United States of America ex rel. Anthony J. Dunleavy v. County of Delaware, et al.

The appellant, Anthony J. Dunleavy, was a consultant to
appellee, Delaware County. In this capacity, Dunleavy
advised the County as to the various federal regulatory
requirements concerning certain Housing and Urban
Development funding grants. Dunleavy sued the County
contending that it committed several violations of the False
Claims Act, 31 U.S.C. S 3729, et seq. The District Court
dismissed Dunleavy's Second Amended Complaint, holding
that the County was not amenable to suit under the FCA
due to its mandatory punitive damages scheme.

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are punitive. If so, we must then
decide whether Congress clearly manifested its intention
under the FCA to abrogate local governmental common law
immunity from punitive damage awards. If it did not, we
must further determine whether a local governmental
subdivision may nevertheless be amenable to suit under
the Act albeit subject to some lesser quantum of damages.
Finally, we note in passing that we agree with the District
Court that an employee of a local governmental unit is not
subject to suit under the Act when the employee does not
personally benefit from the transaction constituting a
violation of the Act; therefore, we conclude that no extended
discussion is necessary with respect to this issue.

* * *

In 1976, Delaware County purchased the Penza tract in
a condemnation action using HUD funds. The intended use
of the Penza tract was to expand a pre-existing park. In
1979, however, the County entered into an agreement with
the Pennsylvania Department of Transportation (Penn DOT)
whereby Penn DOT purchased 26.3 acres of the Penza
tract. Penn DOT made additional purchases from the tract
through the years until its final purchase from the County
in 1988. Penn DOT intended to use the land for highway
construction. After consulting with Dunleavy, the County
decided that it would put the proceeds from the sales of
Penza tract land into an interest-bearing account under the
assumption that if Penn DOT was unable to use its newly
acquired lands for highway construction the County would
repurchase the land. On the other hand, if Penn DOT
completed its highway construction, the County would
return the proceeds from the land sales, plus interest to
HUD. After numerous delays, Penn DOT completed its
highway construction project in 1991.

During the interim, the County occasionally used funds
from the Penza tract account for general County purposes.
Dunleavy contends that this was improper, because, in his
view, the funds in the account were HUD program funds
subject to various reporting requirements with which the
County failed to comply. Further, Dunleavy contends that
once the County knew that it would not be repurchasing
the tract, the County knowingly failed to return the
principal and interest earned on the account to HUD.
Dunleavy's final contention is that the County fraudulently
received additional monies from HUD in fiscal years`92,
`93, `94, and `95 because the County took these monies
knowing that it committed the previously alleged violations
of HUD regulations with respect to Penza Tract funds.

Dunleavy filed this action in 1994 seeking treble damages
as required by the False Claims Act. In 1995, the
Government declined to intervene, concluding that no fraud
had been committed. HUD, however, after a Limited Review
Audit, demanded that the County pay it 1.7 million dollars
plus interest. In 1996, HUD and the County settled the
dispute between them without including Dunleavy in the
settlement process.

The District Court dismissed Dunleavy's Second
Amended Complaint for lack of subject matter jurisdiction,
a Judgment that we reversed and remanded to the District
Court. The County then filed motions to dismiss for failure
to state a claim and failure to plead with particularity,
which were denied by the District Court. On May 23, 2000,
the District Court, on its own motion, directed the parties
to brief the question of whether this action should proceed
in light of the United States Supreme Court's decision in
Vermont Agency of Natural Resources v. United States ex rel.
Stevens, 529 U.S. 765 (2000). The District Court concluded
that Dunleavy's claim could not proceed in light of Stevens.
See United States ex rel. Dunleavy v. County of Delaware,
2000 WL 1522854 (E.D.P.A. 2000). This timely appeal
followed.

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Click the case caption above for the full text of the
Court's opinion.

We conclude that the mandatory treble damages scheme
imposed by the FCA is punitive and that local governments
are exempt from FCA damages because Congress did not
clearly express its intention under the Act to abrogate local
governmental common law immunity against punitive
damages. As a result, since the FCA does not, as written,
permit a court to reduce treble damages awards, we
conclude that a local government cannot be subject to suit
by a qui tam relator under the Act. For all these reasons,
we will affirm the Order of the District Court dismissing
Dunleavy's Second Amended Complaint.

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Kent Morlan

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