U.S. ex rel. Satalich v. Los Angeles

Decision Date31 August 2001
Docket NumberNo. CV 00-08882-GAF (AIJx).,CV 00-08882-GAF (AIJx).
Citation160 F.Supp.2d 1092
CourtU.S. District Court — Central District of California
PartiesThe UNITED STATES of America ex rel. Miro SATALICH, Plaintiff, v. The CITY OF LOS ANGELES, Metcalf & Eddy Services, Kiewitt Pacific Company, and Marie C. Scully, Defendants.

Miro J. Satalich, Rancho Palos Verdes, CA, Pro se.

Leslie E. Brown, Los Angeles City Attorney's Office, Labor Relations, Vivienne Alexis Swanigan-Crenshaw, Los Angeles City Attorney's Office, General Counsel Div., Robert Cramer, Los Angeles City Attorney's Office, Los Angeles, CA, Thomas S. Salinger, Treg A. Julander, Rutan & Tucker, Costa Mesa, CA, Patrick John Duffy, III, Steven B. Copeland, Steven Y. Han, Monteleone & McCrory, Los Angeles, CA, for defendants.


FEESS, District Judge.


This is a qui tam action in which Plaintiff, a former Wastewater Electrician for the City of Los Angeles ("the City"), claims that the City and various independent contractors conspired to violate a number of federal statutes including the False Claims Act ("FCA"), 31 U.S.C. § 3729, et seq., and a federal consent decree, in connection with the renovation and operation of the Hyperion Wastewater Treatment Plant. The City has moved to dismiss Plaintiff's pro se Complaint. In a separate order, dated August 28, 2001, the Court ruled on all issues presented by the City's Motion to Dismiss. However, because Plaintiff's FCA causes of action raise important issues not yet clearly resolved by the courts, this Court takes up those issues in this separate memorandum.

The FCA creates two different causes of action that may be brought by an individual plaintiff. First, the FCA authorizes individuals, acting in the name of the United States, to bring suit against "any person" who attempts to obtain federal funds through the submission of false or fraudulent claims for payment. See 31 U.S.C. §§ 3729(a), 3730(b)(1). Second, to encourage and protect persons who bring or assist in the investigation and prosecution of such actions, section 3730(h) provides a cause of action to any person whose "employer" discriminates against him in any way (including termination, retaliation, demotion and harassment) because of lawful acts done by the employee in furtherance of an FCA investigation or lawsuit. See 31 U.S.C. § 3730(h). This case presents two questions with respect to these statutes: 1) is the City a "person" within the meaning of section 3729 and therefore subject to suit under the FCA; and, 2) irrespective of whether the City is a "person" under section 3729, is the City an "employer" within the meaning of section 3730(h) and therefore subject to suit for adverse employment actions taken against persons within the protected class?

To answer the first question, the Court must interpret both the text of section 3729, and the language of the Supreme Court's decision in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 787, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). In Stevens, the Supreme Court held that states are not encompassed within the meaning of "person" under section 3729 and therefore cannot be sued for alleged FCA violations. In contrast, numerous other cases have held that private corporations are included within the meaning of "person" and can be sued under the FCA. Since municipalities are both governmental entities and, typically, "corporations" under state law, the Court must determine whether the City is more analogous to a state which is immune from FCA qui tam actions, or a private corporation, which is not. Having surveyed the relevant authorities, the reasoning employed in Stevens persuades the Court that municipalities are immune from FCA lawsuits. The statute is essentially punitive in nature, and its enforcement against municipalities would place an undue burden on the very taxpayers for whom it was designed to protect.

With respect to the second question, the Court concludes that municipalities are "employers" under section 3730(h). Public policy favors the protection of whistleblowers, and any action by any employer which would chill the disclosure of fraud against the government should be discouraged, notwithstanding the City's immunity from section 3729 liability. The present case, which involves fraud allegations against the City (which is immune) and private contractors (who are not) presents a prime example of why a municipality should be liable for discriminatory conduct against whistleblowers. Moreover, because the Court concludes that section 3730(h), unlike section 3729, does not impose punitive damages, the policy considerations that warrant municipal immunity from section 3729 litigation are inapplicable to claims brought under section 3730(h). Thus, Plaintiff may pursue claims against the City under section 3730(h).


