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. Continue reading “The Supreme Court Issues Landmark Ruling That Limits When a False Claims Act Case May Be Filed”

Supreme Court Grants Petition for Review in Carter; Will Address FCA First-to-File Bar and Wartime Suspension of Limitations Act

David M. Nadler

David M. NadlerOn 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. Continue reading “Supreme Court Grants Petition for Review in Carter; Will Address FCA First-to-File Bar and Wartime Suspension of Limitations Act”

The Expansion of the Business Systems Rule Beyond DoD

David M. Nadler, Justin A. Chiarodo, David Yang, and Stephanie M. Harden

David M. NadlerJustin A. ChiarodoDavid YangStephanie Marie ZechmannWith the potential for millions of dollars in withholdings on contract payments, Department of Defense (DoD) contractors have become all too familiar with the Business Systems Rule since it was first implemented in 2011. The Department of Energy (DoE) is now following in the steps of DoD and promulgating its own Business Systems Rule. On April 1, 2014, DoE issued a Notice of Proposed Rulemaking for its Business Systems Rule, which is largely modeled off of the DoD rule. This expansion of the Business Systems Rule beyond DoD warrants careful attention by contractors who may not have previously been covered, as effective and proactive compliance is essential to mitigating the risk of withholdings under the rule.

Overview of the DoD Business Systems Rule

The DoD Business Systems Rule permits DoD to withhold contractor payments on covered contracts if one or more “significant deficiencies” are found in any of the six business systems covered by the rule. The term “significant deficiency” is broadly defined as “a shortcoming in the system that materially affects the ability of officials of DoD and the Contractor to rely upon information produced by the system that is needed for management purposes”–a definition which leaves great discretion to the Contracting Officers responsible for determining system acceptability. Continue reading “The Expansion of the Business Systems Rule Beyond DoD”

KBR Ruling Threatens Privilege in Mandatory Disclosure Investigations

David M. Nadler, David Yang, and Christian N. Curran

David M. NadlerDavid YangChristian N. CurranRecently, the U.S. District Court for the District of Columbia ruled that a company’s work product created during an internal mandatory disclosure investigation was not protected by the attorney-client privilege or attorney work-product doctrines. During discovery in United States ex. rel. Barko v. Halliburton Co. et al., KBR sought to withhold internal investigation reports relating to alleged fraudulent activities during its performance of the Logistics Civil Augmentation Program (LOGCAP III) contract in Iraq. The ruling casts doubt on whether documents created pursuant to internal investigations are protected by the attorney-client privilege or work-product doctrines and could significantly impact how companies conduct internal investigations, including their mandatory disclosure practices.

The Barko Case

The relator filed his case against KBR under the False Claims Act (FCA) in 2005, alleging that KBR had overcharged the government in a variety of ways under KBR’s LOGCAP III contract. During discovery, the relator requested that KBR produce documents relating to internal audits and investigations of alleged misconduct that was reported by KBR employees under LOGCAP III. KBR asserted that the material was protected by the attorney-client privilege and work-product doctrine. After the relator moved to compel, the court conducted an in camera review of the documents. Continue reading “KBR Ruling Threatens Privilege in Mandatory Disclosure Investigations”

Government Contractors Beware—DOJ Is Now Using the Byrd Amendment to Bring FCA Cases for Alleged Lobbying Violations

David M. Nadler

David M. NadlerOn November 8, 2012, the U.S. Department of Justice (DOJ) announced its intention to continue expanding the False Claims Act’s (FCA) reach by intervening in a lawsuit against Fluor Hanford Inc. and its parent company, Fluor Corporation (collectively Fluor), in the U. S. District Court for the Eastern District of Washington. In this case, DOJ is using the rarely invoked Byrd Amendment as the hook to pursue FCA claims. The complaint alleges that Fluor used federal contract funds to pay for lobbying services in violation of the Byrd Amendment and therefore, violated the FCA and subjected itself to treble damages. 31 U.S.C. § 3729 et seq. (FCA); 31 U.S.C. § 1352 (Byrd).

