Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 C 514--Robert W. Gettleman, Judge.
Before Flaum, Chief Judge, and Posner and Ripple, Circuit Judges.
The opinion of the court was delivered by: Ripple, Circuit Judge
Janet Chandler, Ph.D., brought this quitam action as relator on behalf of the United States under the False Claims Act ("FCA"), 31 U.S.C. sec.sec. 3729 et seq., to recover funds that allegedly were obtained fraudulently by defendants Hektoen Institute for Medical Research ("Hektoen") and Cook County, Illinois, in the administration of a drug treatment program. The district court dismissed the suit against Cook County, holding that, as a municipality, the County was immune from punitive damages under the FCA. Dr. Chandler appealed and, for the reasons set forth in this opinion, we reverse in case No. 00-4110.
Cook County also appealed or, in the alternative, requested mandamus, from the district court's discovery order requiring Cook County to turn over certain drug treatment records. We believe the district court's discovery order does not comply with federal privacy regulations. Therefore mandamus will issue requiring the district court to vacate its discovery order and to proceed in conformity with this opinion.
A. Cook County as a Party
Dr. Janet Chandler brought this quitam action against Hektoen and Cook County for alleged misconduct in their handling of a federal research grant.*fn2 Cook County Hospital ("CCH") applied for, and received, a $5 million grant from the National Institute of Drug Abuse ("NIDA") to study the treatment of drug-dependant pregnant women. Along with its grant application, CCH submitted an assurance of compliance plan to the Department of Health and Human Services ("HHS"), representing that CCH would comply with federal human subject research regulations. The grant initially was awarded to CCH, but was transferred to Hektoen, an affiliate of CCH established to receive funds and conduct medical research. The program was dubbed "New Start"; it was designed to provide treatment and conduct research. New Start provided treatment to drug-dependant pregnant women and studied the effect of a stepped-up battery of medical and social services on its patients, compared with a control group receiving the typical treatment available in the community.
On September 1, 1993, Dr. Chandler was hired as New Start's project director. While in this post, Dr. Chandler came to believe that the defendants were violating the terms of the grant and federal regulations. Further, she believed they were misrepresenting the success of the New Start program and submitting false progress reports to the government, which included information on "ghost" program participants who did not exist. Dr. Chandler alleged that CCH did not follow mandatory protocol for research on human subjects and for dispensing methadone to pregnant women, did not obtain informed consent from study participants, did not obtain thorough medical or drug histories, provided substandard care, failed to keep accurate records and failed to randomize participants.
In 1994, Dr. Chandler began to speak up, informing physicians at CCH that she was concerned with the handling of the New Start program. She told them that the program was violating the terms of the grant, the assurance of compliance plan and pertinent federal regulations. Ultimately Dr. Chandler was discharged and brought this action. She alleged that CCH retaliated against her by revoking some of her responsibilities and then firing her in January 1995, after she was accused of lying in her report to NIDA on the study's alleged failure.
Cook County moved to dismiss on the ground that it was not a "person" within the meaning of the False Claims Act. See 31 U.S.C. sec. 3729(a).*fn3 The district court denied Cook County's motion to dismiss, holding that the County was a person within the meaning of the FCA. See Chandler v. Hektoen Inst., 35 F. Supp.2d 1078, 1084 (N.D. Ill. 1999) (Chandler I). Specifically, the court was persuaded by the definition of person within the Civil Investigative Demand ("CID") provision of the FCA, added in 1986. See 31 U.S.C. sec. 3733(l)(4); Chandler I, 35 F. Supp.2d at 1084. The statute defines person as "any natural person, partnership, corporation, association, or other legal entity, including any State or political subdivision of a State." 31 U.S.C. sec. 3733(l)(4). The district court further held that the treble damages provision of the FCA was not punitive, so that municipalities' traditional immunity from punitive damages was not implicated. See Chandler I, 35 F. Supp. 2d at 1084-85. Therefore, Cook County's motion was denied.
In 2000, the Supreme Court decided Vermont Department of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000). Stevens held that states were not persons within the meaning of the FCA and concluded that the trebledamages provision was punitive. See id. at 783-84. Cook County filed a motion to reconsider in light of Stevens. See Chandler v. Hektoen Inst., 118 F. Supp.2d 902, 902 (N.D. Ill. 2000) (Chandler II). The district court found nothing in Stevens to "alter its conclusion that the County is a 'person' for purposes of the FCA" but found that "it is quite clear that under Stevens the County is immune from the imposition of punitive damages." Id. at 903. The court dismissed the case against Cook County.
Dr. Chandler brought this action on January 27, 1997. She sought the records of the New Start program in discovery. The voluminous records contained inter alia physicians' notes, consent forms, medical records, patient questionnaires and drug test results. The County resisted, pointing to federal regulations requiring researchers to keep drug and alcohol treatment records confidential. On January 7, 1999, the district court granted Dr. Chandler's motion to compel and ordered Cook County to produce the records with patient-identifying information redacted. Notice was sent to the former New Start patients, informing them that "Janet Chandler has been given permission by the Court to review your New Start records, so long as all the identifying information and other personal information on the records is blacked out." R.72, Ex.B. The notice also provided the former patients with forms to reply if they wanted to object to the disclosure or if they consented to the disclosure of identifying information. The patients were informed that if they did nothing, the redacted records would be disclosed to Dr. Chandler and her representatives.
Over the next year or so, the parties were contentious about the quality of the redacted records. Dr. Chandler's attorneys claimed that many records were missing or incomplete. There was a problem with the index created by Cook County to obscure patient identifying information in compliance with the court's discovery order. The court ordered the County to produce a "key" to cross-reference original and substituted file numbers because the substituted file numbers could not be linked with a large quantity of study data. In early 2001, Dr. Chandler went back to the district court seeking access to the unredacted patient records.
On March 5, 2001, the district court ordered Cook County to turn over unredacted patient records to Dr. Chandler's representatives and asked the parties to draft protective orders. On March 14, 2001, the district court entered a protective order governing the disclosure of unredacted patient records to Dr. Chandler's attorneys. The order limited disclosure to three of Dr. Chandler's attorneys and one paralegal for ten days. They were prohibited from disclosing information to anyone, including Dr. Chandler and were not permitted to record any of the information. Cook County sought an emergency stay pending appeal. After briefing from both sides, the motions panel of this court granted the stay on June 12, 2001 and denied Dr. Chandler's motion to dismiss for want of jurisdiction. We consolidated the two appeals.
The False Claims Act establishes civil penalties for "[a]ny person" who, inter alia, "knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval," or who "conspires to defraud the Government by getting a false or fraudulent claim allowed or paid." 31 U.S.C. sec. 3729(a)(1), (3). Such a person "is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains be cause of the act of that person." Id. sec. 3729(a). The FCA may be enforced by the Attorney General, id. sec. 3730(a), or by a private person, known as a relator, who brings a quitam suit "for the person and for the United States Government . . . in the name of the Government," id. sec. 3730(b). A quitam suit is filed in camera, and remains under seal for sixty days. Id. sec. 3730(b)(2). The relator must present all material evidence to the Government; during the sixty day period, the Government may intervene and proceed with the action itself. Id. If the Government declines to assume responsibility for the suit, the relator may proceed on his own. Id. sec. 3730(b)(4)(B). If the suit is successful, the relator receives a portion of the Government's award. Id. sec. 3730(d). If the Government takes over, the relator will receive between 15 and 25 percent of the Government's proceeds, "depending upon the extent to which the person substantially contributed to the prosecution of the action," plus reasonable expenses. Id. sec. 3730(d)(1). If the relator proceeds on his own, he will ...