherwise.[108] However, a more accurate statement of the Monell rule is that whether municipal corporations are ‘persons’ under any given statute depends on congressional intent, determined by reference to the historical context of the statute’s enactment.[109] A comparison of the historical contexts of the FCA and the Civil Rights Act, applying the same criteria used by the Monell court, reveals that if the Chandler court had properly used the rule of municipal personhood as an interpretive aid rather than a ‘presumption’, it may have concluded that municipal corporations are not included in the FCA’s definition of ‘person’.
First, unlike the Civil Rights Act, the FCA was not intended to be construed broadly. When Congress enacted the Civil Rights Act, one Congressman specifically stated that the Act should be construed as broadly as possible to advance the statute’s purpose of securing human rights and liberties.[110] By contrast, Congress made no similar statements prior to enacting the FCA.[111] On the contrary, Congress indicated that the FCA was designed for the more discrete and specific purpose of protecting the federal treasury from unscrupulous contractors.[112] Thus, the first Monell criterion, broad construction, does not support the conclusion that municipal corporations are ‘persons’ under the FCA.
Secondly, in 1863 municipal corporations were not ‘capable of committing the harms to be remedied’ by the FCA, as distinguished from Monell’s finding that they were capable of violating the Civil Rights Act when that statute was enacted.[113] A municipal violation of the Civil Rights Act would have been likely in 1871, because such a violation could potentially arise out of any transaction between a municipal corporation and an individual.[114] But a municipal violation of the FCA could only arise out of a transaction between a municipal corporation and the federal government.[115] At the time Congress enacted the FCA, this sort of transaction would have been unlikely, because such transactions were virtually non-existent in 1863.[116]
In the 19th century, the federal government did not distribute cash grants to local governments.[117] Although the federal government had several land grant programmes in 1863, the current system of conditional money grants to state and local governments is a 20th century phenomenon.[118] Congress established the first systematic cash grants in the early 20th century,119 and these grants only developed into the pervasive scheme of subsidies in existence today after the New Deal revolution of the 1930s and the ‘Great Society’ reforms of the 1960s.[120] As potential recipients of these funds, municipal corporations are capable of violating the FCA today,[121] but this was not true in 1863.[122] Thus, at the time the FCA was enacted, municipal corporations were not ‘capable of committing the harms to be remedied by the FCA’.
Thirdly, unlike the debates over the Civil Rights Act, the debates preceding the FCA’s enactment did not contain any statements to suggest that Congress understood ‘persons’ to include municipal corporations.[123] Upon introducing the bill proposing the FCA, the sponsor indicated that the Act applied to persons in the military, defence contractors, and persons neither in the military nor contracting with the military.[124] Although Congress debated whether defence contractors should be subjected to military courts-martial, as the FCA originally required, none of the statements suggested that municipal corporations would be among the nonmilitary and non-defence contractor targets of the FCA.[125] Thus, the debates preceding enactment of the FCA provide no basis for the conclusion that municipal corporations are included in the FCA’s definition of ‘person’.[126]
As the foregoing discussion reflects, the FCA differs from the Civil Rights Act under three of the four criteria that supported the Monell court’s conclusion that municipal corporations are ‘persons’ under the Civil Rights Act. The only relevant similarity between the two statutes is that both contain the undefined term ‘person’ and are therefore subject to the ‘presumption’ of municipal personhood. However, the Monell court only used this ‘presumption’ to find municipal corporations liable under the Civil Rights Act after finding that three other clues from the historical context of the statute supported such a finding.[127] Had the Chandler court done a similar analysis, instead of predetermining the analysis with a prima facie rule of municipal personhood, it would have found no other indications that municipal
corporations were included in the FCA’s definition of ‘person’.[128] Thus, if the Chandler Court applied the presumption of municipal personhood consistently with the authority it cited, the court could have concluded that municipal corporations are not ‘persons’ under the FCA and are not subject to the FCA’s treble damages.
Regardless of any academic criticism of the Chandler decision, its ruling means that municipal corporations are now subject to treble damages and fines for the wrongdoing of their employees.[129] The unfortunate consequences of this ruling were most recently illustrated with the revival of the Garibaldi judgment against the Orleans Parish School Board.130 In Garibaldi, the federal district court for the Eastern District of Louisiana recently granted Garibaldi’s petition to revive the $22 million judgment against the school board.[131] In response, school board officials stated that the board would be unable to pay the judgment without cutting educational services.[132] The potential fiscal burdens placed on the Orleans Parish School Board by the Garibaldi judgment illustrate why local governments are traditionally immune from punitive damages.[133] The Garibaldi case also illustrates why legislative reform is necessary to prevent other local governments from facing such onerous and unnecessary treble damages awards.
Congress can reduce local governments’ exposure to the FCA’s treble damages awards by changing the FCA’s damages scheme. The revised scheme should reduce damages awards against municipal corporations, while retaining enough of an incentive for qui tam relators to come forward and expose municipal government fraud. To achieve this balance, Congress should make the following changes to the FCA: 1) eliminate the treble damages and fines that apply to municipal corporations; and 2) provide that municipal corporations pay the relators’ fees when held liable.
