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While litigation under the False Claims Act (FCA) generally can be rather complex, bringing actions under this statute against state agencies involves the additional issue of potential immunity under the Eleventh Amendment. The inquiry as to whether a given state agency can successfully assert such immunity is nuanced and the analysis will vary depending on the jurisdiction in which the case is brought. At the most basic level, the resolution of this issue depends on how the agency is treated under state law. Specifically, courts will look at factors such as how much autonomy the agency has from the state government as such and how much of its funding comes from the state.
One of the landmark cases in this area is Vermont Agency of Natural Resources v. United States ex rel. Stevens, 592 U.S. 765 (2000). In that matter, the Relator-Plaintiff, formerly an attorney for the defendant state agency, filed an FCA claim against it alleging that it had fraudulently induced the U.S. Environmental Protection Agency (EPA) to provide it with more grant money than it was actually entitled to. The State of Vermont moved to dismiss the claim, arguing that the state was not a “person” within the meaning of the FCA, meaning that the suit was barred under the Eleventh Amendment. The District Court denied the motion and the Second Circuit Court of Appeals affirmed. However, the U.S. Supreme Court granted certiorari and ultimately sided with the State of Vermont, holding in a 7-2 decision that states and state agencies are not “persons” that can be held liable under the FCA.
At first blush, the standard announced by the Vermont Court might seem to have resolved the issue entirely. However, the resolution of this issue remains highly fact-specific, as the Vermont holding is limited to cases in which the U.S. has not intervened and the relator-plaintiff prosecutes the matter as a private individual. Thus, whether states and state agencies can successfully assert Eleventh Amendment immunity in cases where the U.S. has intervened remains an open question in many jurisdictions and courts have resolved the issue both in the negative and in the affirmative.
In the matter of United States ex rel. Doughty v. Oregon Health And Sciences University, No. 3:13-CV-01306-BR, 2017 U.S. Dist. LEXIS 55083 (D. Or. Apr. 11, 2017), the District Court held that, under Vermont, the Defendant was an “arm of the state” and, therefore, immune from FCA liability, being an extension of the state sovereign. Following an appeal to the Ninth Circuit Court of Appeals, the parties voluntarily dismissed the case. Similarly, in the matter of United States ex rel. King v. Univ. of Tex. Health Sci. Ctr., 544 F. App’x 490 (5th Cir. 2013), the District Court dismissed King’s claims after finding that the defendant was not a “person” under the FCA and the Fifth Circuit Court of Appeals affirmed. The U.S. Supreme Court later denied an appeal from the Fifth Circuit.
Contrariwise, in the matter of United States ex rel. K & R v. Mass. Hous. Fin. Agency, 154 F. Supp. 2d 19 (D.D.C. 2001), the Massachusetts agency asserted that it was not a “person” within the meaning of the FCA. In looking at the status of the agency under state law, the court noted that some factors weighed in favor of this assertion (that it performs an essential public function, that it is governed by persons appointed by the governor, and that it is not separately incorporated, among other things), while others weighed against it (that it is not subject to direct control of any executive office or agency, that it can sue and be sued in its own name, and that it is largely autonomous from the state government at large, among other things). Because of this split, the Court turned to the following questions: 1) whether allowing the agency to be sued would infringe upon the integrity of the state’s sovereignty within the federal system and 2) whether an award of damages there against would deplete the state’s coffers. Both were answered in the negative and the suit was permitted to proceed.
In sum, whether a FCA claim can be successfully asserted against a state or state agency when the United States intervenes has not been definitively answered by the Supreme Court. Thus, whether a FCA case can successfully be brought against such an entity will depend on the jurisdiction in which it is filed and the characteristics of the defendant entity. A prospective relator-plaintiff and their counsel should not assume that a FCA case against a state or state agency will not be successful, but should carefully evaluate the viability of such claims in each forum in which they can be brought.
Joshua M. Baker is an Associate at the Young Law Group.
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