On April 11, 2017, the US District Court for the District of Oregon sided with the Oregon Health and Sciences University (OHSU), finding that as an arm of the state, OHSU is not subject to liability under the False Claims Act (FCA) even when the claim is brought by the federal government. In United States ex rel. Doughty v. Oregon Health and Sciences University, No. 3:13-CV-1306-BR (April 11, 2017 D. Or.), the district court dismissed the qui tam FCA claims, in which the federal government intervened, but granted leave to file an amended complaint on other grounds.

The United States asserted, among other claims, that after relocating its Vaccine and Gene Therapy Institute (VGTI) to its Oregon National Primate Research Center (ONPRC), OHSU wrongly applied to VGTI the higher billing rates applicable to ONPRC, allegedly resulting in inflated reimbursement through a National Institutes of Health grant. OHSU filed a motion to dismiss the case on the grounds it is an arm of the state and not a “person” subject to FCA liability. The United States argued that OHSU is a not an arm of the state for purposes of the FCA, and, even if it were, the bar against FCA liability is limited to cases brought by private individuals.

To determine whether OHSU is an arm of the state for FCA purposes, the district court applied the US Court of Appeals for the Ninth Circuit’s test, which mirrors the “arm-of-the-state” test for whether an entity is entitled to sovereign immunity under the Eleventh Amendment. The district court explained that “[e]very court that has addressed the issue and conducted an arm-of-the-state analysis has concluded that OHSU is an arm of the State of Oregon entitled to Eleventh Amendment immunity.”  The district court also noted that Oregon courts have concluded that OHSU is entitled to state sovereign immunity because it is an arm of the state, including Clarke v. Oregon Health Sciences University, 343 Or. 581 (2007), in which the Oregon Supreme Court concluded that OHSU performs state functions, exercises government power, is subject at least in part to state control, has only powers and duties as entrusted to it by the state and is ultimately accountable to the state through its governance structure.  Accordingly, the district court concluded that OHSU is an arm of the state for FCA purposes.

The district court then turned to the question of whether the bar to FCA liability applies when a suit is brought by the federal government. In Vermont Agency Natural Resources v. United States ex rel. Stevens, 529, U.S. 765 (2000), the US Supreme Court found that a state is not a “person” for purposes of qui tam liability under the FCA. Although the Supreme Court found that the FCA does not subject a state or state agency to liability in an action brought by a private individual, Stevens did not expressly address FCA liability when the claim is brought by the federal government. In a concurrence to the Stevens majority opinion, Justice Ginsburg noted that she read the opinion to leave the question open. While the 9th Circuit has not directly ruled on the question of whether Stevens applies to clams brought by the federal government, the district court in Doughty relied on dicta that the district court interprets as favoring such application, citing the following:

[A]lthough the Ninth Circuit has not directly addressed this issue, it has indicated that it would not interpret Stevens to permit FCA actions by the United states against the state. See, e.g., Donald v. Univ. of Cal. Bd. Of Regents, 329 F.3d 1040, 1042 n.3 (9th Cir. 2003) (“While it is undisputed that private individuals cannot bring qui tam suits against state entities under the FCA after Stevens, it is somewhat unclear whether suits brought by the United States are barred. Nothing in the Court’s opinion [in Stevens] purports to limit its scope solely to qui tam suits brought by private parties.”).

Doughty is an interesting development, as it directly applies Stevens to cases in which the federal government has intervened and should provide additional weight against intervention in FCA matters involving certain state agencies and entities ¾particularly if other courts follow suit.