[1] . See Pamela H. Bucy, Information As a Commodity in the Regulatory World, 39 Hous. L. Rev. (forthcoming 2002) (manuscript at 2.3–2.4, on file with the author) [hereinafter Bucy, Information As a Commodity].
[2] . For sources discussing the difficulty of proving intent in instances of economic wrongdoing, see, for example, Sharon L. Davies & Timothy Stoltzfus Jost, Managed Care: Placebo or Wonder Drug for Health Care Fraud and Abuse?, 31 Ga. L. Rev. 373, 397–99 (1997); Stuart P. Green, Why it’s a Crime to Tear the Tag Off a Mattress: Overcriminalization and the Moral Content of Regulatory Offenses, 46 Emory L.J. 1533, 1614–15 (1997); Peter J. Henning, Individual Liability for Conduct by Criminal Organizations in the United States, 44 Wayne L. Rev. 1305, 1324, 1328–29 (1998); Ellen S. Podgor, Mail Fraud: Redefining the Boundaries, 10 St. Thomas L. Rev. 557, 566–68 (1998); Francis Bowes Sayre, Public Welfare Offenses, 33 Colum. L. Rev. 55, 79–80 (1933). Cf. Paul H. Robinson & John M. Darley, The Utility of Desert, 91 Nw. U. L. Rev. 453, 488 (1997).
[3] . For a discussion of the resource-intensive nature of investigations of economic wrongdoing, see Bucy, Information As a Commodity, supra note (manuscript at 2.39–.49). For a discussion of the constitutional issues raised by private justice, including stress on the separation of powers principle, see Pamela H. Bucy, Private Justice and the Constitution, 69 Tenn. L. Rev. 4 (forthcoming 2002) (manuscript at 12–49, on file with the author) [hereinafter Bucy, Private Justice and the Constitution].
[4] . For a discussion of the moral and practical damage to the judicial system from prosecution of economic wrongdoing, see Bucy, Information As a Commodity, supra note 2 (manuscript at 2.28–2.29).
[5] . See, e.g., Richard A. Posner, Optimal Sentences for White-Collar Criminals, 17 Am. Crim. L. Rev. 409, 409–418 (1980).
[6] . Very little has been done to measure the deterrence impact of private justice actions. One preliminary study of the qui tam provisions of the civil False Claims Act ("FCA") noted that "[d]eterrence . . . is a difficult, if not impossible, magnitude to actually measure." William L. Stringer, Taxpayers Against Fraud, The 1986 False Claims Act amendments: An Assessment of Economic Impact 32, 35–36 (1996) (finding that the qui tam provisions of the FCA deter fraud, assuming that deterrence can be measured by recoveries in qui tam FCA cases).
[7] . Judge Jerome Frank employed the term "private Attorney General" in Associated Industries v. Ickes, 134 F.2d 694, 704 (2d Cir. 1943), to refer to private persons in whom Congress vests "authority to bring suit . . . the sole purpose [of which] is to vindicate the public interest." Associated Industries was a coal consumer that brought suit challenging the setting of minimum prices for coal by the U.S. Department of Interior. In ruling that Associated Industries had standing, Judge Frank articulated the "assignment" theory later employed by the Court in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000), almost sixty years later with regard to private actions brought under the civil FCA. See also Michael D. Axline, Environmental Citizen Suits § 1.02 (Michie 1995) (referring to "[p]rivate citizen participation in enforcement of the law"); John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model of the Lawyer As Bounty Hunter Is Not Working, 42 Md. L. Rev. 215, 215 & n.1, 217 (1983) [hereinafter Coffee, Private Attorney General] (describing the public attorney general as someone who is seen as "a cliché and a crutch," who is scorned as "champerty and maintenance" by the established bar, and as private lawyers who sue "‘to vindicate the public interest’"); Michael S. Greve, The Private Enforcement of Environmental Law, 65 Tul. L. Rev. 339, 339 (1990) (referring to "private law enforcement as a means of attaining public objectives"); David R. Hodas, Enforcement of Environmental Law in a Triangular Federal System, 54 Md. L. Rev. 1552, 1561 (1995) (arguing that "citizen suits as private attorneys general [are needed to] safeguard the enforcement system").
This Article focuses on court proceedings initiated by private attorneys general aimed at public harms. It does not address extra-judicial proceedings such as use of mass media, administrative proceedings, or internal corporate proceedings. For the sake of simplicity this Article focuses on federal private justice actions. There are many state private justice actions, see, e.g., Cal. Gov’t Code § 12650–55 (West 1992 & Supp. 2001); Fla. Stat. Ch. 68.081–.092 (Harrison 1994 & Supp. 2000); Mass. Gen. Laws Ann. Ch. 12, § 5A–50 (West 1996 & Supp. 2002); Tex. Hum. Res. Code Ann. § 36.001–.132 (Vernon 2001) (regarding false claims in the health care area only), but they tend to resemble, if not intentionally mimic, federal actions, making a separate discussion of them more repetitive than helpful.
[8] . See Bucy, Information As a Commodity, supra note , (manuscript at 2.9, 2.33, 2.67).
[9] . A number of thoughtful articles and books address various private justice actions but little attention has been devoted by policymakers or academics to comparing and contrasting the various private justice actions or to examining the role private justice might play in an overall regulatory scheme.
For analyses of the citizen suit private justice action, see generally Axline, supra note ; Robert F. Blomquist, Rethinking the Citizen As Prosecutor Model of Environmental Enforcement Under the Clean Water Act: Some Overlooked Problems of Outcome-Independent Values, 22 Ga. L. Rev. 337 (1988); Barry Boyer & Errol Meidinger, Privatizing Regulatory Enforcement: A Preliminary Assessment of Citizen Suits Under Federal Environmental Law, 34 Buff. L. Rev. 833 (1985); Environmental Law Institute, Citizen Suits: An Analysis of Citizen Enforcement Actions Under EPA-Administered Statutes (Sept. 1984) [hereinafter E.L.I., Citizen Suits]; Philip H. Gitlen, Private Attorneys General: Let’s Do It Right, 2 Alb. L. Envtl. Out. 17 (1995); Greve, supra note ; Hodas, supra note , at 1561; Peter H. Lehner, The Efficiency of Citizen’s Suits, 2 Alb. L. Envtl. Out. 4 (1995); Jeffrey G. Miller, Private Enforcement of Federal Pollution Control Laws, Parts I–III, 13 Envtl. L. Rep. 10309 (1983); 14 Envtl. L. Rep. 10063 (1984); 14 Envtl. L. Rep. 10407 (1984) [hereinafter Miller, Part I, Part II, or Part III].
For analyses of securities fraud private justice actions, see generally Janet Cooper Alexander, Rethinking Damages in Securities Class Actions, 48 Stan. L. Rev. 1487 (1996); James Bohn & Stephen Choi, Fraud in the New-Issues Market: Empirical Evidence on Securities Class Actions, 144 U. Pa. L. Rev. 903 (1996); Coffee, Private Attorney General, supra note ; John C. Coffee, Jr., The Future of the Private Securities Litigation Reform Act: Or, Why the Fat Lady Has Not Yet Sung, 963 PLI/Corp 515 (1996) [hereinafter Coffee, Future of PSLRA]; Patrick J. Coughlin, "The Private Securities Litigation Reform Act of 1995–30 Months Later," Securities Class Action Litigation Under the Private Securities Litigation Act, 1070 PLI/Corp 9 (1998); James D. Cox, Making Securities Fraud Class Actions Virtuous, 39 Ariz. L. Rev. 497 (1997); Edward A. Fallone, Codifying the Private Cause of Action Under a Structuralist Approach, 1997 U. Ill. L. Rev. 71 (1997); Joseph A. Grundfest, Disimplying Private Rights of Action Under the Federal Securities Laws: The Commission’s Authority, 107 Harv. L. Rev. 963 (1994); Avery Katz, The Effect of Frivolous Lawsuits on the Settlement of Litigation, 10 Int’l Rev. L. & Econ. 3 (1990); Jonathan R. Macey & Geoffrey P. Miller, The Plaintiff’s’ Attorney’s Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1 (1991); Richard M. Phillips & Gilbert C. Miller, The Private Securities Litigation Reform Act of 1995: Rebalancing Litigation Risks and Rewards for Class Action Plaintiffs, Defendants and Lawyers, 51 Bus. Law. 1009 (1996); Joel Seligman, The Merits Do Matter: A Comment on Professor Grundfest’s "Disimplying Private Rights of Action Under the Federal Securities Law: The Commission’s Authority," 108 Harv. L. Rev. 438 (1994).
For analyses of the qui tam provisions of the FCA, see generally J. Randy Beck, The False Claims Act and the English Eradication of Qui Tam Legislation, 78 N.C. L. Rev. 539 (2000); John T. Boese & Beth C. McClain, Why Thompson Is Wrong: Misuse of the False Claims Act to Enforce the Anti-Kickback Act, 51 Ala. L. Rev. 1 (1999); Pamela H. Bucy, Civil Prosecution of Health Care Fraud, 30 Wake Forest L. Rev. 693 (1995); Pamela H. Bucy, Growing Pains: Using the False Claims Act to Combat Health Care Fraud, 51 Ala. L. Rev. 57 (1999); Elleta Sangrey Callahan & Terry Moorehead Dworkin, Do Good and Get Rich: Financial Incentives for Whistleblowing and the False Claims Act, 37 Vill. L. Rev. 273 (1992); Robert Fabrikant & Glenn E. Solomon, Application of the Federal False Claims Act to Regulatory Compliance Issues in the Health Care Industry, 51 Ala. L. Rev. 105 (1999); James B. Helmer, Jr., How Great Is Thy Bounty: Relator’s Share Calculations Pursuant to the False Claims Act, 68 U. Cin. L. Rev. 737 (2000); William E. Kovacic, The Civil False Claims Act As a Deterrent to Participation in Government Procurement Markets, 6 Sup. Ct. Econ. Rev. 201 (1998); Patricia Meador & Elizabeth S. Warren, The False Claims Act: A Civil War Relic Evolves Into a Modern Weapon, 65 Tenn. L. Rev. 455 (1998); Richard J. Oparil, The Coming Impact of the Amended False Claims Act, 22 Akron L. Rev. 525 (1989); Ernest A. Phillips, A Proposed Michigan False Claims Act: Resurrecting Qui Tam As a Practical and Effective Weapon to Combat Fraud Against the Government, 9 T.M. Cooley L. Rev. 59 (1992).
[10] . See Appendices C-1 through C-6.
[11] . For example, in 2000, the United States collected $1.5 billion in civil fraud recoveries, $1.2 billion of which was collected through private justice actions under the qui tam provisions of the FCA. Press Release, United States Department of Justice (Nov. 2, 2000), available at www.USDOJ.Gov.
As one Department of Justice official explained in 1996: "The recovery of over $1 billion demonstrates that the public-private partnership encouraged by [the FCA] works and is an effective tool in our continuing fight against fraudulent use of public funds." Taxpayers Against Fraud, The 1986 False Claims Act Amendments, Tenth Anniversary Report 15 (1986) (quoting Frank W. Hunger, Assistant Attorney General, Civil Division, U.S. Dept. of Justice). Also, Lewis Morris stated:
The False Claims Act has been an essential tool to protect the integrity of the Medicare program . . . . To achieve this goal . . . of ‘zero tolerance’ of Medicare fraud and abuse . . . the Government relies on a number of enforcement options—criminal, civil, and administrative, as well as educational outreach efforts. Chief among the enforcement tools has been the False Claims Act.
Id. at 15 (testimony of Lewis Morris, Assistant Inspector General, Dep’t of Health & Human Services). See also Hearings Before House Comm. on Judiciary, Subcomm. on Immigration and Claims, 105th Cong., 2d Sess. 14 (1998) [hereinafter Subcomm. on Claims Hearings] (testimony of Donald K. Stern, U.S. Attorney, Dist. Mass. and Chair, Attorney General’s Advisory Comm., Dep’t of Justice) ("[T]he False Claims Act . . . has been the Department’s primary civil enforcement tool to combat fraud."); id. at 25 (testimony of Robert A. Berenson, Director for Health Care Plans and Provides Administration, Health Care Financing Administration, Dep’t of Health and Human Services) ("[T]he False Claims Act is an important tool for . . . law enforcement . . . to pursue fraud and abuse.").
Ruth Blacker of the American Association of Retired Persons stated:
Congress in recent years [has] expand[ed] statutory authority and income resources to deal with the problem [of heath care fraud and abuse]. However, none of these things are likely to play a more important role in recovering improper payments to in acting as a deterrent than the False Claims Act. Use of the FCA by Federal authorities has become an important tool for fighting fraud and abuse in many programs, including the Medicare program.
Id. at 63 (statement of Ruth Blacker, National Legislative Counsel, American Association of Retired Persons).
[12] . See Bucy, Information As a Commodity, supra note , (manuscript at 2.53–.57).
[13] . For discussions of the disruptive impact of citizen suits see, for example, Jeanette Austin, Comment, The Rise of Citizen Suit Enforcement in Environmental Law: Reconciling Private and Public Attorneys General, 81 Nw. U. L. Rev. 220, 222 (1986); Greve, supra note , at 339. Cf. Miller, Part III, supra note , at 10427–28 (noting industry arguments but dismissing them as unpersuasive and unwarranted).
For discussions of the disruptive impact of the False Claims Act, see, for example, Beck, supra note , at 633–37; Boese & McClain, supra note , at 4, 46–50; Pamela H. Bucy, The Path From Regulator to Hunter: The Exercise of Prosecutorial Discretion in the Investigation of Physicians at Teaching Hospitals, 44 St. Louis U. L.J. 3, 46–48 (2000); Fabrikant & Solomon, supra note , at 106, 148–61; General Accounting Office, Medicare, Application of the False Claims Act to Hospital Billing Practices 14–15 (1998) (GAO-HEHS 98-195); General Accounting Office, Medicare Fraud and Abuse, DOJ’s Implementation of False Claims Act Guidance In National Initiatives Varies 15 (1999) (GAO-HEHS 99-170).
For discussions of the disruptive impact of RICO, see, for example, Oversight on Civil RICO Suits: Hearing Before the Senate Comm. on the Judiciary, 99th Cong., 1–4 (1985). For a discussion of the disruptive impact of securities private actions, see Bohn & Choi, supra note , at 979–80; Hodas, supra note , at 1623–24; Macey & Miller, supra note , at 5–7, 116–18; Phillips & Miller, supra note , at 1027–29. Robert F. Blomquist also argues that private enforcement actions have substantial potential to undermine values in the American judicial system. Blomquist, supra note , at 340.
[14] . See Bucy, Information As a Commodity, supra note (manuscript at 2.5–.11).
[15] . See, e.g., infra Part II.
[16] . See, e.g., S. Rep. No. 99345, at 1–2 (1985), reprinted in 1986 U.S.C.C.A.N. 5266, 5275 (regarding 1986 amendments to the False Claims Act); H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 730 (regarding private securities actions); Boyer & Meidinger, supra note , at 836–37; Miller, Part I, supra note , at 10311 (regarding environmental citizen suits).
[17] . Bucy, Information As a Commodity, supra note (manuscript at 2.17, 2.19–.21).
[18] . The Enron Scandal, USA Today, Jan. 22, 2002, at 3B. Enron declared bankruptcy on December 2, 2001.
[19] . Howard Fineman & Michael Isikoff, Lights Out: Enron’s Failed Power Play, Newsweek, Jan. 21, 2002, at 15–16.
[21] . Matt Krantz, Peeling Back the Layers of Enron’s Breakdown, USA Today, Jan. 22, 2002, at 1B.
[22] . The Enron Scandal, supra note 18.
[23] . Rick Bragg, Enron Employees Lost Jobs, Savings and a Sense of Trust, N.Y. Times, Jan. 20, 2002, at 1.
[25] . Christine Dugas, Employees’ Faith in Enron Cost Them Dearly, USA Today, Jan 22, 2002, at 1B [hereinafter Employees’ Faith].
[27] . During this same time period, corporate insiders bought only 10,000 shares of Enron, valued at $369,800. The Enron Scandal, supra note .
[30] . Richard W. Stevenson & Jeff Gerth, Enron’s Collapse: The System; Web of Safeguards Fails As Enron Fell, N.Y. Times, Jan. 20, 2002, at 1.
[34] . See, e.g., Editorial, The Real Enron Scandal, The New Republic, Jan. 28, 2002, at 7; Reed Abelson, Trying Not to Be the Next Enron, Companies Scrutinize Practices, N.Y. Times, Jan. 26, 2002, at B1; Diana B. Henriques & Kurt Eichenwald, A Fog Over Enron, and the Legal Landscape, N.Y. Times, Jan. 27, 2002 at 1. As Newsweek stated, Enron is "the scariest type of scandal: a total system failure. Executives, lenders, auditors and regulators all managed to look the other way while the company ran amok." Fineman & Isikoff, supra note , at 18. The Public Company Accounting Reform and Investor Act, Pub. L. No. 107-204, 116 Stat. 745 (2002) (Sarbannes-Oxley Act of 2002) was passed in the aftermath of recent accounting scandals to change the way public companies do business. The Act includes a number of reforms, such as the creation of an accounting oversight board to oversee auditors of public companies; the restriction of nonaudit services that outside auditors may provide for their audit clients; the prohibition of certain inside trades; and the creation of new crimes. The Sarbannes-Oxley Act does not, however, include an effective private justice action. See infra note .
