### 2002 D e c i sion s O p inion s of the U nit e d

S t a t e s C our t of Appe al s for the Thir d C ir c uit

1-29-2002 

# Dunle a v y v . C oun t y of D el a

w a r e

P r e c e de n t i al or N on-P r e c e de n t i al :

D ock e t 0-3691

F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p://d i g it alc ommon s .l a w

. v i l l a no v a

. e du/thir dc ir c uit_2002

Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. I t h as be e n a c c e pt e d for inclusion in 2002 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min

. C a rl s on@l a

w

. v i l l a no v a

. e du

. 

### R e c omme nde d C it a t ion

" Dunle a v y v . C oun t y of D e l a

w a r e " (2002). 2002 D e cisio n s

. P a pe r 49.
h tt p://d i g it alc ommon s .l a

w

. v i l l a no v a

. e du/thir dc ir c uit_2002/49Filed 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 APPELLANTFrancis 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

2OPINION OF THE COURT

MANSMANN, Circuit Judge.

The appellant, Anthony J. Dunleavy, was a consultan t to appellee, Delaware County. In this capacity, Dunlea vy advised the County as to the various federal regula tory requirements concerning certain Housing and Urban Development funding grants. Dunleavy sued the Count y 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, hold ing that the County was not amenable to suit under the FCA due to its mandatory punitive damages scheme. We ag ree. Therefore, we will affirm the Order of the District Court.

I.

This appeal requires us to determine whether a loca l governmental subdivision can be subject to suit und er the False Claims Act when the Act mandates treble damag es. We must first determine whether the treble damages mandated by the Act are punitive. If so, we must th en decide whether Congress clearly manifested its inte ntion 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 un der the Act albeit subject to some lesser quantum of da mages. 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 doe s not personally benefit from the transaction constitutin g a violation of the Act; therefore, we conclude that n o 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 par k. In

31979, 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 high way construction. After consulting with Dunleavy, the C ounty decided that it would put the proceeds from the sal es of Penza tract land into an interest-bearing account u nder the assumption that if Penn DOT was unable to use its n ewly acquired lands for highway construction the County would repurchase the land. On the other hand, if Penn DOT completed its highway construction, the County woul d return the proceeds from the land sales, plus inter est to HUD. After numerous delays, Penn DOT completed its highway construction project in 1991.

During the interim, the County occasionally used fu nds from the Penza tract account for general County pur poses. Dunleavy contends that this was improper, because, in his view, the funds in the account were HUD program fun ds subject to various reporting requirements with whic h the County failed to comply. Further, Dunleavy contends that once the County knew that it would not be repurchas ing the tract, the County knowingly failed to return th e principal and interest earned on the account to HUD

. Dunleavy's final contention is that the County frau dulently received additional monies from HUD in fiscal years `92, `93, `94, and `95 because the County took these mon ies knowing that it committed the previously alleged vi olations of HUD regulations with respect to Penza Tract fund s.

Dunleavy filed this action in 1994 seeking treble d amages as required by the False Claims Act. In 1995, the Government declined to intervene, concluding that n o fraud had been committed. HUD, however, after a Limited R eview 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 s ettle with the Defendant notwithstanding the objections of the per son initiating the

4The District Court dismissed Dunleavy's Second

Amended Complaint for lack of subject matter jurisd iction, a Judgment that we reversed and remanded to the Dis trict Court. The County then filed motions to dismiss for failure to state a claim and failure to plead with particul arity, 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 decis ion in Vermont Agency of Natural Resources v. United State s ex rel. Stevens, 529 U.S. 765 (2000). The District Court co ncluded that Dunleavy's claim could not proceed in light of Stevens. See United States ex rel. Dunleavy v. County of Del aware, 2000 WL 1522854 (E.D.P.A. 2000). This timely appeal

followed.2

We begin our analysis with a brief discussion of th e 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 beca use at common law a municipality was absolutely immune from punitive damages and in enacting section 1983 Congr ess

___________________________________________________ ______________

action if the court determines, after a hearing, th at 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 th e name of the Federal

Government after the Government has determined that , in its view, no fraud has been committed. Accordingly, we do not co nsider the question of whether the United States may maintain a suit ag ainst 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).

