Opinion
2:01 cv 19-T
April 2, 2002
MEMORANDUM AND RECOMMENDATION
THIS MATTER is before the court upon the following motions: (1) the motion to dismiss of defendants Graham County Board of County Commissioners, Raymond Williams, Dale Wiggins, and Lynn Cody (#31); (2) the motion to dismiss and for more definite statement of defendants Cherokee County Soil Water Conservation District, Bill Tipton, Eddie Wood, and C. B. Newton (#61); (3) the motion to dismiss of defendants Cherokee County Board of County Commissioners, Charles Laney, Eugene Morrow, and George Postell (#62); (4) Relator's Motion for Leave to Amend Her Complaint (#75); and (5) motion to dismiss of defendants Graham County Soil Water Conservation District, Gerald Phillips, Allen DeHart, Jimmy Orr, and Lloyd Millsaps (#77). In addition to the memoranda submitted, oral arguments were presented at a hearing on February 20, 2002.
The primary issue presented is whether the False Claims Act ("FCA"), which provides for mandatory punitive damages, extends to municipalities that enjoy common-law governmental immunity from punitive damages. Other issues have also been presented, including whether some of the individual defendants sued in their individual capacities should be dismissed, whether relator should be allowed to amend her complaint to name the real parties in interest, and whether relator has complied with the requirements of Rule 9(b), Federal Rules of Civil Procedure. In addition, an issue has arisen as to whether the claims of the relator were filed within the period of limitations.
The undersigned does not reach this issue because it appears that the named defendants enjoy municipal immunity. If the district court finds the need to reach such issue on review, it would be the recommendation of the undersigned that such amendment be allowed, inasmuch as the counties are the real parties in interest, they are the only governmental parties capable of being sued under prevailing law, and they had actual knowledge of the suit when the improperly named defendants were served. The undersigned simply would not concur in defendants' response to relator's motion to amend because prevailing case law would not support so strongly penalizing a procedural misstep. See Ward Electronics Service, Inc. v. First Commercial Bank, 819 F.2d 496, 497 (4th Cir. 1987).
Defendants point to a shorter, state-law based period of limitation. Relator, however, cites a substantially longer period, which involves the FCA and reporting the fraud to the Attorney General of the United States. Because it is unclear when the Attorney General was made aware of these claims, this court is not in the position to determine whether this action was brought within the period allowed. If this case survives the present motions, that issue may be revisited at an appropriate time.
I. Background
A. Nature of the Action
This action arises under the False Claims Act — 31, United States Code, Sections 3729, et seq. The relator is a former employee of defendant Graham County Soil Water Conservation District. She alleges that defendants conspired and participated in various schemes to defraud the United States by presenting false claims for payments under federal financial-aid programs intended to aid farmers and other landowners.
Section 3729 provides, as follows:
(a) Any person who —
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, 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 or fraudulent claim allowed or paid; . . .
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.
The undersigned notes that it is undisputed that relator was an employee of this defendant, not the other municipal defendants, and that any retaliation claim could only be asserted against her "employer." As discussed infra, relator's general allegations and lumping parties together has caused a great deal of confusion in this matter, as evidenced by the 84 docket entries already made in this matter before issues have joined.
B. Summary of the Factual Allegations
The following summary is not intended to be all inclusive or binding, but to aid further review by giving the motions context. Relator's allegations of false claims, in part, stem from a federal disaster-relief program, "EWP-216," which was instituted through the Emergency Watershed Protection Program to assist with damage to streams and creeks caused by a storm in February 1995. According to the allegations of the complaint, the following wrongful conduct occurred under the EWP-216 program: (1) inspectors under the program were paid for work that was not done and for work which was not properly bid, and they conspired with land owners to submit false claims; (2) conservation district supervisors conspired with the inspectors to approve those requests; (3) inspectors conspired with supervisors and others to privately sell and split the proceeds of timber that was removed as part of the federal program; and (4) the county commissions knowingly submitted false claims to federal authorities for payment.
Relator also contends that false claims were submitted and conspired to by many of the same defendants under the "North Carolina Agricultural Cost Share Program," which was federally funded. Relator alleges that certain defendants conspired with county conservation district employees or contractors to submit false claims for filter fabric and pipe — apparently, materials used to inhibit erosion and stream sedimentation — that was "sold" at inflated prices to landowners and/or never actually purchased or installed. According to relator, such conduct began in 1993 and ran through 1996.
