The Supreme Court Issues Landmark Ruling That Limits When a False Claims Act Case May Be Filed

David M. Nadler

David M. NadlerLast week the U.S. Supreme Court answered two critical questions regarding when a case may be filed under the False Claims Act (FCA). Kellogg Brown & Root Serv., Inc., et al. v. U.S. ex rel. Carter, No. 12-1497 (May 26, 2015). In KBR, the Court unanimously held that the Wartime Suspension of Limitations Act (WSLA) applies only to criminal fraud cases, and thus does not suspend the civil FCA’s statute of limitations. The Court also held that the FCA’s first-to-file bar only applies while previously-filed related claims are undecided and still active on the court’s docket. Once a case is dismissed or settled, however, it is no longer a “pending action” and a second case alleging the same misconduct can be filed.

The KBR case found itself at the High Court after a long and arduous procedural history. The relator, Carter, worked for KBR in Iraq as a water purification unit operator. He filed a qui tam complaint (Carter I), alleging that KBR had fraudulently billed the government for water purification services that were not performed or not performed properly. The district court dismissed Carter I without prejudice due to an earlier-filed pending qui tam suit (Thorpe) which alleged similar claims. Carter appealed, and while his appeal was pending the Thorpe suit was dismissed. Carter immediately filed a new qui tam complaint (Carter II), which the district court dismissed without prejudice because Carter I was still pending. Finally, Carter dismissed his Carter I appeal and filed his third complaint—the complaint at issue in this case—Carter III, more than six years after the alleged fraud. The district court dismissed Carter III with prejudice due to another earlier-filed pending case, noting that all but one of Carter’s claims were untimely filed given the FCA’s six-year statute of limitations.

The FCA’s statute of limitations provision states that a qui tam action must be brought within six years of a violation or within three years of the date by which the government should have known about a violation. The WSLA suspends or “tolls” the statute of limitations for “any offense” involving fraud against the government while the United States is at war. To sidestep the FCA’s limitations period—which is fatal to the majority of his claims—Carter argued, and the Fourth Circuit agreed, that the WSLA applies to civil claims alleging fraud during the United States’ conflict with Iraq. The Supreme Court disagreed, holding that the WSLA only applies to criminal fraud cases, not civil FCA cases.

The Court’s holding on this issue is a significant victory for the contracting community which faced an almost indefinite tolling of the statute of limitations and government claims that could go back decades based on the government’s interpretation of the statute. Moreover, the government sought to apply that interpretation of the WSLA not only to civil FCA cases involving war-related contracts, but in a variety of other cases involving, for example, financial services, mortgage fraud, and even its case against Lance Armstrong, in which the government claims he made false statements about his use of performance enhancing drugs to secure a sponsorship deal with the U.S. Postal Service.

The FCA’s first-to-file bar precludes a qui tam suit “based on the facts underlying [a] pending action.” By the time Carter appealed the district court’s dismissal of Carter III with prejudice, the other pending case had been dismissed. The question then was what is a “pending action”? The Fourth Circuit held, and the Supreme Court agreed, that the first-to-file bar only bars a subsequent suit while the earlier-filed suit is undecided and remains active on the court’s docket, but does not bar a second suit based on the same alleged misconduct once the first suit is dismissed or settled and no longer active on the court’s docket. The Supreme Court refused to “push the term ‘pending’ far beyond the breaking point” by interpreting the term “pending” as shorthand for “first-filed.”

The practical application of KBR for government contractors is twofold. First, on a positive note, the FCA statute of limitations has not been obliterated by the WSLA, and qui tam whistleblowers and the government will need to file complaints within the FCA’s limitations period. Second, the FCA’s first-to-file bar will only protect companies from subsequent related qui tam complaints while the first-filed suit is undecided and active at the court. After the first-filed suit is dismissed or settled, it is no longer considered a “pending action” and a second related suit can be filed. Thus, companies will continue to face the prospect of having to defend against serial complaints alleging the same misconduct, even if an earlier case based on the same operative facts was dismissed. However, the doctrine of claim preclusion may provide some protection for contractors if the first-filed action is decided on the merits, but this is a very fact-specific analysis that is determined on a case-by-case basis.