Dunleavy v. County of Delaware , 279 F.3d 219 ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
1-29-2002
Dunleavy v. County of Delaware
Precedential or Non-Precedential:
Docket 0-3691
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Recommended Citation
"Dunleavy v. County of Delaware" (2002). 2002 Decisions. Paper 49.
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Filed January 29, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-3691
UNITED STATES OF AMERICA EX REL.
ANTHONY J. DUNLEAVY
v.
COUNTY OF DELAWARE, MARIANNE GRACE,
EXECUTIVE DIRECTOR; THE COUNCIL OF THE COUNTY
OF DELAWARE, WALLACE H. NUNN, CHAIRMAN;
MATTHEW J. HAYES JR. AS ADMINISTRATOR OF THE
ESTATE OF MATTHEW J. HAYES
Anthony J. Dunleavy,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 94-cv-07000)
District Judge: Honorable Thomas N. O'Neill, Jr.
Argued December 7, 2001
Before: MANSMANN, ROTH and FUENTES, Circuit Ju dges.
(Filed: January 29, 2002)
Regina D. Poserina, Esquire
(ARGUED)
7415 West Chester Pike
Upper Darby, PA 19082
COUNSEL FOR APPELLANT
Francis X. Crowley, Esquire
(ARGUED)
Elisa Cohen Lacianca, Esquire
Blank, Rome, Comisky & McCauley
1400 North Providence Road
Suite 301
Media, PA 19063
COUNSEL FOR APPELLEES
Stuart E. Schiffer
Acting Assistant Attorney General
Michael L. Levy
United States Attorney
Douglas N. Letter, Esquire
(ARGUED)
United States Department of Justice
Civil Division, Appellate Staff
Room 9106
601 D Street, N.W.
Washington, D.C. 20530
COUNSEL FOR AMICUS-
APPELLANT UNITED STATES OF
AMERICA
Brian Stuart Koukoutchos, Esquire
28 Eagle Trace
Mandeville, LA 70471
James Moorman, Esquire
Amy Wilken, Esquire
Taxpayers Against Fraud,
The False Claims Act Legal Center
1220 19th St., NW, Suite 501
Washington, D.C. 20036
COUNSEL FOR AMICUS CURIAE
TAXPAYERS AGAINST FRAUD,
THE FALSE CLAIMS ACT LEGAL
CENTER
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OPINION OF THE COURT
MANSMANN, Circuit Judge.
The appellant, Anthony J. Dunleavy, was a consultant to
appellee, Delaware County. In this capacity, Dunleavy
advised the County as to the various federal regulatory
requirements concerning certain Housing and Urban
Development funding grants. Dunleavy sued the County
contending that it committed several violations of the False
Claims Act, 31 U.S.C. S 3729, et seq. The District Court
dismissed Dunleavy's Second Amended Complaint, holding
that the County was not amenable to suit under the FCA
due to its mandatory punitive damages scheme. We agree.
Therefore, we will affirm the Order of the District Court.
I.
This appeal requires us to determine whether a local
governmental subdivision can be subject to suit under the
False Claims Act when the Act mandates treble damages.
We must first determine whether the treble damages
mandated by the Act are punitive. If so, we must then
decide whether Congress clearly manifested its intention
under the FCA to abrogate local governmental common law
immunity from punitive damage awards. If it did not, we
must further determine whether a local governmental
subdivision may nevertheless be amenable to suit under
the Act albeit subject to some lesser quantum of damages.
Finally, we note in passing that we agree with the District
Court that an employee of a local governmental unit is not
subject to suit under the Act when the employee does not
personally benefit from the transaction constituting a
violation of the Act; therefore, we conclude that no extended
discussion is necessary with respect to this issue.
II.
In 1976, Delaware County purchased the Penza tract in
a condemnation action using HUD funds. The intended use
of the Penza tract was to expand a pre-existing park. In
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1979, however, the County entered into an agreement with
the Pennsylvania Department of Transportation (Penn DOT)
whereby Penn DOT purchased 26.3 acres of the Penza
tract. Penn DOT made additional purchases from the tract
through the years until its final purchase from the County
in 1988. Penn DOT intended to use the land for highway
construction. After consulting with Dunleavy, the County
decided that it would put the proceeds from the sales of
Penza tract land into an interest-bearing account under the
assumption that if Penn DOT was unable to use its newly
acquired lands for highway construction the County would
repurchase the land. On the other hand, if Penn DOT
completed its highway construction, the County would
return the proceeds from the land sales, plus interest to
HUD. After numerous delays, Penn DOT completed its
highway construction project in 1991.
During the interim, the County occasionally used funds
from the Penza tract account for general County purposes.
Dunleavy contends that this was improper, because, in his
view, the funds in the account were HUD program funds
subject to various reporting requirements with which the
County failed to comply. Further, Dunleavy contends that
once the County knew that it would not be repurchasing
the tract, the County knowingly failed to return the
principal and interest earned on the account to HUD.