Relator also contends that certain defendants submitted false claims under the Farm Services Agency Program. She claims that defendants engaged in selfdealing and approved projects which did not meet program guidelines. She has made additional claims concerning noncompliance with federal regulations and other alleged improprieties.
Realtor also alleges that she was harassed in her employment for bringing these matters to light. Such harassment, she claims, caused her certain medical problems and led to her constructive discharge in March 1997.
C. Relator's Causes of Action
In Count One, relator asserts a cause of action under the False Claims Act and seeks mandatory statutory treble damages, in addition to the statutory civil penalty for each violation, plus the relator's costs and attorneys' fees.
In Count Two, relator asserts a cause of action for a False Claims Act retaliation violation by her former employer, Graham County Soil Water Conservation District, and the district supervisors, whom she contends were her "de facto" employers based on their domination of the district for their improper personal use.
II. Standard
Defendants have moved for dismissal pursuant to Rule 12(b), Federal Rules of Civil Procedure, contending that plaintiff has failed to state a cognizable claim. Rule 12(b) authorizes dismissal based upon a dispositive issue of law. Neitzke v. Williams, 490 U.S. 319, 109 S.Ct. 1827, 1832 (1989); Hishon v. King Spalding, 467 U.S. 69, 73 (1984);Conley v. Gibson, 355 U.S. 41 (1957). As the Court discussed in Neitzke:
This procedure [for dismissal], operating on the assumption that the factual allegations in the complaint are true, streamlines litigation by dispensing with needless discovery and fact finding. Nothing in Rule 12(b)(6) confines its sweep to claims of law which are obviously insupportable. On the contrary, if as a matter of law "it is clear that no relief could be granted under any set of facts . . . a claim must be dismissed, without regard to whether it is based on outlandish legal theory. . . . What Rule 12(b)(6) does not countenance are dismissals base on a judge's disbelief of a complaint's factual allegations."Id., at 1832 (citation omitted). For the limited purpose of making recommendations as to disposition of defendants' motions, the undersigned has accepted as true the facts alleged by plaintiff in the complaint and has viewed them in a light most favorable to relator.
III. Motions to Dismiss Based on Common-Law Municipal Immunity
A. Overview
Although defendants have provided other grounds for dismissal, the central issue presented is whether the False Claims Act, which provides for mandatory punitive damages, was intended by Congress to extend to local governments, which enjoy common-law municipal or governmental immunity from punitive damages. Two circuits have held that the FCA does not extend to local governments; one circuit has held that it does. The undersigned, after much consideration, will, respectfully, follow the decisions of the circuits holding that the FCA does not extend to municipal governments.
B. Origin and Development of Municipal Immunity
Municipal immunity is the direct offspring of sovereign immunity. City of Newport v. Fact Concerts, Inc., 453 U.S. 247, n. 19 (1981). Sovereign immunity begins with the notion that "the King can do no wrong," and that he could not be sued of right in his own courts. W. Prosser, The Law of Torts 125, at 996-97 (3d ed. 1964). See Muskopf, supra, n. 1 ("Only out of sixteenth century metaphysical concepts of the nature of the state did the king's personal prerogative become the sovereign immunity of the state.")
For a differing view as to the origin as well as the continued need for municipal immunity, see Muskopf v. Corning Hospital Dist., 55 Cal.2d 211, 216 (1961).
Municipal immunity was first recognized at common law in Russell v. Men of Devon, 2 T.R. 667, 100 Eng. Rep. 359 (K.B. 1788). In Russell, the plaintiff attempted to sue an unincorporated county for damages in tort, but the action was dismissed because the court found that "it is better that an individual should sustain an injury than that the public should suffer an inconvenience." 100 Eng. Rep., at 362. Such absolute immunity of municipal governing authorities, however, has gradually eroded in the last two centuries.
In explaining the important public policy concerns which continue to form the foundation of municipal immunity, the Supreme Court in City of Newport, supra, quoted the following language from a decision, which held that the city should not bear punitive damages for the malicious acts of its municipal officers:
"Those who violate the laws of their country, disregard the authority of courts of justice, and wantonly inflict injuries, certainly become thereby obnoxious to vindictive damages. These, however, can never be allowed against the innocent. Those which the plaintiff has recovered in the present case . . ., being evidently vindictive, cannot, in our opinion, be sanctioned by this court, as they are to be borne by widows, orphans, aged men and women, and strangers, who, admitting that they must repair the injury inflicted by the Mayor on the plaintiff, cannot be bound beyond that amount, which will be sufficient for her indemnification."Id., at 261 (citing McGary v. President Council of the City of Lafayette, 12 Rob. 668, 674 (La. 1846)). The Court went on to hold that the "general rule today is that no punitive damages are allowed unless expressly authorized by statute." City of Newport, supra, at n. 21.