First, Congress should exempt municipal corporations from the FCA’s treble damages. The FCA currently imposes treble damages and fines on all violators.[134] Instead, the damages scheme should be split so that private entities may still be subject to treble damages and fines, but municipal corporations will only be subject to compensatory damages and relators’ fees. Although it may seem more appropriate to eliminate the treble damages altogether, so that all classes of legal entity receive equal treatment, complete elimination of the FCA’s treble damages would defeat the purpose of the 1986 amendments.
Congress trebled the damages in the 1986 amendments specifically to enhance the FCA’s incentives for private relators.[135] Because the vast majority of FCA suits are brought against private contractors,136 eliminating the treble damages altogether is a less sensible alternative than providing separate damages schemes for private and municipal defendants. If Congress eliminated treble damages, it would reduce the incentives that have prompted so many successful suits against private entities to reach a comparatively small number of municipal entities involved in fraudulent claims.[137] A statute with separate damages schemes for private and municipal defendants would be more appropriate, because it would ensure that the FCA retains its current incentives vis-à-vis suits against private entities, without forcing municipal taxpayers to pay excess damages for municipal fraud.[138]
Additionally, the extra fines the FCA imposes should not apply to municipal corporations. Currently, the FCA subjects violators to penalties ranging from $5,000 to $10,000 for each violation.[139] The fines apply regardless of the dollar amount of the false claim.[140] However, courts have occasionally held that FCA fines violated the Eighth Amendment, because the fines were so disproportionate to the amount of the claims that the courts considered them ‘excessive fines’.[141] Although disproportionate fines have not yet surfaced in a suit against a municipal corporation, eliminating the fines, at least as to municipal corporations, will ensure that such a problem does not arise in future litigation.
Because relators must be compensated to provide an incentive for FCA enforcement,[142] the revision also must provide for relators’ fees. Specifically, the revision should provide that any municipal corporation held liable must pay the relator’s fee of 10 to30% of the damages.143 This requirement would shift the cost of the relator’s fee, because the fee is currently deducted from the federal government’s recovery, rather than assessed against the defendant.[144] However, differences between treble and compensatory damages justify shifting the relator’s fee from the federal government to offending municipal corporations.
Because the FCA’s current damages are treble, deducting the relator’s fee from the federal government’s recovery currently does not result in under-compensation for the federal government.145 However, if the FCA is amended to provide compensatory damages, any fee deducted from the federal government’s recovery would deny the government a portion of its compensation. If one party must bear the burden of compensating the relator, it should be the wrongdoer, rather than the victim. Thus, under the revised FCA, any municipal corporations found liable should pay the relator’s fee. Forcing municipal corporations to bear this burden would require them to pay a measure of extra-compensatory damages, but these damages would be much smaller than the treble damages required under the current statute.[146] Such a compromise poses little likelihood of ‘undue fiscal constraints’ on municipal corporations.[147] More importantly, this compromise is essential to ensure the continued use of the FCA to prosecute municipal fraud.[148]
When Congress enacted the False Claims Act in 1863, it intended to remedy fraud perpetrated by private corporations.[149] At the time, Congress could not have contemplated the extensive federal subsidies to state and local governments that now allow these governments to defraud the federal government as well.[150] Because the current system of intergovernmental grants did not exist in the 19th century, the Congress of 1863 never considered the possible consequences of municipal liability under the FCA, which would have been different than liability for private corporations.[151] As a result, prior to the Supreme Court’s Chandler decision, courts were understandably reluctant to infer that Congress intended municipal corporations to be liable.[152]
Because the federal government distributes over $300 billion to state and municipal governments every year,[153] Congress must ensure that the FCA remains viable against these entities, to deter further mischief by municipal recipients of federal funds. However, Congress also needs to bear in mind that punitive damages against municipal corporations are disfavoured, because such damages only punish taxpayers, who are already being looted by the perpetrators of municipal fraud.[154] Thus, any revision to the FCA should expressly include municipal corporations, but limit damages against them to compensatory damages. With such a revision, Congress can ensure that cheated taxpayers have a remedy against municipal fraud, without making some of the same taxpayers pay for it again three times over.
* JD, Loyola University, New Orleans. Attorney. 1 See eg Dan Bals, Cash-Strapped Governors Seek Aid; Bipartisan Request for Help to Pay for Education, Security, Seattle Times, 25 February 2003 at A4 (describing how the states are facing the ‘worst fiscal crisis in half a century’ and detailing state governors’ requests for further federal aid); See also letter from Paul E Patton, Governor of Kentucky, and Dirk Kempthorne, Governor of Idaho, to Don Nickles, Senator and Chairman of the Senate Budget Committee, Kent Conrad, Senator and Ranking Member of the Senate Budget Committee, Jim Nussle, Representative and Chairman of the House Budget Committee, and John M Spratt, Representative and Ranking Member of the House Budget Committee (11 March 2003), at http://www.nga.org/nga/legislativeUpdate/letterDetailPrint/ 1.1421,5152,00.html (describing ‘unprecedented budget challenges’ and the impact of unfunded federal mandates and requesting funding for federally-mandated education and
public safety programmes).
[2] US Census Bureau, US Dep’t of Commerce, Federal Aid to States for Fiscal Year: 2002 (2003).
[3] Ibid, at 1–18.
