Sixth Circuit Joins Sister Circuits In Using Arm-Of-The-State Analysis To Define “Person” Under The False Claims Act
The FCA imposes liability on “any person” that makes a false statement in violation of the Act, 31 U.S.C. § 3729(a)(1). Although the Act itself does not define “person,” the Supreme Court has said only that a person cannot include a state or state agency. See Vermont Agnecy of Natural Resources v. Stevens, 529 U.S. 765, 784-85, 788 (2000) (observing that § 3733(l)(4) defines person only for the purpose of determining to whom a civil investigative demand may be served).
With no further guidance from Congress or the Supreme Court, other Circuits have unanimously applied the Eleventh Amendment’s “arm of the state” test to determine whether certain organizations qualify as a state or state agency. The Sixth Circuit confronted this question—an issue of first impression for the court—in Kreipke v. Wayne State Univ., No. 15-1139, 2015 WL 7787935, at *4 (6th Cir. Dec. 4, 2015). There, Dr. Christian Kreipke, a former assistant professor at Wayne State University, brought an FCA suit alleging that the university engaged in a fraudulent scheme to “artificially increase the funding that it receive[d] from the government.” Id. at *1. The district court dismissed Kreipke’s claims, and among other things, held that Wayne State University is not a person subject to the FCA. Id. at *2.
On appeal, the Sixth Circuit credited the Supreme Court’s observation in Stevens “that the scope of the inquiry into whether an entity is a ‘person’ under the FCA is virtually identical to the sovereign immunity inquiry under the Eleventh Amendment.” Id. at *4. The Sixth Circuit also noted that following Stevens, the Supreme Court “underscored ‘the virtual coincidence of scope’ between the two inquiries by holding that, in contrast to states and state agencies, the term ‘person’ under the FCA includes local governments and municipalities.” Id. at *5 (citing Cook Cnty. v. Chandler, 538 U.S. 119, 134 (2003)).
From there, the Sixth Circuit analyzed its four-factor “arm of the state” test: “(1) the State’s potential liability for a judgment against the entity; (2) the language by which state statutes and state courts refer to the entity and the degree of state control and veto power over the entity’s actions; (3) whether state or local officials appoint the board members of the entity; and (4) whether the entity’s functions fall within the traditional purview of state or local government.” Id. at *5 (quoting Ernst v. Rising, 427 F.3d 351, 359 (6th Cir. 2005)). It found that each factor weighed in favor of finding that Wayne State was an arm of the State of Michigan, and in particular, gave substantial weight to the first—and “foremost”—factor “because ‘any judgment against WSU will be paid out of the state’s tax revenues.’” Id. at *6.