United States Ex Rel. Dunleavy v. County of Delaware ( 2002 )


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  •                                                                                                                            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    Precedential or Non-Precedential: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.
    http://digitalcommons.law.villanova.edu/thirdcircuit_2002/49
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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
    2
    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
    3
    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
    4
    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).
    5
    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
    6
    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
    7
    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
    8
    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-
    9
    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
    10
    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
    11
    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
    12