UNITED STATES of America ex rel. Janet CHANDLER, Ph.D., Plaintiff-Appellant, Cross-Appellee, v.
Nos. 00-4110 & 01-1810
United States Court of Appeals For the Seventh Circuit
ARGUED SEPTEMBER 5, 2001--DECIDED January 22, 2002
Before FLAUM, Chief Judge, and POSNER and RIPPLE, Circuit Judges.
RIPPLE, Circuit Judge. Janet Chandler, Ph.D., brought this quitam action as relator on behalf of the United States under the False Claims Act (“FCA“),
Cook County also appealed or, in the alternative, requested mandamus, from the district court‘s discovery order requiring Cook County to turn over certain drug treatment records. We believe the district court‘s discovery order does not comply with federal privacy regulations. Therefore mandamus will issue requiring the district court to vacate its discovery order and to proceed in conformity with this opinion.
I
BACKGROUND
A. Cook County as a Party
Dr. Janet Chandler brought this quitam action against Hektoen and Cook
On September 1, 1993, Dr. Chandler was hired as New Start‘s project director. While in this post, Dr. Chandler came to believe that the defendants were violating the terms of the grant and federal regulations. Further, she believed they were misrepresenting the success of the New Start program and submitting false progress reports to the government, which included information on “ghost” program participants who did not exist. Dr. Chandler alleged that CCH did not follow mandatory protocol for research on human subjects and for dispensing methadone to pregnant women, did not obtain informed consent from study participants, did not obtain thorough medical or drug histories, provided substandard care, failed to keep accurate records and failed to randomize participants.
In 1994, Dr. Chandler began to speak up, informing physicians at CCH that she was concerned with the handling of the New Start program. She told them that the program was violating the terms of the grant, the assurance of compliance plan and pertinent federal regulations. Ultimately Dr. Chandler was discharged and brought this action. She alleged that CCH retaliated against her by revoking some of her responsibilities and then firing her in January 1995, after she was accused of lying in her report to NIDA on the study‘s alleged failure.
Cook County moved to dismiss on the ground that it was not a “person” within the meaning of the False Claims Act. See
In 2000, the Supreme Court decided Vermont Department of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). Stevens held that states were not persons within the meaning of the FCA and concluded that the treble damages provision was punitive. See id. at 783-84. Cook County filed a motion to reconsider in light of Stevens. See Chandler v. Hektoen Inst., 118 F. Supp. 2d 902, 902 (N.D. Ill. 2000) (Chandler II). The district court found nothing in Stevens to “alter its conclusion that the County is a ‘person’ for purposes of the FCA” but found that “it is quite clear that under Stevens the County is immune from the imposition of punitive damages.” Id. at 903. The court dismissed the case against Cook County.
B. Discovery
Dr. Chandler brought this action on January 27, 1997. She sought the records of the New Start program in discovery. The voluminous records contained inter alia physicians’ notes, consent forms, medical records, patient questionnaires and drug test results. The County resisted, pointing to federal regulations requiring researchers to keep drug and alcohol treatment records confidential. On January 7, 1999, the district court granted Dr. Chandler‘s motion to compel and ordered Cook County to produce the records with patient-identifying information redacted. Notice was sent to the former New Start patients, informing them that “Janet Chandler has been given permission by the Court to review your New Start records, so long as all the identifying information and other personal information on the records is blacked out.” R.72, Ex.B. The notice also provided the former patients with forms to reply if they wanted to object to the disclosure or if they consented to the disclosure of identifying information. The patients were informed that if they did nothing, the redacted records would be disclosed to Dr. Chandler and her representatives.
Over the next year or so, the parties were contentious about the quality of the redacted records. Dr. Chandler‘s attorneys claimed that many records were missing or incomplete. There was a problem with the index created by Cook County to obscure patient identifying information in compliance with the court‘s discovery order. The court ordered the County to produce a “key” to cross-reference original and substituted file numbers because the substituted file numbers could not be linked with a large quantity of study data. In early 2001, Dr. Chandler went back to the district court seeking access to the unredacted patient records.
On March 5, 2001, the district court ordered Cook County to turn over unredacted patient records to Dr. Chandler‘s representatives and asked the parties to draft protective orders. On March 14,
II
DISCUSSION
The False Claims Act establishes civil penalties for “[a]ny person” who, inter alia, “knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval,” or who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid.”
