Can you be a whistleblower against a state agency?

Whistleblower CaseIs a state or state agency a “person” for False Claim Act (FCA) whistleblower purposes?  This question is important because the language attaches liability to “any person who knowingly presents….false or fraudulent claims.” Since its inception in 1863, the FCA has been used by whistleblowers to recover money from individuals, corporations, and government contractors. Over the years, Congress has made several substantive changes to the Act; however, the issue of whether a state or state agency can be a “person” remained an open question.

This uncertainty was eventually addressed by the Supreme Court of the United States (SCOTUS), in Vermont Agency of Nat. Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (2000). Justice Scalia, writing for the majority, held that a state or state agency cannot be held liable by whistleblowers suing under the FCA. His analysis focused on multiple issues, to include, the long-held position that the sovereign is not a person. However, he made the point that this position was not a hard-and-fast rule; that instead a state may be liable when there is a showing of an affirmative statutory intent. Ultimately, Justice Scalia’s analysis failed to find the affirmative statutory intent in the FCA, and as a result he found “that states are not a person for purposes of qui tam liability under § 3729.”

Now, if the answer is “you cannot sue a state or state agency under the FCA,” the next question is “what constitutes a state or state agency?” This is an initial inquiry for whistleblower attorneys who are contacted by whistleblowers who work for organizations with connections to state governments.

SCOTUS has not taken up this issue because there is a consensus among the Federal Circuits.  The general consensus is that there is a two-part test for determining “arm-of-the-state status.” This test has been used in previous cases for conducting the Constitutional Eleventh Amendment analysis. The Eleventh Amendment recognizes the sovereignty of states, thereby exempting them from lawsuits, except with consent.

The First Circuit, in U.S. ex rel. Willette v. U. of Massachusetts, Worcester, 812 F.3d 35 (1st Cir. 2016), cert denied, held that the two-part test includes:

  1. determining if the state has indicated an intention, either explicitly by statute or implicitly through the structure of the entity, that the entity shares the state’s sovereign immunity, or
  2. whether the state’s treasury would be at risk in the event of an adverse judgment.

The first part of the test requires a detailed analysis of various factors, including:

  1. degree of state control over the entity,
  2. the way in which the entity is described and treated by its enabling legislation and other state statutes,
  3. how state courts have viewed the entity,
  4. the functions performed by the entity, and
  5. whether the entity is separately incorporated.

If these factors fail to establish the link, the court then asks the second part, is the judgment going to break the state’s bank? In Willette, the Court found the factors weighed in favor of a link between Willette’s department and the state; as a result, the Court did not have to determine if an adverse judgement would have a significant detrimental impact on the state’s finances.

The take away here for potential whistleblowers working in organizations that have connections to the state, is that you should consult with experienced whistleblower attorneys to discuss the factors that will determine if your employer is exempt from the FCA.

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