by Mark Koehn and Donald J. Kochan*
[Orginally appeared in the Legal Times on December 6, 1999.]
In a stunning act of judicial bell ringing just ten days before
last Monday's oral argument, the Supreme Court signaled that it
will consider an important question not originally presented in
Vermont Agency of Natural Resources v. United States ex rel. Stevens,
No. 98-1828: "Does a private person have standing under Article
III to litigate claims of fraud upon the government?" The wise
answer is "no".
By simply positing this question, the Supreme Court set segments
of the legal community astir. At risk is Congress's power to set
private persons against alleged bad actors where the private individuals'
sole personal stake lies in collecting a handsome share of the government's
recovered damages and penalties. The Court's answer likely will
also affect such areas as environmental compliance, where citizens
routinely sue based on little more personal injury than that suffered
by the public at large.
The statute involved is the False Claims Act, a Civil War-era law
that allows a private person to bring a qui tam action i.e.,
a civil action "for the person and for the United States Government"
for treble damages plus penalties of up to $10,000 per false
claim against the government. If successful, the person bringing
the action, known as the relator, may collect up to 30 percent of
the amount recovered by the government plus attorney fees.
Some may recall the False Claims Act as that dusty statute beefed
up in 1986 in response to tales of overpriced hammers and toilet
seats sold by military contractors. Since then, the FCA pot of gold
has inspired a virtual cottage industry of plaintiffs lawyers
the relators' bar actively prospecting for whistleblowers.
Since 1986, suits under the FCA have produced awards and settlements
of nearly $3 billion with individual relators reaping approximately
$443 million. Contingent fees have been reported as high as 40 percent
of a relator's cut on top of the attorney fees awarded or negotiated
in a settlement. So it's not surprising that the relators' bar nervously
awaits resolution of the standing debate.
the life of riley
Four days before the Supreme Court's request for additional briefing
in Stevens, a panel of the U.S. Court of Appeals for the 5th Circuit
held the qui tam provisions unconstitutional in Riley v. St. Luke's
Episcopal Hospital. (The court simultaneously vacated its decision
and ordered a rehearing en banc in January.)
The Riley majority held that qui tam violates the "take care"
clause and the separation-of-powers doctrine. Judge Jerry Smith,
writing for the majority, noted that qui tam leaves the executive
branch with even less control over a relator than the executive
enjoyed over an independent counsel and the now-defunct independent
counsel act was widely considered the constitutional upper limit
on statutes transferring law enforcement power away from the executive.
In other words, the 5th Circuit determined that Bill Clinton had
more control over Kenneth Starr's actions than he does over those
of qui tam relators! Unfortunately, it's true.
Judge Harold DeMoss in concurrence also concluded that the relator
lacked standing to bring the qui tam action. But Judge Smith determined
that a prior 5th Circuit decision, in United States ex rel Foulds
v. Texas Tech. Univ. (1999), precluded dismissal on standing. His
analysis may explain why the Supreme Court ordered the supplemental
briefing in Stevens.
In Foulds, the 5th Circuit held that a relator's suit was barred
by the 11th Amendment, but also said in a footnote that the relator
had standing to sue. In a heretofore largely inconsequential case,
the Supreme Court had determined in Calderon v. Ashmus (1998) that
a court must consider whether it is faced with an Article III case
or controversy prior to ruling on 11th Amendment immunity. Thus,
Judge Smith concluded that the standing footnote was essential to
Foulds and binding on the court in Riley.
In light of Calderon and Steel Co. v. Citizens for a Better Environment
(1998), where the justices held that a court must be sure of its
jurisdiction before proceeding to the merits, the Court may have
ordered supplemental briefing in Stevens because it has an obligation
to address standing before reaching the 11th Amendment or statutory
issues in that case.