Dunleavy's final contention is that the County fraudulently
received additional monies from HUD in fiscal years`92,
`93, `94, and `95 because the County took these monies
knowing that it committed the previously alleged violations
of HUD regulations with respect to Penza Tract funds.
Dunleavy filed this action in 1994 seeking treble damages
as required by the False Claims Act. In 1995, the
Government declined to intervene, concluding that no fraud
had been committed. HUD, however, after a Limited Review
Audit, demanded that the County pay it 1.7 million dollars
plus interest. In 1996, HUD and the County settled the
dispute between them without including Dunleavy in the
settlement process.1
_________________________________________________________________
1. The False Claims Act permits the Government to settle with the
Defendant notwithstanding the objections of the person initiating the
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The District Court dismissed Dunleavy's Second
Amended Complaint for lack of subject matter jurisdiction,
a Judgment that we reversed and remanded to the District
Court. The County then filed motions to dismiss for failure
to state a claim and failure to plead with particularity,
which were denied by the District Court. On May 23, 2000,
the District Court, on its own motion, directed the parties
to brief the question of whether this action should proceed
in light of the United States Supreme Court's decision in
Vermont Agency of Natural Resources v. United States ex rel.
Stevens, 529 U.S. 765 (2000). The District Court concluded
that Dunleavy's claim could not proceed in light of Stevens.
See United States ex rel. Dunleavy v. County of Delaware,
2000 WL 1522854 (E.D.P.A. 2000). This timely appeal
followed.2
We begin our analysis with a brief discussion of the legal
framework controlling the resolution of this appeal.
III.
Unless Congress clearly provides otherwise, a local
governmental entity is immune from punitive damages
awards. See City of Newport v. Fact Concerts, Inc., 453 U.S.
247 (1981) (holding that a municipality was immune from
punitive damages awards under 42 U.S.C. S 1983 because
at common law a municipality was absolutely immune from
punitive damages and in enacting section 1983 Congress
_________________________________________________________________
action if the court determines, after a hearing, that the proposed
settlement is fair, adequate, and reasonable under all the circumstances.
See 31 U.S.C. S 3730(c)(2)(B) (1994). Therefore, in this case, Dunleavy as
relator is prosecuting a qui tam civil action in the name of the Federal
Government after the Government has determined that, in its view, no
fraud has been committed. Accordingly, we do not consider the question
of whether the United States may maintain a suit against a local
government under the FCA.
2. The District Court had jurisdiction under 28 U.S.C. S 1331, and the
appeal was taken in accordance with Rule 4(a), Fed. R. App. P. We have
jurisdiction under 28 U.S.C. S 1291. The questions of law before us are
subject to our plenary review. Bowen v. Monus , 172 F.3d 270, 273 (3d
Cir. 1999).
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did not clearly manifest an intention to abrogate this
common law immunity). Similarly, in Genty v. Resolution
Trust Corp., 937 F.2d 899 (3d Cir. 1991), we held that
municipalities were immune from civil punitive damage
awards under the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. SS 1961-1968. In reaching our
holding in Genty, we cited Fact Concerts and commented
that in order to subject municipalities to punitive damage
awards, a statute must expressly provide for such an award
against a municipality. See Genty, 937 F.2d at 910.
Furthermore, we noted that the rationale for exempting a
municipal entity from punitive damages awards is firmly
grounded in public policy because "assessing punitive
damages against a public entity serves neither the
retributive nor the deterrent purposes of . . . civil
punishment and contravenes public policy by punishing
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.' " Id. at 910 (citation omitted). Simply stated, we
concluded that a local government is presumptively
immune from the imposition of punitive damages unless
the statutory scheme which creates liability clearly
indicates that Congress intended to abrogate the well-
settled notion of local governmental common law immunity
from punitive damages. See also Doe v. County of Centre,
242 F.3d 437, 456 (3d Cir. 2001) (holding that overcoming
common law immunity requires a clear expression of
congressional intent).
We now turn to the threshold question on this appeal:
whether the damages imposed by the Act are punitive. If
the damages are properly characterized as punitive, we
must next determine whether Congress expressly intended
to abrogate local governmental immunity under the FCA.
For the reasons that follow, we believe that the mandatory
treble damages imposed by the Act are punitive and that
Congress did not expressly abrogate local governmental
immunity under the FCA.
A.
When first enacted in 1863, the FCA provided for suits to
be brought in the name of the Government by private
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individuals in a qui tam (in the name of the King) action.
