Juliano v. Federal Asset Disposition Ass'n (FADA), Civ. A. No. 89-0974-OG.

• Decision Date: 04 May 1990
• Docket Number: Civ. A. No. 89-0974-OG.
• Citation: 736 F. Supp. 348
• Parties: William T. JULIANO, on Behalf of himself as well as the United States of America, Qui Tam Plaintiff and Plaintiff, v. The FEDERAL ASSET DISPOSITION ASSOCIATION ("FADA"), et al., Defendants.
• Court: U.S. District Court — District of Columbia

736 F. Supp. 348

William T. JULIANO, on Behalf of himself as well as the United States of America, Qui Tam Plaintiff and Plaintiff, v. The FEDERAL ASSET DISPOSITION ASSOCIATION ("FADA"), et al., Defendants.

Civ. A. No. 89-0974-OG.

United States District Court, District of Columbia.

May 4, 1990.

James L. Marketos, Lane & Mittendorf, Washington, D.C., for Qui Tam plaintiff and plaintiff.

Alan E. Kleinburd, U.S. Dept. of Justice, Washington, D.C., Jay B. Stephens, U.S. Atty., John D. Bates and William J. Dempster, Asst. U.S. Attys. and Michael F. Hertz and Howard L. Sribnick, U.S. Dept. of Justice, Washington, D.C., on the briefs, for the U.S.

MEMORANDUM

GASCH, District Judge.

This lawsuit was filed by William Juliano on behalf of himself and the United States pursuant to the False Claims Act ("Act"), 31 U.S.C. § 3729 et seq. The Act allows the government to recover funds, civil penalties, and treble damages against those who knowingly present false or fraudulent claims to the federal government for payment or approval. William Juliano, the quitam plaintiff, seeks a judgment against defendants to recover, for the benefit of the United States and himself, damages of more than $75 million (before trebling), plus civil penalties and attorneys' fees. Complaint ¶ 1. Defendants are the Federal Asset Disposition Association ("FADA"), seven members of its Board of Directors, five of its officers or employees, four contractors who did business with FADA, and "John Does 1-1000," who signify various other FADA directors, officers, employees, or agents who are alleged to have "unlawfully benefited from false or fraudulent claims made through and by FADA against United States Government funds."

The complaint was filed in camera and under seal, as the law requires, and copies were served upon the Attorney General and United States Attorney for this District. Approximately four months later, as the law allows, the United States filed a notice that it declined to take over the action as to some defendants, and it moved to dismiss the others. Specifically, the United States moved to dismiss FADA and seven of its directors. Juliano, the qui tam plaintiff, opposes that motion, which is now before the Court.

I. Background

A. Statutory Framework

The term "qui tam" comes from the Latin phrase "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which means "who brings the action for the king as well as for himself."¹ The False Claims Act, 31 U.S.C. § 3729 et seq., was amended in 1986 to give private individuals ("qui tam plaintiffs" or "relators") greater incentives to sue, on the United States' behalf, those who knowingly file false claims against the federal treasury. The 1986 amendments provide for treble damages, awards to the qui tam plaintiff of up to 30% of the proceeds recovered, and reimbursement for reasonable attorneys' fees, expenses, and costs.

Procedurally, the law requires the following. The qui tam plaintiff must bring the action in the name of the government. The complaint, along with "written disclosure of substantially all material evidence and information the person possesses," must be served on the government, which has at least 60 days to decide whether or not to take over the action.² A copy of the complaint must be filed in camera with the Court and remain under seal for at least 60 days. The complaint may not be served on the defendant until the court so orders. In that event, the complaint is unsealed and served upon the defendant, who is given 20 days to respond. Id. §§ 3730(b)(1), (b)(2), (b)(3).

If the government chooses to proceed with the action, it has the primary responsibility for prosecuting the action, although the qui tam plaintiff has the right to continue as a party. Id. §§ 3730(b)(4), (c)(1). The qui tam plaintiff still retains the right to receive from 15% to 25% of the recovery from the action or settlement of the claim. Id. § 3730(d)(1). If the government declines to take over the action, "the person bringing the action shall have the right to conduct the action," and no person other than the government may intervene or bring a related action based on the same underlying facts. Id. §§ 3730(b)(4), (b)(5). Moreover, if the government declines to take over, the qui tam plaintiff is entitled to receive up to 30% of the proceeds recovered, along with attorneys' fees, expenses, and costs. Id. § 3730(d)(2).