A.
We must determine whether Cook County is a “person” within the meaning of the FCA.4
We begin, as always, with the text of the statute. Congress provides no definition of “person” within
The structure of the statute does not appear to bar a finding that counties may be sued under the FCA. The FCA creates a mechanism designed to discover and correct fraud against the federal government. In a quitam suit, the relator must inform the Department of Justice of his intention to sue and must keep his suit under seal for sixty days while the Justice Department decides whether to prosecute the action itself.5 The parties have not suggested anything in the structure of the FCA, when read as a whole, that would require anything other than a straight-forward reading of the text.
The 1986 amendments to the FCA did not change the meaning of “person” nor did these legislative changes explicitly include or exclude suits against municipalities. However, three of the changes to the FCA made by Congress in 1986 are relevant to this case. That year, Congress adopted what is now
The CID provision was added to provide the Justice Department with a new weapon to discover fraud and investigate false claim suits. That section defines “person” as “any natural person, partnership, corporation, association, or other legal entity, including any State or political subdivision of a State.”
Further, the legislative history of the 1986 amendments, in particular that accompanying the whistleblower provision, makes it likely that the Congress, when voting on the amendments, was aware that the FCA might reach municipalities. The Senate Judiciary Committee‘s report states that “[t]he False Claims Act reaches all parties who may submit false claims. The term ‘person’ is used in its broad sense to include partnerships, associations, and corporations . . . as well as States and political subdivisions thereof.” S. Rep. 99-345 at 8 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5273.8 In discussing the whistleblower provision, the Committee report defines “employers” to “include public as well as private sector entities.” See id. at 34-35. Unless municipalities are subject to suit under the FCA, Congress would have no reason to be concerned that municipalities might retaliate against their employees for bringing FCA claims. Given that states are excluded from the definition of “person” within the FCA, the only public entities remaining are municipal corporations and other political subdivisions of states which are not arms or agencies of state government.
The 1986 amendments also added several provisions which deter frivolous suits and give courts the discretion to restrict a relator‘s participation in suits when the Government has intervened. The district court can restrict the relator‘s participation if he remains in the case for purposes of harassment,
Congress also changed the knowledge element of the offense, making success more likely. Some confusion had arisen about the standard of intent necessary for a finding of liability under the FCA. Congress adopted
We must conclude that a study of the text and structure of the Act, supported by the available legislative history, leads to the conclusion that Congress intended to include counties within the meaning of “person.”
B.
Cook County nevertheless urges that we are prohibited from interpreting
We begin with the Supreme Court‘s decision in City of Newport v. Fact Concerts, 453 U.S. 247 (1981). See Doe v. County of Centre, 242 F.3d 437, 454 (3d Cir. 2001) (using City of Newport to analyze whether municipalities were immune from punitive damages in suits brought under the Americans with Disabilities Act and the Rehabilitation Act). In Newport, the Court was called upon to decide whether a municipality was immune from punitive damages under
Compensatory damages, designed to make the victim of unconstitutional behavior whole, are a permissible basis of recovery and, although punitive damages, properly calculated, serve many salutary purposes when a truly egregious situation is presented, they remain a windfall for the fully compensated plaintiff. There is always the danger that the “deep pocket” of the municipality‘s tax base will tempt a jury to succumb to an unprincipled determination. See Newport, 453 U.S. at 270. In light of these factors, the Court in Newport found no basis for disregarding the presumption that a municipal entity ought not be subjected to such a liability.
In Newport, the court identified a “two-part approach” for “scrutinizing a claim of immunity proffered by a municipality.” Id. at 259. Such a claim requires “careful inquiry into considerations of both history and policy” to determine “both the policies that it [the immunity] serves and its compatibility with the purposes” of statutes, id. Earlier, in Owen v. City of Independence, 445 U.S. 622, 635 (1980), the Court had noted that “the question of the scope of a municipality‘s immunity from liability . . . is essentially one of statutory interpretation.” For instance, in the context of
Given the Supreme Court‘s analysis in Newport, we must examine the purpose of municipal immunity from punitive damages to determine if it is consistent with
However, not all punitive damage regimes are identical. Indeed, there are important differences between those available under
The FCA damages scheme mandated by Congress is not divided into compensatory and punitive damages. Under the FCA, damages are limited to $10,000 per claim plus three times the amount of the false claims.
