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26 C. Conspiring to commit violations of Sections AâG. This provision requires evidence showing a conspiracy whose purpose is to defraud the Government. The courts have applied general civil conspiracy principles that require that there be an agreement between the conspirators to commit a wrongful act.166 Please note that FERA was expanded to apply potential conspiracy liability to all seven liability provisions.167 In the Wil- kins case, discussed above, the Texas District Court found sufficient grounds for a reasonable inference that there was an agreement to defraud the Gov- ernment.168 The evidence included meetings among the contractor and subcontractors, changes to an REA, and failure to provide a subcontractor with Army Corps of Engineers boring logs. This evidence supported a find- ing of an agreement to defraud. D. Has possession or control of property or money to be used by the Government and knowingly delivers less than all the money or property. This section prohibits a temporary custodian of Government money or prop- erty from withholding or failing to return some or all of the property. Basically, it prohibits conversion of Government property by unauthorized retention. This provision, which has been part of the statute since 1863, appears to have been rarely used. 169 E. Delivering receipts without knowing information is true. This provision, dating back to the original adoption of the Act and not substantively revised in the 1986 or 2009 amendments, prohibits the commis- sion of fraud through the submission of false receipts for substandard or nonexistent products. It does not appear to have been applied very often in recent years.170 F. Knowingly buying or receiving public property from a person who lawfully may not sell. This is an- other little-used provision of the Act that relates back to Civil War concerns about unauthorized sale of Gov- ernment property by contractors or agents.171 G. Knowingly makes or uses a false record or state- ment to reduce an obligation to the Government to pay or transmit money or property. This provision, often referred to as covering "reverse false claims," encompasses a wide variety of cases such as underpay- ment of royalties to the Government for removal of natural resources from federal land,172 failure to report pollution or keep proper records as required by the 166 See SYLVIA, supra note 7, at 125â30, for analysis of the case law on this issue in multiple federal circuits. 167 32 U.S.C.A. § 3729. 168 173 F. Supp. 2d at 639. 169 For discussion of United States ex rel. Aakhus v. Dyn- corp, Inc., 136 F.3d 676 (10th Cir. 1998), a case involving this provision that was dismissed, see § II of this digest at note 28, supra. 170 See SYLVIA, supra note 7, at 136. 171 Id. at 137. 172 United States ex. rel. Johnson v. Shell Oil Co., 183 F.R.D. 204, 207 (E.D. Texas 1998). Clean Water Act to avoid payment of fines and pen- alties,173 and failure to return block grant funding.174 While much of the attention devoted to the FERA amendments to the FCA has focused on the revisions to the provisions of 31 U.S.C. § 3729(a)(1)(A) and (B), it should be noted that FERA amendments to general provisions of the FCA, such as the civil investigative demand provisions, discussed in Section XI(f) of this digest, will have equal applicability to false claims liti- gation under these other liability provisions of § 3729(a)(1)(C) through (G). SECTION VII. PERSONS LIABLE: WHO CAN BE SUED? The FCA, 31 U.S.C. § 3729(a)(1), provides that any "person" who engages in specified types of conduct shall be liable for a false claim. What "persons" are subject to its provisions? False claims litigation has resulted in liability for contractors, subcontractors, material men, vendors, and suppliers who have submitted false claims and false records. FCA actions are not confined to contractors alone. The Federal Government funds myriad types of programs. Federal funds find their way to owners both public and private, design professionals, and construc- tion managers, so all of these groups have potential exposure to FCA liability. Federal Government agencies are immune from FCA liability by virtue of sovereign immunity.175 This ex- emption also applies to FCA actions against federal employees acting within the scope of their employment. Federal officers and employees, like the United States government, are immune from suits based on actions taken in their official capacity, since such suits would in effect be against the United States itself.176 The statute expressly exempts members of the armed forces, Congress, and the judicial branch. The statue also precludes senior members of the executive branch from FCA liability if the action is based upon evidence or information known to the government when the action was brought.177 Federal employees can be sued individually, however, and are subject to potential FCA liability if they acted beyond their official capacity. A. State Liability for FCA In 2001, the U.S. Supreme Court, in Vermont Agency of Natural Resources v. United States ex rel. 173 Pickens v. Kanawha River Towing, 916 F. Supp. 702 (S.D. Ohio 1996). 174 Wilkens ex. rel. United States v. Ohio, 885 F. Supp.1055 (S.D. Ohio 1995). 175 Galvan v. Fed. Prison Indust., Inc., 339 U.S. App. D.C. 248, 199 F.3d 461, 463 (D.C. Cir. l999); for a good discussion of who can be sued under the FCA, see Sink and Pages, supra note 130, at 47â67. 176 See SYLVIA, supra note 7, at 231 n.5. 177 31 U.S.C. § 3739(e)(2)(A).
