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Supreme Court Deals Cities A Victory and A Defeat.

The U.S. Supreme Court dealt cities nationwide a win and a loss in two important cases handed down last week.

In the first case, Vermont Agency of Natural Resources v. U.S., No. 98-1828, the Court held that a private individual may not bring suit in federal court on behalf of the United States against a state or state agency under the federal False Claims Act. NLC, joined by the other members of the Big 7 state and local government associations, filed an amicus brief in the case.

The Federal False Claims Act

This case presents yet another attack on the sovereign immunity of the States. The case was brought under the federal False Claims Act (FCA). The FCA subjects a person who knowingly presents a false or fraudulent claim to the United States to civil penalties and treble damages. Under the Act's qui tam (qui tam is an action where an informer sues on behalf of the government as well as himself) provisions, a private individual, called a relator, can file a lawsuit against a person who has allegedly presented false claims to the United States and prosecute that action in place of the United States. As an incentive to file suit, the relator receives 25 to 30 percent of the recovery plus "reasonable attorneys' fees." The FCA is affectionately referred to as the "send a rogue to catch a rogue" statute.

The Vermont case presented two issues concerning whether a state can be sued under the FCA. First, the U.S. Supreme Court was asked to determine whether a state is a "person" under the FCA and is therefore subject to suit. Second, the Court was asked to determine whether a qui tam suit to recover monetary damages from a state is barred by the 11th Amendment.

Facts

A former employee of the Vermont Agency of Natural Resources brought suit against the state of Vermont. He alleged that his former employer knowingly and continuously submitted false claims to EPA for salary and wage expenses of its employees purporting to show that employees were working on federally-funded projects when, in fact, they were not working the hours as reported.

Vermont moved to dismiss the case for two reasons. First, it argued that it is not a "person" for purposes of the FCA. Second, it argued that the suit is barred by the 11th Amendment. The district court and U.S. Appeals Court for the Second Circuit ruled against Vermont. Vermont appealed to the U.S. Supreme Court. NLC filed an amicus brief in support of Vermont's request to be heard by the U.S. Supreme Court.

The Supreme Court Ruling

NLC argued in its brief that the lower court's holding that a state can be sued for treble damages at the behest of private parties flies in the face of federalism, and a person under the FCA does not include a state. The Supreme Court agreed and stated "a `person' does not include the sovereign (in this case, the State).

If Congress intends to alter the usual constitutional balance between states an the federal government, it must make its intention to do so unmistakably clear in the statute's language." NLC further argued that qui tam suits fundamentally alter the federal/state balance in multiple ways. First, the relators are motivated by the prospects for profit rather than the public good.

Second, the treble (triple) damages section is unequivocally punitive in nature. Subjecting States to punitive measures on its face, alters the federal/state balance. Third, the FCA permits "a posse of politically unaccountable ad hoc deputies" to sue the States, which is an unprecedented intrusion into the federal/state relationship.

The Supreme Court did not opine on whether an action in federal court by a qui tam relator against a state would run afoul of the 11th Amendment, but notes that there is "a serious doubt" on that score.

In the second case, Geier v. American Honda, (No. 98-1811), the Court ruled against NLC and held that the Petitioners' "no airbag" lawsuit conflicts with federal law and is therefore preempted by federal law.

Facts

The Geier case presented the question of whether federal law preempts a defective design claim under state law and was brought by petitioner Alexis Geier against respondent American Honda Motor Co. Geier's suit is a tort action seeking damages arising from injuries she suffered when her 1987 Honda Accord crashed into a tree while she was driving in Washington, D.C. Geier's car was equipped with lap and shoulder belts, but did not have an airbag.

The applicable federal law is set forth in the National Traffic and Motor Vehicle Safety Act of 1966 (Safety Act) and Federal Motor Vehicle Safety Standard 208. At the time Geier's car was manufactured, Standard 208 gave manufacturers three passive restraint options: a driver-side airbag, an automatic seatbelt, and lap and shoulder belts with belt warnings. This last option was the one chose by Honda for Geier's Accord.

Section 1392(d) of the Safety Act was applicable at the time. It provided that:

"Whenever a federal motor vehicle safety standard established under this subchapter is in effect, no state or political subdivision of a state shall have any authority either to establish, or to continue in effect, with respect to any motor vehicle or item of motor vehicle equipment any safety standard applicable to the same aspect of performance of such vehicle or item of equipment which is not identical to the federal standard."

Another provision of the Safety Act is a saving clause which provided "Compliance with any Federal motor vehicle safety standard issued under this subchapter does not exempt any person from any liability under common law."

Geier alleged in state court that her Honda Accord was defectively designed because it was not equipped with a driver's side airbag. Honda argued that her state law claims were preempted by the federal Safety Act and Standard 208 and therefore barred. The District Court agreed with Honda, as did the Court of Appeals. The Court used a theory of implied preemption to find for Honda. Implied preemption in this case means that although Congress didn't expressly state in the law that the federal statute and standard were intended to preempt state laws and standards, to find otherwise "would stand as an obstacle to the federal government's chosen method of achieving the Safety Act's safety objectives."

NLC's Position and the Supreme Court's Analysis

NLC argued in its amicus brief that the states have long protected persons injured by negligently and defectively designed products by requiring that manufacturers compensate them. In the context of negligently designed motor vehicles, state tort liability also promotes public safety by encouraging manufacturers to design their products in light of available safety technology. The Safety Act preserves, rather than preempts common law claims about automobile components that comply with applicable federal motor vehicle safety standards. The Supreme Court disagreed.

In its analysis, the Court pointed to the saving clause and held that this clause does not bar the ordinary working of conflict preemption principles. In other words, nothing in the saving clause suggests an intent to save state tort actions that conflict with federal regulations. Therefore they are barred.

The Court further held that Standard 208 was not a minimum standard, but rather a way to "provide a manufacturer with a range of choices among different passive restraint systems that would be gradually introduced, thereby lowering costs, overcoming technical safety problems, encouraging technological development, and winning widespread consumer acceptance."
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Author:Parnas, Susan M.
Publication:Nation's Cities Weekly
Geographic Code:1USA
Date:May 29, 2000
Words:1254
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