By Larry Jones
March 17, 2003

In a unanimous decision, the Supreme Court ruled in Cook County v Chandler that local governments can be sued by private individuals in qui tam actions under the False Claims Act (FCA) for presenting false claims to an officer or employee of the United States Government for payment or approval. Under the FCA, any "person" who "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" is liable to the Government for a civil penalty between $5,000 and $10,000 for each violation, treble damages and costs.

Although the U.S. Attorney General may sue under the FCA, a private person may also sue in a qui tam action brought "in the name of the Government" and could share in any money damages awarded to the Government. The private party must inform the Department of Justice of her intentions and keep the pleadings under seal for 60 days while the Government decides whether to intervene and do its own litigating. In successful claims, private parties may share up to 30 percent of the proceeds from a settlement.

In this case, the Cook County Hospital received a $5 million grant from the National Institute of Drug Abuse to study a treatment regimen for pregnant drug addicts. The administration of the grant was later transferred to the Hektoen Institute for Medical Research, a private nonprofit research organization affiliated with the hospital. Dr. Janet Chandler conducted the study from September 1993 until the Institute fired her in January 1995. In 1997, Dr. Chandler filed a qui tam action, claiming that the County and the Institute had submitted false claims to obtain grant funds in violation of the FCA. She also claimed that the County and Institute violated the grant's express conditions, had failed to comply with the regulations on human research, and had submitted false reports of what she called "ghost" research subjects.

During court actions, Cook County moved to dismiss the claims against it, making the argument that it was not a "person" subject to liability under the FCA. The District Court denied the motion, reading the term to include state and local governments. The Court of Appeals and the Supreme Court denied Cook County a hearing. However, the Supreme Court's ruling in Vermont Agency of Natural Resources v. United States ex rel. Stevens on May 22, 2000 changed things. In this case, the Supreme Court ruled that states are not "persons" subjects to qui tam actions and that "A private individual may not bring a suit in federal court on behalf of the United States against a state (or state agency) under the FCA."

After the ruling in the Stevens case, the District Court reconsidered Cook County's motion and dismissed Chandler's action, ruling that the county, like a state, could not be subjected to treble damages. The Seventh Circuit Court of Appeals distinguished the Stevens ruling and reversed the decision. The Supreme Court affirmed the Appeals Court decision, ruling in part that "...neither the history nor the text of the original FCA provides contextual evidence that Congress intended to exclude municipalities from the class of persons."