27 Stevens, determined that Congress did not intend state governments to fall within the definition of "person" in the FCA, when the action is initiated by a private person.178 That qui tam litigation was commenced by a relator alleging that the State of Vermont had submit- ted false claims to the Environmental Protection Agency (EPA) in connection with federal grant pro- grams the EPA administered. Whether a public entity is the "state," however, can often be a debatable ques- tion. Since that decision, courts have distinguished between independent agencies and state departments in determining whether they are state entities.179 The Stevens case answered one question, that the state is not a "person" for cases initiated by private persons, but it did not answer the question of whether the state can be a "person" when the U.S. Govern- ment initiates a case under the FCA. In July 2009, the DOJ announced a $450 million settlement with New York State and the City of New York to settle allega- tions of false claims for Medicaid funds. The allega- tions involved the Center for Medicare and Medical Services within the New York State Department of Health and Human Services., charging specifically that from 1990 to 2001, the state knowingly failed to pro- vide proper guidance to districts and counties, failed to monitor the districts and counties for compliance as required by the Medicaid program, and passed claims to the federal government for services that it knew were not covered or properly documented. In addition, the settlement settled allegations concerning New York City claims involving speech services.180 The set- tlement did not admit liability on behalf of the city and state.181 Like federal employees, state employees acting within the scope of their official capacity are not subject to FCA liability. B. Local Agencies and the FCA Unlike federal and state agencies and officials, mu- nicipal public agencies and employees acting within their official capacity can be subject to FCA liability, however, since they are "persons" within the meaning of the FCA. In a Chicago case, 182 a former research direc- tor commenced a qui tam action under the FCA against a municipal hospital, alleging that it had fraudu- lently obtained federal grants. The allegations involved the New Start program for drug-dependent women, and concerned violations of the terms of the grant and federal regulations. The alleged violations included 178 529 U.S. 765, 120 S. Ct. 1858 (2000). 179 See SYLVIA, supra note 7, at 235 nn.13â14. 180 Press Release, U.S. Department of Justice, New York State and New York City to Pay $540 Million to Settle Al- legations of False Claims for Medicaid Funds (July 21, 2009), available online at http://www.justice.gov/opa/pr/ 2009/July/09-civ-709.html (last accessed June 12, 2010). 181 Id. 182 United States ex rel. Chandler v. Cook County, 277 F.3d 969 (7th Cir. 2002). submitting false progress reports with information on "ghost" program participants who did not exist, failing to follow mandatory protocols for research, and failing to keep accurate records. The court ruled that local governments, unlike states, were persons under 31 U.S.C. § 3729 and would be included within the defi- nition of persons, which was affirmed by the Supreme Court.183 In addition, municipal employees acting within their official capacities, unlike state employees, are subject to false claim liability. Municipal owners also face a risk of vicarious poten- tial false claim liability, based upon the activities of their employees or agents. Several cases have found liability even if the owner was not aware of the em- ployees' or agents' actions.184 In United States v. In- corporated Village of Island Park, the court focused on the activities of a village clerk, who was responsible for administering a municipal housing program. The clerk engaged in a fraudulent scheme in administering the housing program by giving advance notice to cer- tain applicants in violation of the "first come, first served" provisions of the program. This behavior was found to be a false claim violation. The village claimed ignorance of this scheme, but acknowledged that pro- gram administration was within the scope of the clerk's duties. The court determined that the village could be held liable under the FCA if the employee was acting within the scope of authority, even though the village received no benefit from the employee's con- duct.185 Additional case examples include fraudulent sub- mission by local agencies of various types of false information, involving such things as cost allocation for a flood control project, 186 and statements made to sup- port loan or grant approval applications.187 C. Corporations Corporations are "persons" under the FCA. The threshold issue is whether the corporation is liable for the acts of its agents. Under general principles of the law of agency, a corporation may be held liable for the conduct of an authorized agent when the agent is act- ing in the corporation's behalf and within the scope of the agent's authorization. D. Liability for Design Professionals Design professionals can also face false claim li- ability. Architects and engineers frequently have rela- tionships with federal agencies that can subject them to FCA liability. Overbilling and false certifications by de- 183 Cook County v. United States ex rel. Chandler, 538 U.S. 119, 123 S. Ct. 1239 (2003). 184 See Sink & Pages, supra note 130, at 80. 185 Village of Island Park, 888 F. Supp. 419 (E.D.N.Y. 1995) at 439â40. 186 United States ex rel. Hagwood v. Sonoma County Wa- ter Auth., 929 F.2d 1416 (9th Cir. 1991). 187 United States v. Neifert-White, 390 U.S. 228, 88 S. Ct. 959 (1968).
