The federal False Claims Act (FCA), first passed in 1863 to control Civil War profiteering, contains a qui tam provision that allows an individual (relator) to bring an action in the name of the federal government to recover moneys lost to fraud against the government. The qui tam plaintiff receives a part of the proceeds of the lawsuit as a bounty. Procedurally, the lawsuit is filed under seal, with a copy sent to the Justice Department. The defendant is not served until the justice department has had an opportunity to review the litigation and determine if it wants to intervene and prosecute the claim on behalf of the government. If the Justice Department intervenes, the bounty is reduced but the relator does not have to shoulder the burden of the litigation. If the government moves to settle the claim, the relator has the right to contest the settlement, but not the right to veto it. If the government chooses to not intervene, then the relator may prosecute the claim privately. Privately initiated FCA litigation has resulted in more than a billion dollars in claims, and stimulated related litigation by the Justice Department. Many in health care had hoped that this case would strike down the qui tam law as violating traditional United States Supreme Court standards for Article III standing.

This case is unusual in that the defendant is a state agency, which is being sued for providing false information to the federal Environmental Protection Agency. Relator brought this claim and Justice declined to intervene, leaving relator to litigate the claim on his own. The defendant then moved to dismiss based on the 11th Amendment grounds that a state is not subject to suit by its citizens, and, more fundamentally, that a state is not a "person" subject to liability as defined in the qui tam portion of the FCA. The district court declined to dismiss plaintiff's claim and defendant took an interlocutory appeal to the 2nd Circuit, which affirmed the district court's ruling. The United States Supreme Court opinion was written by Justice Scalia, with two concurring opinions and a dissent by Stevens and Souter.

The court began its analysis by determining whether plaintiff had Article III standing. (While this analysis was not necessary to the court's final holding that the claim was blocked by the 11th Amendment, it is very important because it resolved the issue of the general validity of the qui tam statute, outside the 11th Amendment context.) The court found that plaintiff had to meet three requirements in order to establish Article III standing:

"First, he must demonstrate 'injury in fact' -- a harm that is both 'concrete' and 'actual or imminent, not conjectural or hypothetical.' . Second, he must establish causation -- a 'fairly ... trace[able]' connection between the alleged injury in fact and the alleged conduct of the defendant. . And third, he must demonstrate redressability -- a 'substantial likelihood' that the requested relief will remedy the alleged injury in fact. These requirements together constitute the 'irreducible constitutional minimum' of standing, . which is an 'essential and unchanging part' of Article III's case-or-controversy requirement, and a key factor in dividing the power of government between the courts and the two political branches." (citations omitted)

Under a traditional analysis, the court found that relator's claim would fail because he could not show "injury in fact" to himself. This triggered a historical review of qui tam laws, back to their origin in 13th century England. The particular focus was the differentiation between common law qui tam actions and statutory actions, with the common law actions dying out in the 18th century, to be replaced by specific statutory standards. The court determined through this analysis that the relator was not bringing the case on his own, but was acting as an agent of the federal government. Since the federal government had been injured by the fraud, the injury was caused by defendant's actions, and the injury was redressable, relator had derivative Article III standing through the government's standing.

Having determined that plaintiff had standing, the court reached the key issue raised by the defendant - whether it was a "person" as defined in the qui tam portion of the false claims act. Several factors influenced the court's analysis of this point. First, the qui tam provisions are punitive, providing for treble damages or $10,000 per claim statutory damages. The court was uncomfortable with the notion of punishing a state, beyond requiring restitution for improperly obtained funds. (While recognizing that the individuals involved are subject personally to criminal actions.) The court also noted that "person" generally does not include the sovereign, unless specifically noted by the Congress. There is also an internal conflict in the statute, with a separate section on discovery specifically including states in the definition of a person and thus undermining the assumption that persons in the qui tam section, where states are not enumerated, includes the state as a person. Finally, the court noted that a companion law to the FCA specially excluded states. These factors lead the court to conclude that states were not persons for the purpose of liability under the qui tam provisions of the FCA. The court noted that it was not expressing an opinion on whether a qui tam action in federal court by a relator would violate the 11th Amendment, but, should that case arise (presumably if congress amends the definition of person in the qui tam statutes) then it would be likely that the action would be barred.

The concurrence, which was written by Breyer and joined by Ginsburg, stressed that the court's standards for construing cases involving prosecutions against states by the federal government are different than those in this case and that it is an open question whether this opinion affects qui tam actions prosecuted by the federal government. Steven's dissent, joined by Souter, rejects the majority opinion, finding that it was commonly understood that states were subject to the qui tam provisions when the FCA was amended by Congress in 1986, and that if Congress was unhappy with that interpretation, it would have changed the definition as part of the amendments.

This opinion is important reading for anyone dealing with qui tam actions and 11th amendment jurisprudence.