B. The Facts

On November 1, 1985, FADA was chartered as a federal savings and loan institution ("S & L") by the Federal Savings and Loan Insurance Corporation ("FSLIC"), an instrumentality of the United States.³ FADA was chartered pursuant to § 406 of the Federal Housing Act, 12 U.S.C. § 1729. FADA was established for the purpose of assisting FSLIC in the management and disposition of assets acquired from the failing S & L's, which from 1983 to 1985 had failed at an accelerating pace. When established, FSLIC provided FADA with $25 million in exchange for all of FADA's stock. It also provided FADA with a $50 million line of credit with the Federal Home Loan Bank in Topeka, Kansas. FSLIC appointed all of FADA's directors, and all profits earned by FADA were the property of FSLIC. In short, FADA was owned and controlled by FSLIC, a government agency.

On August 10, 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, was signed into law. The new law abolished FSLIC and transferred its assets to a fund under the auspices of the Federal Deposit Insurance Company ("FDIC"). The new law also created the Resolution Trust Corporation ("RTC"), an agency of the United States, which was created for the purpose of liquidating FADA within 180 days and managing FADA in the interim.

The complaint in this case alleges that FADA was "unlawfully funded" and created without the approval of Congress, that it conducted its activities unlawfully, that it paid excessive salaries to its employees in violation of several federal laws, that it made false claims against FSLIC for supposed expenses, and that its employees, agents, and subcontractors submitted false claims for reimbursement to be paid by FADA from government funds. Qui tam plaintiff, a New Jersey real estate developer who tried, without success, to purchase FSLIC-owned properties that were under FADA's control, points out that his petitions and grievances concerning FADA assisted Congress in investigating and ultimately abolishing FADA's operations. See House Comm. on Banking, Finance and Urban Affairs, Federal Asset Disposition Association: Report of an Inquiry Into Its Operations and Performance (Mar. 17, 1988), reprinted in 134 Cong.Rec. 2203 (Apr. 20, 1988), attached at Exhibit A to Complaint.⁴ Qui tam plaintiff filed this action under the False Claims Act to recover for the United States the illegal payments alleged above.

II. Discussion

As a threshold matter, qui tam plaintiff argues that the United States' motion to dismiss FADA and its seven named directors is procedurally improper. He argues that the qui tam provisions of the False Claims Act do not contemplate such "partial" government involvement. In his view, the United States must take over or decline to take over the entire action—as set forth in the qui tam complaint—but may not proceed in a "hybrid" fashion by declining to proceed against certain defendants and moving to dismiss the others.

The Court rejects this argument. The Act explicitly states: "The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion." 31 U.S.C. § 3730(c)(2)(A). Although this section, by its placement in the statute, appears to pertain to actions in which the government has already intervened, that distinction is not crucial. The controlling point is that to construe the statute as qui tam plaintiff insists would raise serious constitutional questions. Under our federal scheme, the Attorney General, through those acting in his name, decides whom to prosecute for violations of federal law. The Court will not assume that the qui tam provisions of the False Claims Act were intended to curtail the prosecutorial discretion of the Attorney General. The Act nowhere states that federal prosecutors are confined to proceed in an all or nothing manner, being forced to take or leave the qui tam plaintiff's charges wholesale. Nor does the Act state that the qui tam plaintiff remains free to prosecute any person or entity he wishes, provided the government declines to take over the action. With these considerations in mind, the Court concludes that the government's motion to dismiss certain named defendants is entirely proper.

In this motion to dismiss, the United States makes two arguments. First, it argues that the qui tam plaintiff cannot maintain this suit against FADA because FADA was (and its successor RTC is) a federal agency, and a suit by the United States against one of its agencies for money damages does not meet the case or controversy requirement of Article III. Second, it argues that the seven individual FADA directors should also be dismissed because it is apparent that they are being sued only in their official, not individual, capacities. Finding these arguments valid, the Court grants the United States' motion to dismiss.

A. The Case or Controversy Requirement

The government argues that this action against FADA amounts to an action by the United States against the United States, thereby presenting no justiciable case or controversy. As the government points out, any judgment against FADA ultimately would be paid out of the federal treasury. FADA's assets and liabilities were transferred to the RTC, a federal agency, for the purpose of liquidation. Any excess after liquidation will be turned over to the federal...