[4] ‘Fiscal Federalism’ is defined as the division of economic functions between the ‘different levels of government, and the ways in which they relate to one another through such instruments as intergovernmental grants’. Wallace E Oates, An Essay on Fiscal Federalism, 37 J Econ Literature 1120 (1999). Scholars who favour local control over spending, as opposed to centralised federal financing of government services, argue that centralised financing is undesirable because the government officials responsible for spending are further away from, and therefore less accountable to, the taxpayers. See Michael S Greve, ‘Against cooperative federalism’, 70 Miss LJ 557, 558 (2000) (arguing that ‘co-operative federalism’, a broader term that denotes state enforcement of policies set by the federal government, fiscal or otherwise, ‘undermines political … accountability … diminishes policy competition among the states, and erodes self-government and liberty’). On the contrary, proponents of centralised federal funding prefer a centralised system because it is more likely to promote an equitable distribution of resources. See Deborah R McFarlane and Kenneth J Maier, ‘Do different funding mechanisms produce different results? The implications of family planning for fiscal federalism’, 23 J Health Pol, Pol’y & L 423, 448 (1998) (arguing that ‘without a strong national presence exemplified by tightly constructed federal statutes and categorical grants, federalism can lead to great regional inequities’).
[5] ‘Municipal corporation’ means essentially the same thing as a unit of local government, but the term is subject to a great deal of definitional confusion. According to one classic treatise, municipal corporations are ‘incorporated cities, towns and villages having subordinate and local powers of legislation’. Eugene McQuillin, The Law of Municipal Corporations s 2.07.10
(3rd edn, 2003, Deerfield, IL: Callaghan and Company). However, a more recent treatise rejects the use of the term ‘municipal corporation’ to describe local governments because it has been applied to cities, towns and villages, but not to counties or ‘special purpose’ local government entities such as school boards or levee districts. John Martines, Local Government Law s 2.02 (2002)???details???. Because courts applying the FCA have used the term ‘municipal corporation’ to refer to both the cities, towns and villages of the traditional McQuillin definition and the counties and special purpose units discussed by Martines, the term, for the purposes of this article, will encompass all five of these types of local government unit.
[6] ‘Qui tam’ comes from the phrase ‘qui tam pro domino rege, quam pro se ipso in hac parte sequitur’, which means ‘who pursues this action on our Lord the King’s behalf as well as his own’. Vermont Agency of Natural Res v United States ex rel Stevens, [2000] USSC 47; 529 US 765, 769 (2000) (citing 3 William Blackstone, Commentaries 160). The qui tam provision of the False Claims Act enables individuals, upon discovering fraud, to file ‘whistleblower’ suits against their employers on behalf of the federal government. 31 USC s 3730 (2000). See below fnn 15–20 and accompanying text for a more detailed discussion of the FCA and the qui tam provision.
[7] 31 USC. ss 3729–33 (2000).
[8] United States ex rel Garibaldi v Orleans Parish Sch Bd, 21 F Supp 2d 607, 611 (ED La 1998),
vacated[2001] USCA5 139; , 244 F 3d 486 (5th Cir, 2001), re-entered, 2003 WL 22174241 (ED La 18 September 2003).
[9] Ibid.
[10] United States ex rel Garibaldi v Orleans Parish Sch Bd, [2001] USCA5 139; 244 F3d 486, 488 (5th Cir, 2001), overruled, Cook County, Illinois v United States ex rel Chandler, [2003] USSC 1897; 123 S Ct 1239 (2003). The damages included $4.6 million from the board’s unemployment compensation programme and $3 million from the workers’ compensation programme. Ibid.
[11] [2002] USCA7 26; 277 F 3d 969, 971–72 (7th Cir, 2002), aff’d[2003] USSC 1897; , 123 S Ct 1239 (2003).
[12] United States ex rel Chandler v Hektoen Inst for Med Research, 35 F Supp 2d 1078, 1080 (ND Ill
[1999] ), rev’d[2002] USCA7 26; , 277 F 3d 969, 971–72 (7th Cir, 2002), aff’d[2003] USSC 1897; , 123 S Ct 1239 (2003).
[13] Ibid.
[14] Ibid.
[15] 31 USC s 3729(a) (2000). The FCA provides liability for any person who (1) knowingly presents, or causes to be presented, to an employee of the Government of the United States or the Armed Forces of the United States, a false or fraudulent claim for payment or approval; (2) knowingly makes or uses 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 getting a false claim allowed or paid; (4) possesses Government property or money and, with intent to defraud the Government, delivers less than the amount for which the person receives a certificate or receipt; (5) authorised to deliver a document certifying receipt of property to be used by the Government, delivers such a receipt without knowing that the information on the receipt is true; (6) knowingly buys property from the Government from someone not authorised to sell such property; (7) knowingly uses a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government. 31 USC s 3729(a) (2000).
[16] 31 USC s 3729(a) (2000).
[17] Cong Globe, 37th Cong, 3d Sess 956 (1863) (quoting the statement of one senator during the debates preceding enactment of the FCA, in which he said that the qui tam provisions were based ‘upon the old-fashioned idea of holding out a temptation, and ‘setting a rogue to catch
a rogue,’ which is the safest and most expeditious way … of bringing rogues to justice’).
[18] 31 USC. s 3730(b) (2000).
[19] Ibid, s 3730(d).
[20] 31 USC s 3730(d) (2000). After the relator files suit, the government may either intervene and prosecute the action itself, or decline to intervene and allow the relator to prosecute the suit. Ibid. If the government intervenes, the relator may recover between 15 and 25% of the proceeds of the claim. 28 USC s 3730(d) (2000). However, if the action is primarily based on information derived from another source, such as a pending indictment or a news media account, then the relator may only recover 10%. Ibid. If the government declines to intervene, the relator may recover between 25 and 30% of the proceeds of any judgment. Ibid.