[35] . Apparently, there were several Enron insiders informed about Enron’s financial house of cards who were willing to raise concerns. Four months before Enron’s bankruptcy, an Enron vice-president questioned the propriety of the Enron financial reports. In an anonymous letter to Enron Chairman, Kenneth L. Lay, she noted the massive debt that was being hidden on the books of Enron partnerships and stated, "I am incredibly nervous that we will implode in a wave of accounting scandals." Greg Farrell, Co-workers Say She Put Enron’s Future Above Self, USA Today, Feb. 14, 2002, at 1B; Krantz, Peeling Back, supra note , at 1B; Matt Krantz, Trouble Grew in Enron’s Interlinking Partnerships, USA Today, Jan. 22, 2002, at 2B. The insider who wrote the perceptive letter to Lay was Sherron Watkins. Id. Other insiders who expressed their concerns to Enron bosses about Enron’s practice of hiding corporate debt on the books of offshore partnerships included Jeff McMahon, former Enron treasurer who was appointed as Enron president and COO post-bankruptcy. Nine months prior to Enron’s declaration of bankruptcy, McMahan expressed his concerns to Jeffrey Skilling, Enron CEO. McMahon was then transferred to another position in Enron. Thomas A. Fogarty & Greg Farrell, Hearings Get Combative, USA Today, Feb. 8, 2001, at 1B. Also, Jordan Mintz, an Enron in-house counsel, set out his concerns in writing seven months before Enron’s declared bankruptcy to Andrew Fastow, Enron’s CFO and apparent architect of the partnership arrangements. See Kurt Eichenwald & Diana B. Henriques, Web of Details Did Enron in As Warnings Went Unheeded, N.Y. Times, Feb. 10, 2002, at 1, 27. Her red flag was not enough. Lay merely referred her concerns to the law firm, noted above, that had established the partnerships, making the questionable accounting possible. The problem was that this insider blew the whistle only internally. Apparently, there were other top-placed Enron employees who were seriously worried about Enron’s financial house of cards that questioned superiors. For example, J. Clifford Baxter, an Enron vice-chairman who resigned from Enron seven months before its declaration of bankruptcy, apparently "complained mightily to Skilling [Enron CEO] and all who would listen about the inappropriateness of [Enron’s] transactions with LJM [one of the off-shore partnerships where Enron hid its debt]." Ex-Enron Executive Dead in Car, Birmingham News, Jan. 26, 2002 at 1A, 2A. Apparently, "[e]veryone in the executive suite at Enron knew of his complaints." Jim Yardley, Critic Who Quit Top Enron Post is Found Dead, N.Y. Times, Jan. 26, 2002 at 1, B1, B6. Mr. Baxter died, apparently by a self-inflicted gunshot, on January 25, 2002. Colleagues described Mr. Baxter as "anguished over the problems at Enron," id., an "honest" person, id., of "extremely high character . . . [who] felt horrible" about the events at Enron, and possibly would have blown the whistle if there were a respected mechanism for doing so. Ex-Enron Executive Dead in Car, B’ham News, Jan. 26, 2002, at 1A, 2A. The problem is that there was no such mechanism.
[36] . The Sarbannes-Oxley Act, see supra note , makes it a crime to retaliate against any person who provides information to law enforcement officers about the commission or possible commission of any federal offense. § 1107, amending 18 U.S.C. § 1513. The Act also creates a private cause of action for any employee of a publicly traded company against the company if the company has discharged or discriminated against the person because of the person’s "whistleblowing activities." § 1514A, amending 18 U.S.C. § 1513. Available relief includes compensatory damages, back pay, special damages, and "all relief necessary to make the employee whole."
This private justice action is inadequate for two reasons. First, it does not offer enough of a financial reward to entice knowledgeable whistleblowers to come forward. Second, it has no "dual-plaintiff" mechanism to channel private investigative, litigative, and informational resources to public regulatory efforts and provides a way to monitor the quality of the whistleblower’s information. See infra Part III.C.I.
[37] . Examples include Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000E-5(f)(1994), the American Disability Act, 42 U.S.C. § 12101 (1995), the Federal Tort Claims Act, 28 U.S.C. § 2680(h) (1994). See infra Part II.B.2; Boyer & Meidinger, supra note , at 836 (mentioning briefly such actions).
[38] . Examples include the securities fraud private causes of action, see infra Part II.B.2, and the qui tam provisions of the FCA, see infra Part II.C.2.
[39] . The citizen suit provisions of many environmental and some consumer protection statutes were created for this reason. See infra Part II.C.1.
[40] . 31 U.S.C. §§ 3729–33 (2001). See infra Part III.A.1.b.(2).
[41] . The securities fraud and to a lesser extent, RICO and the Computer Fraud and Abuse Act, promote class actions. See infra Part II.B.
[42] . The qui tam provisions of the FCA discourage class actions. See infra III.A.1.b.(2).
[43] . The qui tam provisions of the FCA most successfully encourage this cooperation, see infra Part II.C.2.
[44] . The citizen suit provisions in many environmental and some consumer protection statutes attempt such coordination but not effectively. See infra text and accompanying note –42.
[45] . The securities fraud "hybrid" private justice actions and the "victim" private justice actions are not designed to coordinate public and private enforcement efforts. See infra text and accompanying note –, –65.
[46] . The qui tam provisions of the FCA, securities fraud private actions, and, to a lesser extent, RICO, and Computer Fraud and Abuse private justice actions, are designed to produce lucrative bounties for the private plaintiff. See infra text and accompanying notes 78–165, 287–89.
[47] . The citizen suit provisions in many environmental and some consumer protection statutes, both by design and practice, produce no monetary recoveries for private plaintiffs. See infra text and accompanying notes –18.
[48] . See, e.g., Memphis Cmty. Sch. Dist. v. Stachura, 477 U.S. 299, 305–06 (1986) (referring to § 1983 actions); Carey v. Piphus, 435 U.S. 247, 253–54 (1978) (discussing same).
[49] . 42 U.S.C. §§ 1981–2000 (1994).
[50] . 18 U.S.C. § 2520 (2000).
[51] . 15 U.S.C. § 2072 (1997).
[52] . 42 U.S.C. § 12101 (1995).
[53] . 28 U.S.C. § 2680(h) (1994).
[54] . 42 U.S.C. § 12188(a)(1) (1995) (italics supplied) (providing standing for one who "has reasonable grounds for believing that [he or she] is about to be subjected to discrimination").
[55] . 241 U.S. 33, 38–39 (1916).
[58] . See J.I. Case Co. v. Borak, 377 U.S. 426–27, 430–31 (1964) (implying a cause of action under § 14(a) of the Securities Exchange Act of 1934).
[59] . See Guardian Assn. v. Civil Serv. Comm’n, 463 U.S. 582, 594 (1983) (assuming that there is an implied cause of action, without explicitly holding as such).
[60] . See Cannon v. Univ. of Chi., 441 U.S. 677, 717 (1979).
[61] . See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 356 (1982).
[62] . See Morse v. Republican Party of Va., 517 U.S. 186, 232–35 (1996). The courts have also declined to imply private causes of action under the Adoption Assistance and Child Welfare Act, 42 U.S.C. § 671(a)(15) (1995), and the Fair Labor Standards Act, 29 U.S.C. § 212 (1999). Suter v. Artist M., 503 U.S. 347, 363–64 (1992) (declining to imply a private cause of action under the Adoption Assistance and Child Welfare Act); Breitweiser v. KMS Indus., Inc., 467 F.2d 1391, 1393 (5th Cir. 1972) (declining to imply a private cause of action under the Fair Labor Standards Act).
[63] . See Bivens v. Six Unknown Named Agents, 403 U.S. 388, 397 (1971).
[64] . Touche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979). The Court began its opinion in Touche Ross with obvious irritation at the lower courts propensity to find implied causes of action: "Once again, we are called upon to decide whether a private remedy is implicit in a statute not expressly providing one. During this Term alone, we have been asked to undertake this task no fewer than five times in cases in which we have granted certiorari." Id. at 562.
[65] . See, e.g., Guardians Assn., 463 U.S. at 582, 602–03 (allowing injunctive relief only in private cause of action implied in Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d); Transamerica Mortgage Advisors v. Lewis, 444 U.S. 11, 18–20 (1979) (holding that Investment Advisers Act of 1940 includes an implied private cause of action to void a contract that violates the Act but does not include an action for damages because the Court could not find a Congressional intent to bestow a damages remedy, reasoning that "the mere fact that the statute was designed to protect advisers’ clients does not require the implication of a private cause of action for damages on their behalf"); Cannon v. Univ. of Chi., 441 U.S. 677, 690, 699, 709 (1979) (finding that a private cause of action exists to enforce Title IX of the Education Amendments to the Civil Rights Act); Newman v. Piggie Park Enter., 390 U.S. 400, 401–02 (1968) (holding that injunctive relief only is available in private causes of action implied in Title II of the Civil Rights Act of 1964, 42 U.S.C. § 2000a-3(a)(j) (1994)).
[66] . For example, punitive damages are never permitted under the Federal Tort Claims Act, 28 U.S.C. § 2674 (1994).
[67] . See, e.g., Smith v. Wade, 461 U.S. 30, 51 (1983) (allowing punitive damages only upon a showing of "callous disregard for the plaintiff’s rights, as well as intentional violations of federal law"); 42 U.S.C. § 1981a (1994) (stating that plaintiff must show defendant acted "with malice or with reckless indifference" with regard to plaintiff’s rights before punitive damages may be awarded); 42 U.S.C. §§ 12188(b)(2)(c)–(b)(4) (1995) (excluding punitive damages under the Americans with Disabilities Act).
[68] . When there is such mention, the relief available is so minimal that it provides token protection and little to no deterrent effect. See, e.g., 42 U.S.C. §§ 12188(b)(2)(c)–(b)(4) (1995) (excluding punitive damages under the Americans with Disabilities Act but allowing a court to impose penalties up to $50,000 for the first violation and up to $100,000 for any subsequent violation if necessary to "vindicate the public interest."); J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964) (stating that it is appropriate to imply a cause of action for violations of § 14(a) of The Securities Exchange Act of 1934 because doing so would supplement the Securities and Exchange Commission’s ability to enforce the laws, but Borak has been limited by the Court to its specific facts). See also Touche Ross & Co. v. Redington, 442 U.S. 560, 577 (1979); Cort v. Ash, 422 U.S. 66, 82 (1975).
[69] . See, e.g., Cannon, 441 U.S. at 704 (holding that a cause of action should be implied under Title IX of the Education Amendments of 1972 to "provide individual citizens effective protection against those practices [which violate Title IX]"); Texas & Pac. Ry. Co. v. Rigsby, 241 U.S. 33, 39 (1916) (private cause of action should be implied to protect those the statute is designed to protect); Cort, 422 U.S. at 84–85 (declining to imply a cause of action when the victims have recourse to other avenues of protection, which here, are state remedies.)
[70] . See supra note . See also Part II.B–C.
[71] . By comparison, the average recovery for the private plaintiff who brings a qui tam FCA action is $1.1 million, with recoveries reaching as much as $78 million. John T. Boese, Fundamentals of The Civil False Claims Act and Qui Tam Enforcement, ABA Nat’l Institute on Civil False Claims and Qui Tam Enforcement A-3 (2001) [hereinafter Boese, Fundamentals]. The median recovery in a securities fraud class action, post-1995 when the Private Securities Litigation Reform Act was passed is $4.25 million. Mukesh Bajaj, Sumon C. Mazumdar & Atulya Sarin, Securities Class Action Settlements: An Empirical Analysis 10 (2000). However the average member of the class receives only 7% of his/her market losses. Securities Litigation Reform, Hearings Before the House Subcomm. on Telecomms. and Fin., Comm. on Energy and Commerce, 103rd Cong., 105 (1994) (testimony of John C. Coffee, Jr., Adolf A. Berle Professor of Law, Columbia University School of Law) (noting there is controversy on this issue, citing one study by the National Economic Research Associates, Inc.).
[72] . Letter from the Office of Justice Programs, U.S. Department of Justice, to Author, Response to FOIA Request OJP FOIA No. 01-00388, (Oct. 30, 2001) (on file with author) (1990–98 Bureau of Justice Statistics Bull., Special Report, Civil Rights Complaints in U.S. District Court). The dollar value of recoveries in these "private justice actions" is listed as approximate since it is possible that in a small percentage of these cases the plaintiff was the federal government rather than a private plaintiff. In 7% of the civil rights complaints (though not judgments), the federal government was either the plaintiff or the defendant. No further specific information is available as to whether the federal government actually served as a plaintiff in cases actually resolved by judgment.
[73] . Id. (citing 1996–97 Bureau of Justice Statistics Bull., Federal Tort Trials and Verdicts).
[74] . See, e.g., Sullivan v. Little Hunting Park, Inc., 396 U.S. 229, 238–39 (1969); Allen v. State Bd. of Elections, 393 U.S. 544, 556–57 (1969); Jones v. Alfred H. Mayer Co., 392 U.S. 409, 415–16 (1968); Chowdhury v. Reading Hosp. & Med. Ctr., 677 F.2d 317, 321–22 (3d Cir. 1982).
[75] . See, e.g., Carlson v. Green, 446 U.S. 14, 21 (1980); Robertson v. Wegmann, 436 U.S. 584, 590–92 (1978); Carey v. Piphus, 435 U.S. 247, 256 (1978).
[76] . See, e.g., Davis v. Passman, 442 U.S. 228, 242 (1979); Cannon v. Univ. of Chi., 441 U.S. 677, 706–08 n.41 (1979).
[77] . See, e.g., Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 377–78, 381–83 (1982); Cort v. Ash, 422 U.S. 66, 78 (1975); Breitwieser v. KMS Indus., Inc., 467 F.2d 1391, 1394 (5th Cir. 1972).
[78] . Because the amount suffered by any one individual victim may be quite small, these private actions are often brought as class actions. Coffee, Private Attorney General, supra note , at 217–19.
[79] . Even though many securities class actions "free-ride" governmental investigative efforts by filing a class action after public agencies have initiated a prosecution, the private securities actions can still supplement public resources. Id. at 222–24. As John C. Coffee has noted, they can do so by "escalating the penalty structure above the modest fine schedules . . . authorized by law (and nullified by inflation)." Id. at 222–24. They can also "bat clean up for public agencies’ efforts." Id. As Coffee has noted, "it often may be more efficient for public agencies to concentrate on detection (an area where they have the comparative advantage because of their superior investigative resources) and leave the actual litigation of the case to private enforcers, who are frequently more experienced in litigation tactics." Id. at 224–50.
[80] . 15 U.S.C. §§ 12–27, 15(a) (2000) provides:
[A]ny person who shall be injured in his business or property by reason of anything forbidden in antitrust laws may sue therefore in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.
The Clayton Act is aimed at the following restrictive or monopolistic acts: price discrimination (sales of a product at different prices to similarly situated buyers), tying and exclusive dealing contracts (sales on condition that the buyer stop dealing with the seller’s competitors), corporate mergers with competing companies, and interlocking directorates (common board members among competing companies). Earl W. Kintner & Joseph P. Bauer, IV Federal Antitrust Law §§ 32.3–.9 (1984 & Supp. 2001).
[81] . The Computer Fraud and Abuse Act of 1986 ("CFAA"), 18 U.S.C. § 1030 (2000), creates a number of criminal offenses pertaining to improper accessing and use of computers, and computer fraud. Many of the offenses are felonies, some punishable by as much as twenty years imprisonment for repeat offenders. § 1030(g) provides a private cause of action: "Any person who suffers damage or loss by reason of a violation of the section . . . may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief." Because it is a fairly new statute and has been in a near-constant state of revision since first enacted in 1984, the CFAA’s private justice cause of action has been used relatively little. One recent case demonstrates its potential as a private cause of action. In Shaw v. Toshiba America Information Systems, Inc., 91 F. Supp. 2d 942, 960–61 (E.D. Tex. 2000), a class action was brought under the CFAA, and the parties settled the action for $2.1 billion with $147.5 million in attorneys’ fees. Id. at 960–61. The case centered around the allegation that Toshiba and NEC "designed, manufactured, created, distributed, sold, transmitted, and marketed faulty floppy-diskette controllers (‘FDC’s’) containing allegedly defective microcode." Id. at 945.
[82] . 18 U.S.C. §§ 1961–68 (2000).
[83] . See infra text accompanying notes –14.
[84] . Organized Crime Control Act of 1970, Title IX, Pub. L. No. 91-452, 84 Stat. 941 (1970).
[85] . 115 Cong. Rec. 9568 (1969), (remarks of Sen. McClellan).
[86] . See Rotella v. Wood, 528 U.S. 549, 557 (2000). See also Sedima v. Imrex, 473 U.S. 479, 489 (1985).
[87] . § 1963(a)(1) (2000). Persons convicted of a RICO offense face a maximum term of imprisonment of twenty years per count, § 1963(a), maximum possible fines of $250,000 per count (for individuals) or $500,000 per count (for organizations), §§ 1963, 3571, and forfeiture of any property acquired or maintained in violation of the RICO statute, § 1963(a).
[88] . § 1964. The Attorney General may institute civil proceedings for damages, § 1964(c), or injunctive relief, § 1964(b).
[89] . Id. § 1964(c) provides: "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefore . . . and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee."
[90] . See, e.g., Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1303 (7th Cir. 1987), overruled by Agency Holding Corp. v. Malley-Duff Assocs., Inc., 483 U.S. 143, 156 (1987) (on other grounds); Cullen v. Margiotta, 811 F.2d 698, 731 (2d Cir. 1987); Wilcox v. First Interstate Bank, 815 F.2d 522, 531–32 (9th Cir. 1987). Cf. Sedima v. Imrex, 473 U.S. 479, 491 (1985) (stating that "we are not at all convinced that the predicate acts must be established beyond a reasonable doubt in a proceeding under § 1964 (c)" but not ruling on what burden of proof applies in civil RICO cases).
. § 1964(c).
[92] . Oversight on Civil RICO Suits: Hearings before the Senate Comm. on the Judiciary, 99th Cong., 2 (1985) [hereinafter Hearings on Civil RICO] (opening Statement of Chairman Strom Thurmond).
