U.S., Ex Rel. Eisenstein v. City of New York

Issues 

If the United States decides not to intervene when a party files a qui tam action under the False Claims Act, should the party be allowed a 60-day time limit to file its notice of appeal because the United States is technically a party, or should they be subject to the standard 30-day time limit?

Oral argument: 
April 21, 2009

Fifty-four days after the Southern District of New York dismissed Irwin Eisenstein's qui tam action against the City of New York, Eisenstein filed a notice of appeal with the Second Circuit Court of Appeals. The Second Circuit asked the parties to brief whether the notice of appeal was timely filed. According to the Federal Rules of Appellate Procedure, parties only have 30 days to file a notice of appeal, and this will be extended to 60 days when the United States is a party. Eisenstein claimed that, even though the United States declined to intervene, it was a "real party of interest" and therefore he was entitled to the 60 day limit. The City of New York conceded that, while the United States was a "party of interest", they were not a party for the purpose of measuring the timeline on appeal. The Supreme Court granted certiorari to determine whether the relator in a qui tam action is entitled to the extended 60 day time limit for appeal when the United States chooses not to intervene in the action.

    Questions as Framed for the Court by the Parties 

    Whether the 30-day time limit in Federal Rule of Appellate Procedure 4(a)(1)(A) for filing a notice of appeal, or the 60-day time limit in Rule 4(a)(1)(B), applies to a qui tam action under the False Claims Act, where the United States has declined to intervene in that action.

    Facts 

    Eisenstein's Underlying Complaint

    Irwin Eisenstein was an employee of the City of New York ("the City"), and during his employment he lived in both New Jersey and the City. See U.S. ex rel. Eisenstein v. City of New York, 2006 WL 846376, at *1 (S.D.N.Y., March 31, 2006). Eisenstein discovered that a City ordinance subjected him to additional taxes when he was working in the City as a non-resident. See U.S. ex rel. Eisenstein v. City of New York, 540 F.3d 94, 96 (2d Cir. 2008). On January 17, 2003, Eisenstein filed a pro se action in the Southern District of New York. See Id. Eisenstein alleged the City ordinance requiring he pay an additional, non-resident tax violated the False Claims Act ("FCA"), 31 U.S.C. § 3729, which "imposes penalties upon any person who "‘knowingly presents . . . to . . . the . . . government . . . a false or fraudulent claim for payment.'" Eisenstein, 2006 WL 846376, at *3. If a private citizen thinks the FCA has been violated, the citizen can bring an action in his name on behalf of the United States. See 31 U.S.C. § 3730(c). This type of action is called a qui tam action, and the private citizen then becomes the relator in the action. See id. Eisenstein made three allegations against the City in his complaint. See Eisenstein, 2006 WL 846376, at *1-2. Eisenstein argued the City was discriminating against non-residents for living in places with lower tax rates. See id. at *1. He also argued the tax was unfair to non-residents because they could only deduct a portion of the tax from their taxable income, whereas City residents could deduct the entire amount: this forced non-residents into higher federal tax brackets. See id. Paradoxically, Eisenstein then argued that by allowing the non-residents to deduct even this small portion from their taxable income, the United States was being cheated out of tax revenue. See id. at *2. The Southern District dismissed his qui tam action on March 31, 2006, for failure to state a valid claim. See id. at *10.

    Eisenstein's Appeal to the Second Circuit

    Fifty-four days after the Southern District rendered its decision, Eisenstein filed a notice of appeal with the Court of Appeals for the Second Circuit on June 5, 2006. See Eisenstein, 540 F.3d at 95-96. The Court of Appeals then requested that Eisenstein and the City submit briefs on whether or not Eisenstein's notice of appeal was timely filed. See Id. at 97. Under Rule 4(a)(1)(A) and (B) of the Federal Rules of Appellate Procedure, appellants have 30 days to file a notice of appeal, but are allowed 60 days "[w]hen the United States or its officer or agency is a party". Fed. R. App. P. 4(a)(1)(A)-(B). The City then filed a motion to dismiss the appeal, stating that Eisenstein exceeded the 30-day time limit set by Rule 4(a)(1)(A)because, as the United States had chosen not to intervene, it was not a party to the litigation. See Eisenstein, 540 F.3d at 97.

