U.S. ex rel. Dunleavy v. County of Delaware, 00-3691.

• Decision Date: 29 January 2002
• Docket Number: No. 00-3691.,00-3691.
• Citation: 279 F.3d 219
• Parties: 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.
• Court: U.S. Court of Appeals — Third Circuit

279 F.3d 219

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.

No. 00-3691.

United States Court of Appeals, Third Circuit.

Argued: December 7, 2001.

January 29, 2002.

Regina D. Poserina, (Argued), Upper Darby, PA, Counsel for Appellant.

Francis X. Crowley, (Argued), Elisa Cohen Lacianca, Blank, Rome, Comisky & McCauley, Media, PA, Counsel for Appellees.

Stuart E. Schiffer, Acting Assistant Attorney General, Michael L. Levy, United States Attorney, Douglas N. Letter (Argued), United States Department of Justice, Washington, DC, Counsel for Amicus-Appellant United States of America.

Brian Stuart Koukoutchos, Mandeville, LA, James Moorman, Amy Wilken, Taxpayers Against Fraud, The False Claims Act Legal Center, Washington, DC, Counsel for Amicus Curiae Taxpayers Against Fraud, The False Claims Act Legal Center.

Before: MANSMANN, ROTH and FUENTES, Circuit Judges.

OPINION OF THE COURT

MANSMANN, Circuit Judge.

The appellant, Anthony J. Dunleavy, was a consultant to appellee, Delaware County. In this capacity, Dunleavy advised the County as to the various federal regulatory requirements concerning certain Housing and Urban Development funding grants. Dunleavy sued the County contending that it committed several violations of the False Claims Act, 31 U.S.C. § 3729, et seq. The District Court dismissed Dunleavy's Second Amended Complaint, holding that the County was not amenable to suit under the FCA due to its mandatory punitive damages scheme. We agree. Therefore, we will affirm the Order of the District Court.

I.

This appeal requires us to determine whether a local governmental subdivision can be subject to suit under the False Claims Act when the Act mandates treble damages. We must first determine whether the treble damages mandated by the Act are punitive. If so, we must then decide whether Congress clearly manifested its intention 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 under the Act albeit subject to some lesser quantum of damages. 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 does not personally benefit from the transaction constituting a violation of the Act; therefore, we conclude that no 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 park. In 1979, 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 highway construction. After consulting with Dunleavy, the County decided that it would put the proceeds from the sales of Penza tract land into an interest-bearing account under the assumption that if Penn DOT was unable to use its newly acquired lands for highway construction the County would repurchase the land. On the other hand, if Penn DOT completed its highway construction, the County would return the proceeds from the land sales, plus interest to HUD. After numerous delays, Penn DOT completed its highway construction project in 1991.

During the interim, the County occasionally used funds from the Penza tract account for general County purposes. Dunleavy contends that this was improper, because, in his view, the funds in the account were HUD program funds subject to various reporting requirements with which the County failed to comply. Further, Dunleavy contends that once the County knew that it would not be repurchasing the tract, the County knowingly failed to return the principal and interest earned on the account to HUD. Dunleavy's final contention is that the County fraudulently received additional monies from HUD in fiscal years '92, '93, '94, and '95 because the County took these monies knowing that it committed the previously alleged violations of HUD regulations with respect to Penza Tract funds.

Dunleavy filed this action in 1994 seeking treble damages as required by the False Claims Act. In 1995, the Government declined to intervene, concluding that no fraud had been committed. HUD, however, after a Limited Review 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

The District Court dismissed Dunleavy's Second Amended Complaint for lack of subject matter jurisdiction, a Judgment that we reversed and remanded to the District Court. The County then filed motions to dismiss for failure to state a claim and failure to plead with particularity, 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 decision in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). The District Court concluded that Dunleavy's claim could not proceed in light of Stevens. See United States ex rel. Dunleavy v. County of Delaware, 2000 WL 1522854 (E.D.Pa. 2000). This timely appeal followed.²

We begin our analysis with a brief discussion of the 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, 101 S.Ct. 2748, 69 L.Ed.2d 616 (1981) (holding that a municipality was immune from punitive damages awards under 42 U.S.C. § 1983 because at common law a municipality was absolutely immune from punitive damages and in enacting section 1983 Congress did not clearly manifest an intention to abrogate this common law immunity). Similarly, in Genty v. Resolution Trust Corp., 937 F.2d 899 (3d Cir.1991), we held that municipalities were immune from civil punitive damage awards under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968. In reaching our holding in Genty, we cited Fact Concerts and commented that in order to subject municipalities to punitive damage awards, a statute must expressly provide for such an award against a municipality. See Genty, 937 F.2d at 910. Furthermore, we noted that the rationale for exempting a municipal entity from punitive damages awards is firmly grounded in public policy because "assessing punitive damages against a public entity serves neither the retributive nor the deterrent purposes of ... civil punishment and contravenes public policy by punishing the taxpayers and citizens who constitute the very persons who `are to benefit from the public example which the 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 unless the statutory scheme which creates liability clearly indicates that Congress intended to abrogate the well-settled notion of local governmental common law immunity from punitive damages. See also Doe v. County of Centre, 242 F.3d 437, 456 (3d Cir.2001) (holding that overcoming common law immunity requires a clear expression of congressional intent).

We now turn to the threshold question on this appeal: whether the damages imposed by the Act are punitive. If the damages are properly characterized as punitive, we must next determine whether Congress expressly intended to abrogate local governmental immunity under the FCA. For the reasons that follow, we believe that the mandatory treble damages imposed by the Act are punitive and that Congress did not expressly abrogate local governmental immunity under the FCA.

A.

When first enacted in 1863, the FCA provided for suits to be brought in the name of the Government by private individuals in a qui tam (in the name of the King) action. The Act imposes liability on any person who knowingly presents a false claim to the Federal Government for payment. 31 U.S.C. § 3729(a) (1994). The current version of the Act imposes a civil penalty between five and ten thousand dollars per false claim plus three times the amount of damages which the Government sustains. 31 U.S.C. § 3729(a) (1994). Recently, in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000), the United States Supreme Court examined the issue of whether a State or State agency is a "person" for purposes of the Act. In reaching its conclusion that a State is not within the meaning of "person" as used in the Act and therefore not amenable to suit under the Act by a qui tam realtor, the Court held that the Act imposes treble damages that are "punitive in nature." Id. at 784, 120 S.Ct. 1858. 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 imposed by the False Claims Act are punitive damages.") (citing Stevens, 529 U.S. at 784, 120 S.Ct. 1858).

Nonetheless, Dunleavy contends that the Supreme Court's characterization of the Act's damages provision is obiter dictum. We do not agree. The Stevens majority stated that "[s]everal...