The Act imposes liability on any person who knowingly
presents a false claim to the Federal Government for
payment. 31 U.S.C. S 3729(a) (1994). The current version of
the Act imposes a civil penalty between five and ten
thousand dollars per false claim plus three times the
amount of damages which the Government sustains. 31
U.S.C. S 3729(a) (1994). Recently, in Vermont Agency of
Natural Resources v. United States ex rel. Stevens , 529 U.S.
765 (2000), the United States Supreme Court examined the
issue of whether a State or State agency is a "person" for
purposes of the Act. In reaching its conclusion that a State
is not within the meaning of "person" as used in the Act
and therefore not amenable to suit under the Act by a qui
tam realtor, the Court held that the Act imposes treble
damages that are "punitive in nature." Id. at 784. Thus, the
Court has answered the first prong of our inquiry: the
FCA's treble damages provision is punitive. Accord United
States ex rel. Garibaldi v. Orleans Parish Sch. Bd. , 244 F.3d
486, 491 n.5 (5th Cir. 2001) ("The treble damages imposed
by the False Claims Act are punitive damages.") (citing
Stevens, 529 U.S. at 784).
Nonetheless, Dunleavy contends that the Supreme
Court's characterization of the Act's damages provision is
obiter dictum. We do not agree. The Stevens majority stated
that "[s]everal features of the current statutory scheme
further support the conclusion that States are not subject
to qui tam liability," and that one of those features is that
"the current version of the FCA imposes damages that are
essentially punitive in nature." Stevens, at 783, 784.
Clearly, the Court relied on the Act's treble damages
scheme in reaching its holding and thus its declaration that
the damages scheme is punitive is not dictum. We therefore
agree with the Garibaldi court and conclude that the treble
damages mandated by the FCA are punitive. See also
Genty, 937 F.2d at 914 (holding that the mandatory treble
damages scheme of civil RICO statute is punitive in
character).
B.
We turn to the second prong of our inquiry: Did Congress
express a clear indication to abrogate local governmental
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immunity under the FCA? We note here that the parties'
arguments focus on whether the term "person" as used in
the Act encompasses local governments. This argument is
simply the other side of the coin with respect to the
question before us, namely whether Congress clearly
abrogated local governmental immunity under the FCA. If
Congress clearly expressed its intention to encompass local
governments within the ambit of FCA liability as a"person,"
then it must also have intended to abrogate the common
law immunity of local governments against punitive
damages under the FCA. In our view, consistent with our
reasoning in Genty, the question is whether Congress
intended to disturb local governmental immunity from
punitive damages by subjecting local governments to FCA
suits. See Genty, 937 F.2d at 914 (noting that the RICO
statute expresses no specific intention that municipalities
be liable for treble damages); see also Will v. Michigan Dep't
of State Police, 491 U.S. 58, 67 (1989) (holding that
Congress did not intend to override well-established
common law immunities in passing civil rights act).
Dunleavy's assertions that Congress intended to subject
municipalities to the FCA's coverage are unpersuasive in
light of the fact that the statute offers no clear indication
that Congress intended to abrogate local governmental
immunity from punitive damages. Indeed, the relevant
portion of the Act does not even define the term"person."
In Genty, we observed that the civil RICO Act defined the
word "person" as "any individual or entity capable of
holding a legal or beneficial interest in property." Genty,
937 F.2d at 907 (quoting 18 U.S.C. S 1961(3)). Clearly, this
definition of the term "person" is a broad one. Yet we
nevertheless found that despite this broad definition of the
term "person", Congress did not clearly abrogate local
governmental immunity from punitive damages in the
context of civil RICO. Moreover, we observed that had
Congress intended to subject local governments to punitive
damages under RICO, it could have easily so stated, as it
has done in other statutes imposing civil liability on local
governments. See Genty, 937 F.2d at 914 (citing 15 U.S.C.
S 77b(2)) (noting that Congress specifically provided for
subjecting local governments to civil damage awards under
the securities laws). Other statutes specifically define the
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term "person" to include local governments or
municipalities, such as the Clean Water Act, 33 U.S.C.
S 1362(5); the Resource Conservation and Recovery Act, 42
U.S.C. S 6903(15); the Wild Bird Conservation Act of 1992,
16 U.S.C. S 4903(4); and the Oil Pollution Act of 1990, 33
U.S.C. S 2701(27). Our Genty analysis is equally applicable
here. We find nothing on the face of the relevant portions
of the FCA as originally enacted in 1863 or in its current
form which evidences a clear indication on the part of
Congress to subject local governments to punitive damages
under the Act. The Act is utterly devoid of any specific
intention to subject local governments to its strictures. This
lack of clarity in the text of the Act is insufficient indicia of
congressional intent to abrogate local governmental
immunity from punitive damages under the FCA.