5did not clearly manifest an intention to abrogate t his

common law immunity). Similarly, in Genty v. Resolu tion Trust Corp., 937 F.2d 899 (3d Cir. 1991), we held t hat municipalities were immune from civil punitive dama ge awards under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. SS 1961-1968. In reach ing our holding in Genty, we cited Fact Concerts and comme nted that in order to subject municipalities to punitive damage awards, a statute must expressly provide for such a n award against a municipality. See Genty, 937 F.2d at 910. Furthermore, we noted that the rationale for exempt ing a municipal entity from punitive damages awards is fi rmly grounded in public policy because "assessing puniti ve damages against a public entity serves neither the retributive nor the deterrent purposes of . . . civ il punishment and contravenes public policy by punishi ng the taxpayers and citizens who constitute the very persons who `are to benefit from the public example which t he 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 unle ss the statutory scheme which creates liability clearl y indicates that Congress intended to abrogate the we llsettled notion of local governmental common law imm unity from punitive damages. See also Doe v. County of Ce ntre, 242 F.3d 437, 456 (3d Cir. 2001) (holding that over coming common law immunity requires a clear expression of congressional intent).

We now turn to the threshold question on this appea l: whether the damages imposed by the Act are punitive . If the damages are properly characterized as punitive, we must next determine whether Congress expressly inte nded to abrogate local governmental immunity under the F CA. For the reasons that follow, we believe that the ma ndatory treble damages imposed by the Act are punitive and that Congress did not expressly abrogate local governmen tal immunity under the FCA.

A.

When first enacted in 1863, the FCA provided for su its to be brought in the name of the Government by private

6individuals in a qui tam (in the name of the King) action.

The Act imposes liability on any person who knowing ly presents a false claim to the Federal Government fo r payment. 31 U.S.C. S 3729(a) (1994). The current ve rsion of the Act imposes a civil penalty between five and te n thousand dollars per false claim plus three times t he amount of damages which the Government sustains. 31 U.S.C. S 3729(a) (1994). Recently, in Vermont Agenc y of

Natural Resources v. United States ex rel. Stevens , 529 U.S. 765 (2000), the United States Supreme Court examine d the issue of whether a State or State agency is a "pers on" for purposes of the Act. In reaching its conclusion tha t a State is not within the meaning of "person" as used in th e Act and therefore not amenable to suit under the Act by a qui tam realtor, the Court held that the Act imposes tr eble 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 i mposed by the False Claims Act are punitive damages.") (ci ting Stevens, 529 U.S. at 784).

Nonetheless, Dunleavy contends that the Supreme Court's characterization of the Act's damages provi sion is obiter dictum. We do not agree. The Stevens majorit y stated that "[s]everal features of the current statutory s cheme further support the conclusion that States are not subject to qui tam liability," and that one of those featur es is that "the current version of the FCA imposes damages tha t are essentially punitive in nature." Stevens, at 783, 7 84. Clearly, the Court relied on the Act's treble damag es scheme in reaching its holding and thus its declara tion that the damages scheme is punitive is not dictum. We th erefore agree with the Garibaldi court and conclude that th e 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 Con gress express a clear indication to abrogate local govern mental

7immunity under the FCA? We note here that the parti es'

arguments focus on whether the term "person" as use d in the Act encompasses local governments. This argumen t is simply the other side of the coin with respect to t he question before us, namely whether Congress clearly abrogated local governmental immunity under the FCA . If Congress clearly expressed its intention to encompa ss local governments within the ambit of FCA liability as a" person," then it must also have intended to abrogate the com mon law immunity of local governments against punitive damages under the FCA. In our view, consistent with our reasoning in Genty, the question is whether Congres s intended to disturb local governmental immunity fro m 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 munici palities be liable for treble damages); see also Will v. Mic higan Dep't of State Police, 491 U.S. 58, 67 (1989) (holding th at Congress did not intend to override well-establishe d common law immunities in passing civil rights act).

Dunleavy's assertions that Congress intended to sub ject municipalities to the FCA's coverage are unpersuasi ve in light of the fact that the statute offers no clear indication that Congress intended to abrogate local government al immunity from punitive damages. Indeed, the relevan t portion of the Act does not even define the term"pe rson." In Genty, we observed that the civil RICO Act defin ed 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)). Clea rly, this definition of the term "person" is a broad one. Yet we nevertheless found that despite this broad definiti on of the term "person", Congress did not clearly abrogate l ocal governmental immunity from punitive damages in the context of civil RICO. Moreover, we observed that h ad Congress intended to subject local governments to p unitive 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 provid ed for subjecting local governments to civil damage awards under the securities laws). Other statutes specifically d efine the