[93] . Pamela H. Bucy, White Collar Crime, Cases and Materials 118 (West 1998) [hereinafter Bucy, White Collar Crime]. Cf. Hearings on Civil RICO, supra note , at 381–403 (testimony of Professor G. Robert Blakey); Gerald E. Lynch, RICO: The Crime of Being a Criminal, Parts I and II, 87 Colum. L. Rev. 661, 662 (1987).
[94] . § 1961(1). RICO includes a lengthy list of approximately one dozen generic, serious state offenses such as murder and kidnapping, and approximately three dozen federal felony offenses including mail fraud, wire fraud, extortion and drug offenses.
[95] . Id. § 1961(5), provides that: "‘Pattern of racketeering activity’ requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity." H.J. Inc. v. Northwestern Bell Telephone Co., is the leading case on this point. In H.J. Inc., the Court held that proof of both "relatedness" between the racketeering acts and "continuity" (repeated conduct over a substantial period of time or the threat of continuing conduct) must be shown to prove a "pattern of racketeering activity." 492 U.S. 229, 240–42 (1989).
[96] . § 1961(4) provides that an "‘enterprise’ includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." A RICO enterprise may engage in legitimate activity, and may be an informal organization, as long as it functions as a continuing unit. United States v. Turkette, 452 U.S. 576, 583 (1981). In the majority of circuits, a RICO enterprise must have an "ascertainable structure distinct from that inherent in the conduct of a pattern of racketeering activity." See, e.g., Chang v. Chen, 80 F.3d 1293, 1298 (9th Cir. 1996); Crowe v. Henry, 43 F.3d 198, 205 (5th Cir. 1995). In § 1962(c) RICO cases, the enterprise must be distinct from the person charged. See, e.g., United States v. Goldin Indus., 219 F.3d 1268, 1271 (11th Cir. 2000); Haroco v. Am. Nat’l. Bank & Trust Co., 747 F.2d 384, 400–02 (7th Cir. 1984).
[97] . See, e.g., United States v. Gotti, 42 F. Supp. 2d 252, 259–66 (S.D.N.Y. 1999); United States v. Local 560, 550 F. Supp. 511, 512–16 (D.N.J. 1982), aff’d, 780 F.2d 267 (3d Cir. 1985); United States v. Gambino, 566 F.2d 414, 416–18 (2d Cir. 1977).
[98] . See, e.g., In re Managed Care Litig., 135 F. Supp. 2d 1253, 1256–57 (S.D. Fla. 2001); United States v. Philip Morris, Inc., 116 F. Supp. 2d 131, 134–38 (D.D.C. 2000); United States v. Milken, 759 F. Supp. 109, 110–18 (S.D.N.Y. 1990).
[99] . Palmetto State Med. Ctr., Inc. v. Operation Lifeline, 117 F. 3d 142, 144–45 (4th Cir. 1997); Nat’l Org. for Women, Inc., v. Scheidler, 510 U.S. 249, 252–53 (1994).
[100] . Concern Sojuzvneshtrans v. Buyanovski, 80 F. Supp. 2d 273, 275–77 (D.N.J. 1999).
[101] . Southway v. Cent. Bank of Nig., 198 F.3d 1210, 1212–13 (10th Cir. 1999).
[102] . Major League Baseball Prop., Inc. v. Price, 105 F. Supp. 2d 46, 48–49 (E.D.N.Y. 2000)
[103] . Cohen v. Carreon, 94 F. Supp. 2d 1112, 1113–15 (D. Ore. 2000) (rights to "sex.com").
[104] . § 1962(a). See, e.g., United States v. Vogt, 910 F.2d 1184, 1196 (4th Cir. 1990); United States v. Zang, 703 F.2d 1186, 1194 (10th Cir. 1982).
[105] . § 1962(b). See, e.g., Quick v. Peoples Bank of Cullmon County, 993 F.2d 793, 798 (11th Cir. 1993); United States v. Local 560, 780 F.2d 267, 270 (3d Cir. 1985).
[106] . § 1962(c). See, e.g., United Healthcare Corp. v. Am. Trade Ins. Co., 88 F.3d 563, 570 (8th Cir. 1996); United States v. Gabriele, 63 F.3d 61, 68 (1st Cir. 1995).
[107] . § 1962(d). See, e.g., Salinas v. United States, 522 U.S. 52, 63–64 (1997); Beck v. Prupis, 529 U.S. 494, 495 (2000).
[108] . The Supreme Court’s decision in Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992), paved new ground on RICO standing and causation. It holds that a civil RICO plaintiff must show "some direct relation between the injury asserted and the injurious conduct alleged" in order to demonstrate standing to bring a RICO action. Id. at 265–70. Deemed a test of "proximate causation," Holmes has led to the dismissal of many RICO cases. See supra note .
[109] . A survey of the federal appellate decisions in RICO cases during the calendar years 1999–2001 revealed that standing and causation issues arising under Holmes were the most litigated RICO issues in civil cases. Sufficiency of pleading or sufficiency of the evidence of an element either of RICO or of the underlying racketeering activity charged were the next most common issues litigated in these appellate civil RICO decisions. Appendices B-1 and B-2 summarize this data in greater detail. The raw data collected for the survey is on file with the author.
[110] . The survey herein included all reported and unreported decisions involving RICO actions rendered by the federal appellate courts (U.S. Supreme Court and twelve courts of appeals) from 1999 through 2001. Any survey of a sample of cases, however enlightening, is by definition incomplete. A review of appellate decisions, as a sample of RICO litigation, provides insight into the ultimate success of cases, the issues raised, and the reasoning employed, but it fails to capture information about cases disposed of without appeal.
[111] . Of the 185 RICO cases decided by the federal appellate courts in the three calendar year time period between 1999 and 2001, 145 (78%) were civil and 40 (22%) were criminal. In nineteen of the civil cases the issue on appeal was collateral to the RICO action (that is, stay of parallel proceedings, sanctions, etc). Of the 124 cases where the court resolved a RICO issue, 99 (79%) resulted in some type of favorable ruling for defendants. Of these 99 rulings, 85 (68%) resulted in favorable final disposition for defendants. See Appendices B-1 and B-2. The raw data collected for this survey is on file with the author.
[112] . Most of the plaintiff victories were too preliminary to declare a success. Of the 124 civil RICO cases surveyed where there was a resolution of a RICO issue, plaintiffs obtained a reversal of the district court’s grant of a defendant’s motion to dismiss in thirteen cases, won affirmance of the district court’s refusal to grant a defendant’s motion to dismiss in one case, and obtained reversal of the district court’s grant of summary judgment for defendants in seven cases. In only three cases out of the 124 did the plaintiff obtain final success on RICO charges, in the form of affirmance of the district court’s grant of summary judgment in favor of the plaintiff (one case) or verdict for the plaintiff (two cases). See Appendix B. The raw data collected for this survey is on file with the author.
[113] . Calculated from civil RICO cases decided by federal appellate courts 1999–2001. Raw data is on file with the author.
[114] . See infra text accompanying notes –56.
[115] . 15 U.S.C. § 77(a) (1997 & Supp. 2001).
[116] . Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195 (1976).
[117] . See 1 T.L. Hazen, The Law of Securities Regulation 7 (1990); Larry D. Soderquist, Securities Regulation 2 (3d ed. 1994); L. Robert Brown, The Regulation of Corporate Disclosure § 2.02 (3d ed. 2000).
[118] . 15 U.S.C. § 77(k). Section 11 of the Securities Act of 1933 expressly provides a remedy for persons who have been injured by material misstatements or omissions in a registration statement filed with the SEC, or in a prospectus distributed to potential purchasers. A registration statement provides comprehensive information about the corporation that is issuing shares to the public for purchase, including a description of the registrant’s business, property, and financial condition; and data regarding price and dividends of the equity being offered. 17 C.F.R. § 229 (2001). The issuer’s attorneys (both inside and outside counsel) and accountants, and the underwriter’s attorneys and accountants prepare the registration statement. A prospectus is "any . . . notice, circular, advertisement, letter or communication written or [transmitted] by radio or television, which offers any security for sale or confirms the sale of any security." § 77b(a)(10).
[119] . Id. §§ 12(1), § 77l(1). Section 12(1) of the Securities Act of 1933 imposes civil liability for failure to file a registration statement. This Section imposes strict liability. All a plaintiff must prove is that a security was purchased, that the jurisdictional predicate exists (interstate commerce or the mails were used), that a registration statement was required, and that no registration statement was in effect. See Raiford v. Buslease, Inc., 825 F.2d 351, 354 (11th Cir. 1987); Swenson v. Engelstad, 626 F.2d 421, 424–25 (5th Cir. 1980); Lycan v. Walters, 904 F. Supp. 884, 889 (S.D. Ind. 1995).
[120] . See § 77l(a)(2). Section 12(2) of the Securities Act of 1933, like § 11, applies to misstatements. Unlike the misstatements and omissions in registration statements or prospecti that § 11 addresses, however, § 12(2) applies to any misrepresentations or omissions (made orally or in a prospectus) by a seller to an unaware purchaser in connection with an offer or sale of securities. Unlike § 12(1), which imposes strict liability, § 12(2) requires proof of at least negligence, that is, that the seller "did not know and in the exercise of reasonable care could not have know, of such untruth or omission." Id.
[121] . 15 U.S.C. § 77(o) (1997).
[122] . 73 Cong. Rec. 2264 (Feb. 9, 1934) (letter to Congress from President Franklin D. Roosevelt); 48 Stat. 881 (1934).
[123] . 15 U.S.C. § 78(i) (1997 & Supp. 2001). A high level of mens rea must be proven before a person is liable for a section 9 violation; the defendant must be shown to have acted "willfully." Id. § 78(i)(e).
[124] . 15 U.S.C. § 78(p)(b). For purposes of § 16(b), an insider is a director, officer, or any person who is directly or indirectly the beneficial owner of more than ten per centum of any class of any equity security. Id. at §§ 78(p)(a)–(b). The damages awarded in a § 16(b) action are limited to disgorgement of the short-swing profits realized. Although shareholders, as well as a company, may bring a § 16(b) action, the damages collected (less attorneys’ fees for the plaintiff’s counsel in some situations) must go to the company. Section 16(b) is a strict liability statute. It is irrelevant what the defendant knew or intended when conducting the short-swing transaction and it is specifically irrelevant whether inside information was used in either part of the transaction. 2 Hazen, supra note , at 27.
[125] . 15 U.S.C. § 78(r). To prevail on a § 18 claim, a plaintiff must prove that (1) the statement in question was false and material, (2) the plaintiff relied upon the statement in a purchase or sale of stock, (3) the plaintiff did not know that the statement was false or misleading, and (4) the price at which the plaintiff bought or sold was affected by the statement. 2 Hazen, supra note , at 47. See, e.g., Magna Invest. Corp. v. John Doe, 931 F.2d 38, 39 (11th Cir. 1991); Ross v. A.H. Robbins, 607 F.2d 545, 551–53 (2d Cir. 1979); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 211–12 (1976). Any person who prepared the document in question may be liable under § 18. Section 18 is not a strict liability offense—any individual who can show that she acted in good faith and had no knowledge that such statement was false or misleading, will not be liable.
[126] . See 15 U.S.C. § 78(t)(a).
[127] . See 15 U.S.C. § 78(c)(c).
[128] . 15 U.S.C. 77(q)(a). See, e.g., Mosher v. Kane, 784 F.2d 1385, 1390–91 (9th Cir. 1986); Kirshner v. United States, 603 F.2d 234, 241 (2d Cir. 1978); 2 Hazen, supra note , at 53.
[129] . 15 U.S.C. §§ 78(f), 78(i), 78(j), 78(n), 78(o).
[130] . See, e.g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730 (1975); J.I. Case Co. v. Borak, 377 U.S. 426, 430–34 (1964).
[132] . 17 C.F.R. § 240.10b-5 (1995) (2001).
[133] . For a discussion of these strengths and weaknesses, see generally Alexander, supra note ; Bohn & Choi, supra note ; Coffee, Private Attorney General, supra note ; Coffee, Future of PSLRA, supra note ; Coughlin, supra note ; Cox, supra note ; Fallone, supra note ; Grundfest, supra note ; Katz, supra note ; Macey & Miller, supra note ; Seligman, supra note .
Congress heard extensive testimony regarding the effectiveness of the private securities action. The House and Senate Committees heard evidence that abusive practices committed in private securities litigation include: (1) the routine filing of lawsuits against issuers of securities and others whenever there is a significant change in an issuer’s stock price, without regard to any underlying culpability of the issuer, and with only faint hope that the discovery process might lead eventually to some plausible cause of action; (2) the targeting of deep pocket defendants, including accountants, underwriters, and individuals who may be covered by insurance, without regard to their actual culpability; (3) the abuse of the discovery process to impose costs so burdensome that it is often economical for the victimized party to settle; and (4) the manipulation by class action lawyers of the clients whom they purportedly represent. These serious injuries to innocent parties are compounded by the reluctance of many judges to impose sanctions under FRCP 11, except in those cases involving truly outrageous misconduct. At the same time, the investing public and the entire U.S. economy have been injured by the unwillingness of the best qualified persons to serve on boards of directors and of issuers to discuss publicly their future prospects, because of fear of baseless and extortionate securities lawsuits.
In these and other examples of abusive and manipulative securities litigation, innocent parties are often forced to pay exorbitant ‘settlements.’ When an insurer must pay lawyers’ fees, make settlement payments, and expend management and employee resources in defending a meritless suit, the issuers’ own investors suffer. Investors are always the ultimate losers when extortionate ‘settlements’ are extracted from issuers.
H.R. Rep. No. 104-369, at 730–31, reprinted in 1995 U.S.C.C.A.N. 730, 736.
[134] . Pub. L. No. 104-67, 109 Stat. 737 (1995) (codified as amended in scattered sections of 15 U.S.C.).
[135] . Id. There are other reforms unique to the securities area, for example, the creation of a safe harbor for certain forward-looking statements. 15 U.S.C. § 78u-5(c).
[136] . The Conference Committee found:
The cost of discovery often forces innocent parties to settle frivolous securities class actions. According to the general counsel of an investment bank, ‘discovery costs account for roughly 80% of total litigation costs in securities fraud cases.’ In addition, the threat that the time of key employees will be spent responding to discovery requests, including providing deposition testimony, often forces coercive settlements. The House and Senate heard testimony that discovery in securities class actions often resembles a fishing expedition. As one witness noted, ‘once the suit is filed, the plaintiff’s law firm proceeds to search through all of the company’s documents and take endless depositions for the slightest positive comment which they can claim induced the plaintiff to invest and any shred of evidence that the company knew a downturn was coming.’
H.R. Rep. No. 104-369, supra note , at 37.
[137] . 15 U.S.C. § 78u-4(b)(3)(B).
[138] . When the PSLRA was passed, the Second Circuit required a heightened standard: plaintiffs must "allege facts that give rise to a strong inference of fraudulent intent." Shields v. Citytrust Bancorp, 25 F.3d 1124, 1128 (2d Cir. 1994); H.R. Rep. No. 104-369, supra note , at 740; Coffee, Future of PSLRA, supra note , at 520–21; Coughlin, supra note , at 35–53. The PSLRA made this standard mandatory.
[139] . In the PSLRA, Congress also made clear that FRCP 9(b)’s requirement that fraud should be plead "with particularity" should be interpreted strictly. The plaintiff must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." H.R. Rep. No. 104-369, supra note , at 740; 15 U.S.C. §§ 77z-1, 78u-4(b)(1). Further, when scienter is alleged, the plaintiff must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. 15 U.S.C. §§ 77z-1, 78u-4(b)(2).
[140] . Id. §§ 77(k)(f), 78u-4(g).
[141] . The Conference Committee noted:
One of the most manifestly unfair aspects of the current system of securities litigation is its imposition of liability on one party for injury actually caused by another. Under current law, a single defendant who has been found to be 1% liable may be forced to pay 100% of the damages in the case. The Conference Committee remedies this injustice by providing a "fair share" system of proportionate liability. As former SEC Chairman Richard Breeden testified, under the current regime of joint and several liability, "parties who are central to perpetrating a fraud often pay little if anything." At the same time, those whose involvement might be only peripheral and lacked any deliberate and knowing participation in the fraud often pay the most in damages.
H.R. Rep. No. 104-369, supra note , at 736.
[142] . 15 U.S.C. §§ 77z-1(c)(3), 78u-4(c)(3). The PSLRA did two other things that could facilitate more awards to defendants in instances of abusive litigation. The Conference Committee noted:
The Conference Committee recognizes the need to reduce significantly the filing of meritless securities lawsuits without hindering the ability of victims of fraud to pursue legitimate claims. The Conference Committee seeks to solve this problems by strengthening the application of Rule 11 of the Federal Rules of Civil Procedure in private securities actions. . . The house hearings on securities litigation reform revealed the need to explicit authority for courts to require undertakings for attorney’s fees and costs from parties, or their counsel, or both, in order to ensure the viability of potential sanctions as a deterrent to meritless litigation. Congress long ago authorized similar in private securities actions will be an important means of ensuring that the provision of the Conference Report authorizing the award of attorneys’ fees and costs under the Rule 11 will not become, in practice, a one-way mechanism only usable to sanction parties with deep pockets.
H.R. Rep. No. 104-369, supra note , at 738–39. The Reform Act also required that courts make a finding in all securities fraud litigation as to whether Rule 11 has been violated. 15 U.S.C. § 77q.
[143] . Fed. R. Civ. P. 11(c)(2).
[144] . The Advisory Committee Notes to FRCP 11 list factors a court should consider in determining whether to impose sanctions and what sanctions to impose. Charles Alan Wright & Arthur R. Miller, 5A Federal Practice and Procedure § 1336 (2d ed. 1990 & Supp. 2001). A number of these factors would encourage nonmonetary sanctions or sanctions in an amount other than attorneys fees.