    The Court of Appeals granted the City's motion to dismiss, and held "where the United States has declined to intervene in a False Claims action, the United States is not a party to the action within the meaning of Rule 4(a)(1), and, therefore, a notice of appeal must be filed within 30 days." Eisenstein, 540 F.3d at 96. The Supreme Court granted certiorari to determine whether to apply the 30-day or 60-day time limit in qui tam actions where the government does not intervene. See Docket No. 08-660.

    Analysis 

    The main issue of this case is whether the government should be considered a "party" under Federal Rule of Appellate Procedure 4(a)(1)(B) in a qui tam action where the Government has not intervened or participated in the action. See Question Presented; Brief for Petitioner Irwin Eisenstein at 4. Rule 4(a)(1)(B) of the Federal Rules of Appellate Procedure states that when the United States is a party to an action, appeals "may be filed by any party within 60 days after the judgment or order appealed from is entered." The usual time limit for filing appeals in civil cases is 30 days. See Fed. R. App. P. 4(a)(1)(A). Eisenstein argues that because qui tam actions are brought by an individual (called a relator) in the name of the Government, the Government is a party for the purposes of Rule 4(a)(1)(A) and therefore, the 60-day period is the appropriate time limit for the filing of an appeal. Brief for Petitioner at 16-17. The City of New York contends that since the government has not intervened or participated in the action, it cannot be considered a party under Rule 4(a)(1)(A), and therefore Eisenstein's appeal was untimely because it did not meet the usual 30-day time limit. See Brief for Respondents the City of New York, Michael Bloomberg, John Doe, and Jane Doe at 13.

    The Meaning of "Party"

    Eisenstein claims that even though it was Eisenstein, not the Government, who pursued a claim against New York under the False Claims Act ("FCA"), the Government is a "real party in interest" and the appeal is subject to the 60-day period. See Brief for Petitioner at 17. Eisenstein points out that numerous courts have held that in qui tam actions under the FCA, the government remains a real party in interest after it declines to pursue the claim. See Id. at 17-18. Eisenstein contends that the government remains a real party in interest in a qui tam action because the government is entitled to a minimum of 70% of any award of damages, the government must consent to any settlement or voluntary dismissal of the claim, and the claim necessarily involves a government injury. See Id. at 18-19.

    New York City ("the City") concedes that the government is a "real party in interest" in a qui tam action, even after it declines to pursue the claim. See Brief for Respondents at 14. However, the City argues that the Government is not a "party" for the purposes of measuring the appeal time limit under Rule 4(a). See Id. at 14-16. The City argues that the Supreme Court's recognition of qui tam plaintiff's standing to assert claims on behalf of the government in Vermont Agency of Natural Resources v. United States ex rel. Stevens demonstrates that the government is not a "party" to the appeal. See Id. at 15. In Stevens, the Court held that an individual plaintiff had standing to bring an FCA claim even when the government did not participate in any way. See Id. The City urges that the Stevens Court implicitly recognized that the government was not a party to the qui tam action because the "case would have been over if the Court had dismissed the relator" and because if the government were indeed a genuine party to litigation, standing would not have been at issue because the "injury in fact was indisputably sustained by the Government." Id.

    Eisenstein argues that in addition to the Government's substantive interest in the claim as a "real party of interest," the Government must be considered a party for the purposes of the 60-day period because the Government was formally named as a plaintiff in caption of the litigation. See Brief for Petitioner at 20. Eisenstein points out that the four circuit courts of appeals recognizing the 60-day period for qui tam appeals where the government declined intervention have given "weighty, even dispositive" consideration to the fact that the Government is formally named in court filings as required under the FCA. See Id. Eisenstein urges that the FCA requirement of naming the Government serves to bind the Government to the outcome of the action and prevents the Government from later initiating a duplicative claim against the defendant. See Id. at 21. Eisenstein also points to Federal Rule of Civil Procedure 17(a), which requires that real parties in interest are named as plaintiffs in an action. See Id. at 22. Eisenstein contends that since the FCA and Rule 17(a) require the Government to be named to ensure that it will be bound by the judgment, the Government must also be considered a party for the purposes of appellate procedure-including the 60-day time limit. See Id. at 22-23.