Dunleavy and amicus Taxpayers Against Fraud (False
Claims Act Legal Center) argue that the original drafters'
intent is immaterial to a determination of Congress' intent
to subject local governmental subdivisions to liability under
the FCA. He contends the intent of the Congress that
enacted the treble damages scheme should control whether
or not Congress intended to subject local governments to
the FCA. His argument is premised on the notion that if in
1863, Congress intended to encompass local governments
within the meaning of the term "person" under the FCA, the
subsequent amendment in 1986 to provide treble damages
under the FCA is evidence of Congress' intent to subject
local governments to punitive damages.
Even if we were persuaded that the intent of the 1986
Congress amending the Act controlled the resolution of this
matter, Dunleavy's argument must fail. The 1986
amendments added nothing to the meaning of the term
"person" that remotely approaches a clear expression of
Congress' intent to abrogate local governmental immunity.
See Stevens, 529 U.S. at 783 n.12 (observing that the term
"person" in the FCA has not been altered since the FCA's
initial passage in 1863). Moreover, in Genty, we found that
Congress' imposition of treble damages in the RICO statute
evinced its intent to exclude local governments from the
civil RICO statute's coverage. See Genty, 937 F.2d at 914(Courts will not interpret statutes to overturn well-
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established common law principles unless Congress so
authorizes"); County of Centre, 242 F.3d at 456 (3d Cir.
2001) (noting that Newport instructs us to assume that
Congress intended to retain common law immunity absent
a clear expression of congressional intent to the contrary).
As a result, we cannot say that the imposition of the
current treble damages scheme in and of itself evidences
Congress' clear intent to abrogate common law immunity
and subject local governments to punitive damages awards.
We conclude that Congress' imposition of treble damages is
powerful evidence that Congress did not intend to subject
local governments to punitive damages under the FCA.
Accord Garibaldi, 244 F.3d at 493 (stating that the punitive
damages regime of the FCA reflects Congress' intent to
exclude local governments from liability under the FCA).
Second, Dunleavy points to the legislative history of the
1986 amendments to support his theory that Congress
intended to subject local governments to suit under the
FCA by qui tam relators. We reiterate that even if we
believed that the intent of the 1986 Congress controlled our
determination, a question we do not decide here,
Dunleavy's argument cannot pass muster in light of the
Stevens Court's express rejection of the pertinent 1986
legislative history as erroneous and of questionable value.
See Stevens, 529 U.S. at 783 n.12 (noting that the
legislative history contained the Senate's erroneous
understanding of the meaning of the term "person" as used
in the Act). At best, after considering the text of the statute
and its legislative history, we find only ambiguity as to
whether Congress intended to disturb the well-settled
doctrine of local governmental immunity from punitive
damages under the FCA. Ambiguity, however, is not enough
for Dunleavy to carry the day. There is simply nothing in
the FCA's text remotely manifesting a clear expression of
Congress' intent to abrogate local governmental immunity
against punitive damages under the Act. As a result, we
hold that Congress did not intend to disturb local
governmental immunity from punitive damages under the
FCA by clearly including local governments within the
meaning of the term "person." It necessarily follows that the
County is immune from claims under the FCA by a qui tam
relator due to the mandatory nature of the treble damages
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provision. See Genty, 937 F.2d at 911-12 (treble damages
awards under RICO are mandatory and therefore
municipalities may not be liable under RICO if those
damages are punitive).
C.
Dunleavy and the United States, as amicus, invite us to
subject the County to "some liability", however, by reading
into the statute an exception to the mandatory treble
damages scheme. In essence, Dunleavy and the United
States argue that we should reduce any treble damages
award against a local government to a level that would be
deemed compensatory rather than punitive. We decline to
create such an exception under the FCA, just as we
declined in Genty with the RICO statute. Genty, 937 F.2d at
914. The FCA provides for mandatory treble damages
subject to a narrow exception that is not applicable to the
case sub judice. See 31 U.S.C. S 3729(a) (providing a
reduction from treble damages to double damages when a
defendant supplies information concerning the violation
prior to their knowledge of governmental investigation). As
a result, creating an exception for local governments from
the existing damages scheme would require us to rewrite
the FCA. Of course, while Congress is free to do this if it
chooses, such redrafting is outside the traditional province
of the courts. Accord Garibaldi, 244 F.3d at 493. Therefore,
we will not disturb the existing statutory damages
provisions by reading into the Act an exception from treble
damages for local governments. The result, in the end, is
that a local government such as Delaware County cannot
be subject to liability under the FCA in a qui tam action.
IV.
We conclude that the mandatory treble damages scheme
imposed by the FCA is punitive and that local governments
are exempt from FCA damages because Congress did not
clearly express its intention under the Act to abrogate local
governmental common law immunity against punitive
damages. As a result, since the FCA does not, as written,
permit a court to reduce treble damages awards, we
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conclude that a local government cannot be subject to suit
by a qui tam relator under the Act. For all these reasons,
we will affirm the Order of the District Court dismissing
Dunleavy's Second Amended Complaint.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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