U.S. ex rel. Long v. SCS Business & Technical Institute, Inc.

• Decision Date: 02 April 1999
• Docket Number: 98-5149 and 98-5150,Nos. 98-5133,s. 98-5133
• Citation: 335 U.S.App.D.C. 331,173 F.3d 870
• Parties: 15 IER Cases 18 UNITED STATES of America, ex rel. Ronald E. LONG, Appellee/Cross-Appellant, v. SCS BUSINESS & TECHNICAL INSTITUTE, INC., et al., Appellees State of New York, Appellant/Cross-Appellee, Attorney General of the United States, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 870

173 F.3d 870

15 IER Cases 18

UNITED STATES of America, ex rel. Ronald E. LONG, Appellee/Cross-Appellant, v. SCS BUSINESS & TECHNICAL INSTITUTE, INC., et al., Appellees

State of New York, Appellant/Cross-Appellee,

Attorney General of the United States, Intervenor.

Nos. 98-5133, 98-5149 and 98-5150.

United States Court of Appeals, District of Columbia Circuit.

Argued Jan. 14, 1999.

Decided April 2, 1999.

Appeals from the United States District Court for the District of Columbia (92cv02092)

Howard L. Zwickel, Assistant Attorney General, State of New York, argued the cause for appellant/cross-appellee. With him on the briefs was Peter H. Schiff, Deputy Solicitor General.

Ronald A. Shems, Assistant Attorney General, State of Vermont, argued the cause for amici curiae State of Vermont, et al. With him on the brief was William H. Sorrell, Attorney General.

Douglas N. Letter, Appellate Litigation Counsel, United States Department of Justice, argued the cause for United States as intervenor. With him on the briefs were Frank W. Hunger, Assistant Attorney General, and Wilma A. Lewis, United States Attorney. Richard L. Cys entered an appearance.

Stuart F. Pierson argued the cause and filed the briefs for appellee/cross-appellant.

Jill A. Dunn was on the notice of joinder in brief for appellant Joseph P. Frey.

Mark B. Rotenberg was on the brief for amicus curiae The Regents of the University of Minnesota.

Before: WALD, SILBERMAN, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

The question presented in this appeal is whether states are defendant persons under the False Claims Act. Contrary to the decisions of the Second and Eighth Circuits, see United States ex rel. Stevens v. Vermont Agency of Natural Resources, 162 F.3d 195 (2d Cir.1998); United States ex rel. Zissler v. Regents of the Univ. of Minn., 154 F.3d 870 (8th Cir.1998), we hold that they are not.

I.

Ronald Long was the Coordinator of Investigations and Audit for the Bureau of Proprietary School Supervision of the New York State Department of Education, the state agency that regulates proprietary schools. In 1989, he conducted an investigation of SCS Business and Technical Institute, which operates five business and technical schools in New York City, and discovered that SCS allegedly had made false and fraudulent claims to the federal government in return for federal funding for students attending SCS schools under tuition assistance programs. He also determined, according to his complaint subsequently filed in district court, that Joseph P. Frey, his supervisor at the Bureau, and other officials in the State Department of Education, knew about SCS' fraudulent claims and conspired with SCS to conceal the fraud in order to secure further federal funding for SCS. They did so because, after a 1990 change in New York State law, the Bureau's funding depended in substantial part on tuition assessments and fines that SCS paid to the Bureau. Long's theory was that since the Bureau received a share of the federal funds that SCS fraudulently obtained from the United States, the Bureau had every incentive to see that fraud continue. He claims that after he reported the results of his investigation to state and federal authorities, Frey and other state officials took actions to limit and subvert his investigation.

Long was taken off the investigation and then fired in 1992, shortly after SCS settled administrative charges brought against one of SCS' schools by the state education department. According to him, the settlement agreement, which did not benefit the United States in any way and grossly understated the extent of SCS' fraudulent practices, was a sweetheart deal that was but another instance of the state's conspiracy with SCS to conceal and perpetuate SCS' fraud--a conspiracy that he alleges continued until SCS filed for bankruptcy in 1995. He alleges that after the settlement, New York ignored evidence of SCS' continuing fraud and falsely represented to the United States that SCS' fraud had ceased and that it was actively monitoring SCS.

Long filed a complaint in the district court against Frey, other state officials, the State of New York, SCS, and various SCS officials. He brought his case as a qui tam relator under the False Claims Act, 31 U.S.C. §§ 3729 et seq. (1994), suing in the name of the United States for the benefit of the United States and himself. He contended that the state defendants violated the Act by conspiring with SCS to have false claims submitted to the United States and by causing false claims to be submitted. The state defendants were also alleged to have violated the whistle-blower provision of the Act by harassing and wrongfully discharging Long, and to have been unjustly enriched under state common law. The United States (the government) subsequently intervened in the case against the SCS defendants, but declined to intervene against the state defendants. The state defendants moved to dismiss the complaint on the grounds that states are not defendant persons under the Act and that, even if they were, the Eleventh Amendment to the United States Constitution would bar the suit. It was also asserted that Long's suit against the state defendants was barred by the Act because the allegations of fraud had been publicly disclosed and because Long was not an "original source" of the information.