The Supreme Court has noted that the definition of “person” has remained unchanged since the adoption of the FCA in 1863. See Stevens, 529 U.S. at 782-83. As noted above, counties were subject to suit in 1863. Were we to hold counties immune from the FCA‘s damages scheme, we would frustrate the clear intention of Congress. The original FCA damages regime was remedial. See United States v. Bornstein, 423 U.S. 303, 315 (1976). In
Congress was aware of the Court‘s decisions in Newport and Bornstein; it was only in 2000 that the Supreme Court characterized the FCA‘s remedy as punitive. Congress also was aware of the presumption that municipalities are included within the meaning of the term “person,” see Monell v. Dep‘t of Soc. Serv., 436 U.S. 658, 685-89 (1978), and that municipalities are treated differently from states within our constitutional system, see Comm. Communications Corp. v. Boulder, 455 U.S. 40, 51-53 (1982), superseded by
Dr. Chandler and the United States suggest that, if we hold Cook County to be immune from punitive damages, we ought to hold further that Cook County may still be sued under the FCA, but be held to a lower measure of damages. In our view, the legislative record affords us no justification for undertaking such judicial blue-penciling of the statute. Congress has provided one remedy for violations of the False Claims Act. If municipalities are immune from punitive damages, then they are, effectively, immune from liability under the FCA. There is no indication that Congress intended the FCA to apply to municipal entities but at a lower penalty. See United States ex rel. Garibaldi v. Orleans Parish Sch. Bd., 244 F.3d 486, 493 (5th Cir. 2001). As we have just noted, the penalty scheme is a carefully measured approach by Congress designed to impose a penalty compatible with the objectives of the Act. We therefore must either apply the entire statute to municipal entities or declare them to be exempt under the FCA.
Billions of dollars flow from the federal government to municipalities each year. Congress, in creating, in 1863, and then strengthening, in 1986, a comprehensive mechanism designed to remedy fraud against the federal government clearly determined that recipients of federal funds must be subject to such a deterrent. Given this legislative judgment, municipalities’ common-law immunity from suit is inconsistent with Congress’ purpose in adopting the FCA. Unlike
C.
Nevertheless, Cook County contends, the Supreme Court‘s decision in Stevens
The central holding of Stevens is that states are not within the FCA‘s definition of “person” because of the “longstanding interpretive presumption that ‘person’ does not include the sovereign.” Stevens, 529 U.S. at 780. “The presumption is ‘particularly applicable where it is claimed that Congress has subjected the States to liability to which they had not been subject before.‘” Id. at 781 (quoting Will v. Mich. Dep‘t of State Police, 491 U.S. 58, 64 (1989)). This presumption is applied to protect the states because of their dignity as sovereigns within our system of federalism. It is akin to the clear statement rule which requires “that if Congress intends to alter the usual constitutional balance between the States and the Federal Government, it must make its intention to do so unmistakably clear in the language of the statute.” Will, 491 U.S. at 65 (internal citations and quotations omitted). The presumption cuts the other way for municipalities. See Monell v. Dep‘t of Soc. Serv., 436 U.S. 658, 685-89 (1978). The Supreme Court has never imposed this same requirement on Congressional efforts to make municipal entities amenable to federal legislation. Cf. Bd. of Trustees v. Garrett, 531 U.S. 356, 368-69 (2001) (discussing the different requirements for imposing federal liability on states and municipalities); Monell, 436 U.S. at 701 (stating that absent a clear statement to the contrary, municipalities were presumptively included within the meaning of the term “person“). Such constitutional concerns applicable to states do not apply to municipalities. Therefore, there is no such rule of construction applicable here. Cf., Garrett, 531 U.S. at 368-69 (“[Cities and counties] are subject to private claims for damages under the ADA without Congress’ ever having to rely on sec. 5 of the Fourteenth Amendment to render them so. It would make no sense to consider constitutional violations on their part . . . when only the States are the beneficiaries of the Eleventh Amendment.“); Alden v. Maine, 527 U.S. 706, 756 (1999) (“The second important limit to the principle of sovereign immunity is that it bars suits against States but not lesser entities. The immunity does not extend to suits prosecuted against a municipal corporation or other governmental entity which is not an arm of the State.“). The rationale of Stevens simply cannot support the interpretation that Cook County wishes to place on it.