[21] Richard A Bales, ‘A constitutional defence of qui tam’, 2001 Wis L Rev 381, 388–90 (2001) (detailing the history of the FCA). According to Bales, the FCA has primarily been used against defence contractors, beginning with its enactment during the Civil War era. Bales, op. cit, at 388–90. The FCA fell into disuse after the Civil War ended, and was not regularly used again until the 1930s, when the federal government expanded its economic activity pursuant to the New Deal and World War II. Ibid. FCA prosecutions declined again in the post-World War II era, and did not re-emerge again until the 1980s, when Congress amended the statute in response to increasing fraud by Cold War defence contractors, most notably the ‘$400 hammers and $600 toilet seats’. Ibid.
[22] United States ex rel Chandler v Cook County, Illinois, [2002] USCA7 26; 277 F 3d 969, 974 (7th Cir, 2002), aff’d[2003] USSC 1897; , 123 S Ct 1239 (2003) (noting that Congress provided no definition of ‘person’ in the FCA’s liability provision).
[23] United States ex rel Garibaldi v Orleans Parish Sch Bd, [2001] USCA5 139; 244 F 3d 486, 493 (5th Cir, 2001), overruled, Cook County, Illinois v United States ex rel Chandler, [2003] USSC 1897; 123 S Ct 1239 (2003) (holding that municipal corporations are not ‘persons’ under the FCA). Chandler, 277 F 3d at 976 (holding that municipal corporations are ‘persons’).
[24] 31 USC. s 3729(a) (2000) (stating that any ‘person’ who commits certain fraudulent acts against the federal government shall be liable for a fine between $5,000 and $10,000 and three times the amount of the damages sustained because of the fraud).
[25] Garibaldi, 244 F 3d at 491–92 (noting that local governments are not subject to punitive damages, and concluding that the FCA’s treble damages therefore do not apply to municipal corporations); Chandler, 277 F 3d at 977-78 (acknowledging municipalities’ ‘traditional, common law immunity’ from punitive damages, but holding that the FCA’s damages nevertheless apply to municipal corporations).
[26] United States ex rel Dunleavy v County of Delaware, [2002] USCA3 20; 279 F 3d 219, 226 (3rd Cir, 2002), vacated[2003] USSC 2239; , 123 S Ct 1619 (2003); Chandler, 277 F 3d at 981; Garibaldi, 244 F 3d at 495.
[27] Dunleavy, 279 F 3d at 226; Garibaldi, 244 F 3d at 495.
[28] Chandler, 277 F 3d at 981.
[29] Cook County, Illinois v United States ex rel Chandler, [2003] USSC 1897; 123 S Ct 1239, 1249 (2003).
[30] See Dale Russakoff, Budget Woes Trickle Down; Hard-Hit State and Local Governments Say Bush and Congress Left Them to Make Cuts, Raise Taxes, Wash Post, 15 July 2003, at A1 (describing reductions in state and federal aid to local governments, which have prompted local governments to cut services and increase property taxes).
[31] See below fnn 110–26 and accompanying text (examining the historical context of the FCA, and arguing that Congress did not intend municipal corporations to be liable under the FCA).
[32] See below fnn 44–88 and accompanying text (explaining the decisions of the federal circuit courts that ruled on the issue of municipal liability under the FCA, and the United States Supreme Court decision that held that municipal corporations are ‘persons’ subject to the FCA’s treble damages).
[33] See below fnn 89–128 and accompanying text.
[34] See below fnn 129–48 and accompanying text.
[35] See City of Newport v Fact Concerts Inc, 453 US 247, 259–63 (1981) (discussing several cases
dating back to the 19th century, in which courts held that municipal corporations could not be subjected to punitive damages).
[36] Genty v Resolution Trust Corp, [1991] USCA3 740; 937 F 2d 899, 910 (3rd Cir, 1991).
[37] Newport, 453 US at 267. This failure of the retributive purpose is not unique to municipal corporations, but also applies to private corporations. As Mitchell Polinsky and Steven Shavell, ‘Punitive damages: an economic analysis’, 111 Harv L Rev 869, 951 (1998). As Polinsky and Shavell have noted, blameless parties also pay when private corporations are assessed with punitive damages, because the cost is passed on to consumers in the form of higher prices, and to shareholders in the form of diminished returns. Polinsky & Shavell, op. cit, at 951. Nevertheless, other distinctions between private and municipal corporations support common law immunity for municipal corporations. See below fn 38 (discussing the differences in accountability between private corporate officers and municipal officers).
[38] Genty, 937 F 2d at 911. Although taxpayers may register their disapproval of municipal conduct on ballots every few years, taxpayers generally have little practical control over municipal officials’ management of government functions. Ibid. Furthermore, the only way taxpayers may disassociate themselves from a municipal corporation upon discovering misconduct is to move to another location, which is often unfeasible due to practical factors such as economic means or educational commitments of children. Ibid. By contrast, shareholders of private corporations may monitor their officers’ conduct through quarterly reports, and may promptly disassociate themselves by selling their stock. Genty, 937 F 2d at
[911] . These differences in accountability explain why municipal corporations enjoy immunity
from punitive damages, but private corporations do not. Ibid. 39 Newport, 453 US at 261 n 21.