[145] . Other sanctions issued include cautions or reprimands, circulation of a court’s FRCP 11 opinion, required representation of pro se plaintiffs, etc. Id.
[147] . See 15 U.S.C. §§ 77z-1, 78u-4. The presumption that full reimbursement of the injured party’s attorneys fees is the appropriate sanction is rebuttable, with proof "that (i) the violation was de minimus; or (ii) the imposition of fees and costs would impose an undue burden and be unjust, and it would not impose a greater burden for the prevailing party to have to pay those same fees and costs." H.R. Rep. No. 104-369, supra note , at 738–39.
[148] . Congress’ goal in passing these class action reforms was to encourage institutional investors to seek and be selected by courts as class representatives. Congress sought to discourage professional plaintiffs who own a nominal number of shares in a wide array of public companies. H.R. Rep. No. 104-369, supra note , at 731.
[149] . 15 U.S.C. §§ 77z-1(a)(3)(B)(iii)(I)(bb), 78u-4(a)(3)(B).
[150] . Id. §§ 77z-1(a)(3)(B)(v); 21D, 78u-4(a)(3)(B)(iii)(v).
[151] . Id. §§ 77z-1(a)(2)(A)(i),(ii),(iii), 78u-4(a)(2).
[152] . Id.§§ 77z-1(a)(3)(B)(vi), 78u-4(a)(3)(B)(6).
[153] . Id. §§ 77z-1(a)(4), 78u-4(a)(4).
[154] . Without addressing the merits of the PSLRA’s reforms regarding class action plaintiffs and plaintiffs’ counsel, it appears that these reforms have discouraged some plaintiff attorneys who heretofore have represented "professional plaintiffs." H.R. Rep. No. 104-369, supra note , at
731–34. A study of securities fraud litigation after the PSLRA showed that experienced securities plaintiffs’ firms increased their share of securities litigation. For example, prior to the PSLRA, the appearance ratio of Milberg Weiss Bershad Hynes & Lerach, "[t]he dominant plaintiffs’ class action law firm," was approximately 31%. By 1998 Milberg Weiss’s appearance ratio stood at approximately 59% nationwide and 82% in California. Coughlin, supra note , at 19–20. Presumably this is due in part to Milberg Weiss’s ability to "finance the delays associated with the slower procedures under the Reform Act." Id. at 20.
[155] . H.R. Rep. No. 104-369, supra note , at 730.
[156] . See id. Mukesh Bajaj, Sumon C. Mazumadar & Atulya Sarin, Securities Class Action Settlements, An Empirical Analysis 14 tbl.1 (2000). There was a slight decrease of such actions in 1996, the year after passage of the PSLRA, but the number rebounded thereafter, reaching an all-time high in 1998. See also Michael A. Perino, A Census of Securities Class Action Litigation Reform Act of 1995, 1015 PLI/Corp. 1043, 1046 (1997) (reaching the same conclusion that litigation rates have remained stable before and after the PSLRA, but using the number of issuers sued rather than complaints filed).
[157] . See supra note and accompanying text, and infra Appendix B-2.
[158] . Bajaj et. al., supra note , at 5. This study was comparing the dismissal rates pre- and post-passage of the PSLRA. The study found that the PSLRA appeared to have enhanced the quality of securities class actions if one measures quality by the percentage of dismissed cases. Looking at the period prior to the effective date of the PSLRA, the study found that 10.89% of securities fraud class actions filed were dismissed (within four years of filing) and 11.24% of cases were dismissed (within five years). Because the Bajaj-Mazumbar-Sarin study was done in 2000, it was too soon after passage of the PSLRA for the study to assess five-year dismissal rates, and thus the Study only looked at four-year dismissal rates. Id. at n.4. The study noted that it is possible that the four-year post-PSLRA reduced dismissal rate is due to other factors such as the delay occasioned by the PSLRA in securities private actions. Kevin P. Roddy & Hagen Berman, "What’s New From the Front?" This Litigation Experience of Four and One-Half Years Under the Private Securities Litigation Reform Act of 1995, SF05 ALI-ABA 37, 43 (2000) (discussing how the PSLRA has caused "procedural skirmishing" in securities class actions "adding time and expense" to such cases). See also id. at 52. Nevertheless for purposes of comparison to RICO dismissal rates, either the pre- or post-PSLRA dismissal rates are impressive.
[159] . Data for securities class actions between 1987 and 1990 are from Class Action Reports, A Review of Class Actions Decisions (Table 4, Securities). Data for securities class actions between 1991 and 2000, are from Stanford law School, Securities Class Action Clearinghouse (Jan. 30, 2002).
[160] . Letter from the U.S. Department of Justice, Environment and Natural Resources Division, to Author, Response to FOIA Request FOIA-2001-00144 (Oct. 30, 2001) (on file with author).
[161] . Letter from U.S. Department of Justice, to Author, Response to FOIA Request 145-FOI-6072 (Oct. 30, 2001) (on file with author).
[162] . Bajaj et. al., supra note , at 10.
[163] . See, e.g., Perino, supra note , at 1046, 1048–50. Pamela J. Roberts & Patrick L. Ridinger, The Private Securities Litigation Reform Act of 1995: Reform or Fiction, 9 S.C. Law 41 (1998). This trend of switching from federal to state court may be stymied by passage, in 1998, of the Securities Litigation Uniform Standards Act, Pub. L. 105-353, 112 Stat. 3227 (1998), (codified at 15 U.S.C. § 33), 15 U.S.C. § 77 (1933) amended by 15 U.S.C. § 77p and § 77v (2001), which attempted to vest exclusive jurisdiction in federal courts over class actions involving federal securities claims. See, e.g., Lasley v. New Eng. Variable Life Ins. Co., 126 F. Supp. 2d 1236, 1237–38 (N.D. Cal. 1999).
[164] . Roddy & Berman, supra note , at 43, 52.
[166] . The first citizen suit provision was enacted in 1970 as part of the Clean Air Act, 42 U.S.C. § 7604 (1995 & Supp. 2001). S. Rep. No. 1196, 91st Cong., 36–37 (1970). See generally Miller, Part I, supra note , at 10310, n.8 (summarizing the statutory evolution of the citizen suit provisions in the Clean Air Act).
[167] . See, e.g., Toxic Substances Control Act ("TSCA"), 15 U.S.C. §§ 2601–19(a) (1998); Endangered Species Act, 16 U.S.C. §§ 1531–40(g) (2000); Surface Mining Control and Reclamation Act, 30 U.S.C. §§ 1201–70 (1986 & Supp. 2001); Water Pollution Prevention and Control Act, known as the Clean Water Act ("CWA") of 1972, 31 U.S.C. §§ 1251–1365 (2001); Navigable Waters Act, 33 U.S.C. §§ 1–1910 (2001); Marine Protection, Research, and Sanctuaries Act ("MPRSA") of 1972, 33 U.S.C. § 1401–15(g) (2001); Deepwater Ports Act of 1974, 33 U.S.C. §§ 1501–15(a) (2001); Act to Prevent Pollution of Ships, 33 U.S.C. §§ 1901–10 (2001); Safe Drinking Water Amendments of 1997, 42 U.S.C. §§ 300f to 300j-8(a) (1991 & Supp. 2001); Noise Control Act ("NCA") of 1972, 42 U.S.C. §§ 4901–11 (1995 & Supp. 2001); Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6901, 6972 (1994); Air Pollution Prevention and Control Act, known as the Clean Air Amendments ("CAA") of 1970, 42 U.S.C. §§ 7401–04 (1995 & Supp. 2001); Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") of 1980, 42 U.S.C. §§ 9601–59 (1995 & Supp. 2001); Emergency Planning and Community Right to Know Act ("EPCRA") of 1986, 42 U.S.C. §§ 11001–046 (1995 & Supp. 2001); Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. §§ 1311–49(a) (1991 & Supp. 2001).
A few major federal environmental statutes do not contain citizen suit provisions. See, e.g., Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. § 136 (1999); Occupational Safety and Health Act ("OSHA") of 1970, 29 U.S.C. § 651 (1999 & Supp. 2001); National Environmental Policy Act of 1969, 42 U.S.C. § 4321 (1994 & Supp. 2001); Federal Land Policy and Management Act of 1976, 43 U.S.C. § 1701 (1986 & Supp. 2001). See, e.g., Magnuson-Moss Act of 1975, 15 U.S.C. § 57(a)(e)(1)(A) (1997); Consumer Product Safety Act of 1972, 15 U.S.C. § 2060(a) (1998).
[168] . 42 U.S.C. § 6972 (1994).
[169] . Jerry L. Mashaw, Greed, Chaos and Governance 46, 87, 118, 200, 207 (1997).
[170] . Senator Muskie, the major proponent of the Clean Air Act citizen suit provisions, argued, for example, that citizen suits would motivate agencies to do their jobs and would supplement governmental resources: "I think it is too much to presume that, however well staffed or well intentioned these enforcement agencies, they will be able to monitor the potential violations of the requirements [of the Clean Air Act]." Nat’l Res. Def. Council, Inc. v. Train, 510 F.2d 692, 723, 727 (1975). Senator Hart agreed: "The basic argument for the provision is plain: namely, the Government simply is not equipped to take court action against the numerous violations of legislation of this type [environmental laws] which are likely to occur." Id. at 728.
[171] . For one of the early discussions of how a citizen suit model could implement concerns identified in public choice theory, see generally Joseph Sax, Defending the Environment: A Strategy for Citizen Action (1971). See also Boyer & Meidinger, supra note , at 836, 843; Lehner, supra note , at 4; Miller, Part I, supra note , at 10310; Richard B. Stewart, Reformation of American Administrative Law, 88 Harv. L. Rev. 1667 (1975).
[172] . See Hodas, supra note .
[173] . United States Census Bureau, Statistical Abstract of the United States: 2000, Geography and Environment 227 No. 380 (2000).
[174] . Toxic Release Inventory, 1999 Executive Summary, Tbl. E-1 (1999).
[175] . Environmental Working Group, Dishonorable Discharge, Toxic Pollution of America’s Waters, 1, 5 (1996); Natural Resources Defense Council, Testing the Waters vi(11th ed. 2001).
[176] . National Resources Defense Council, supra note at vi.
[177] . See Hodas, supra note , at 1649. Cf. id. at 1574, 1589.
[178] . Water Pollution Prevention and Control Act of 1991: Hearings on S. 1081 Before the Subcomm. on Environmental Protection of the Senate Comm. on Environment and Public Works, 102d Cong., 687 (1991) [hereinafter S. 1081 Hearings].
[179] . Hodas, supra note , at 1609. According to the EPA, Inspector General penalties issued to violators by both the States and the EPA are so minimal that they "encourage rather than deter non-compliance." S. 1081 Hearings, supra note , at 687 (statement of John Martin).
[180] . See, e.g., Clean Air Amendments, 42 U.S.C. §§ 7604(a), 7602(e) (1995); Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9659(a) (1995); Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11046(a)(1) (1995). "Person" is defined in most environmental statutes to include:
individual, corporation, partnership, trust, association, or any other private entity; or any officer, employee, agent, department, or instrumentality of the Federal Government, of any State, municipality, or political subdivision of a State, or of any foreign government; any State, municipality, or political subdivision of a State; or any other entity subject to the jurisdiction of the United States.
Endangered Species Act, 16 U.S.C. § 1532(13) (2000). See also Clean Air Amendments, Safe Drinking Water Act Amendments, 42 U.S.C. § 300f(12) (1991 & Supp. 2001); Solid Waste Disposal Act, 42 U.S.C. § 6903(15) (1995); 42 U.S.C. § 7602(e) (1995); Noise Control Act, 42 U.S.C. § 4902(2) (1995).
There are some statutory variations in the requirements for plaintiffs. For example, the Clean Water Act specifies that "any citizen" is entitled to bring the suit, 33 U.S.C. § 1365(a) (1995), and defines "citizen" as "a person or persons having an interest which is or may be adversely affected." Id. § 1365(g). Similarly, the Navigation and Navigable Waters Act requires that the plaintiff must be someone who has an "interest which is, or can be, adversely affected" by the statutory violation, 33 U.S.C. § 1910 (2001). These statutory definitions are reflections of the Supreme Court’s ruling in Sierra Club v. Morton, 405 U.S. 727 (1972), which held that an organization has no standing under the citizen suit provisions of environmental statutes unless it represents members who have been injured. Id. at 739. Qualifying injuries include aesthetic, conservational and recreational injuries. Chesapeake Bay Found. v. Am. Recovery Co., 769 F.2d 207, 209 (4th Cir. 1985).
There has been considerable attention in recent years to the standing requirement for citizen suit plaintiffs. See, e.g., Friends of the Earth, Inc. v. Laidlaw Envt’l Serv., Inc., 528 U.S. 167, 181 (2000); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992) (specifying that relevant injury is to a plaintiff who can show that its members:
(1) [have] suffered an ‘injury in fact’ that is (a) concrete and particularized and (b) actual and imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant, and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision
and that relevant injury is not to the environment); Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888–89 (1990) (Lujan I) (noting that the adverse effect to "recreational use and aesthetic enjoyment by some members of plaintiff group is within the zone of interest of the relevant citizen suit provisions so as to confer standing but the allegations of adverse effect must be specifically alleged"); Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 484 U.S. 49, 64 (1987) (holding that standing does not exist for wholly past violations but does exist when plaintiffs make a good faith allegation of continuous or intermittent violations). In Laidlaw, the Court held that although citizen suit plaintiffs may not sue for wholly past violations, they do have standing to sue for violations "that are ongoing at the time of the complaint and that could continue into the future if undeterred." 528 U.S. at 188.
[181] . Eligible defendants encompass individuals and fictional entities, including federal and state governmental agencies. Most citizen suit provisions provide that eligible defendants include "any person alleged to be in violation of the provisions of this chapter, or regulations issued hereunder." See, e.g., Act to Prevent Pollution of Ships, 33 U.S.C. § 1910(a)(9) (2001).
[182] . 33 U.S.C. § 1365(a)(g) (1995).
[183] . The Environmental Law Institute ("ELI"), at the request of the EPA, examined citizen suits brought for alleged violations of environmental laws. The ELI reviewed citizen suits filed and resolved from 1978 through April 30, 1984. E.L.I., Citizen Suits, supra note , at I-1, I-2. Although dated, ELI’s study is the most comprehensive review of citizen suits available. It found that most citizen suits (162 out of 214 CAA citizen suits) had been brought by "a coalition of national regional environmental groups." Id. at vi. See also Roberta J. Borchardt, Lujan v. Defenders of Wildlife: Unwarranted Judicial Interference With Congressional Power and Environmental Protection, 1993 Wis. L. Rev. 1337, 1362–64; Greve, supra note , at 341–42, 351 ("The vast majority of private enforcement actions are brought by environmental advocacy groups."). See also Jenny R. Rubin, Rule 68: A Red Herring in Environmental Citizen Suits, 12 Geo. J. Legal Ethics 849, 855–56 (1999).
[184] . In Bennett v. Spear, 520 U.S. 154 (1997), the Supreme Court held that those challenging the Endangered Species Act ("ESA") as overly protective had standing to sue under citizen suit provisions just as plaintiffs who sued under such provisions seeking greater environmental protection did. At issue in Spear were regulations limiting water levels in northern Californian lakes and rivers so as to protect two varieties of endangered fish. 520 U.S. at 157–58. Plaintiffs, ranchers, and irrigation districts, sued under the citizen suit provisions of the ESA, challenging the restricted water levels as inappropriate. The lower courts dismissed the plaintiffs’ suit on the ground that plaintiffs were not within the "zone of interests sought to be protected by the ESA." Id. at 161. Reversing, the Supreme Court held that citizen suit provisions that apply to "any person" are not just for "environmentalists" who assert "underenforcement" of environmental laws but also for those who allege "overenforcement." Id. at 166.
"An attorney who has brought a number of Clean Water Act citizen suits estimated his litigation costs in terms of staff time. He said that he has used 4–5 full-time lawyers to handle 25 suits, and he ‘could probably use 6 or 7.’ He noted that he and his associates have expended approximately 3 1/2 lawyer-years on these cases over the last year and a half, with expenses ‘in the $25,000 range’ and nothing to show for it yet. . . .
[Another] attorney who worked on Clean Air Act [citizen] suits for a national environmental organization noted that it took 4–5 months of work simply to investigate potential violations."
E.L.I., Citizen Suits, supra note , at V-25 to V-26.
[187] . The language of the Navigation and Navigable Waters Act is typical. Suits are authorized "against any person alleged to be in violation of the provisions of this chapter, or regulations issued hereunder [and] against the Secretary [of War] where there is alleged a failure of the Secretary to perform any act or duty under this chapter which is not discretionary with the Secretary." 33 U.S.C. § 1910(a) (2001).
[188] . See Miccogokee Tribe of Indians v. EPA, 105 F.3d 599, 601 (11th Cir. 1997); Scott v. City of Hammond, 741 F.2d 992, 994–98 (7th Cir. 1984).
[189] . Miccogokee, 105 F.3d at 601.
[190] . Scott, 741 F.2d at 994.
[191] . Am. Lung Ass’n. v. Reilly, 962 F.2d 258, 259 (2d Cir. 1992).
[192] . Idaho Conservation League v. Browner, 968 F. Supp. 546, 547–49 (W.D. Wash. 1997).
[193] . See Boyer & Meidinger, supra note , at 836–39; Miller, Part I, supra note , at 10310; Miller, Part III, supra note , at 10425.
[194] . Such actions may be unique to the environmental area because of the "absolutist" nature of environmental laws which are not fully enforceable even in theory. For example, the Clean Water Act calls for zero discharge of pollutants into navigable waters by 1985. 33 U.S.C. § 1251(a) (2001).
[195] . See, e.g., Id. § 1365(b); Clean Air Act, 42 U.S.C. § 7604(b) (1995). Such notice is not required if the citizen suit is brought against the EPA for failure to perform a non-discretionary duty. A Legislative History of the Water Pollution Control Act Amendments of 1972, 93rd Cong., 1498 (1973).
