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University is “Arm-of-The-State,” Can’t be Sued Under FCA

Deciding a question of first impression, the First Circuit recently held that the arm-of-the-state test is the appropriate test for determining whether an entity is a state agency for FCA purposes. The case, United States ex rel. Willette v. University of Massachusetts, involved a qui tam suit by a former employee of the University of Massachusetts Medical School’s Center for Health Care Financing, which was tasked with recovering funds from third parties in order to reimburse Medicaid expenditures previously made by the Commonwealth of Massachusetts and the federal government. After discovering that another CHCF employee had, before his death, embezzled nearly $4 million of funds collected by CHCF, the relator sued both his deceased co-worker’s estate and UMMS alleging violations of the federal and state FCAs. UMMS moved to dismiss for lack of subject matter jurisdiction and failure to state a claim and, relying on the “bedrock proposition” that states cannot be sued in a private action under the FCA, the district court granted the motion. 

On appeal, the First Circuit noted as a preliminary matter that every circuit to have confronted the question has concluded that the FCA context requires the same two-part test that was used for determining arm-of-the-state status for purposes of Eleventh Amendment immunity:  first, has the state indicated an intention — either explicitly by statute or implicitly through the structure of the entity — that the entity share the state’s sovereign immunity, and, if this analysis is inconclusive, would the state’s treasury be at risk in the event of an adverse judgment? In answering the first question, the Court analyzed a number of factors, including the degree of state control over the entity, the way in which the entity is described and treated by its enabling legislation and other state statutes, how state courts have viewed the entity, the functions performed by the entity and whether the entity is separately incorporated. Because a structural analysis of these factors conclusively demonstrated that UMMS is an arm of the state, and thus not a “person” subject to suit under the FCA, the Court affirmed the district court’s dismissal of the Relator’s complaint.

This case underscores the importance, when developing a defense strategy, of early and careful evaluation not only of the claims themselves, but of the parties to the litigation, including whether the defendant might qualify as an arm of the state, granting them immunity to an FCA suit.  

© Polsinelli PC, Polsinelli LLP in California


About this Author

Emma R. Cecil, Polsinelli PC, Government Investigations Lawyer, White Collar Defense Attorney, Atlanta

With the goal of advancing and protecting each client’s unique interests, Emma Cecil brings a keen attention to detail, strategic thinking, and a practical, results-oriented approach to all of her cases. As part of the firm’s Government Investigations and White Collar Defense group, Emma focuses her practice on defending individuals in a range of white collar matters and representing health care providers in whistleblower actions brought under the False Claims Act, including those involving the Anti-Kickback Statute and Stark law. Emma also regularly represents health...