8term "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 A ct, 42 U.S.C. S 6903(15); the Wild Bird Conservation Act o f 1992, 16 U.S.C. S 4903(4); and the Oil Pollution Act of 1 990, 33 U.S.C. S 2701(27). Our Genty analysis is equally ap plicable here. We find nothing on the face of the relevant p ortions 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 d amages under the Act. The Act is utterly devoid of any spe cific intention to subject local governments to its stric tures. This lack of clarity in the text of the Act is insuffici ent 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 dr afters' intent is immaterial to a determination of Congress ' intent to subject local governmental subdivisions to liabi lity under the FCA. He contends the intent of the Congress tha t enacted the treble damages scheme should control wh ether or not Congress intended to subject local governmen ts to the FCA. His argument is premised on the notion tha t if in 1863, Congress intended to encompass local governme nts within the meaning of the term "person" under the F CA, the subsequent amendment in 1986 to provide treble dama ges under the FCA is evidence of Congress' intent to su bject local governments to punitive damages.

Even if we were persuaded that the intent of the 19 86 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 expressi on of Congress' intent to abrogate local governmental imm unity. See Stevens, 529 U.S. at 783 n.12 (observing that t he term "person" in the FCA has not been altered since the FCA's initial passage in 1863). Moreover, in Genty, we fo und that Congress' imposition of treble damages in the RICO statute evinced its intent to exclude local governments fro m the civil RICO statute's coverage. See Genty, 937 F.2d at 914 (Courts will not interpret statutes to overturn wel l-

9established common law principles unless Congress s o

authorizes"); County of Centre, 242 F.3d at 456 (3d Cir. 2001) (noting that Newport instructs us to assume t hat Congress intended to retain common law immunity abs ent a clear expression of congressional intent to the c ontrary). As a result, we cannot say that the imposition of t he current treble damages scheme in and of itself evid ences Congress' clear intent to abrogate common law immun ity and subject local governments to punitive damages a wards. We conclude that Congress' imposition of treble dam ages is powerful evidence that Congress did not intend to s ubject 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 contr olled 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 questionabl e value. See Stevens, 529 U.S. at 783 n.12 (noting that the legislative history contained the Senate's erroneou s understanding of the meaning of the term "person" a s 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-settl ed doctrine of local governmental immunity from puniti ve damages under the FCA. Ambiguity, however, is not e nough for Dunleavy to carry the day. There is simply noth ing in the FCA's text remotely manifesting a clear express ion of Congress' intent to abrogate local governmental imm unity 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 t he FCA by clearly including local governments within t he meaning of the term "person." It necessarily follow s that the County is immune from claims under the FCA by a qui tam relator due to the mandatory nature of the treble d amages

10provision. See Genty, 937 F.2d at 911-12 (treble da mages

awards under RICO are mandatory and therefore municipalities may not be liable under RICO if thos e damages are punitive).

C.

Dunleavy and the United States, as amicus, invite u s to subject the County to "some liability", however, by reading into the statute an exception to the mandatory treb le damages scheme. In essence, Dunleavy and the United States argue that we should reduce any treble damag es award against a local government to a level that wo uld be deemed compensatory rather than punitive. We declin e 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 applicabl e to the case sub judice. See 31 U.S.C. S 3729(a) (providing a reduction from treble damages to double damages whe n a defendant supplies information concerning the viola tion prior to their knowledge of governmental investigat ion). As a result, creating an exception for local governmen ts from the existing damages scheme would require us to rew rite the FCA. Of course, while Congress is free to do th is if it chooses, such redrafting is outside the traditional province of the courts. Accord Garibaldi, 244 F.3d at 493. T herefore, we will not disturb the existing statutory damages provisions by reading into the Act an exception fro m treble damages for local governments. The result, in the e nd, is that a local government such as Delaware County can not be subject to liability under the FCA in a qui tam action.

IV.

We conclude that the mandatory treble damages schem e imposed by the FCA is punitive and that local gover nments are exempt from FCA damages because Congress did no t clearly express its intention under the Act to abro gate local governmental common law immunity against punitive damages. As a result, since the FCA does not, as wr itten, permit a court to reduce treble damages awards, we

11conclude that a local government cannot be subject to suit

by a qui tam relator under the Act. For all these r easons, we will affirm the Order of the District Court dism issing Dunleavy's Second Amended Complaint.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

12