C. The Supreme Court Recognizes the Continued Vitality of Municipal Immunity
In City of Newport, plaintiff Fact Concerts, Inc., brought an action against the city when it unilaterally cancelled a rock concert based on fears that the crowd would be unruly. Plaintiff contended that the city had violated the protections afforded under 42, United States Code, Section 1983, by tortiously interfering with its first-amendment rights, and sought punitive damages. In finding that the city was immune from punitive damages under Section 1983, the Court held, as follows:
Punitive damages by definition are not intended to compensate the injured party, but rather to punish the tortfeasor whose wrongful action was intentional or malicious, and to deter him and others from similar extreme conduct.
In sum, we find that considerations of history and policy do not support exposing a municipality to punitive damages for the bad-faith actions of its officials. Because absolute immunity from such damages obtained at common law and was undisturbed by the 42d Congress, and because that immunity is compatible with both the purposes of 1983 and general purposes of public policy, we hold that a municipality is immune from punitive damages under 42 U.S.C. § 1983.Id., at 266-67 271.
D. Creation of the FCA in 1863 and Amendment in 1986
It is undisputed that the FCA was created in 1863 in response to widespread fraud by military contractors, not municipalities. It is equally undisputed that between 1863 and 1986, the FCA, which occasionally was amended, remained virtually unchanged, providing for remedial "double damages." Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999).
"[T]he FCA was enacted in 1863 with the principal goal of "stopping the massive frauds perpetrated by large [private] contractors during the Civil War.'" Stevens, infra, at 781.
In 1986, Congress amended the FCA by providing for treble damages. As relator argues, trebling damages was intended, as the Harrison court found, to unleash a "posse of ad hoc deputies to uncover and prosecute frauds against the government." Id. at 783. The 1986 amendment, however, did not meaningfully alter the definition of "persons" covered by the Act. Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000).
E. The FCA After the 1986 Amendments
In Stevens, supra, the Supreme Court dismissed relator's FCA action based on the common-law presumption against imposition of punitive damages on governmental entities, but specifically declined to reach the issue of whether such an action would have been barred under the eleventh amendment. The Court explained its decisional process, finding, as follows:
"The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const., Amend. XI.
We nonetheless have routimely addressed before the question whether the Eleventh Amendment forbids a particular statutory cause of action to be asserted against States, the question whether the statute itself permits the cause of action it creates to be asserted against States (which it can do only by clearly expressing such an intent).Id., at 779. In determining whether a state was an appropriate target of an FCA action, the Stevens Court considered 31, United States Code, Section 3729(a), which subjects to liability
[a]ny person . . . [who] knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval.Id. The Court applied its presumption that "person" does not include the sovereign, id., at 780, which it determined was not a "hard and fast rule of exclusion," id., at 781 (internal quotation and citation omitted), but one which a court could disregard only "upon some affirmative showing of statutory intent to the contrary." Id. The Court went on to hold that the liability provision of the FCA, as enacted in 1863,
bore no indication that States were subject to its penalties. Indeed, far from indicating that States were covered, it did not even make clear that private corporations were, since it applied only to "any person not in the military or naval forces of the United States, nor in the militia called into or actually employed in the service of the United States," and imposed criminal penalties that included imprisonment. [FN 11] Act of Mar. 2, 1863, ch. 67, § 3, 12 Stat. 698. We do not suggest that these features directed only at natural persons cast doubt upon the courts' assumption that § 3729(a) extends to corporations, see, e.g., United States ex rel. Woodard v. Country View Care Center, Inc., 797 F.2d 888, 890 (C.A.10 1986) — but that is because the presumption with regard to corporations is just the opposite of the one governing here: they are presumptively covered by the term "person", see 1 U.S.C. § 1. But the text of the original statute does less than nothing to overcome the presumption that States are not covered.Id., at 782. The Court further held that the denotation of "persons" who could be subject to liability under the Act was contained in Section 3729, and nowhere else in the FCA — a section which "has remained in the statute unchanged since 1863." Id., at 783. The definition of person, as referenced by the Stevens Court, provides, as follows:
[T]he words "person" and "whoever" include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals . . .Id.