[40] Alden v Maine, [1999] USSC 62; 527 US 706, 756 (1999) (stating that Eleventh Amendment immunity does not extend to municipal corporations, or local government entities that are not ‘arms of the state’). 18 Eugene McQuillin, The Law of Municipal Corporations s 53.01.10 at 134 (3rd edn, 2003) (noting that unlike the nation and the states, which may not be compelled to submit to a court’s jurisdiction without their consent due to their sovereign status, municipal corporations ‘must submit to any proper legal action’, regardless of whether they consent to jurisdiction).
[41] City of Newport, 453 US at 261 n 21 (stating that punitive damages are not recoverable from municipal corporations ‘unless expressly authorised by statute’).
[42] See United States ex. rel. Chandler v Cook County, Illinois, [2002] USCA7 26; 277 F3d 969, 974 (7th Cir, 2002), aff’d[2003] USSC 1897; , 123 S Ct 1239 (2003) (‘The issue is one of statutory interpretation …we must determine whether Congress, when it enacted the FCA, intended [municipal corporations] to be defendants in qui tam suits.’); United States ex rel Garibaldi v Orleans Parish Sch Bd, [2001] USCA5 139; 244 F3d 486, 489 (5th Cir, 2001), overruled, Cook County, Illinois v United States ex rel Chandler, [2003] USSC 1897; 123 S Ct 1239 (2003) (stating that the court must interpret the language of the FCA to determine whether Congress intended to hold municipal corporations liable).
[43] See Garibaldi, 244 F 3d at 490.
[44] 2A Norman Singer, Statutes and Statutory Construction s 45.13, at 107 (6th edn, 2000) (noting that ‘the process of statutory construction is conditioned by various presumptions which courts consistently apply’).
[45] Chandler, 277 F 3d at 974 (citing Monell v Dep’t of Social Services[1978] USSC 102; , 436 US 658, 685-89) (noting that municipal corporations are ‘presumptively included within the meaning of “person”’). However, see below fnn 97-99 (arguing that Monell did not establish a ‘presumption’ of municipal personhood, but simply observed that municipal corporations are ‘treated as natural persons for all purposes of … statutory analysis’, and used that observation as one of several reasons for finding that municipal corporations were ‘persons’ under the statute at issue). As argued herein, the ‘presumption’ of municipal personhood is not a well-established rule, but a rule that finds its origin in Chandler’s misapplication of Monell and other authorities. See below fnn 97–99.
[46] Garibaldi, 244 F3d at 491 (referring to the ‘well-settled presumption’ that local governments are not subject to punitive damages).
[47] Ibid, (holding that municipal corporations are presumed immune from punitive damages, and that nothing in the text of the FCA indicates otherwise). But see Chandler, 277 F 3d at 974-80 (holding that Cook County, the municipal defendant, did not overcome the presumption that municipal corporations are ‘persons’ and that the presumption of municipal immunity from punitive damages did not prevent a finding that municipalities are subject to the FCA’s treble damages).
[48] Garibaldi, 244 F 3d at 495.
[49] Ibid, at 491.
[50] Ibid, at 491–92.
[51] Garibaldi, 244 F 3d at 492.
[52] Ibid, at 495.
[53] [2002] USCA3 20; 279 F3d 219, 226 (3d Cir, 2002), vacated[2003] USSC 2239; , 123 S Ct 1619 (2003).
[54] Ibid, at 222 (noting that ‘[u]nless Congress clearly provides otherwise, a local governmental entity is immune from punitive damages awards’).
[55] Dunleavy, 279 F 3d at 223-24 (citing Genty v Resolution Trust Corp, [1991] USCA3 740; 937 F 2d 899, 914 (3rd Cir, 1991). RICO, the Racketeer-Influenced and Corrupt Organisations Act, 18 USC ss 1961–68 (2000), is a federal civil and criminal statute designed to protect the public from criminal organisations whose activities affect interstate commerce. Pamela H Bucy and Steven T Marshall, An Overview of RICO, 51 Ala Law 283, 283 (1990). RICO makes it unlawful for any ‘person’ associated with an ‘enterprise’ affecting interstate commerce to participate in the enterprise’s affairs through a pattern of racketeering activity. 18 USC. s 1962(c) (2000). A person who is injured in person or property by such activity may sue and collect treble damages. Ibid, s 1964(c).
[56] Dunleavy, 279 F 3d at 224 (citing the Clean Water Act, 33 USC s 1362(5) (2000), the Resource Conservation and Recovery Act, 42 USC s 6903(15) (2000), the Wild Bird Conservation Act of 1992, 16 USC s 4903(4) (2000) and the Oil Pollution Act of 1990, 33 USC s 2701(27) (2000)).
[57] Dunleavy, 279 F 3d at 224.
[58] Ibid, at 226.
[59] [2002] USCA7 26; 277 F 3d 969, 981 (7th Cir, 2002).
[60] Ibid, at 974–81.
[61] Chandler, 277 F 3d at 974.
[62] Ibid.
[63] Chandler, 277 F 3d at 977 (stating the issue as whether ‘Congress has made it sufficiently clearthat municipalities do not enjoy the traditional common-law immunity of municipalities from punitive damages for FCA claims’).