[196] . See Hallstrom v. Tillamook Co., 493 U.S. 20, 29 (1989). See also Boyer & Meidinger, supra note , at 849; Robert D. Snook, Citizen Suits After Hallstrom: Can A Plaintiff Avoid Dismissal After Failing to Give Sixty Days Notice?, 13 W. New Eng. L. Rev. 1, 6–8 (1991).
[197] . See, e.g., Blomquist, supra note , at 395–96; Miller, Part II, supra note , at 10065–66; Charles S. Steincamp, Citizenship: A Discussion of Environmental Citizen Suits, 39 Washburn L.J. 72, 75 (1999). Numerous issues arise regarding what constitutes adequate notice. See, e.g., Monongahela Power Co. v. Reilly, 980 F.2d 272, 275 (4th Cir. 1992); Wash. Trout v. McCain Foods, Inc., 45 F.3d 1351, 1352–53 (9th Cir. 1995); Cmty. of Cambridge Envt’l Health and Cmty. Dev. Group v. City of Cambridge, 115 F. Supp. 2d 550, 558–59 (D. Md. 2000).
[198] . According to some citizen suit observers, notice to offenders and enforcers provides the opportunity for collusive tactics that defeat citizen suit jurisdiction. Concerned about attracting businesses by presenting an industry-friendly environment, states have entered compliance orders against the putative defendants named in the sixty-day notice by citizens. The compliance orders allow the company to delay compliance and avoid penalties but suffice under the "diligent prosecution" provision, given EPA’s minimal requirements and inability to monitor compliance, in preempting citizen suits. Hodas, supra note , at 1622.
[199] . 33 U.S.C. § 1365(b)(1)(B); 42 U.S.C. § 7604(b)(1)(B) (1995); Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9659(d)(2) (1995).
[200] . See Boyer & Meidinger, supra note , at 849, 897. See also Gwaltney of Smithfield, Ltd. v. Chesapeake Bay, 484 U.S. 49, 60 (1987) (holding that citizen suits are meant to supplement not supplant government action); Derek Dickinson, Is "Diligent Prosecution of an Action in a Court" Required to Preempt Citizen Suits Under the Major Federal Environmental Statutes?, 38 Wm. & Mary L. Rev. 1545, 1553, 1571–82 (1997) (finding that the diligent prosecution provision is to ensure that the agency is acting to protect the public, to prevent duplicate enforcement, and to prevent inconsistent enforcement); Lynn Wright & Steven D. Schell, Clean Water Act Citizen Suits: Litigation Strategies & Defenses, SE 98 ALI-ABA 1087, 1093 (2000) (reasoning that the purpose of diligent prosecution provisions is to prevent duplicate litigation and preserve the government’s role as primary enforcer).
[201] . See Boyer & Meidinger, supra note , at 849–50; Miller, Part II, supra note , at 10068. Issues litigated include what constitutes "diligent prosecution," see, e.g., Ark. Wildlife Fed. v. ICI Amer., Inc., 29 F.3d 376, 379–81 (1994), whether the "diligent prosecution" had commenced at the time the citizen suit was filed, id., and whether the plaintiff in a citizen suit has met his or her burden of proving lack of diligent prosecution, Williams Pipeline Co. v. Bayer Corp., 964 F. Supp. 1300, 1324 (1997); Friends of the Earth, Inc. v. Laidlaw Envt’l Serv., Inc., 890 F. Supp. 470, 486–87 (D.S.C. 1995).
[202] . Boyer & Meidinger, supra note , at 898–99.
[203] . Because this provision applies only when the government agency initiates criminal or civil actions in court, it can limit the EPA’s, or the relevant agency’s, flexibility to deal with polluters by forcing these agencies to initiate court proceedings when they would otherwise pursue informal negotiations or agency proceedings. See Boyer & Meidinger, supra note , at 901–02.
[204] . Safe Drinking Water Act, 42 U.S.C. § 300j-8(c) (1991 & Supp. 2001); Noise Control Act, 42 U.S.C. § 4911(c) (1995); Outer Continental Shelf Lands Act, 43 U.S.C. § 1349(a)(4) (1991). For examples of statutes that do not give this right of intervention, see Deep Seabed Hard Mineral Resources Act, 30 U.S.C. § 1427 (1986).
[205] . See, e.g., CWA, 33 U.S.C. § 1365(b)(1)(B) (2001); SDWA, 42 U.S.C. § 300j-8(b)(1)(B) (1991 & Supp. 2001); CAA, 42 U.S.C. § 7604(b)(1)(B) (1995). For examples of statutes that do not grant the right of intervention, see ESA, 16 U.S.C. § 1540(g) (2000); Ocean Dumping Act, 33 U.S.C. § 1415(g) (2001). Two statutes, the Deepwater Ports Act, 33 U.S.C. § 1516 (2001), and the RCRA, 42 U.S.C. § 7002 (1995), appear to permit intervention of right for citizens in criminal actions filed by the federal government. In addition, EPA regulations require states to permit intervention of right in enforcement proceedings to obtain approval of permits sought under the CWA, RCRA, and SDWA. The "persons" permitted the right of intervention include individuals, fictional entities, and governmental entities.
[206] . Axline, supra note , § 5.02.
[207] . FRCP 24 provides for intervention:
when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant’s ability to protect that interest, unless the applicant’s interest is adequately represented by existing parties.
Fed. R. Civ. P. 24(a)(2).
[208] . For example, CERCLA provides that courts:
shall have jurisdiction in [citizen suit] actions . . . to enforce the standard, regulation, condition, requirement, or order concerned . . . , to order such action as may be necessary to correct the violation, . . . . The . . . court shall have jurisdiction . . . to order the President or other officer to perform the act or duty concerned.
42 U.S.C. § 9659(c) (1995). Injunctive relief ordered in environmental citizen suits includes mandates to capture and test water runoff, NRDC v. Southwest Marine, Inc., 242 F.3d 1163, 1168–69 (9th Cir. 2001); prevention of the shipping of nuclear rods from Taiwan through a port in Virginia, Sierra Club v. Watkins, 808 F. Supp. 852, 875 (D.D.C. 1991); and termination of future discharge of pollutants in New Jersey Bay, Pub. Interest Research Group v. Star Enter., 771 F. Supp. 655, 669–70 (D.N.J. 1991).
[209] . CWA, 33 U.S.C. § 1365(d) (2001); CAA, 42 U.S.C. § 7604(d) (1995); CERCLA, 42 U.S.C. § 9659(f) (1995).
[210] . To obtain an award of attorneys fees, an intervener in a citizen suit must make a "unique contribution" to the litigation. See, e.g., Ala. Power Co. v. Gorsuch, 672 F.2d 1, 4 (D.C. Cir. 1982); Commissioner’s Court of Medina Co., 683 F.2d 435, 443 (D.C. Cir. 1982) (interpreting similar provision under the Voting Rights Act); Nat’l Res. Def. Council v. Costle, 8 Envtl. L. Rep. 20881, 20884 (D.D.C. 1978). See generally Miller, Part III, supra note , at 10413.
[211] . Defendants receive attorneys fees if the action brought was obviously frivolous or meant to harass. See Consol. Edison Co. v. Realty Invs. Assocs., 524 F. Supp. 150, 152–53 (S.D.N.Y. 1981); Costle, 8 Envtl. L. Rep., at 20882.
[212] . The citizen suit provisions do not define "reasonable," but case law developed under the Civil Rights Act, 42 U.S.C. § 1983 (1994 & Supp. 2001), provides guidance that courts use in making awards in citizen suits. League of United Latin Am. Citizens #4553 v. Roscoe Indep. Sch. Dist., 119 F.3d 1228, 1234 (5th Cir. 1997); Watkins v. Fordice, 7 F.3d 453, 457 (5th Cir. 1993). See also Hensley v. Eckerhart, 461 U.S. 424, 433–34 (8th Cir. 1983) (reasoning that the most beneficial method in which to calculate the amount of a reasonable fee is by calculating the number of hours and multiplying that by a reasonable rate.); Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717–20 (5th Cir. 1974).
[213] . To obtain recovery of fees and costs, a party need not prevail on every claim or issue but need only "substantially prevail." Awards are limited to prevailing or substantially prevailing parties. See 33 U.S.C. § 1365(d) (2001); EPCRA, 42 U.S.C. § 11046(f) (1995); RCRA, 42 U.S.C. § 6972(e) (1995); 42 U.S.C. § 9659(f); Ruckelshaus v. Sierra Club, 463 U.S. 680, 684–86 (1983). A favorable consent decree, see, e.g., Citizens Coordinating Comm. on Friendship Heights v. Wa. Metro. Area Transit Auth., 568 F. Supp. 825, 827 (D.D.C. 1983), even obtaining relief that is rendered moot soon thereafter, cf. Nat’l Black Police Ass’n v. D.C. Bd. of Elections, 168 F.3d 525, 528 (D.C. Cir. 1999), may qualify for attorney fee awards. Fees may be awarded against plaintiffs, defendants and interveners. Fees may not be awarded against federal or state governments unless these entities have waived sovereign immunity, which is rarely done.
[214] . See, e.g., 33 U.S.C. § 1365(a) (2001); 42 U.S.C. § 6972(a) (1995).
[215] . See generally Karl S. Coplan, Private Enforcement, ALI-ABA, 1037 (June 24, 1996); Marcia R. Gelpe & Janis L. Barnes, Penalties in Settlements of Citizens Suits Under the Clean Water Act, 16 Wm. Mitchell L. Rev. 1025, 1029–32 (1990); Greve, Private Enforcement, supra note , at 356; Eileen Gauna, Federal Environmental Citizen Provisions: Obstacles and Incentives on the Road to Environmental Justice, 22 Ecology L.Q. 1, 47–49 (1995); Joel S. Hirschhorn, Pollution Prevention Comes of Age, 29 Ga. L. Rev. 325, 331 (1995); Leslie J. Kaschak, Supplemental Environmental Projects: Evolution of a Policy, 2 Envtl. L. 465, 471 (1996); David S. Mann, Comment, Polluter-Financed Environmentally Beneficial Expenditures: Effective Use of Improper Abuse of Citizen Suits Under the Clean Water Act?, 21 Envtl. L.J. 175, 175 (1991); Jeffrey G. Miller, Private Enforcement of Federal Pollution Control Laws: The Citizen Suit Provisions, SE 98 ALI-ABA 303, 321 (2000); Ann Powers, Private Enforcement of Federal Pollution Control Laws: The Citizen Suit Provisions, CA 37 ALI-ABA 815 (1996); Timothy A. Wilkins & Terrell E. Hunt, Agency Discretion and Advances in Regulatory Theory: Flexible Agency Approaches Toward the Regulated Community As Model for the Congress-Agency Relations, 63 Geo. Wash. L. Rev. 479, 535–36 (1995). Cf. William H. Lewis, Environmentalists’ Authority to Sue Industry for Civil Penalties Is Unconstitutional Under Separation of Powers Doctrine, 16 Envtl. L. Rep. 10101, 10101–02 (1986) (discussing constitutionality of private justice actions with some references to payments by defendants to private organizations).
[216] . See Greve, supra note , at 358; Mann, supra note , at 178. See, e.g., Sierra Club v. Elec. Controls Design, 909 F.2d 1350, 1354 (9th Cir. 1990) (distinguishing payments to third party environmental groups as pursuant to consent decree from penalties); Pa. Envtl. Def. Found. v. Bellefonte Borough, 718 F. Supp. 431, 436–37 (M.D. Pa. 1989) (stating that pursuant to consent decree, defendant in citizen suit case will contribute $35,000 to a private organization, Trout Unlimited, which will use funds "on projects on Spring Creek that meet the goals of the Federal Clean Water Act."); Nat’l Res. Def. Council, Inc. v. Interstate Paper Corp. (S.D. Ga. 1988), 19 Envtl. L. Rep. 20901 (1989) (approving a consent decree, over the DOJ’s objections, which includes payments to the Georgia Conservancy for education of school children). For a strong attack on permitting contributions to private organizations as part of settlements in citizen suits, see Greve, supra note , at 341–42, 344, 368 (arguing that allowing such contributions has created a "partisan . . . environmentalist enforcement cartel").
[217] . At least the aggregate amount per year appears to be large ($4 million, $1.1 million, $1.5 million). See Appendices C-7 and C-8. The U.S. Department of Justice, Environmental and Natural Resources Division maintains statistics on citizen suits in a way that combines monies paid to state entities and monies paid to credit funds into one category, thus making it impossible, from these statistics, to determine the exact amount of credit funds generated from citizen suits in any one year or any one payment. See Letter from the U.S. Dept. of Justice, Envir. & Nat’l Res. Div., to Author, Response to FOIA Request FOIA-2001-00144 (Oct. 30, 2001); Telephone Conversation with Amy Haskell, Paralegal Specialist (Dec. 6, 2001). Recognizing this limitation, DOJ statistics are still revealing. From 1983 to 1989, there were no payments resulting from citizen suits to anyone except the federal treasury. Id. Payments to other sources (state entities and credit funds) began in 1990 with relatively small amounts and generally remained small (that is, $32,500 in 1990; $0 in 1991 and 1992; $20,000 in 1993). Id. The amounts payable to non-Federal-Treasury sources were exceptional (that is, $4 million in 1994; $1.6 million in 1996). Id.
[218] . See Appendices C-7 and C-8. Note the caveat about the DOJ statistics, supra note .
[219] . See Daniel Riesel, Environmental Enforcement: Civil and Criminal § 15.01 (LJSP 2000); Jeannette L. Austin, Comment, The Rise of Citizen-Suit Enforcement in Environmental Law: Reconciling Private and Public Attorneys General, 81 Nw. U. L. Rev. 220, 221 (1987); Boyer & Meidinger, supra note , at 957–64; E.L.I., Citizen Suits, supra note , at V-2; Kerry D. Florio, Comment, Attorneys’ Fees in Environmental Citizen Suits: Should Prevailing Defendants Recover?, B.C. Envtl. Aff. L. Rev. 707, 709 (2000); Gitlen, supra note , at 17; Miller, Part III, supra note , at 10424.
[220] . Lewis, supra note , at 10, 101. See Mann, supra note , at 176; Gelpe & Barnes, supra note , at 1028–29. For example, in Environmental Defense Fund v. Lamphier, two nonprofit organizations brought a citizen suit alleging violations of RCRA by the Lamphiers who owned a farm in Virginia. 12 E.L.R. 20843 (E.D. Va. 1982), aff’d 714 F.2d 331 (4th Cir. 1983). The Lamphiers were notorious because of the water, air and odor pollution they created by burying hazardous wastes on their farm. The State of Virginia intervened, adding claims for damage under Superfund and various pendant state claims. The Lamphiers were found to be in violation after a two-day trial, and the judgment against them was affirmed on appeal. As the ELI noted, in this case, the "plaintiffs obtained their objective" of getting the state to become an active enforcer that ultimately policed the Lamphier site. E.L.I., Citizen Suits, supra note , at IV-38.
[221] . See Environmental Protection Agency, Enforcement in the 1990’s Project: Recommendation of the Analytical Workgroups, Rep. No. 22E-2000, 5–48 (Mar. 30, 1990) [hereinafter EPA, Enforcement in the 1990’s].
[222] . See id. at Appendix C, 5–48.
[223] . See E.L.I., Citizen Suits, supra note , at I-5.
[225] . Miller, Part III, supra note , at 822.
[226] . EPA, Enforcement in the 1990’s, supra note , at 5–48 (attachment C). Developments after the enactment of the CAA confirmed that citizen suits can be an important supplement to government efforts when, for whatever reason, enforcement actions overall fall. When EPA enforcement efforts fell off in the early 1980s, for example, there was a dramatic increase in citizen suits. E.L.I., Citizen Suits, supra note , at III-35, viii. Data surveyed by the Environmental Law Institute showed that when case referrals from EPA Regions to Headquarters fell from 320 referrals in fiscal year 1978 to a low of 93 referrals in fiscal year 1980, id. at iii–23, and administrative orders issued by the EPA fell from 2,139 in fiscal year 1979 to 496 in fiscal year 1983, id. at III-32, citizen suits increased from seven filings in fiscal year 1978 to 132 in fiscal year 1983, id. Even acknowledging the inadequacy of counting cases to account for quality issues, this data indicate that citizen suits filled a gap in enforcement resources.
[227] . EPA, Enforcement in the 1990’s, supra note , at 5–48 (appendix C).
[228] . S093587, 2001 Cal. LEXIS 1229 (2001). See E.L.I., Citizen Suits, supra note , at IV-11 to 17.
[229] . The National Pollutant Discharge Elimination System ("NPDES") was established under the Clean Water Act, 33 U.S.C. § 1342. An NPDES permit authorizes the discharge of pollutants in accordance with conditions specified in the permit.
[230] . E.L.I., supra note , at IV-16.
[231] . Id. at 1-6, V-2. See also Hodas, supra note , at 1655–56.
[232] . As the ELI noted in its comprehensive review of citizen suits, "The major impediment to wider use of citizen suits under the Clean Air Act and other environmental statutes is the lack of reliable and publicly available data indicating whether a firm is in compliance." E.L.I., Citizen Suits, supra note , at viii, IV-7.
[233] . Hodas, supra note , at 1585. Audits by the EPA Inspector General have determined that the EPA does not meet its own data quality pollution programs. Id. at 1605, 1617.
[234] . 42 U.S.C. § 6901 (1995).
[235] . Hodas, supra note , at 1605, 1617.
[236] . United States Census Bureau, Statistical Abstract of the United States, Geography and Environment, 227 No. 380 (2000).
[237] . National Resources Defense Council, Testing the Waters vi (2001).
[238] . Toxic Release Inventory, Executive Summary, Table E-1 (1999).