Finally, the Stevens Court unequivocally found that "the current version of the FCA imposes damages that are essentially punitive in nature, which would be inconsistent with state qui tam liability in light of the presumption against imposition of punitive damages on governmental entities." Id., at 784-85.
F. Split Among the Circuits
As has been well-briefed by the parties, there exists a split among the circuits that have considered the question of whether municipalities are subject to the FCA. The undersigned will briefly discuss each of the three decisions.
1. Seventh Circuit Finds No Municipal Immunity
In United States ex rel. Chandler v. Hekotoen Inst. for Med. Research, ___ F.3d ___, 2002 U.S. App. Lexis 847 (7th Cir. January 22, 2002), the Court of Appeals for the Seventh Circuit found that a county did not enjoy the protection of municipal immunity from the FCA. Specifically, the Chandler court held that Congress had made no exception in the FCA that would exempt municipalities. Id., 2002 U.S. App. Lexis, at 11. In distinguishing its decision from that of the Supreme Court in Stevens, supra, which found as a significant factor in favor of immunity the inclusion of states in the Section 3733 definition of those subject to investigative demands but not included in the definition of persons liable under the Act, the court in Chandler held that a similar inclusion/exclusion of municipal governments gave rise to the opposite inference, i.e., that Congress did intend to subject municipalities to FCA liability, because municipalities have traditionally been included in the definition of "persons" and do not enjoy the same "privilege of place within our constitutional structure" that states enjoy. Id., at n. 7.
To summarize, the Chandler court found that Congress intended to include municipalities in the FCA, because they have long been considered legal "persons"; a municipality, therefore, is included in the definitional section of the FCA; and Congress has made no exception in the FCA that would exclude municipalities from liability under the Act.
2. Fifth Circuit Finds Municipal Immunity
In United States ex rel. Garibaldi v. Orleans Parish School Board, 244 F.3d 486 (5th Cir. 2001), the Court of Appeals for the Fifth Circuit concluded that a municipality was not a "person" subject to liability under the FCA. Although predating Chandler and ultimately coming to an opposite conclusion, the court in Garibaldi made a number of conclusions of law that were similar to those in Chandler: the Supreme Court's decision in Stevens ( i.e., that a state is not amenable to suit under the Act) is not "particularly instructive," except in its finding that the FCA is punitive; local governments do not enjoy the same sovereign status as states; and in federal jurisprudence, a municipality traditionally is included in the definition of "persons." Id., at 491.
The Garibaldi court went on to hold that the Supreme Court made clear that "imposing punitive damages on local governments is ordinarily contrary to sound public policy," id., at 491, citing City of Newport, supra, at 263, and reasoned that "punishing a local government is pointless," because the punishment "in the form of higher taxes or reduced public services, is visited upon the blameless." Id. In a vein similar to the Supreme Court in City of Newport, the Garibaldi court likewise held, as follows:
The Supreme Court held in City of Newport that the "general rule today is that no punitive damages are allowed unless expressly authorized by statute." City of Newport, supra, at n. 21.
Though Congress is free to make that determination [that local governments are subject to treble damages under the FCA] if it chooses, we will not find such a choice a b sent clear language in the text of the False Claims Act.Id., at 492.
While conceding that the term "persons, " as traditionally used in federal jurisprudence, would include municipalities, and that municipalities would arguably be included in the residual definition of "persons" contained in the so-called Dictionary Act — 1, United States Code, Section 1 — theGaribaldi court went on to hold that by amending the FCA to provide for mandatory punitive damages, "the context indicates" that Congress intended "local governments not be subject to liability under the False Claims Act." Id at 492.
We are convinced that the punitive damages regime of the False Claims Act discussed above reflects a congressional intent that the term "person" in the liability provisions of the False Claims Act not include local governments.Id., at 493.
The Garibaldi court also addressed the argument of the relator and the government that no municipal immunity should apply in the FCA, because the Supreme Court had earlier found that local governments were subject to punitive damage awards in other federal statutes, including civil rights and antitrust provisions. The court distinguished the leading case on the application of civil rights laws to municipalities, Monell v. Dept. of Social Services of the City of New York, 436 U.S. 658 (1978), finding that Monell was based on the legislative history of the Act, which clearly indicated that Congress intended to target those acting "under color of state law," especially local governments, which were taking private property without just compensation. Garibaldi, supra, at 493-94.