[64] Chandler, 277 F 3d at 977–79.
[65] Ibid, at 978 (finding that to require taxpayers to pay the FCA’s treble damages is not unjust because the taxpayers have received, without justification, the benefit of the municipal employees’ fraudulent acquisition of federal funds).
[66] Ibid, (finding that the FCA does not afford juries broad discretion in assessing the amount of punitive damage awards, but limits awards to treble damages).
[67] Chandler, 277 F 3d at 979 (holding that the presumption of municipal immunity has been overcome because Congress did not express any indication that it wished to exempt municipal corporations from the FCA’s treble damages).
[68] See above fnn 48–58 and accompanying text (discussing the reasoning behind the Garibaldi and Dunleavy courts’ holdings that municipal corporations are not ‘persons’ subject to the FCA’s treble damages).
[69] Chandler, 277 F 3d at 974–79 (holding that Cook County did not overcome the presumption that municipal corporations are ‘persons’, and that the claimant overcame the presumption that municipal corporations are not subject to punitive damages).
[70] [2003] USSC 1897; 123 S Ct 1239 (2003).
[71] Chandler, 123 S Ct at 1249.
[72] Ibid, at 1244.
[73] Chandler, 123 S Ct at 1245.
[74] Ibid.
[75] Ibid.
[76] Ibid, (citing United States v Neifert-White Co, [1968] USSC 41; 390 US 228, 232 (1968)).
[77] Ibid.
[78] Chandler, 123 S Ct at 1246 (citing Monell v Dep’t of Social Services[1978] USSC 102; , 436 US 658, 685–86) (finding that ‘whatever municipal corporations may have been doing in 1863, in 2003 local governments are commonly at the receiving end of all sorts of federal funding schemes and thus no less able than individuals or private corporations to impose on the public fisc’).
[79] Chandler, 123 S Ct at 1246.
[80] Ibid,
[81] Ibid, at 1248.
[82] Chandler, 123 S Ct at 1247 (finding that treble damages are not the same as classic punitive
damages, which give juries open-ended discretion to assess large damages awards). 83 Ibid, at 1248 (citing Posadas v National City Bank, [1936] USSC 6; 296 US 497, 503 (1936)). 84 Ibid. 85 Chandler, 123 S Ct at 1246. The court had previously held that the FCA’s original double
damages were ‘remedial’, whereas the treble damages added by the 1986 amendments were ‘punitive in nature’. Vermont Agency of Natural Resources v United States ex rel Stevens, [2000] USSC 47; 529 US 765, 784–86 (2000) (holding that states are not ‘persons’ under the FCA).
[86] Chandler, 123 S Ct at 1248.
[87] Ibid.
[88] Chandler, 123 S Ct at 1248–49.
[89] Karl Llewellyn, Remarks on the theory of appellate decision and the rules or canons about
how statutes are to be construed, 3 Vand L Rev 395, 401 (1950). Llewellyn paired 26 canons side by side with contradictory counterparts. Ibid. For example, ‘a statute cannot go beyond its text’, but ‘to affect its purpose, a statute may be implemented beyond its text’. Ibid.
[90] Chandler, 123 S Ct at 1246 (calling a ‘sound premise’ Cook County’s argument that the FCA’s definition of ‘person’ does not include municipal corporations because of the presumption of municipal immunity from punitive damages).
[91] Chandler, 123 S Ct at 1247 (‘Working against the County’s position, however, is a different presumption … the “cardinal rule that repeals by implication are disfavoured”’ (quoting Posadas v National City Bank, [1936] USSC 6; 296 US 497, 503 (1936))).
[92] Ibid, at 1248 (holding, after finding that municipal corporations were included in the FCA’s original definition of ‘person’, that they could not have been excluded when the 1986 revisions established treble damages unless Congress ‘wordlessly redefined “person” to exclude municipalities’).
[93] Chandler, 123 S Ct at 1249.
[94] Black’s Law Dictionary 964–65 (7th edn, 2000).
[95] [1978] USSC 102; 436 US 658 (1978).
[96] Chandler, 123 S Ct at 1244–45 (holding that municipal corporations should be treated as natural persons for all purposes of constitutional and statutory analysis (citing Monell, 436 US at 687-88)). The Chandler court also cited several 19th century authorities, including United States v Amedy, [1826] USSC 29; 24 US 392 (1826) and Cowles v Mercer County, [1868] USSC 20; 74 US 118 (1868). However, Amedy noted that there was no ‘settled course of decisions’ on whether a corporation is a ‘person’ within the meaning of a statute. Amedy, 24 US at 412. The Amedy court concluded that private corporations were within the statute in question because they were equally capable of the ‘mischief intended to be reached by the statute’, and because they have previously been held within the purview of other penal statutes. Ibid. Furthermore, Cowles did not involve the issue of statutory construction, but held that municipal corporations have the capacity to be sued in federal courts. Cowles, 74 US at 121. Most of the other authorities cited by Chandler also concerned municipal corporations’ capacity to sue or be sued. See Chandler, 123 S Ct at 1244. However, as Monell indicates, capacity to be sued is simply one of several criteria to consider in determining whether municipal corporations are persons, and is not equivalent to a ‘presumption’ that they are persons. Monell, 436 US at 687.