[239] . See infra text and accompanying notes . See also Section III.A.1.b.(1).
[240] . See infra text and accompanying notes –38.
[241] . Appendices C-4, C-5, C-6.
[242] . Appendices C-1, C-2, C-3.
[243] . 132 Cong. Rec. H6482 (daily ed. Sept 9, 1986) (statement of Rep. Berman). According to the 1863 investigation, one thousand mules delivered to the Union army were "unfit for the service, and almost worthless, for being too old or too young, blind, weak-eyed, damaged, worn out or diseased." Id. See generally False Claims Act Amendments: Hearings on H.R. 3334 Before the Subcomm. on Admin. Law & Gov’t Relations of the House Comm. on the Judiciary, 99th Cong. 1 (1986) [hereinafter Hearings: False Claims Act Amendments]; Note, The History and Development of Qui Tam, 1972 Wash. U. L.Q. 81 (1972) [hereinafter History of Qui Tam]; Beck, supra note , at 539.
[244] . Act of March 2, 1863, ch. 67, 12 Stat. 696–98.
[245] . S. Rep. 99-345, reprinted in 1986 U.S.C.C.A.N. 5266, 5273.
[246] . U.S. Department of Justice fiscal year 2000 statistics indicate that in 1998, 61% of FCA qui tam cases filed involved the U.S. Department of Health and Human Services as the client agency. Boese, supra note , at appendix B.
[247] . S. Rep. No. 345, reprinted in 1986 U.S.C.C.A.N. 5266, 5267.
[248] . In fiscal year 2000, the second largest category of fraud recoveries ($230 million) came from "companies alleged to have underpaid royalties on such production, including $95 million from Chevron, $56 million from Shell, $32 million from BP Amoco, $26 million from Conoco and $11.9 million from Devon Energy." Press Release, supra note .
[249] . Vt. Agency of Nat’l Res. v. United States ex rel. Stevens, 529 U.S. 765, 768, n.1 (2000); History of Qui Tam, supra note , (citing 3 W. Blackstone, Commentaries on the Laws of England 160 (1st Ed. 1768)).
[250] . 31 U.S.C. § 3730 (2001). There are seven types of conduct covered by the False Claims Act, all involving the submission of false claims to the federal government: the conspiracy to do so; the submission of a false statement in support of a claim; or the making, using, or causing to be made or used a "false record or statement to conceal, avoid or decrease an obligation to pay to transmit money or property to the Government. See, e.g., 31 U.S.C. § 3729(a) (2001); Pickens v. Kanawha River Towing, 916 F. Supp. 702, 705 (S.D. Ohio 1996). This is also known as a "reverse false claim."
[251] . John T. Boese, Civil False Claims and Qui Tam Actions 1–5 (Aspen 2001) [hereinafter, Boese, False Claims]. Boese’s treatise is an excellent resource on the False Claims Act.
[252] . Relators may collect up to 30% of the total recovery, and barring a few limited situations set forth in the FCA, are guaranteed at least 15%. 31 U.S.C. § 3730(d). The recoveries are statutorily set treble damages (with double damages in instances of sufficient cooperation) and civil penalties at amounts of $5500 to $11,000. Id. § 3729(a). The statute specifies penalties of $5,000 to $10,000 but in 1999, the DOJ increased the penalty amount for all claims specified after Sept. 29, 1999 pursuant to the Debt Collection Improvement Act of 1996, Pub. L. No. 104-134, 64 Fed. Reg.
47099–104.
[253] . In Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, (2000), the Supreme Court held "that adequate basis for the relator’s suit . . . is to be found in the doctrine that the assignee of a claim has standing to assert the injury in fact suffered by the assignor. Id. at 773. The FCA can reasonably be regarded as effecting a partial assignment of the Government’s damages claim.
[254] . Act of March 2, 1863, at ch. 67, 12 Stat. 696–98 (1863).
[255] . Rev. Stat. 3490–94 and 5438 (1875). The civil False Claims Act is now found at 31 U.S.C. §§ 3729–3731 (2001). The criminal provisions are found, most notably, at 18 U.S.C. §§ 286, 287, 1001, 1002 (2000).
[256] . Act of March 2, 1863 at ch. 67, 12 Stat. 696–98 (1863), amended by Rev. Stat. 3490–94 and 5438 (1875), amended by 89 Cong. Rec. S7606 (Sept 17, 1943), codified at 31 U.S.C. §§ 232–35 (1976), recodified at 31 U.S.C. §§ 3729–31, Pub. L. 97-258, 96 Stat. 978 (1982), amended by Pub. L. 99-562, 100 Stat. 3153 (1986), amended by Pub. L. 103-272, 108 Stat. 1362 (1994).
[257] . For example, the 1943 amendments made it difficult for would-be relators to overcome the jurisdictional bar provision, by prohibiting FCA qui tam lawsuits when federal government personnel are already aware of the false claims even if the putative relator was the one who had informed the federal government about the fraud. Act of Dec. 23, 1943, ch. 377, 57 Stat. 608 (1944). A number of courts also limited use of the FCA in general through their interpretations of the mens rea requirement in the FCA. By 1986, a number of courts had interpreted the FCA’s requirement of "knowledge" as necessitating proof of "specific intent to defraud," see United States v. Mead, 426 F.2d 118, 122 (9th Cir. 1970), or similarly high standard, see United States v. Priola, 272 F.2d 589, 594 (5th Cir. 1959).
[258] . Boese, False Claims, supra note , § 1.03.
[260] . The 1986 amendments increased damages from double to treble and increased penalties from $2000 per false claim between $5000 and $10,000 per false claim. 31 U.S.C. § 3729 (2001). The FCA provides no guidance on the amount of penalties within this range to be assessed. Most courts hold that, barring constitutional problems under the Eighth Amendment’s excessive fine clause, assessment of at least $5000 (now $5500, see supra note ) is not discretionary. United States v. Cabrera-Diaz, No. Civ. 99-2416, 2000 WL 1015966 (D.P.R. June 23, 2000); United States ex rel. Garibaldi v. Orleans Parish Sch. Bd., 46 F. Supp. 2d 546, 565 (E.D. La. 1999). But see United States v. Greenberg, 237 F. Supp. 439, 445 (S.D.N.Y. 1965); United States v. Krizek, 909 F. Supp. 32, 33–34 (D.D.C. 1995) (providing two different calculations of the number of claims in the same case for purposes of establishing liability and penalties), rev’d and remanded 111 F.3d 934, 939–41 (D.C. Cir. 1997) (finding insufficient evidence to support the two different standards, but use of two standards implicitly approved). Cf. Hudson v. United States, 522 U.S. 93, 110–11 (1997).
The 1863 FCA gave the relator 50% of any successful judgment. 12 Stat. 698, § 6 (1863) (current version at 31 U.S.C. § 3729 (2001)). The 1943 Amendment reduced this to 10% maximum if the government intervened and 25% if the government did not, with no guaranteed minimum in any case. In addition, there was no provision for attorneys’ fees and costs. 89 Cong. Rec. S7606. The 1986 Amendments increased the relator’s share, guaranteed a minimum recovery in most cases and provided for attorneys fees and costs. A relator is now guaranteed 15–25% of judgment when the government intervenes, and 25–30% if the government does not intervene. 31 U.S.C.
§§ 3730(d)(1)–(2). The FCA directs the courts to determine the appropriate percentage within the statutory range based upon "the significance of the information and the role of the person bringing the action in advancing the case to litigation." Id. § 3730(d)(1). Legislative history to the Senate version of the 1986 Amendments identifies factors to consider in assessing this percentage. S. Rep. No. 99-345, at 28 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5293. In addition, the DOJ has promulgated factors to consider. DOJ Relator’s Share Guidelines, 11 TAF Q. Rev. 17, 19 (Oct. 1997), available at The amount may be reduced to 10% if the FCA case is based on information additional to that provided by the relator. 31 U.S.C. § 3730(d)(3). Any relator who is convicted of criminal conduct arising from his or her role in the FCA violation receives nothing. Id. § 3730(a)(3). Reasonable attorneys fees and costs are also to be awarded under the 1986 Amendments. Id. §§ 3730(d)(1)–( 2).
[262] . See infra text and accompanying notes –76.
[263] . Prior to the 1986 Amendments, the FCA required that any violation be committed "knowingly" without defining "knowingly." Some courts interpreted the term strictly to require proof of specific intent. See, e.g., United States v. Mead, 426 F.2d 118, 122 (9th Cir. 1970), United States v. Aerodex, Inc. 469 F.2d 1003, 1007 (5th Cir. 1972); United States v. Ueber, 299 F.2d 310, 314 (6th Cir. 1962). Others applied a similarly high standard. See, e.g., United States v. Priola, 272 F.2d 589, 594 (5th Cir. 1959) (interpreting "knowingly" in the FCA as requiring proof of "guilty knowledge of a purpose on the part of [the defendant] to cheat the Government"). The 1986 Amendments defined "knowingly" to include: "(1) actual knowledge of the information, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information," and further specified that "no proof of specific intent to defraud is required." 31 U.S.C. § 3729(b) (2001). The Conference Committee report explained: "The Committee’s interest is not only to adopt a more uniform standard, but a more appropriate standard for remedial actions." S. Rep. No. 345, 99th Cong., 7 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5272.
[264] . Prior to the 1986 amendments, the FCA had a six-year statute of limitations. The 1986 amendments lengthened the statute of limitations to ten years in instances when the government failed to detect the falsity at the time the claims were submitted. Thus, the FCA currently provides that an action may not be brought:
(1) more than 6 years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,
whichever occurs last.
31 U.S.C. § 3731(b). Questions regarding the statute of limitations abound, such as whether the statute begins running on the date the claim is submitted, see, e.g., United States ex rel. Cantekin v. Univ. of Pittsburgh, 192 F.3d 402, 410 (3d Cir. 1999), or the date on which the claim is paid, see, e.g., United States ex rel. Kriendler & Kriendler v. United Tech. Corp. 985 F.2d 1148, 1156–57 (2d Cir. 1993); whether the statute begins running on the date the government guarantees a debt or when the mortgage or lender (the innocent party) makes a claim for reimbursement, see, e.g., United States v. Rivera, 55 F.3d 703, 707–09 (1st Cir. 1995); United States ex rel. Sanders v. E. Ala. Healthcare Auth., 953 F. Supp. 1404, 1412–13 (M.D. Ala. 1996); the amount of due diligence the government must exercise to toll the statute, see, e.g., United States v. Incorporate Vill. of Island Park, 791 F. Supp. 354, 363–64 (E.D.N.Y. 1992).
(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil or administrative hearing, in a congressional administrative or Government [sic, should probably be "General"] Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, ‘original source’ means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.
[268] . Boese, False Claims, supra note , § 1.02.
[269] . Id. Bucy, White Collar Crime, supra note , at 725–26.
[270] . See United States ex rel. State of Wisconsin v. Dean, 729 F.2d 1100, 1104–05 (7th Cir. 1984) (discussing the practical impact of this change). In Dean, the State of Wisconsin brought suit as relator against a physician for filing allegedly false Medicaid claims with the state of Wisconsin. The Seventh Circuit dismissed the lawsuit, finding that Wisconsin was jurisdictionally barred because the United States was "in possession" of the information in the lawsuit at the time the case was filed. This was true. The United States knew of Dr. Dean’s Medicaid fraud, but only because Wisconsin, which had previously convicted Dr. Dean of Medicaid fraud for the same claims alleged to be false in its qui tam action, had provided information about Dr. Dean’s conviction to the Department of Health and Human Resources as required in Medicaid laws. Id. at 1103. Recognizing the unfairness of its decision, the Seventh Circuit concluded its opinion in Dean by suggesting that Congress was the more appropriate body from whom relators should seek relief from an unfair jurisdictional bar provision. Id. at 1103.
[271] . 31 U.S.C. § 3730(e)(4).
[272] . Compare United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1521 (10th Cir. 1996) (information in files potentially available to the public does not activate the jurisdictional bar provisions) with United States ex rel. Stinson v. Prudential Ins. Co., 944 F.2d 1149, 1159–60 (3d Cir. 1991) (information that was discovered in unrelated case that is potentially available activates the jurisdictional bar provision).
[273] . Compare United States ex rel. LeBlanc v. Raytheon Co., Inc., 913 F.2d 17, 20 (1st Cir. 1990) (finding that government employee with responsibility for uncovering fraud cannot qualify as a qui tam relator) with United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1502 (11th Cir. 1991) (noting that government employee may qualify as a relator).
[274] . Compare United States v. John Doe Corp., 960 F.2d 318, 324 (2d Cir. 1992) (barring relator if complaint reflects publicly held information even if relator did not rely upon it or base his or her complaint on it) with United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1349 (4th Cir. 1994) (allowing relator’s complaint even if it reflects publicly held information if the relator received his or her information elsewhere and did not base his or her complaint on the publicly held information).
[275] . Compare United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 16 (2d Cir. 1990) (specifying that to qualify as an "original source" relator must provide the information to the person or entity that makes the information public) with United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1351 (4th Cir. 1994) (rejecting Second Circuit’s position in Long Island as "unpersuasive" and "implausible").
[276] . Although the FCA provides that the first to file a qui tam action is the only relator who qualifies to bring the lawsuit, 31 U.S.C. § 3730(b)(5), many questions remain, such as what occurs when the initial complaint is broad and vague compared to subsequently filed complaints, and how to handle situations where the initial complaint is dismissed and subsequent complaints survive. See Boese, False Claims, supra note , § 4.03[B][2].
[277] . Steve France, The Private War on Pentagon Fraud, 76 ABA Journal 46, 47 (Mar. 1990).
[278] . Letter from the U.S. Department of Justice to Author, FOIA Request 145-FOI-6072 (Oct. 30, 2001) (on file with author).
[279] . See, e.g., Cal. Gov’t Code §§ 12650–55 (West 1992 & Supp. 2001); Fla. Stat. Ann. §§ 68.081–.092 (Harrison 1994 & Supp. 2000); 740 Ill. Comp. Stat. § 175/1-8 (West 1996); Nev. Rev. Stat. Ann. §§ 357.010–.230 (Michie Supp. 1999); Hawaii Revised Statutes ch. 661 (2000); H.B. No. 543, 140th Gen. Assembly (Del. 2000) (to be codified at Title 6, Subtitle II, Ch. 12 of the Del. Code Ann.). Cf. Tenn. Code Ann. § 56-26-401 (Michie 2001); § 71-5-182 (Michie 1995) (health care only); La. Rev. Stat. Ann. 46 §§ 437.2A–.3 (West 1999) (health care only).
[280] . 31 U.S.C. §§ 3729(a)(A), 3730(b). Typical private plaintiffs (known as "relators") include current or former employees, competitors and competitors’ employees, state and local governments, special interest groups (such as "Taxpayers Against Fraud"), attorneys and law firms who discover fraud in the course of representing clients in other matters. Boese, False Claims, supra note , § 4.01[B].
There is no requirement that the relator be injured by the defendant’s action. In 2000, the Supreme Court addressed the standing issue often raised by FCA defendants. The Court held that qui tam relators have standing under Article III even though they may not have been personally harmed or affected by the defendants’ conduct. Recognizing that the federal government, as the damaged party, would have standing, the Court reasoned that "[t]he FCA can reasonably be regarded as effecting a partial assignment of the Government’s damages claim." Vt. Agency of Nat’l Res. v. United States ex rel. Stevens, 529 U.S. 765, 773 (2000). The Court specifically noted that it was not addressing other constitutional arguments sometimes raised by defendants in FCA cases (separation of powers, appointment clause or "take care" clause arguments).
[281] . In Stevens, the Court limited the "persons" who may be sued as defendants under the FCA, holding that states and state entities are not "persons" subject to qui tam liability under the FCA. 529 U.S. at 783. Justice Ginsburg noted in a concurring opinion that the Court’s opinion leaves open the questions whether the term "persons" includes states or state entities when the federal government (rather than a relator) brings the FCA action. Id. at 780. Also, the Stevens opinion left open the question whether other government entities have sovereign immunity from FCA liability. The lower courts have wrestled with this issue, before and after Stevens. See, e.g., United States ex rel. Garibaldi v. Orleans Parish Sch. Bd., 244 F.3d 486, 491 (5th Cir. 2001) (finding that municipal entity has Eleventh Amendment immunity); United States ex rel. Graber v. City and State of New York, 8 F. Supp. 2d 343, 349 (S.D.N.Y. 1998) (reasoning that municipality has immunity under FCA because municipalities are immune from punitive damages and, according to Stevens, the FCA is a punitive statute).
[282] . 31 U.S.C. §§ 3730(b)(2)–(3). The written disclosure to the Government by a relator "of substantially all material evidence and information" helps the government focus its evaluation of the relator’s claims. United States ex rel. Made in the USA Found. v. Billington, 985 F. Supp. 604, 608 (D. Md. 1997); Boese, False Claims, supra note , § 4.04.
[283] . Boese, False Claims, supra note , § 4.05.
[284] . 31 U.S.C.§ 3730(c)(1). This dual-plaintiff system creates interesting dynamics. When the government intervenes, qui tam actions become three-party lawsuits. The co-plaintiffs (the federal government and the relator) are united on some aspects of the litigation (gathering information of fraud, opposing most defense strategies and motions). But the government and relator become pitted against each other when, for example, the government seeks to have the relator jurisdictionally barred, see, e.g., United States ex rel. Fine v. Chevron, 72 F.3d 740, 745 (9th Cir. 1995), or disagrees with the award the relator seeks upon conclusion of the case. See, e.g., United States ex rel. Merena v. SmithKline Beecham Corp., 52 F. Supp. 2d 420, 429–30 (E.D. Pa. 1998); United States v. Gen. Elec., 808 F. Supp. 580, 583–84 (S.D. Ohio 1992).