The issues presented in this case arise from the construction of wastewater treatment facilities, primarily financed with federal funds, pursuant to the terms of a consent decree between the federal government and the City. The following is a brief synopsis of the relevant facts alleged in Plaintiff's pro se Complaint.


On June 19, 1987, United States District Judge Harry Pregerson signed a consent decree, later amended, that settled litigation between the United States and the City in which the federal government accused the City of discharging untreated sewage into Santa Monica Bay. Under the terms of the Amended Consent Decree ("the ACD"), the City agreed to construct an "energy recovery system" and develop a "complete waste disposal process." (ACD at 7-8.) The ACD also required the City to hire and train a certain number of plant operators, maintenance workers, and engineers. (Id. at 11-12.)

The City hired Defendant Kiewitt Pacific Company ("Kiewitt") to construct two phases of the new wastewater treatment facilities and selected Defendant Metcalf & Eddy Services ("Metcalf") to develop and implement the training program for operators of the City's new facilities. (See Complaint ("Compl.") ¶¶ 16-18.) Thereafter, the City retained the Marie C. Scully Group ("MCS" or "the MCS Group") to supervise the training programs developed by Metcalf. (Id.)

According to Plaintiff, the United States Department of the Interior provided eighty-percent of the funding necessary to complete the new facilities; the City and the State of California financed the remaining twenty-percent. (Id. ¶¶ 13-15.) Plaintiff avers that the approximate cost of the training program was $20,000,000.00. (Id. ¶ 29.)


From March 30, 1987 to May 10, 1995, when much of the work on these contracts was performed, qui tam relator Miro J. Satalich ("Plaintiff") worked as a "Wastewater Electrician II" for the City. (Id. ¶ 24.) Plaintiff served in the Human Resources Development Division Training Section ("HRDD") at the Hyperion Wastewater Treatment Plant in Vista Del Mar, California. (Id. ¶¶ 24-25.) From that vantage point, Plaintiff claims to have observed evidence of fraud against the United States, although the specifics of these observations are unclear.

To the extent Plaintiff's theory of FCA liability is discernable, he appears to claim that the City conspired with the other named Defendants, and submitted claims to the United States for compensation, despite the fact that the subcontractors the City hired were failing to deliver the training materials required by the ACD. (Id. ¶ 41.) For instance, Plaintiff alleges that the City allowed Metcalf to deliver less property and training than required by the ACD. (Id. ¶ 33.) Moreover, Plaintiff accuses Metcalf of submitting "plagiarized" maintenance training lesson plans, and failing to develop a comprehensive training program for all of the water treatment plants contemplated by the ACD. (Id. ¶ 34.)

Plaintiff also alleges that certain City employees misled Los Angeles City Council members by overstating MCS's consulting capabilities to ensure that the City awarded MCS a multi-million dollar training equipment contract for which it was not qualified. (Id. ¶ 39.) Once the City awarded the contract to MCS, Plaintiff claims that MCS failed to perform under the terms of the agreement. From October 1991 through October 3, 1996, City managers allegedly accepted inferior and outdated lesson plans for the "Hyperion C-109 full secondary project." (Id.) Moreover, Plaintiff alleges that MCS did not produce one training manual capable of being used in the field to repair, trouble-shoot or maintain the "newly-installed C-109." (Id.) Plaintiff claims that numerous City officials, as well as the staff in the "Personnel Department," were notified of the City's "fraudulent activities," but that everyone adhered to an "unwritten code of silence." (Id. ¶ 40.)


Plaintiff alleges that the City "harassed, threatened, [and] intentionally falsified ...work records to take steps to fire [Plaintiff]" in retaliation for Plaintiff's investigation and reporting of the allegedly fraudulent activities set forth above. (Id. ¶ 24.) Specifically, Plaintiff claims that after the City became aware of his investigatory efforts, it engaged in a barrage of adverse employment actions, which included: subjecting Plaintiff to bogus disciplinary proceedings (id. ¶ 53); issuing unfounded oral and written reprimands against Plaintiff (id. ¶¶ 28, 56); refusing to acknowledge Plaintiff's grievances or his reports to the "Ethics Committee" (id. ¶¶ 54-55); ignoring Plaintiff's treating doctors' recommendations that he seek vocational rehabilitation (id. ¶ 58); and transferring Plaintiff to "the dirtiest facility at Hyperion." (Id.)

By May of 1995, Plaintiff claims that he feared for his life, and began experiencing physical side-effects from the stress induced by the City's harassment. O...

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