    New York City claims that the Government may be a party for some purposes yet not for others. See Brief for Respondents at 17-23. The City contends that in this action, the Government is not a party for appellate purposes because it has no right to appeal the qui tam claim without court permission to intervene. See Id. at 17. Under the FCA, once the government has declined to intervene in an action, it can only take over the action upon a showing of good cause. See Id. at 18. In support of this argument, the City points to Searcy v. Phillips Electronics North America Corp., 117 F.3d 154 (5th Cir. 1997) where the Court of Appeals for the Fifth Circuit held that when the Government is passive in the action, it does not have the ability to appeal a judgment as a matter of right. See Id. at 21-22. In United States v. Brumfield, the Fifth Circuit denied the 60-day time period to an appellant of a contempt order because the Government was simply a named party whose participation was not "in the traditional posture required for [the] sixty day provision." See Id. at 22 (quoting 188 F.3d 303, 306 (5th Cir. 1999). The City acknowledges another Fifth Circuit decision which recognized the Government as a party for the purpose of the 60-day period, but rejects it as an outlier in light of the Searcy and Brumfield cases. See Id. at 22-23 (citing United States ex rel. Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304 (5th Cir. 1999). The City also contends that the naming requirements of the FCA and Federal Rule of Civil Procedure 17(a) are "statutory formalities" that do not confer party status. See Id. at 27. According to the City, these procedural naming requirements alone cannot determine the substantive question of who is a genuine party for the purposes of an appeal. See Id. at 26-27.

    Participation and Party Status

    Eisenstein argues that the Second Circuit's determination that party status depends on participation in the action and "control over litigation" is erroneous. See Brief for Petitioner at 28. In addition to pointing out the potential administrative difficulty in determining whether a particular level of involvement would confer party status, Eisenstein contends that even when the government does not intervene, it retains certain rights in the action that reflect its status as a genuine party. See Id. at 28-32. These rights include approval rights over settlements and voluntary dismissals, the right to request pleadings and transcripts from the other parties, the right to request stays of a plaintiff's discovery, and the right to the majority of damages and the right to settle or dismiss the claim before declining intervention. See Id. at 31-32. Thus, according to Eisenstein, even when it does not intervene in the action, the Government retains the ability to participate. See Id. at 32. Eisenstein also challenges that whether the Government intervenes should not be the test of party status because the Government retains these special rights under the FCA. See Id. at 35.

    New York City argues that the fact that the Government enjoys certain rights in qui tam FCA actions whether or not it intervenes does not show that the Government is always a party for the purposes of an appeal. See Brief for Respondents at 28. The City contends that the Government in a qui tam action does not bear any "indicia of ‘party status'" before it intervenes. See Id. at 26. The City points out that under the FCA, if the Government has not intervened, it has no right to copies of discovery materials or pleadings beyond the complaint, whereas under the Federal Rules of Civil Procedure, all parties are served copies of these materials. See Id. at 28. In addition, the City claims that the Government's ability to dismiss or settle a qui tam claim without approval of the relator and its right to approve or deny settlement are not powers that an ordinary "co-party" enjoys, and therefore, these powers cannot be understood to confer party status. See Id. at 29. The City urges that the lack of active participation on the part of the Government in this action precludes designation as a party for the purposes of appeal. See Id. In support of its participation test, the City argues that in cases where a plaintiff brings both an FCA claim and another non-FCA claim, like Eisenstein did, the Government will remain a named party even if the FCA claim is dismissed and the plaintiff appeals the non-FCA claim. See Id. at 30. In such a case, the City contends, the Government could clearly not be considered a party for the purpose of appellate time limits unless it first successfully intervened in that claim. See Id. at 30.