[285] . 31 U.S.C. § 3730(c)(2). During the litigation, the relator’s role may be restricted by the court "[u]pon a showing by the Government that the unrestricted participation during the course of the litigation by the person initiating the action would interfere with or unduly delay the Government’s prosecution of the case, or would be repetitious, irrelevant, or for purposes of harassment," Id. § 3730(a)(2)(C), or "[u]pon a showing by the defendant that unrestricted participation during the course of the litigation by the person initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense." Id. § 3730(a)(2)(D). Some relators have successfully objected to proposed settlements between the government and qui tam defendants. See, e.g., Gravitt v. Gen. Elec. Co., 680 F. Supp. 1162, 1165 (S.D. Ohio), dismissed, 848 F.2d 190, 190 (6th Cir. 1988).
[286] . 31 U.S.C. § 3730(c)(3). If the relator proceeds as the sole plaintiff after the DOJ has declined to intervene, the DOJ may request to receive copies of all pleadings filed and deposition transcripts (at the Government’s expense). Upon a showing of "good cause," the court may permit the Government to intervene "at a later date." Id. § 3730(c)(3).
[287] . Id. §§ 3730(d)(1), (3). Note that the qui tam FCA provisions discourage class actions: the more plaintiffs there are, the less each will get of the percentage of a judgment statutorily allocated to relators.
[288] . For example, recent judgments in FCA qui tam cases include a $875 million settlement from TAP Pharmaceuticals, 55 Healthcare Fin. Mgt. 10 (2002), a $745 million settlement with HCA Healthcare Corporation to resolve some of the alleged FCA violations pending against HCA; a $385 million settlement with National Medical Care, Inc., a $325 million settlement with SmithKline Beecham Clinical Laboratorie, a $325 million settlement with National Medical Enterprises, and a $110 million settlement with National Health Laboratories. Boese, supra note , § 1.05[A].
[289] . Recent relators’ awards include $95 million, $44.8 million, $28.9 million, and $18.1 million. 21 TAF Q. Rev. 20–21 (Jan. 2001).
[290] . For example, the total amount paid to relators, from October 1, 1986 through September 30, 2000, as their statutory share when the government has intervened is $576 million. The total amount paid to relators over this same time period when the government has not intervened is $35.3 million. Only 2.1% (12 out of 570) of qui tam cases in which the government has intervened have been dismissed; 71.1% (1357 out of 1907) of qui tam cases in which the government has not intervened have been dismissed. Letter from the U.S. Department of Justice to Author, FOIA Request 145-FOI-6072 (Oct. 20, 2001) (on file with author).
[291] . As one experienced relator’s counsel explained: "When evaluating a case and during the beginning stages of representing a whistle blower never forget your initial mission: persuade the government to pursue the case." Mitchell Kreindler, So You Wanna Be a Whistleblower’s Lawyer?, Address before the ABA National Institute, The Civil False Claims Act and Qui Tam Enforcement 5 (Nov. 28, 2001).
A large part of the reason relators seek DOJ intervention is the resources the DOJ can bring to a case. DOJ attorneys and agents work with the relevant agency to obtain government records pertaining to the alleged false claims. In the health care field, for example, DOJ and HHS attorneys and agents work with private insurers who contract with the federal government to service Medicare and Medicaid claims, thereby obtaining billing data, longitudinal comparisons, and other helpful interpretations of billing regulations and history that would be available to private parties only through subpoenas or Freedom of Information Act requests, if at all. Robert Fabrikant, Paul E. Kalb, Mark D. Hopson & Pamela H. Bucy, Health Care Fraud, Enforcement and Compliance, Chap 6 (LJSP 2001) (discussing the investigation of health care fraud cases). In addition, the DOJ is authorized by the Health Insurance Portability and Accountability Act ("HIPAA") to issue subpoenas in "any investigation relating to any act or activity involving a federal health care offense." 18 U.S.C. § 3486 (2000 & Supp. 2001). HIPAA subpoenas may require the production of tangible things but not oral testimony. Also, the FCA authorizes DOJ to seek civil investigative demands ("CIDs") which are standard civil investigative tools (interrogatories, documents subpoenas, depositions) before a suit is filed. 31 U.S.C. § 3733 (2001). Moreover, most federal agencies have authority to issue "Inspector General Subpoenas" to investigate, among other things, fraud by government contractors upon that agency. 5 U.S.C. § 6(a) (1987). These subpoenas are quite versatile. They are not subject to the Federal Rules of Civil Procedure (and thus no showing of relevancy is required), or to the secrecy requirements of the grand jury. See, e.g., FTC v. Atl. Richfield, 567 F.2d 96, 104–05 & n.19 (D.C. Cir. 1977); United States v. Fesman, 781 F. Supp. 511, 514 (S.D. Ohio 1991).
Also, in instances where it appears that criminal violations may have occurred, the DOJ can commence a criminal investigation employing investigative tools such as grants of immunity, 18 U.S.C. § 6002 (1994) and the grand jury, with its broad topical and jurisdictional reach. United States v. R. Enter., Inc., 498 U.S. 292, 297 (1991). Upon a "strong showing of particularized need for grand jury materials," information gathered during a criminal grand jury investigation may be disclosed to government attorneys and their assistants who are investigation FCA violations. United States v. Sells Eng’g, 463 U.S. 418, 443 (1985).
[292] . According to Mitchell Kreindler, an experienced qui tam relators’ counsel: "By providing a cohesive, comprehensive and understandable presentation to the government, the relator will increase measurably the chances that the government will be interested in the case." Address by Mitchell Kreindler, supra note . Robin Page West, also an experienced qui tam relators’ counsel, concurs. She describes the increased risks a relator faces if the government does not intervene: increased chance of assessment to the relator of defendant’s attorneys’ fees and costs, and successful defense counter-claims against relator. West notes: "Because of these risks, and because a qui tam case is more likely to result in a recovery if the government intervenes, you want to do everything possible to minimize the risk of declination." Robin Page West, Qui Tam Litigation, 28 A.B.A. Litig. 21 (2001).
[293] . As Kreindler has explained:
The statutory disclosure is mandated by the Act . . . . This can be done in many ways, but the most effective is to prepare a detailed narrative that references specific exhibits. The narrative should provide information on the background of the parties, describe the relator’s involvement in uncovering the scheme, discuss the regulatory and legal background underlying the relator’s allegations, address key legal issues implicating the FCA, discuss the government’s damages, identify potential witnesses and make suggestions for investigation. . . . Such a document is not only more persuasive than a stack of raw evidence, but it provides the DOJ with a simple means of communicating the story of the case to other agencies. A well-written statutory disclosure will simplify the government’s evaluation of the relator’s allegations and help focus its investigation more quickly.
Kriendler, supra note , at 6.
[294] . In 1987, thirty-three qui tam FCA cases were filed. In 2000, 336 cases were filed. Of the 3202 qui tam cases filed since 1987, the government has intervened or otherwise pursued 17.8% (570 out of 3202). Letter from the U.S. Department of Justice to Author, FOIA Request 145-FOI-6072 (Oct. 30, 2001) (on file with author).
[295] . See supra text and accompanying notes .
[296] . See, e.g., United States ex rel. Alderson v. Quorum Health Group, 171 F. Supp. 2d 1323, 1330–37 (M.D. Fla. 2001); United States ex rel. Merena v. SmithKline Beecham Corp., 52 F. Supp. 2d 420, 442–50 (E.D. Pa. 1998) reversed 205 F.3d 97 (3d Cir. 2000) and remanded 114 F. Supp. 2d 352 (E.D. Pa. 2000).
[297] . See infra Section III.C.1.
[298] . 31 U.S.C. § 3730(c) (2001) gives the Government authority to dismiss an FCA qui tam action "notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion."
At least one court has held that the Government does not have unfettered authority to dismiss an FCA qui tam action, and that its decisions are subject to judicial review. United States ex rel. Sequoia Orange Co. v. Sunland Packing Co., 912 F. Supp. 1325, 1340 (E.D. Cal. 1995), aff’d 151 F.3d 1139, 1144–45 (9th Cir. 1998); United States ex rel. Juliano v. Fed. Asset Disposition Assoc., 736 F. Supp. 348 (D.D.C. 1990).
[299] . This was one of its goals. As noted in the Senate Report accompanying the 1986 Amendments, "[t]he proposed legislation seeks not only to provide the Government’s law enforcers with more effective tools, but to encourage any individual knowing of Government fraud to bring that information forward." S. Rep. No. 345, 99th Cong., (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266–67.
[300] . The FCA contains another mechanism to help with quality control, but this mechanism, unlike the dual-plaintiff system, is not unique to the FCA. The FCA provides that parties filing frivolous qui tam actions may be held responsible for defendants’ attorneys fees and expenses:
If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.
31 U.S.C. § 3730(d)(4). See, e.g., United States ex rel. Haycock v. Hughes Aircraft Co., 1996 Nos. 94-55620, 94-55826, WL 612680 (9th Cir. 1996); United States ex rel. Herbert v. Nat’l Acad. of Sci., No. 90-2568, 1992 WL 247587 (D.D.C. 1992).
[301] . Appendices C-4, C-5, C-6.
[304] . See generally George P. Fletcher, Loyalty: An essay on the Morality of Relationships (Oxford University Press 1993) (providing a thoughtful discussion of loyalty).
[305] . See supra Part II.A–B.
[306] . See supra Part II.A–B.
[307] . Kurt Eichenwald, White-Collar Defense Stanch: The Criminal-less Crime, N.Y. Times, Mar. 3, 2002 at § 4, p.3. Cf. Medicare at Risk: Emerging Fraud in Medicare Programs: Hearing Before the Permanent Subcomm. On Investigations, Senate comm. On Governmental Affairs, 105th Cong., 1st Sess., 126–33 (written Statement of Pamela H. Bucy, regarding health care fraud) (pertaining to health care fraud); Pamela H. Bucy, Fraud by Fright, White Collar Crime by Health Care Providers, 67 N.C.L. Rev. 856, 875–81 (1989) (regarding health care fraud).
[308] . See supra text and accompanying notes –12.
[309] . This appears to be true despite the incentive structure in RICO (treble damages plus costs and attorneys fees) which would seem substantial enough to attract quality counsel. The reason for RICO’s apparent inability to attract quality private counsel may lie in the RICO statute itself. Its complex structure makes it difficult both to attract top legal talent, and for top legal talent to employ the RICO statute appropriately. The RICO elements of "enterprise," "pattern," and many of the underlying "racketeering activities" are difficult to plead and prove. See, e.g., Bessett v. Avco Fin. Serv., 230 F.3d 439, 448 (1st Cir. 2000) (affirmed dismissal of RICO complaint for failure to allege "person" distinct from "enterprise."); Anatian v. Coutts Bank, 193 F.3d 85, 88–89 (2d Cir. 1999) (reversing judgment for plaintiff on RICO counts for failure to prove "pattern").
[310] . See supra Part III.A.1. This would appear to be the case even though counsel in securities private actions often "piggy-back" governmental efforts by simply following up government detection of fraud with a private lawsuit. Such duplicative efforts can be helpful to an overall regulatory system, however. Judgments obtained in these private suits enhance the penalty meted out by public agencies, increasing deterrence impact. In addition, it may be an efficient division of labor for public agencies to identify problems and for private counsel to follow up with litigation arising from government investigations. Coffee, Private Attorney General, supra note , at 284. Coffee also argues that compensation available to plaintiffs’ counsel in private securities fraud actions is not adequate to attract top legal counsel.
[311] . See supra text and accompanying note .
[312] . Miller, Part III, supra note , at 10422.
[313] . As Boyer & Meidinger have noted, citizen suits are technical and complex. The fact that counsel experiences delay between incurring litigation costs and ultimate fee recovery "seems to be limiting the number of private firms willing to take on citizen suits and the number of cases those firms are able to handle." See Boyer & Meidinger, supra note , at 934–35.
[314] . E.L.I., Citizen Suits, supra note , at IV-11, IV-13 (noting that successful resolution of citizen suit facilitated by experienced plaintiff’s attorney), IV-21 and IV-38 (noting that resolution in citizen suit hampered by inexperienced environmental attorney), V-10 (recognizing importance of good screening of cases by citizen suit plaintiffs).
[316] . While some citizen suit statutes allow private plaintiffs to recover penalties, all penalties go to the U.S. Treasury. See supra notes –13. Even if citizen suit plaintiffs obtain defense contributions for private organizations as part of the case settlement, these contributions go to agreed-upon community organizations, not to the plaintiffs.
[317] . See infra Appendices C-4, C-5, C-6.
[318] . For example, in United States ex rel. Taxpayers Against Fraud v. Gen. Elec., relators’ counsel and relator agreed that counsel would receive 25% of the relator’s share. 41 F.3d 1032, 1036 (6th Cir. 1994). This percentage was in addition to attorney fees and costs awarded by the court pursuant to 31 U.S.C. § 3730(d)(1). The total amount awarded to relator’s counsel in this case was $4 million. Id. at 1036.
[319] . See supra text and accompanying notes –92.
[320] . 31 U.S.C. § 3730(c)(1) (2001).
[321] . John Phillips, Address before the ABA National Institute on the Civil False Claims Act and Qui Tam Enforcement, Panel: FCA Enforcement in the Post-Stevens World (Nov. 29, 2001).
[322] . Scott A. Powell, Address before Mealey’s Conference, Litigating Whistleblower Cases Under the Qui Tam Provisions of the False Claims Act, Panel on Reports From the Field, Developments on Notable Cases (June 11, 2001).
[323] . Letter from the U.S. Department of Justice to Author, Response to FOIA Request 145-FOI-6072 (Oct. 30, 2001) (letter on file with the author).
[324] . Bucy, Information As a Commodity, supra note (manuscript at 2.32–.38).
[325] . See supra text and accompanying notes –62 (discussing success of the class action securities cases in general). Whether the class action device attracts experienced, quality legal talent is hotly debated on many fronts. See, e.g., Bohn & Choi, supra note , at 979–82; Macey & Miller, supra note , at 1–4, 116–18. Coffee argues that the incentive structure in securities fraud private justice actions is inadequate to attract top legal talent. Coffee, Private Attorney General, supra note , at 238. This may well be true, certainly it is when these actions are compared to the incentive structure of the qui tam FCA private justice action, but compared to other private justice actions, securities fraud private actions give much more incentive to legal counsel to undertake such cases.
[326] . Bucy, Information As a Commodity, supra note (manuscript at 2.39–.49).
[327] . See supra text accompanying notes –41, –17.
[328] . See Bucy, Information As a Commodity, supra note (manuscript at 2.39–.49). See also House Comm. on the Judiciary, Subcomm. on Immigration and Claims (Apr. 28, 1998) (testimony by Lewis Morris, Assistant Inspector General, U.S. Department of Health and Human Services):
The qui tam provisions of the False Claims Act . . . have provided the incentive for whistleblowers to overcome the substantial detriment and obstacles to speaking out . . . . The law is working as intended. Whistleblowers are stepping forward, and billions in false claims are being recovered as a result.
[329] . See supra text and accompanying note –89.
[330] . Cf. United States ex rel. Alderson v. Quorum Health Group, 171 F. Supp. 2d 1323 (M.D. Fla. 2001); United States ex rel. Merena v. SmithKline Beechham Corp., 114 F. Supp. 2d 352 (E.D. Pa. 2000).
[331] . Address by Thomas Poulton, M.D., relator in United States ex rel. Poulton v. Fletcher Allen Health Care, Mealey, Litigating Whistleblower Cases Under the Qui Tam Provisions of the False Claims Act Conference, June 11, 2001; Address by Scott A. Powell, supra note .
[332] . Whistleblower quoted in N.R. Kleinfield, Whistleblowers Find Satisfaction But Lose Professions, Friends, 99 L.A. Daily J., Nov. 11, 1986, at 66.
[333] . Bucy, Information As a Commodity, supra note , (manuscript at 2.39–.49).
[334] . Coffee, Future of PSLRA, supra note , at 549 (reasoning that the legitimacy of private enforcement is undercut when private justice actions are directed to situations where social harm is unclear).
[335] . See, e.g., Fabrikant et. al., supra note , § 6.05; Pamela H. Bucy, The Path From Regulator to Hunter, 44 St. L. U. L.J. 3, 12–14, 40–48 (2000).
[336] . General Accounting Services, Rep. No. HEHS 98-174, Medicare Concerns With Physicians at Teaching Hospitals (PATH) Audits 13–14 (1998). In another instance, St. Vincent’s Hospital, a suburban hospital in Massachusetts, received a letter from DOJ stating that a government audit indicated that St. Vincent’s had submitted false claims to Medicare and was facing $2.6 million in penalties and damages under the False Claims Act. The hospital, which had processed more than 80,000 claims totaling almost $300 million during the period in question, challenged the DOJ’s audit, ultimately settling for $19,000.
[337] . William E. Kovacic, The Civil False Claims Act As a Deterrent to Participation in Government Procurement Markets, 6 Sup. Ct. Econ. Rev. 201, 205 (1998).
[339] . Boese & McClain, supra note , at 50.
[340] . See supra text accompanying notes 282–86, 290–98 (describing the extensive oversight function the FCA envisions for the DOJ over qui tam actions). Cf. Greve, supra note (discussing the cost in reviewing proposed settlements in citizen suits); Boyer & Meidinger, supra note , at 839–43, 907–17 (discussing a variety of problems citizen suits create for regulatory agencies).
[341] . See, e.g., Stephen Breyer, Regulation and Its Reform 102–14 (1982).
[342] . See infra text and accompanying notes .
[343] . Greve, supra note , at 381.
[344] . Blomquist, supra note , at 410–11; E.L.I., Citizen Suits, supra note , at x.
[345] . Boyer & Meidinger, supra note , at 909–12 (describing the EPA’s enforcement policy of distinguishing among polluters by their level of "significant noncompliance"; only those in such state were pursued by EPA, insignificant noncompliance was not acted upon by EPA but left industry vulnerable to citizen suits). But see Miller, Part III, supra note 10, at 10427 (explaining industry’s argument but dismissing it as outdated and remediable with new permits).