[97] Monell, 436 US at 683–89 (discussing several facts about the historical context of the Civil Rights Act that suggested that the Act’s definition of ‘person’ includes municipal corporations, and then noting that ‘in addition’ to this evidence, municipal corporations were treated as persons for statutory construction purposes by 1871). The Civil Rights Act of 1871 provided civil liability for any ‘person’ who, under colour of state law, deprives any person of federally protected rights, privileges or immunities. 17 Stat 13 (1871) (codified at 42 USC s 1983 (2000)). Like the FCA, the Civil Rights Act did not contain a definition of the ‘persons’ who could be held liable under the Act. Monell, 436 US at 683.
[98] Monell, 436 US at 683–89.
[99] Chandler, 123 S Ct at 1244–45 (finding that the term ‘person’ includes municipal corporations, but that the meaning of ‘person’ is not immutable and may be rebutted).
[100] [1978] USSC 102; 436 US 658 (1978).
[101] Monell, 436 US at 690.
[102] Ibid, at 684.
[103] Ibid, at 685-86 (‘[m]oreover … municipalities through their official acts could, equally with
natural persons, create the harms intended to be remedied by [the Civil Rights Act]’).
[104] Ibid, at 686.
[105] Monell, 436 US at 687.
[106] Ibid, at 690 (‘[o]ur analysis of the legislative history of the Civil Rights Act compels the
conclusion that Congress did intend municipalities and other local government units to be included among those persons to whom s 1983 applies’).
[107] Ibid, at 683–90.
[108] Cook County, Illinois v United States ex rel Chandler, [2003] USSC 1897; 123 S Ct 1239, 1245 (2003) (holding that the meaning of ‘person’ is not immutable, and considering Cook County’s arguments that the context of the FCA shows that ‘person’ should have a more limited meaning).
[109] Monell, 436 US at 683 (holding that an examination of the debates preceding the passage of the Civil Rights Act, and the appropriate rules of construction show that the Civil Rights Act was intended to cover municipal corporations).
[110] Monell, 436 US at 684.
[111] See Cong Globe, 37th Cong, 3rd Sess 952–8 (1863).
[112] Ibid, (quoting one Senator’s statements that he has been hearing ‘complaints respecting the
frauds and corruptions practiced in obtaining pay from the government during the present war’ and that ‘further legislation is necessary to prevent this great evil’).
[113] Monell, 436 US at 685–86.
[114] Monell, 436 US at 686–87 (referring to the public taking of private property without compensation as an example of municipal conduct that could give rise to liability under the Civil Rights Act).
[115] See above fn 15 (listing the acts that give rise to FCA liability, all of which involve actions or statements made in connection with transactions with the federal government).
[116] See below fnn 117-20 (discussing the absence of intergovernmental grants in the 19th century, and the emergence of such grants in the early 20th century).
[117] W Brooke Graves, American Intergovernmental Relations 478 (1964). See also Robert P Inman, ‘Federal assistance and local services in the United States: the evolution of a new federalist fiscal order’, in Fiscal Federalism 36 (Harvey S Rosen, (ed)) (detailing the development of federal intergovernmental grant programs from the early 20th century to the present day).
[118] Graves, op. cit, fn 80 at 478.
[119] Ibid, at 516 (describing three major grant programs established during the World War I era, which financed agriculture, highways and vocational education). Graves also notes that Congress’s expansion of grant programs was a direct consequence of the enactment of the Sixteenth Amendment, which allowed the federal government to collect income taxes without apportionment among the states, US Const amend XVI, and ‘assured the national government of a substantial annual income.’ Graves, op. cit, fn 117 at 516.
[120] J Richard Aronson and John L Hilley, Financing State and Local Government 49–50 (1986) (stating that the most ‘explosive’ growths in federal grants to state and local governments took place during the 1930s and 1960s).
[121] Cook County, Illinois v United States ex rel Chandler, [2003] USSC 1897; 123 S Ct 1239, 1246 (2003) (‘Whatever municipal corporations may have been doing in 1863, in 2003 local governments are commonly at the receiving end of all sorts of federal funding schemes…’).
[122] Graves, op. cit, at 478.
[123] Cong Globe, 37th Cong, 3d Sess 953-58 (1863).
[124] Ibid, at 953.
[125] Ibid.
[126] See United States ex rel Graber v City of New York, 8 F Supp 2d 343, 352 (SDNY 1998) (‘[N]othing in the available record suggests that Congress specifically intended to subject states or local governments to liability under the Act. Rather, the chief purpose of the Act was to address war fraud by private contractors’).
[127] Monell v Dep’t of Social Services[1978] USSC 102; , 436 US 658, 683-89 (1978) (holding that municipal corporations are ‘persons’ under the Civil Rights Act, after finding that Congress intended for the Act to be construed broadly, municipalities were capable of violating the Act at the time it was enacted, members of Congress stated that they understood the definition of ‘person’ to include municipalities, and municipalities are considered persons for statutory construction purposes).
[128] See above fnn 110–126 and accompanying text (analysing the FCA under the factors that supported Monell’s holding that municipal corporations are persons under the Civil Rights Act and concluding that none of those factors suggest that municipal corporations are persons under the FCA, except for the ‘presumption’ used in isolation by the Chandler court).
[129] Chandler, 123 S Ct at 1249 (affirming the Seventh Circuit’s holding that municipal corporations are subject to liability and treble damages under the FCA).