    Discussion 

    There is no doubt that this decision will directly affect petitioner Irwin Eisenstein's ability to appeal and to move forward with his case. The outcome of this case, however, will have the broader impact of bringing some much needed clarity to the time limit for filing a notice of appeal in a qui tam action where the United States chooses not to intervene. See Brief for Respondents at 1-4.

    According to Rule 4(a)(1)(A) and (B) of the Federal Rules of Appellate Procedure, the routine 30-day time limit to file a notice of appeal is extended to 60 days when the government is a party in the action. See Fed. R. App. P. 4(a)(1)(A)-(B). The Second Circuit denied the extension, observing that the intent behind the extension of the filing deadline was to allow the "slow machinery of government" an adequate amount of time to prepare for the appellate litigation. Eisenstein, 540 F.3d at 99. This resulted in a Circuit split, with the Court of Appeals for the Second and Tenth Circuits applying the 30-day time limit, and the Court of Appeals for the Third, Fifth, Seventh, and Ninth Circuits all ruling that the 60-day time limit should apply to the filing. See Brief for Respondents at 2. Both sides argue that a ruling in their favor will cause the least amount of confusion in future cases. See Brief for Petitioner at 14-15. No matter what the outcome, the lasting benefit of this decision will be the establishment of a clear rule that the United States and future relators can follow when appealing in qui tam actions. See Brief for Petitioner at 14-15. Courts and future relators will be able to proceed with confidence when determining if the notice of appeal is timely filed, and litigants that lack legal savvy will not be tripped up by "procedural traps." See Brief of Taxpayers Against Fraud Education Fund in Support of Petitioner at 3. Conversely, the party on the opposite side of the litigation will know with confidence whether the deadline to file a notice of appeal has passed or not.

    Some, however, question the importance of this seemingly narrow issue, and whether it is deserving of a coveted spot before the Supreme Court. See John T. Boese, Civil False Claims Act: Supreme Court to Determine Time for Appeal in Unintervened Qui Tam Cases at 2. On its face, this issue appears to affect only relators and their attorneys in the limited cases where qui tam actions are not pursued by the United States. Id. Even the Southern District of New York heard the case and thought that the substantive issues of the case warranted dismissal. See U.S. ex rel. Eisenstein v. City of New York, 2006 WL 846376, at *1 (S.D.N.Y., March 31, 2006). So while it is a point of contention within the Circuits, it has led some to ask, "how hard is it to file a notice of appeal in 30 days?". See Boese, Civil False Claims Act at 2. The answer to this might be that the Supreme Court is using this case in order to revisit some other issue. Id. One such issue could involve the Second Circuit's interpretation of Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). Id. Stevens involved broader issues of the United States' position and standing when it chooses not to intervene in a qui tam action, and the implication this has on discovery demands to the United States. Id. The Second Circuit concluded that the Seventh Circuit's decision to apply the 60-day limit in United States ex rel. Lu v. Ou was inconsistent with the intent of the Supreme Court in Stevens. See U.S. ex rel. Eisenstein v. City of New York, 540 F.3d 94, 98, 100-1 (2d Cir. 2008). As this is one of the only Supreme Court cases discussed at any length in the Second Circuit's opinion, perhaps the Supreme Court wants to examine the Second Circuit's interpretation of this case. See Id.; Boese, Civil False Claims Act at 2.

    Speculation aside, this case will allow the Supreme Court to determine whether a relator may receive the benefit of an extended filing deadline, even if the United States is a party to the litigation in name only.

    Conclusion 

    This case will resolve whether the 60-day time period for appeals in Federal Rule of Appellate Procedure 4(a)(1)(B) applies in a qui tam action where the Government has declined to intervene in the action and has not participated in the action in a substantive way. The Court's resolution of this case will clarify to what extent a named party in a qui tam action is a "party" for the purposes of filing a notice of appeal. This case will likely resolve confusion among potential qui tam appellants over whether an appeal must be filed within 30 or 60 days of a judgment or order to dismiss.

    Edited by