As to the application of antitrust laws to municipalities, theGaribaldi court held that the Supreme Court's decision in City of Lafayette v. Louisiana Power Light Co., 435 U.S. 389 (1978), was distinguishable because that Court had found the language of the Act to be "'comprehensive'" and a "'carefully studied attempt to bring within the Act every person engaged in business whose activities might restrain or monopolize commercial intercourse among the states.'" Garibaldi, supra, at 494 (quoting City of Lafayette, supra, at 399). The Garibaldi court concluded that the Supreme Court had not extended municipal immunity, because the antitrust laws establish a "fundamental and all-encompassing regulatory regime for commercial activity," which would be equally applicable to municipalities that "go out into the marketplace and engage in this type of activity." Id., at 494. Relying upon Vermont Agency of Natural Resources v. United States ex rel. Stevens, supra, which found that the FCA did not reach states, the Garibaldi court concluded that the FCA was not intended to be as far reaching as the antitrust laws.
To summarize Garibaldi, the Court of Appeals for the Fifth Circuit held that the punitive damages provision of the FCA shows a congressional intent that the FCA is inapplicable to municipal governments, because there is "no contrary expression of legislative intent" and no inapposite purpose "behind the False Claims Act" that would advise otherwise.
Accord United States ex rel. Long v. SCS Business Technical Inst., Inc., 173 F.3d 870, 875 (D.C. Cir. 1999), cert. denied, 530 U.S. 1202 (2000).
3. Third Circuit Finds Municipal Immunity
In the latest decision on point, the Court of Appeals for the Third Circuit in United States ex rel. Dunleavy v. County of Delaware, ___ F.3d ___, 2002 W.L. 111365 (3d Cir. January 29, 2002), found that the county defendant was not subject to suit under the FCA due to the Act's mandatory punitive damages provisions. As did the Supreme Court in City of Newport, supra, and the Court of Appeals for the Fifth Circuit inGaribaldi, the Dunleavy court found that local governments enjoyed immunity from punitive damages unless "Congress clearly provides otherwise. . . ." Id., at [page not yet available]. The court further held that to overcome common-law immunity from punitive damage awards, Congress must "expressly abrogate" such immunity in the statute. Id.
The court went on to hold that the government's and relator's statement of the issue, i.e., whether a municipality is a "person" under the Act, was just the "other side of the coin with the question before us" id., which was whether Congress had "clearly abrogated local governmental immunity under the FCA." Id. The court first pointed to other examples where Congress had specifically defined the term "persons" to include municipalities, then turned to the FCA, as originally enacted in 1863 and in its present form, and found that the Act "is utterly devoid of any specific intention to subject local governments to its strictures." Id. The court held, as follows:
[L]ack 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.Id.
An argument was presented in Dunleavy, which has also been presented here, that by enacting treble damages in 1986, Congress evidenced its intent to subject local governments to punitive damages. The court held that by enacting the treble damages provision, Congress did not express a clear intent to add anything to the meaning of person, and that such appellate court had previously determined that adding punitive damages to civil RICO manifested congressional "intent to exclude local governments from . . . coverage." Id. (emphasis in original). As in Garibaldi, theDunleavy court concluded that "imposition of treble damages is powerful evidence that Congress did not intend to subject local governments to punitive damages under the FCA." Id. Finally, the Dunleavy court found the amicus argument — that the intent of Congress could be discerned through the legislative history of the 1986 amendments — was without merit, inasmuch as the Stevens Court had already found such material "erroneous and of questionable value." Id. (citation omitted).
In summary, the Dunleavy court found that the FCA was punitive, and that in order to set aside common-law municipal immunity, Congress must clearly express its intent to abrogate such protection. Further, that court found that Congress had not clearly expressed such an intent in the FCA.
G. Discussion
The undersigned has considered the well-reasoned briefs of the parties, as well as the amicus curie, and appreciates the fine manner in which this issue has been presented. Each side has submitted persuasive arguments, and the court can see how either side could well carry its argument through the appellate process. For the reasons discussed below, however, the undersigned must respectfully recommend that defendants' motions to dismiss be allowed, inasmuch as municipal immunity has not been clearly waived by Congress in the False Claims Act. The discussion will first consider whether the FCA is punitive; second, whether a municipality is a "person" under the FCA; and finally, whether Congress has abrogated common-law municipal immunity in the FCA.