[130] United States ex rel Garibaldi v Orleans Parish School Board, No Civ A 96-0464, 2003 WL 22174241 (ED La 18 September 2003).
[131] Garibaldi, 2003 WL at 8.
[132] Brian Thevenot, Federal Judge Revives Ruling Against Schools, THE TIMES-PICAYUNE, 19 September 2003 at A1 (quoting Orleans Parish School Board President Ellenese Brooks-Simms). Brooks-Simms stated that the board had ‘made all the cuts [it] can make on the administrative side, without touching the schools’, and suggested that the board would probably have to work out an instalment plan to pay the federal government if the revived judgment is upheld on appeal. Thevenot, above at A6.
[133] See City of Newport v Fact Concerts Inc, 453 US 247, 263 (1981) (noting that one reason for municipal immunity from punitive damages is to avoid ‘undue fiscal constraints’).
[134] 31 USC s 3729(a) (2000). The only exception is that the court may order double damages if a liable party co-operates with the investigation. Ibid.
[135] United States ex rel Wilson v Graham County Soil and Water Conservation Dist, 2002 WL 487162, at 4 (WDNC) (stating that the trebling of damages was intended ‘to unleash a posse of ad hoc deputies to uncover and prosecute frauds against the government’).
[136] Press Release, US Dep’t of Justice, Justice Department Recovers Over $1 Billion in FY 2002 (16 December 2002), at http://www.usdoj.gov/opa/pr/2002/December/02_civ_720.htm (noting that FCA recoveries exceed $10 billion since 1986, and listing some of the Department of Justice’s largest 2002 recoveries under the FCA, including over $700 million from various pharmaceutical companies, HMOs and hospitals in connection with Medicare fraud cases).
[137] See US Dep’t of Justice, above, fn 136 (indicating that the vast majority of FCA claims are brought against private contractors).
[138] See City of Newport v Fact Concerts Inc, 453 US 247, 262-63 (1981) (discussing the public policy reasons for municipal immunity from punitive damages, including the need to ‘protect … the public from unjust punishment, and municipalities from undue fiscal constraints’).
[139] 31 USC s 3729(a) (2000).
[140] United States v Kates, 419 F Supp 846, 852-53 (ED Pa 1976).
[141] See United States ex rel Smith v Gilbert Realty Co, 840 F Supp 71, 74–75 (ED Mich 1993) (holding that fines of $290,000 for 58 false claims were excessive and violated the Eighth Amendment, because they amounted to more than 178 times the amount of actual damages, which were $1,630). But see United States v Byrd, 100 F Supp 2d 342, 345 (EDNC 2000) (holding that fines of $1,320,000 for 264 claims were not excessive, although the actual damages only amounted to $85,012).
[142] Jaime Mcmahon, ‘Qui tam can, qui tam can’t: an analysis of Vermont Agency of Natural Resources v United States ex rel Stevens, 17 Ga St U L Rev 1119, 1119 (2001) (‘[t]he 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’).
[143] The fee could be calculated the same way it is under the current FCA, in which the compensation depends on the extent to which the relator assists in prosecuting the suit. 31 USC. s 3730(d) (2000). See S Rep No 99–345 (1986), reprinted in 1986 USS CAN 5266, 5292–93 (stating that the reason for variable percentages was to ‘guarantee that relators will receive at least some portion of the award’ as an incentive to take the risk of filing a qui tam suit, but still allow courts discretion to adjust it depending on the relator’s contribution to the prosecution of the suit).
[144] 31 USC s 3730(d) (2000).
[145] Ibid, s 3729(a) (2000).
[146] 31 USC s 3730(d) (2000).
[147] City of Newport v Fact Concerts Inc, 453 US 247, 263 (1981) (citing ‘undue fiscal constraints’ as a policy rationale for municipal immunity from punitive damages).
[148] See S Rep No 99–345 (1986), reprinted in 1986 USS CAN 5266, 5279 (describing the need for sufficient incentives to encourage qui tam relators to break the ‘conspiracy of silence among government contractor employees’ and take the ‘significant personal risk’ associated with exposing government fraud).
[149] See above fn 21 and accompanying text (discussing Congress’s enactment of the FCA in response to fraud by Civil War defence contractors).
[150] United States ex rel Graber v City of New York, 8 F Supp 2d 343, 352 (SDNY 1998) (‘Congress in 1863 did not contemplate that states and cities would be defendants in False Claims Act suits, nor did it intend that they should be so subjected to False Claims Act liability’).
[151] Inman, op. cit, fn 117 at 36. See Hunt v City of Boonville, 65 Mo 620 (1877) (discussing the differences between municipal and private corporations).
[152] Graber, 8 F Supp 2d at 355 (stating that the court will not ‘amend … the statute by judicial fiat to hold liable legal entities that have existed since the initial enactment of the statute but that have never been expressly brought within its purview’).
[153] See US Census Bureau, US Dep’t of Commerce, above fn 2 (detailing the amount of federal funding to state and local governments).
[154] See United States ex rel Dunleavy v County of Delaware, [2002] USCA3 20; 279 F 3d 219, 222 (3rd Cir, 2002), vacated[2003] USSC 2239; , 123 S Ct 1619 (2003) (finding that the FCA’s damages violate public policy because they punish ‘the taxpayers and citizens who constitute the very persons who are to benefit from the public example which the granting of such damages is supposed to make of the wrongdoer’).
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