The rise of the standing issue in Stevens may also relate to another
case on the Court's docket. In Friends of the Earth v. Laidlaw Environmental
Services (TOC), Inc., the Court heard arguments Oct. 12 regarding
whether private citizens may sue a company that allegedly harmed
the environment in order to impose additional penalties beyond those
already assessed by a state agency and where such additional penalties
are payable only to the federal government. Plaintiffs in such "citizen
suits" could not even claim they would eventually receive a
cut of the penalties. Questions at the oral argument for Laidlaw
regarding standing in qui tam actions make the briefing order in
Stevens less surprising. The Court may wish to harmonize its decisions
in the two cases.
That brings us to Stevens itself. An employee of Vermont's environmental
regulatory agency sued the agency alleging that it had cheated the
federal government by encouraging its employees to submit inflated
work reports that were then cited in requests for federal funding.
Vermont defended, in part, by pointing out that the 11th Amendment
prohibits private persons from suing states. The United States declined
to join in the suit or disclose its view on the merits. Yet it intervened
against Vermont (since the government reaps a windfall even when
such plaintiffs prevail on or settle meritless claims), arguing
that the relator was not prohibited by the 11th Amendment from hauling
Vermont into court.
The Nov. 29 oral argument in Stevens largely focused on the 11th
Amendment issue. The briefs on standing were not even due until
the day after.
But based on their questioning, a majority of the justices seemed
sympathetic to the argument that the relator lacks standing.
Some dispute appeared to exist over whether the Court must decide
the standing issue prior to reaching the other questions. Resolution
of that debate should be simple. The Court has made clear that it
cannot exercise "hypothetical jurisdiction" simply because
it wants to avoid a tough standing issue. It is time now to provide
guidance to the lower courts on this question, and put an end to
a system that has allowed the relators' bar to go beyond co-opting
the enforcement powers of the executive to exploiting settlements
in the name of the "public good."
A strong standing doctrine has emerged from this Court to reign
in Congress' steady effort to expand the confines of Article III.
The courts exist neither to resolve generalized grievances nor as
a forum for mere profiteering. They do exist to redress wrongs suffered
by the plaintiff, and Congress has gone too far in expanding that
role under the FCA.
Standing requires that a plaintiff establish an injury in fact,
causation or traceability, and redressibility. Relators have simply
suffered no cognizable injury. Their only interest is profit and
the costs of their speculative exercise. Even with a plethora of
"citizen suits" or "private attorneys general"
on the books, such plaintiffs have been found constitutional only
where they establish a concrete, personal injury in fact.
In 1986, the Supreme Court resolved an analogous issue. In Diamond
v. Charles, the Court held that the award of attorney fees alone
cannot create standing because it is merely a "consequence"
of and "unrelated to" the litigation and, as a result,
"cannot be fairly traced to" the law at issue. The Court
continued, "The mere fact that continued adjudication would
provide a remedy for an injury that is only a byproduct of the suit
itself does not mean that the injury is cognizable."
A relator's bounty is no different. It is a mere unrelated consequence
or byprouct of a qui tam action.
Arguments that a relator stands in the shoes of the government
are equally unpersuasive. Congress cannot expand Article III and
thus lacks authority to deputize plaintiffs through the FCA. And,
even if they could, neither the executive nor Congress has assigned
any contract rights by simply bestowing relators the right to sue
with the prospect they will receive part of the award. Correcting
a fraud on the government does simply that redress a harm
to the government.
Despite the merits of Riley's challenge to qui tam litigation based
on the "take care" clause and separation-of-powers doctrine,
there is little reason to suspect the Supreme Court will consider
those issues in Stevens. Nor should it need to. Regardless of the
age or effectiveness of the qui tam provisions, constitutional limitations
cannot be sacrificed to serve political goals. Standing alone should
dispose of this case and bring the FCA in line with the Consitution.
* Mark Koehn is of counsel and Donald Kochan is an associate at
D.C.'s Crowell & Moring LLP. Crowell & Moring represents
the Respondent in Friends of the Earth v. Laidlaw Environmental
Services (TOC), Inc.. The opinions expressed here are entirely the
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