1. Does the FCA Provide for Punitive Damages?
When the subject Act was created in 1863, Congress was not only at war and lacking revenue from more than a third of the formerly United States, it was also at economic war with its own suppliers of military ordnance. Enacted in the midst of civil war, the False Claims Act clearly was intended to stem the tide of fraud from dishonest private parties.Stevens, supra, at 781. For more than six-score years, the FCA remained virtually unchanged. Harrison, supra, at 783. In 1986, Congress gave the FCA teeth by providing substantial per-violation civil penalties, attorney fees, and treble damages. In addition to civil penalties, Congress split off the criminal penalties, making a false claim a five-year felony. See 18 U.S.C. § 287. As the Court of Appeals for the Fourth Circuit observed, the 1986 civil amendments were intended to unleash a "posse" of private whistle blowers. Harrison, supra, at 783.
The Supreme Court held in Stevens that the FCA's mandatory treble damages are "punitive in nature" Id., at 784. The amicus conceded this point at oral arguments, and relator joined in such concession. The undersigned finds, as a matter of settled law id., that the mandatory damages provision of the FCA, which was created in the 1986 amendments, is punitive, while the prior scheme, which provided for double damages, was remedial. Unlike many other state and federal provisions, imposition of punitive damages under the FCA is mandatory, i.e., a false claim must be punished with treble the actual damages.
For the purpose of completeness, the undersigned notes that single or actual damages are compensatory.
2. Is a Municipality a Person Under the FCA?
Deciding whether a municipal government is a "person" under the present Act has caused a number of appellate courts to diverge and for logic to become fuzzy. As early as 1844, the Supreme Court recognized that towns, cities, and counties were something less than a full sovereign; they could breach contracts and commit torts; and they were more akin to a "person" than a king. See Louisville R. Co. v. Letson, 2 How. 497, 558, 11 L.Ed. 353 (1844) (commercial corporation is a citizen); Cowles v. Mercer County, 7 Wall. 118, 121, 19 L.Ed. 86 (1869) (reaffirming that a municipality is a citizen capable of being sued in federal court). Even before courts recognized that towns were "persons," they had recognized that they enjoyed common-law municipal immunity. Mower v. Leicester, 9 Mass. 247 (1812).
By 1863, when the FCA was enacted, it is clear that Congress knew (or should have known) that a municipality or a political body less than a sovereign state was a person. From 1863 through 1986, there is no doubt but that a municipality was a person, as contemplated by the FCA, which was at all relevant times thereto a remedial scheme. There are, however, no reported cases which this court can find wherein a municipality challenged the pre-1986 FCA based on municipal immunity.
This may be so because pre-1986, damages were remedial and municipalities did not enjoy immunity from remedial damages, or, perhaps, no FCA actions had been filed against municipalities.
The undersigned agrees with the reasoning of the Dunleavy court that whether a municipality remains a person under the post-1986 Act is just the flip side of the issue of whether Congress intended to bring municipalities into federal court under the FCA. It is undisputed that the 1986 amendments left the definition of "persons" unscathed and that amendments prior to that date had made no substantive change since 1863. With the exception of a few growing pains, a municipality is no less a "person" today than it was in 1986, 1863, or 1844; however, the issue is not whether the attributes of personage have changed, but whether the statute has changed.
True, the Supreme Court has recognized that there is no municipal immunity from treble damages in civil-rights actions where a plaintiff can plead and prove the wrongful conduct was pursuant to municipal policy and in antitrust laws, even though no textual abrogation is found in either statute. In the civil-rights statutes, the Court found that they were conceived to circumvent municipal wrongdoing that struck at the heart of civil liberties, while in antitrust laws, Congress was so explicit in its draftsmanship as to leave no doubt that municipalities could run afoul of antitrust laws. Assuming that a municipality is a "person" as, for all practical purposes, it has always been, the issue comes down to whether Congress intended to subject municipalities to treble damages under the FCA, which may be discerned from the language of the amended FCA, read as a whole.
3. Has Congress Abrogated Common-Law Immunity in the FCA?
As the Supreme Court has already held, the legislative history surrounding the 1986 amendments provides courts with little to no help.Stevens, supra. Instead, this court must step back and first consider the plain language of the Act.