[346] . Gitlen, supra note , at 18–19; E.L.I., Citizen Suits, supra note , at x, V-5, V-34. Cf. Hodas, supra note , at 1623, 1616.
[347] . Gitlen, supra note , at 18–19; Hodas, supra note , at 1623.
[348] . Recent cases discussing this theory include United States ex rel. Augustine v. Century Health Services, Inc., 289 F.3d 409, 414–16 (6th Cir. 2002); United States v. Southland Mgt. Corp., 288 F.3d 665, 674–79 (5th Cir. 2002).
[349] . See, e.g., United States v. Chester Care, No. CIV.A. 98-CV-139 (E.D. Pa. 1998)1998 U.S. Dist. LEXIS 4836 at *3-4; United States v. N. Health Facilities, Inc., 25 F. Supp. 2d 690, 692–97 (D. Md. 1998). Presumably, payment of the claim must be conditioned, even implicitly, on compliance with the relevant rules or regulations. See, e.g., United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 938 F. Supp. 399, 404–05 (S.D. Tex. 1996).
[350] . Numerous defense counsel and some academics have attacked this use of the FCA. See, e.g., Boese & McClain, supra note , at 36–41; Fabrikant & Soloman, supra note , at 105; Dayna Bowen Matthew, Tainted Prosecution of Tainted Claims: The Law, Economics, and Ethics of Fighting Medical Fraud Under the Civil False Claims Act, 73 Ind. L.J. 525, 534–46 (2001). Use of this theory of fraud in FCA cases presents interesting questions. On the one hand, failure to deliver a certain quality of service clearly is fraud even if the service is delivered and the correct amount of reimbursement is sought. Giving a nursing home patient a bath is scarcely a service worth paying for if the patient was scalded by hot water or bathed in feces-laden water. On the other hand there are so many thousands of applicable rules and regulations applicable to government contractors that chaos would result if violation of any one or a few would render claims submitted by the contractor false. The fact that private litigants are free to bring lawsuits alleging such violation as fraud in qui tam FCA lawsuits only increases the potential for chaos.
There are two responses to these concerns if the "false certification" theory of fraud is pursued. First, neither the government nor private relators should use this theory except in the most extreme situations. As Mitchell Kreindler, an experienced relator’s attorney, stated: "The modern FCA is a toddler. . . . [Q]ui tam lawyers have a special responsibility to litigate in a manner that protects the Act for future relators." Address by Kreindler, supra note , at 9. See also Suzanne E. Durrell, Chief, Civil Division, U.S. Attorney’s Office, District of Massachusetts, Address at the ABA National Institute on The Civil False Claims Act and Qui Tam Enforcement (Nov. 29, 2001) ("The lesson for relators and for the government in using the FCA is not to overreach.").
Second, there are incentives for relators to employ the "false certification" theory sparingly. There is little money in most of the "certification" theory of fraud cases, making it unlikely relators will use this theory. In addition, relators will need government employees as witnesses in these cases (to testify to issues of materiality, regulation interpretation, etc.). Such cooperation from government is not likely to be forthcoming in frivolous cases.
[351] . 492 U.S. 229, 232 (1989).
[352] . See, e.g., Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 792 (4th Cir. 1999).
[353] . See, e.g., United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1996).
[354] . See, e.g., United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304 (6th Cir. 1998).
[355] . See, e.g., United States ex rel. Pogue v. Am. Healthcorp., 914 F. Supp. 1507, 1513 (M.D. Tenn. 1996). Contra United States ex rel. Berge v. Bd. of Trustees of Univ. of Ala., 104 F.3d 1453, 1458 (4th Cir. 1997).
[356] . See, e.g., United States ex. rel. Hopper v. Anton, 91 F.3d 1261, 1266–67 (9th Cir. 1996).
[357] . See, e.g., Basic Inc. v. Levinson, 485 U.S. 224, 240–44 (1899) (discussing the "fraud on the market" theory in Rule 10b-5 actions).
[358] . See, e.g., Moss v. Morgan Stanley Co., 719 F.2d 5, 10–17 (1983).
[359] . Cf. Sedima v. Imrex Co., 473 U.S. 479, 500–04 (1985) (Marshall, J., dissenting). In his dissenting opinion, Justice Marshall highlights some of the problems caused by empowering private litigants to enforce public laws, such as RICO, even in civil cases: less responsible use of prosecutorial discretion; an inability on the part of the DOJ to rein in private litigants using RICO; and the "strong incentive" for private litigants "to invoke RICO’s provisions whenever they can allege in good faith two instances of mail or wire fraud." Id. at 504, 502–05.
[360] . Bucy, Private Justice and the Constitution, supra note 3 (manuscript at 22–27).
[361] . 31 U.S.C. § 3730(b)(3) (2001).
[363] . Id. § 3730(c)(2)(C), (c)(4).
[366] . See supra text and accompanying notes 290–94.
[367] . See supra text and accompanying notes –92.
[368] . See supra text and accompanying notes –92.
[369] . See supra text and accompanying notes –91.
[370] . See supra text and accompanying notes –98.
[371] . Interestingly, the FCA’s design of rewarding private plaintiffs who do extensive pretrial work on the case carries a different economic incentive than does the securities fraud "hybrid" private action model which encourages plaintiffs to file a minimally prepared class action lawsuit, and hope for a quick settlement because defendants cannot afford unfavorable publicity or litigation costs. See supra note 119 and accompanying text.
[372] . There is a tradition of considerable dialog between industry and regulating agencies to develop this guidance. See, e.g, Hearing Before House Subcomm. on Immigration and Claims, 105th Cong., 12–14 (1998) (statement of Donald K. Stern, Chair, U.S. Attorney General’s Advisory Comm., Department of Justice) (referring to discussions with health care industry about two of the DOJ’s national investigations); id. at 24–25 (statement by Lewis Morris, Assistant Inspector General, Office of Inspector General, Department of Health and Human Services) (referring to efforts at HHS to reach out to industry for feedback); id. at 64 (statement of Ruth Blacker, Member, National legislative Counsel, American Association of Retired Persons) (referring to DOJ’s willingness to listen to industry and its resulting revisions of policies for using the False Claims Act). There is a significant amount of publicly available guidance also available to relators or potential relators. See, e.g., Department of Health and Human Services, Office of Inspector General, Advisory Opinions, at http://www.hhs.gov/oig. See also Lewis Morris & Gary W. Thompson, Reflections on the Government’s Stick and Carrot Approach to Fighting Health Care Fraud, 51 Ala. L. Rev. 319, 349–54 (1999) (discussing OIG’s Advisory Opinions and Fraud Alerts).
[373] . See supra text and accompanying note –82.
[374] . After the seal is lifted, a number of courts have held that the relator’s report filed with the government is discoverable. See, e.g., United States ex rel. Stone v. Rockwell Intern. Corp., 144 F.R.D. 396, 398–99 (D. Colo. 1992) (after finding that the defendant had a "substantial need" for the statement and could not obtain equivalent information elsewhere); Grand ex rel. United States v. Northrop Corp., 811 F. Supp. 333, 337 (S.D. Ohio 1992) (after ordering production of the statement for a U.S. Magistrate’s in camera inspection and redaction of the relator’s analysis and opinions).
[375] . S. Rep. No. 99-345, 1986 U.S.C.C.A.N. 5266, 5289–90.
[376] . See supra text and accompanying note .
[377] . See, e.g., Juliano v. Fed. Asset Disposition Assoc., 736 F. Supp. 348, 350–51 (1990) (rejecting the relator’s argument that the government could not proceed in this "hybrid" manner, and reasoning that "the court will not assume that the qui tam provisions of the False Claims Act were intended to curtail the prosecutorial discretion of the Attorney General where the DOJ declined to intervene in part of the relator’s case and moved to dismiss other parts). See also Vt. Agency of Nat’l Res. v. Stevens, 529 U.S. 765, 765 (2000); United States ex. rel. Garibaldi v. Orleans Parish Sch. Bd., 46 F. Supp. 2d 546 (E.D. La. 1999) (government allowed to intervene for purposes of appeal after declining intervention in the cases); United States v. Health Possibilities, 207 F.3d 335, 340–41 (6th Cir. 2000) (after initially declining to intervene, the government was allowed to oppose the settlement negotiated by the relator and the defendant, on the ground that the settlement was not in the public interest).
[378] . Boese, False Claims, supra note , § 4.06.
[379] . 151 F.3d 1139, 1141 (9th Cir. 1998).
[382] . Address by James Sheehan, Chief of Civil Division, United States Attorney’s Office, Eastern District of Pennsylvania, supra note Mealey Conference: Litigating Whistleblower Cases Under the Qui Tam Provisions of the civil False Claims Act, Washington, D.C., June 11, 2001.
[383] . In comparison to the qui tam FCA private justice action, the "victim" and "hybrid" private justice models generally make no effort to coordinate public and private enforcement. Generally, there is no requirement in these actions that private plaintiffs filing these actions notify the government prior to filing suit, no opportunity for the government to review the claims in the private action before the case becomes public, no mechanism for government monitoring of these actions, and no authority for the government to move for dismissal of inappropriate private actions. There is no effort to integrate private and public prosecutive efforts through intervention or joinder as plaintiffs, and no mechanism such as the diligent prosecution or jurisdictional bar provisions to prevent unnecessary private suits. See, e.g., RICO, 18 U.S.C. §§ 1961–68; securities fraud private actions discussed supra text and accompanying notes 115–65 (no requirements for coordination.) There are exceptions but they are notoriously ineffective. For example, persons who seek to bring a "victim" private justice action under any number of federal employment statutes (i.e., Age Discrimination in Employment Act of 1967, Titles I and V of the Americans with Disabilities Act, the Equal Pay Act) must bring their charge of discrimination to the Equal Employment Opportunity Commission ("EEOC") before filing suit. However, the EEOC has not lived up to its expectations, suffering from overload and backlogs, and from poor data collection procedures.
Or, if there are efforts to coordinate public and private enforcement, they do not work well. The citizen suit "common good" model is a prime example. Citizen suit provisions contain components designed to achieve public private coordination: the sixty day notice requirement, whereby putative plaintiffs notify relevant agencies and the putative defendant(s) of intention to sue; the "diligent prosecution" provision, which bars citizen suits if the responsible agency is diligently prosecuting the offense; and the intervention mechanism whereby the federal government may intervene in enforcement actions. But as noted, see supra Part II.C.1, III.A.1.b, none of these mechanisms effectively coordinate private and public prosecutorial efforts because of their ambiguity and the significant litigation they generate simply to clarify what they mean. Additionally, the notice requirement is unworkable because it sets an unrealistic timetable for regulatory agencies to evaluate an anticipated lawsuit. Lastly, rather than encouraging cooperation between private and public prosecutors, the interplay of these provisions has facilitated collusive agreements between regulating agencies and industry.
[384] . A number of commentators have argued that the DOJ should be more aggressive in exercising this authority. See, e.g., Boese & McLain, supra note , at 49; William E. Kovacic, Whistleblower Bounty Lawsuits As Monitoring Devices in Government Contracting, 29 Loy. L.A. L. Rev. 1799, 1855 (1996); Timothy Stoltzfus Jost & Sharon L. Davies, The Empire Strikes Back: A Critique of the Backlash Against Fraud and Abuse Enforcement, 51 Ala. L. Rev. 239, 316–17 (1999).
[385] . In his historical review of qui tam actions, Randy Beck also recognizes that problems are created by nonmeritorious qui tam actions under the False Claims Act, and suggests as a remedy, that qui tam actions not be permitted to go forward if the DOJ does not intervene. Beck, supra note , at 639–40. In her discussion of the use of the FCA in "false certification" cases, Dayna Bowen Matthew urges the same position. Matthew, supra note , at 588–89.
This suggestion has several problems. First, the relator’s independence is a check on any inadequacies that may exist at the DOJ that prevent a meritorious case from going forward. These inadequacies may be because of "capture" by industry or incompetence, lack of resources, or an inability to perceive what is a fraud at the DOJ. In addition, there are better ways to control the quality of private actions such as seeking restrictions on the relator’s involvement and more aggressive use by DOJ of its authority to move for dismissal. See supra text accompanying notes 378–83.
In short, giving the DOJ carte blanche to unilaterally make the decision to terminate a relator’s case by not intervening, without any public or judicial review, fails to recognize reality: that situations may arise when DOJ attorneys are too overworked, unaware, ill-equipped, untrained, or overcome by political pressures to make the best decision on a case. A public hearing in a court of law where the government must present its reasons for dismissal and demonstrate that dismissal is "rationally related" to "legitimate government interests" avoids these problems. See United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F. Supp. 1325, 1340 (E.D. Cal. 1995) (adopting and applying the "rational relation to legitimate government interest" standard).
[386] . For a discussion of United States ex rel. Sequoia v. Sunland Packing House Company, 912 F. Supp. 1325 (E.D. Cal. 1995), see Bucy, Private Justice and the Constitution, supra note .
[387] . Bucy, Information As a Commodity, supra note (manuscript at 2.3–2.5; 2.10–.11); Bucy, Private Justice and the Constitution, supra note (manuscript at 2.51).
[389] . See supra text and accompanying notes 133–54.
[390] . Given the written summary a private justice plaintiff must prepare and present to the government upon filing a lawsuit under the qui tam FCA private justice model, and the practical reasons for ensuring that this summary is complete and thorough, this requirement would add little as a quality-control measure in most qui tam FCA cases, see supra text and accompanying notes 254–67, but imposing it would add a helpful safeguard against those frivolous qui tam actions still filed by inexperienced qui tam counsel.
[391] . Qui tam FCA cases will already face a high standard of pleading since they are already bound by Fed. R. Civ. P. 9(b) which requires that fraud be pled "with particularity." The PSLRA made clear that this requirement was to be interpreted strictly, as the Second Circuit—but not all Circuits—had been doing in securities private justice actions. With this strict view of FRCP 9(b), a plaintiff must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint must state with particularity all facts on which that belief is formed." H.R. Rep. No. 104-369, at 740, reprinted in 1995 U.S.C.A.A.N, 730; 15 U.S.C. § 77z-1 (1997 & Supp. 2001); 15 U.S.C. § 78u-4(b)(1) (1997 & Supp. 2001).
[392] . Whereas awarding attorneys’ fees to the successful party has been long recognized as a way to discourage frivolous or harassing suits while encouraging high quality of suits brought, S. Rep. No. 92-414, 92nd Cong., 81, reprinted in 1972 U.S.C.C.A.N. 3668, 3747 (1972), note the different approaches, especially among private justice actions. For example, both the PSLRA’s and citizen suit’s fee shifting provisions to that in citizen suits were designed to discourage frivolous or harassing lawsuits, see, e.g., Miller, Part III, supra note , at 10413, and become applicable only when the plaintiff is found to have filed a frivolous action. Id. The PSLRA’s provision is stronger, however, for it creates a presumption, albeit rebuttable, that sanctions will be imposed against plaintiffs; it also presumes that the appropriate payment is full defense costs.
[393] . Peter J. Henning, Individual Liability For The Conduct By Criminal Organizations in the United States, 44 Wayne L. Rev. 1305, 1337, 1345, 1349 (1998); Nancy J. King, Portioning Punishment: Constitutional Limits and Excessive Penalties, 144 U. Pa. L. Rev. 101, 188 (1995); Laurie L. Levenson, Working Outside the Rules: The Undefined Responsibilities of Federal Prosecutors, 26 Fordham Urb. L. J. 553, 564–65 (1999); Matthew, supra note , at 580–82.
[394] . See supra text and accompanying notes 290–94.
[395] . See supra text and accompanying notes 290–94.
[397] . See supra text and accompanying notes –54.
[398] . See Bucy, Information As a Commodity, supra note 1 (manuscript at 2.32–.38); supra notes 307, 321–24, 331–34 and accompanying text.
[399] . See, e.g., Jonathan D. Glater, From Investor Fury, A Legal Bandwagon, N.Y. Times, Sept. 15, 2002, at Section 3, pg. 1 ("Corporate malfeasance and executive greed have undermined the stock market and fleeced investors."); Greg Ip & Michael M. Phillips, Fed Holds Steady Despite Anxieties Among Investors, Wall St. J., June 27, 2002, at A1 ("A month ago, the economic recovery appeared to be moving according to script. Now a crisis of confidence—intensified by WorldCom Inc.’s accounting scandal—is tanking stocks and the U.S. dollar, threatening to push the country back into recession.").
Uncle Sam will have been exposed as Uncle Scam, the bloke who broke our faith in the free market . . . . The reason would be simple—too many of the top US companies were run by crooks . . . . The defenders of the system argue the problem with the US is not capitalism but the corruption of it.
George Megalogenis, Cronies’ Boom is Phony, The Weekend Australian, July 27, 2002, at 28.
[400] . Conference Committee Report on the Private Securities Litigation Reform Act of 1995, H.R. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730.
[401] . Nat’l Res. Def. Council Inc. v. Train, 510 F.2d 692, 727 (D.C. Cir. 1975) (statement of Senator Muskie). Testimony from former Attorney General Ramsey Clark as follows:
It will be impossible for government enforcement to control all significant acts of pollution. . . .[G]overnment will never have the manpower, the techniques, or the awareness necessary to enforce the law for all. Private enforcement of those laws is the only way the individual can be assured that the rights cannot be violated with impunity. . . . .If we are really serious about controlling the quality of our environment before it destroys the quality of our lives, we must give the individuals affected by, or concerned about pollution in his life, the power to stop them through legal process. Far risking an undue or inhibiting interference with Government enforcement, it will provide powerful supplementary enforcement . . . and an effective and desirable prod to officials to do their duty.
[403] . Bucy, Private Justice and the Constitution, supra note (manuscript at 15–20).