Accordingly, counties are not only amenable to the FCA but also are subject to the same penalties as other defendants.
III
A.
In light of the above discussion, Cook County will once again be a party to this action. We therefore must address its appeal of the district court‘s discovery order of March 14, 2001. Normally, discovery rulings are unappealable, because the disadvantaged party has a remedy at the end of the district court proceedings.11 This court has held that a party seeking to obtain appellate review of a discovery order before judgment should accept a contempt citation, and then appeal. See Allendale Mutual Ins. Co. v. Bull Data Sys. Inc., 32 F.3d 1175, 1179 (7th Cir. 1994). “[R]equiring the complaining party to take some risk--to back up his belief with action--winnows weak claims.” Reise v. Bd. of Regents, 957 F.2d 293, 295 (7th Cir. 1992). However, in extraordinary circumstances, mandamus may be an appropriate remedy where the petitioner can show “irreparable harm . . . and a clear right to the relief sought.” In re Sandahl, 980 F.2d 1118, 1119 (7th Cir. 1992). We believe Cook County has made such a showing here.
“Mandamus may not be used to get around the limitations on the appealability of interlocutory orders.” Mulay Plastics, Inc. v. Grand Trunk Western R.R. Co., 742 F.2d 369, 371 (7th Cir. 1984). However, the circumstances here present the necessary predicate for such an extraordinary remedy. The district court‘s discovery order implicates regulations protecting the confidentiality and integrity of federally-funded substance abuse programs. See
B.
We therefore turn to an assessment of Cook County‘s contention that the district court‘s order is violative of the statute and regulations.
Federal law restricts the disclosure of information obtained “in connection with the performance of any program or activity relating to substance abuse education, prevention, training, treatment, rehabilitation or research” conducted by the United States or with federal money.
The regulations divide information into two categories--confidential and non-confidential communications. The New Start records contain both. In both situations, when a court is preparing to order disclosure, notice must be sent to the patients and they must be afforded “[a]n opportunity to file a written response to the application, or to appear in person, for the limited purpose of providing evidence on the statutory and regulatory criteria for the issuance of the court order.”
Once notice has been given, with respect to both confidential and other communications, the district court must find that “(1) other ways of obtaining the information are not available or would not be effective; and (2) the public interest and need for disclosure outweigh the potential injury to
(1) The disclosure is necessary to protect against an existing threat to life or of serious bodily injury . . .
(2) The disclosure is necessary in connection with investigation or prosecution of an extremely serious crime, such as one which directly threatens loss of life or serious bodily injury, including homicide, rape, kidnapping, armed robbery, assault with a deadly weapon, or child abuse and neglect; or (3) The disclosure is in connection with litigation or an administrative proceeding in which the patient offers testimony or other evidence pertaining to the content of confidential communications.
The district court‘s discovery order violates these regulations. It permits four individuals, three of Dr. Chandler‘s attorneys and a paralegal, to view all of the records for ten days. It places no restrictions on the type of information that will be made available to them. The statute and regulations do not contemplate even limited disclosure of non-confidential communications without notice or of confidential communications without one of the conditions of
Mandamus will issue requiring the district court to vacate its discovery order. Given the lapse of time between the 1999 notice and the disclosure, new notice should be sent to all patients whose records might be examined by Dr. Chandler‘s representatives. Further, notice must be sufficiently clear that the New Start patients will understand, without the aid of counsel, what is at stake and what they must do to assert their rights. No disclosure may be made until sufficient time has passed to give the patients an opportunity to decide whether to intervene and to seek legal assistance.
Conclusion
Cook County is a person within the meaning of the False Claims Act and does not enjoy immunity from the FCA‘s damages scheme. Therefore, the district court‘s decision in 00-4110 is REVERSED and the case is REMANDED with orders to reinstate Cook County as a party to this action. The district court‘s discovery order runs afoul of federal privacy regulations and violates important private rights and public policies. Therefore, MANDAMUS will issue in 01-1810, and the district court is ordered to enter a new protective order consistent with this opinion. Each party shall bear its own costs in these appeals.
No. 00-4110 REVERSED and REMANDED
No. 01-1810 MANDAMUS ISSUED
Notes
(a) Any person who--
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
. . .
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.
Disclose or disclosure means a communication of patient identifying information, the affirmative verification of another person‘s communication of patient identifying information, or the communication of any information from the record of a patient who has been identified.