Just as Congress in 1863 was charged with having known that the Supreme Court had recognized municipalities as persons when the FCA was enacted, so, too, must Congress in 1986 be charged with knowledge that the Supreme Court had clearly held in 1981 that in order to subject a town to punitive damages, Congress must clearly express its intent to abrogate common-law municipal immunity damages. City of Newport, supra, at n. 21. While Congress clearly changed the scheme of the FCA from remedial to punitive in 1986, no change was made to the "persons" subject to the Act, and the only argument that can be championed is the same one that was relied upon by the Seventh Circuit — that Congress knew that municipalities were "persons," that Congress failed to exclude municipalities from coverage under the Act, and that a court can conclude therefrom that Congress intended to make municipalities liable for treble damages.
The problem with the Seventh Circuit decision in Chandler is that it relies upon the inverse of the Supreme Court requirement for legislative abrogation of an immunity. While drawing reasonable inferences may be appropriate in usual instances of statutory construction, the Supreme Court has made it clear that courts will not infer congressional intent to abrogate common-law municipal immunity. The duty of Congress is to be explicit when it determines that municipalities should be subject to punitive damages. The decision of the Court of Appeals for Seventh Circuit, in finding that the FCA failed to expressly exclude municipalities after 1986, is inapposite to the requirement of City of Newport that Congress expressly include municipalities, because "no punitive damages are allowed unless expressly authorized by statute." Id at n. 21. The undersigned does not believe that the Supreme Court would make the same exception to the general rule concerning municipal immunity that it did for civil-rights statutes and antitrust laws, inasmuch as the origin of the FCA was not civic corruption and the language of the FCA is not explicit.
This court has struggled with the implication that in dismissing this action, it may allow miscreants, at least in their official capacities, to go unpunished. As discussed below, although municipalities and officials sued in their official capacities may escape the FCA, it is not so clear that officials sued in their individual capacities are entitled to dismissal. Immunities have developed at common law, are a part of a system that must take into account equity, and courts seldom, if ever, infer legislative abrogation.
It is certainly within the power of Congress and other legislative bodies to legislate away immunities that have been "legislated" by jurists through the common law; however, Congress must expressly and clearly state that the law reaches those who would otherwise enjoy an immunity. City of Newport, supra. While such a requirement may be viewed as judicial quibbling, it serves a valid purpose — to require Congress to provide the privilege holder with fair notice. Otherwise, common-law immunities will be dissolved at common law, resulting in exactly what has occurred here — differing and strained opinions of reasonable jurists making more common law and increasing uncertainty as to whether a common-law immunity can be relied upon.
The undersigned will recommend that the motions to dismiss of the municipal defendants, eo nominee, the counties, and defendants sued in their official capacities be granted. See Kentucky v. Graham, 473 U.S. 159, 166 (1985) (a suit against a government official, sued in his or her official capacity, is a suit against the governmental entity).
IV. Motions to Dismiss Individual Defendants Sued In Their Individual Capacities
Some of the individual defendants have moved for dismissal, contending that under the FCA, they cannot be sued unless it is alleged that they somehow personally gained from the alleged false claims. In addition, they argue that Rule 9(b), Federal Rules of Civil Procedure, requires more precise pleading, inasmuch as relator is alleging fraud, "which shall be stated with particularity." Id. Defendants also contend that the allegations are insufficient to support relator's claims of conspiracy.
Clearly, governmental officials can be sued in their individual capacities for allegedly corrupt acts done in their official capacities.Hafer v. Melo, 502 U.S. 21 (1991). While relator has cited cases outside this circuit in support of the proposition that Rule 9(b) should be applied in a more "relaxed" fashion, see United States ex rel. Butler v. Magellan Health Services, 74 F. Supp.2d 1201, 1215 (M.D. Fla. 1999), the prevailing view within this circuit is that Rule 9(b) applies with equal force to claims brought under the FCA:
Since Appellant in this case alleges fraud, his claim is subject to Federal Rule of Civil Procedure 9(b), which requires that claimants plead fraud with particularity. According to two noted scholars, the "circumstances" required to be pled with particularity under Rule 9(b) are "the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Mere allegations of "fraud by hindsight" will not satisfy the requirements of Rule 9(b). The second sentence of Rule 9(b) allows conclusory allegations of defendant's knowledge as to the true facts and of defendant's intent to deceive.
