On July 1, 2014, the Supreme Court granted the petition for certiorari in Kellogg Brown & Root Services v. United States ex rel. Carter, and now has the opportunity to determine the proper application of the False Claims Act’s first-to-file bar, as well as the inapplicability of the Wartime Suspension of Limitations Act (WSLA) to the civil FCA due to the WSLA’s criminal law context, two critical issues of statutory interpretation that have become increasingly problematic to FCA litigation over the last several years.
The Supreme Court will address two questions presented, which are: (1) whether the WSLA applies to civil FCA claims brought by private relators “in a manner that leads to indefinite tolling,” and (2) whether the FCA’s first-to-file bar, which prohibits parasitic claims, creates a race to the courthouse and encourages relators to promptly disclose fraud, instead “functions as a ‘one-case-at-a-time’ rule allowing an infinite series of duplicative claims so long as no prior claim is pending at the time of filing.” Petition for Writ of Certiorari at *I, Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 2013 WL 3225969 (U.S. June 24, 2013) (No. 12-1497).
There is a reasonable chance the Supreme Court will reverse the Fourth Circuit on both issues. The petitioners are seeking review of the Fourth Circuit decision United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), which suspended the FCA statute of limitations in the civil context through its application of the WSLA, and also transformed the FCA’s first-to-file bar into a “one-case-at-a-time” rule. The defendants petitioned the Supreme Court in June 2013 after a petition to the Fourth Circuit for rehearing was denied. The Court’s decision to grant the petition runs contrary to the recommendation of the Solicitor General, who filed a brief on May 27, 2014 requesting that the petition be denied and defending the Fourth Circuit rulings.
Located in the federal criminal code, the WSLA, as amended in 2008, suspends or “tolls” the running of any statute of limitations applicable to any “offense” involving fraud against the United States when the country is at war or Congress has authorized the use of the Armed Forces, until five years after the termination of hostilities “as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.” Wartime Suspension of Limitations Act, 18 U.S.C. § 3287.
In three short paragraphs, the majority opinion in Carter decided that the WSLA applies in the FCA’s civil context, even if the United States is not a party to the case, based on the majority’s interpretation of an ambiguous 1944 amendment to the statute. 710 F.3d at 179-80. A lengthy dissent argued that the WSLA does not apply to relators and does not apply in the civil context when the United States has not intervened. Id. at 187-95 (Agee, J. dissenting).
The Fourth Circuit also held that “once a case is no longer pending the first-to-file bar does not stop a relator from filing a related case.” Id. at 183. Carter had previously filed related actions that were pending when he filed his current case, but which were later dismissed. The district court here dismissed the complaint with prejudice, and the circuit reversed that decision. Id.
The FCA’s first-to-file bar provides that “[w]hen a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).
The D.C. Circuit issued a more recent decision on the first-to-file bar on April 11, 2014 in United States ex rel. Shea v. Cellco Partnership, 748 F.3d 338 (D.C. Cir. 2014), which found that the FCA’s first-to-file rule bars subsequent related suits even if the prior action is no longer pending. The D.C. Circuit decision disagreed with the Carter decision of the Fourth Circuit as well as decisions of the Seventh and Tenth Circuits, illustrating a clear circuit conflict that was subject of supplemental briefing to the Supreme Court in the Carter case.
Since the Carter decision was issued by the Fourth Circuit, there has also been sharp disagreement over the WSLA in the district courts outside the Fourth Circuit, which have reached opposite conclusions concerning the WSLA’s application in the civil context. The WLSA was most recently addressed in a decision of the District Court for the District of Columbia issued June 19, 2014 in the case against Lance Armstrong, United States ex rel. Landis v. Tailwind Sports Corp. The D.C. Circuit Court’s Judge Wilkins (sitting by designation) issued a decision finding that the WSLA did not apply in the civil context. The court dismissed with prejudice all of the relator’s FCA claims arising prior to six years before the filing of the complaint. The D.C. District Court decision was also the subject of supplemental briefing to the Supreme Court encouraging it to hear the Carter case.
According to the petition in the Carter case, the Fourth Circuit decision on the first-to-file bar and the WSLA would have “dire effects” for “a host of industries,” including defense, health care and financial services. The Fourth Circuit “has suspended the running of the statute of limitations for every claim of fraud against the government, from at least 2002 to some not-yet (and likely never-to-be) determined point in the future, while simultaneously eliminating any vestige of repose by construing the ‘first-to-file’ bar to permit perpetual re-filing of allegations long known to the government from prior suits.”
The Supreme Court, while granting the petition, also granted motions of the National Defense Industrial Association and U.S. Chamber of Commerce, joined by groups representing commercial banks and biotechnology companies, for leave to file briefs as amicus curiae.
According to the NDIA brief, the Carter decision “is not a minor reworking of the FCA; it fundamentally alters the balance Congress struck between the interests of purported whistleblowers and government contractors.” The decision “will encourage redundant and harassing litigation” and “will subject contractors to massive damage claims reaching back for years, ratcheting up the pressure on contractors to settle even unmeritorious claims and allowing relators to strategically delay informing the government of their allegations of fraud.”
According to the Chamber’s brief, the Fourth Circuit’s holdings “threaten to increase significantly the number of stale and ultimately meritless claims that may be pursued against businesses in a vast array of industries, including health care, government procurement, and banking and finance, particularly because the Fourth Circuit’s rationale would allow the WSLA to toll the limitations and repose periods for alleged FCA violations having nothing to do with wartime contracts.”
If the Supreme Court were to affirm the decision of the Fourth Circuit and extend its application nationwide, it could effectively eliminate the FCA’s ordinary six-year statute of limitations and/or first-to-file bar. But if the Supreme Court reverses the Fourth Circuit, it can preserve the FCA statute of limitations in the civil context, clarify the correct application of the WSLA and its limitation to the criminal context, and restore the effective operation of the first-to-file bar, consistent with the plain language of the FCA and WSLA statutes. There is a reasonable chance that the Supreme Court will reverse the Fourth Circuit on both issues, and in the meantime, government contractors should follow this Supreme Court case closely, and take the appropriate actions in their own pending cases in light of the Court’s decision.