The district court denied in part the state defendants' motion to dismiss, concluding that states are defendant persons under the Act and that the Eleventh Amendment does not bar the suit. See United States ex rel. Long v. SCS Bus. & Technical Inst., 999 F.Supp. 78 (D.D.C.1998). ¹ The state defendants filed an interlocutory appeal challenging the district court's rejection of their Eleventh Amendment defense, over which we have jurisdiction under 28 U.S.C. § 1291 (1994) and the collateral order doctrine. See Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144-45, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993). We exercise pendent appellate jurisdiction over the "inextricably intertwined" statutory question, Gilda Marx, Inc. v. Wildwood Exercise, Inc., 85 F.3d 675, 679 (D.C.Cir.1996) (quoting Swint v. Chambers County Comm'n, 514 U.S. 35, 51, 115 S.Ct. 1203, 131 L.Ed.2d 60 (1995)), of whether states are defendant persons under the Act. ² Thirty-six states join as amici curiae in support of appellant New York's statutory and Eleventh Amendment arguments, and appellee Long, the relator, is joined by the government as intervenor defending the constitutionality of the Act.

II.

To persuade us to uphold the decision below, appellees Long and the government must demonstrate that the district court correctly interpreted the term "person" (liable for making a false claim) in § 3729(a) of the False Claims Act to include states. ³ In that respect, they have no little burden because the statute does not define the term "person" and, as the Supreme Court has remarked before, "in common usage, the term 'person' does not include the sovereign, [and] statutes employing the [word] are ordinarily construed to exclude it." Will v. Michigan Dep't of State Police, 491 U.S. 58, 64, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989) (quoting Wilson v. Omaha Indian Tribe, 442 U.S. 653, 667, 99 S.Ct. 2529, 61 L.Ed.2d 153 (1979) (quoting United States v. Cooper Corp., 312 U.S. 600, 604, 61 S.Ct. 742, 85 L.Ed. 1071 (1941))) (alteration in original); see also, e.g., Georgia v. Evans, 316 U.S. 159, 161-62, 62 S.Ct. 972, 86 L.Ed. 1346 (1942). ⁴

This "often-expressed understanding," Will, 491 U.S. at 64, 109 S.Ct. 2304, is not a "hard and fast rule of exclusion," Wilson, 442 U.S. at 667, 99 S.Ct. 2529 (quoting Cooper, 312 U.S. at 604-05, 61 S.Ct. 742), and depends in important part on the "context, the subject matter, legislative history, and executive interpretation," id.--which sounds like rather garden variety statutory interpretation. But if the Will-Wilson rule has any meaning at all, it must create at minimum a default rule; states are excluded from the term person absent an affirmative contrary showing. See International Primate Protection League v. Administrators of Tulane Educ. Fund, 500 U.S. 72, 83, 111 S.Ct. 1700, 114 L.Ed.2d 134 (1991) (noting that the "conventional reading" of person to exclude states may be "disregarded" if there is an affirmative showing of Congress' intent to include them). This interpretive principle, the Supreme Court tells us, is "particularly applicable" where, as here, "it is claimed that Congress has subjected the states to liability to which they had not been subject before." Will, 491 U.S. at 64, 109 S.Ct. 2304; see also Wilson, 442 U.S. at 667, 99 S.Ct. 2529. We think, therefore, that the district court had it backwards when it concluded that it found "no indication that Congress sought to create an exception for state actors to perpetrate fraud upon the federal government." Long, 999 F.Supp. at 85. ⁵

Our review of the "legislative environment," Evans, 316 U.S. at 161, 62 S.Ct. 972, leads us to doubt appellees have met their burden. As we noted, neither the Act as currently written nor as originally passed in 1863 defines the term person. Indeed, the original Act distinguished for punishment purposes between fraudulent acts committed by "any person in the land or naval forces of the United States," Act of March 2, 1863, 37th Cong., 3d Sess., ch. 67, § 1, 12 Stat. 696, and "any person not in the military or naval forces of the United States," id. at § 3, 12 Stat. 698. Since states would not have been thought to fall within either classification, that Act can hardly be said to supply facially the requisite affirmative showing that the Will-Wilson default rule requires. ⁶

Appellees nevertheless invoke the broad purposes and legislative history of the Civil War statute. We think that is not helpful because, as the Supreme Court has said, Congre...