Rule 9(b) has four purposes: First, the rule ensures that the defendant has sufficient information to formulate a defense by putting it on notice of the conduct complained of. . . . Second, Rule 9(b) exists to protect defendants from frivolous suits. A third reason for the rule is to eliminate fraud actions in which all the facts are learned after discovery. Finally, Rule 9(b) protects defendants from harm to their goodwill and reputation.Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783-84 (4th Cir. 1999) (citations and footnote omitted).
The allegations of both fraud and conspiracy in the complaint are scattershot and do not contain allegations of the "time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Id. If it is important enough to the relator to bring an action and subject a person to the enormous expense and burden of defending his or her actions, it is important enough that the relator make specific allegations as to each and every defendant and as to each and every contention of alleged wrongdoing. The undersigned finds, however, that the proposed dismissal is a harsh penalty for failure to comply with Rule 9(b) and will recommend that the district court allow relator's Motion to Amend, but with provisos: that relator carefully reconsider the scope and breadth of her complaint, whether she has reason within the bounds of Rule 11 to bring each of these defendants into this forum, and whether she can provide sufficient allegations within the bounds of Rule 9(b). Finally, it would appear that there is some authority for the proposition that for individual-capacity liability to attach under the FCA, some allegation of personal gain should be made. United States. ex. Rel. Graber v. City of New York, 8 F. Supp.2d 343, 356 (S.D.N.Y. 1998);United States ex rel. Honeywell, Inc. v. San Francisco Housing Authority, ___F. Supp. 2d ___, 2001 WL 793300 (N.D.Cal. 2001).
"A court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." Id.
RECOMMENDATION
IT IS, THEREFORE, RESPECTFULLY RECOMMENDED that:
(1) defendants Graham County Board of County Commissioner's, Raymond Williams's, Dale Wiggins's, and Lynn Cody's motion to dismiss (#31) be DENIED in part and GRANTED in part, and that the Graham County Board of County Commissioners and the individual defendants sued in their official capacities be DISMISSED based on common-law municipal immunity; but that the motion to dismiss, insofar as it seeks dismissal of claims against the individual defendants sued in their individual capacities, be DENIED without prejudice;
(2) defendants Cherokee County Soil Water Conservation District's, Bill Tipton's, Eddie Wood's, and C. B. Newton's motion to dismiss and for more definite statement (#61) be DENIED in part and GRANTED in part, and that the Cherokee County Soil Water Conservation District and the individual defendants sued in their official capacities be DISMISSED based on common-law municipal immunity; but that the motion to dismiss, insofar as it seeks dismissal of claims against the individual defendants sued in their individual capacities, be DENIED without prejudice;
(3) defendants Cherokee County Board of County Commissioner's, Charles Laney's, Eugene Morrow's, and George Postell's motion to dismiss (#62) be DENIED in part and GRANTED in part, and that the Cherokee County Board of County Commissioners and the individual defendants sued in their official capacities be DISMISSED based on common-law municipal immunity; but that the motion to dismiss, insofar as it seeks dismissal of claims against the individual defendants sued in their individual capacities, be DENIED without prejudice;
(4) Relator's Motion for Leave to Amend Her Complaint (#75) be ALLOWED and that relator be granted leave to amend to comply with Rule 9(b); and
(5) defendants Graham County Soil Water Conservation District's, Gerald Phillips's, Allen DeHart's, Jimmy Orr's, and Lloyd Millsaps's motion to dismiss (#77) be DENIED in part and GRANTED in part, and that the Graham County Soil Water Conservation District and the individual defendants sued in their official capacities be DISMISSED based on common-law municipal immunity; but that the motion to dismiss, insofar as it seeks dismissal of claims against the individual defendants sued in their individual capacities, be DENIED without prejudice.
The parties are hereby advised that, pursuant to 28, United States Code, Section 636(b)(1)(C), written objections to the findings of fact, conclusions of law, and recommendation contained herein must be filed within ten (10) days of service of same. Failure to file objections to this Memorandum and Recommendation with the district court will preclude the parties from raising such objections on appeal. Thomas v. Arn, 474 U.S. 140 (1985), reh'g denied, 474 U.S. 1111 (1986); United States v. Schronce, 727 F.2d 91 (4th Cir.), cert denied, 467 U.S. 1208 (1984).