As discussed below, there have been few prosecutions under the Byrd Amendment, and FCA liability predicated on false certifications of compliance with the Byrd Amendment is a novel approach. The Fluor case highlights that government contractors must be aware of the lobbying restrictions under the Byrd Amendment as well as the type of conduct that could expose them to liability and treble damages under the FCA. DOJ’s decision to intervene in this case also underscores the government’s increased scrutiny and willingness to prosecute cases involving an alleged misappropriation of public funds. It also demonstrates DOJ’s continued efforts to expand the reach of the FCA by pursuing actions based on conduct that falls within the scope of independent statutes that carry their own civil penalties. Instead of seeking penalties via the underlying statute (here, the Byrd Amendment), DOJ has elected to proceed under the FCA where it can recover treble damages as well as civil penalties. Continue reading “Government Contractors Beware—DOJ Is Now Using the Byrd Amendment to Bring FCA Cases for Alleged Lobbying Violations”

DOJ and SEC Issue Foreign Corrupt Practices Act Guidance

David M. Nadler and Steven J. Roman

David M. Nadler Steven J. RomanThe Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) jointly issued a new guidance entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act.” Although the 130-page guidance does not break any significant new ground, and generally reiterates positions that the government has previously taken in Foreign Corrupt Practices Act (FCPA) litigation and settlements, the document does provide useful information to companies regarding compliance with, and government enforcement of, the FCPA.

For example, the guidance identifies nine factors that the government considers in conducting an investigation, determining whether to charge a corporation, and negotiating plea or other agreements: (1) the nature and seriousness of the offense, including the risk of harm to the public; (2) the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management; (3) the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it; (4) the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents; (5) the existence and effectiveness of the corporation’s preexisting compliance program; (6) the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution, and cooperate with the relevant government agencies; (7) collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution; (8) the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and (9) the adequacy of remedies such as civil or regulatory enforcement actions. The guidance also includes a number of hypotheticals and case studies that are helpful in suggesting the types of conduct and compliance practices that are more or less likely to lead to government enforcement actions or declination of charges. Continue reading “DOJ and SEC Issue Foreign Corrupt Practices Act Guidance”

Trade Associations Request that Justice Department and SEC Clarify Criminal and Civil FCPA Enforcement

David M. Nadler and Steven J. Roman

David M. NadlerSteven J. RomanOn November 8, 2011, Assistant Attorney General Breuer promised in a speech to the 26th National Conference on the Foreign Corrupt Practices Act (FCPA) that in 2012 the U.S. Department of Justice (DOJ) would provide “detailed new guidance on the [FCPA’s] criminal and civil enforcement provisions.” More than 30 trade associations led by the U.S. Chamber of Commerce have requested that this promised guidance address several issues and questions summarized below in order to mitigate significant interpretative challenges faced by businesses seeking to comply in good faith with the FCPA. “[I]n order to avoid conflicting interpretations and ensure a uniform policy,” the letter suggests that the guidance be issued by both the DOJ and the U.S. Securities and Exchange Commission (SEC) and that it apply to both criminal and civil enforcement.

Definitions of “Foreign Official” and “Instrumentality”

The trade associations’ letter requests that the DOJ and the SEC provide “a clear, uniform definition” of “foreign official” and “instrumentality.” The letter stresses that the courts’ highly fact-dependent and discretionary approach to these terms, particularly in markets where many companies are at least partially state-owned, “engenders tremendous uncertainty and risks serious misallocation of resources by U.S. businesses seeking to sell their goods and services in foreign markets.” In response, the letter suggests that the forthcoming guidance address at least the following: (1) the percentage ownership or level of control by a foreign government that ordinarily will qualify a corporation as an “instrumentality;” (2) clarification that an “instrumentality” must perform government or quasi-governmental functions and a detailed list of what those functions may include; and (3) exceptions, if any, to the foregoing general principles. Continue reading “Trade Associations Request that Justice Department and SEC Clarify Criminal and Civil FCPA Enforcement”