At oral argument in Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, No. 12-1497 (U.S. argued Jan. 13, 2015) (“Carter”), several Justices voiced an unwillingness to accept the proposition that the Wartime Suspension of Limitations Act (“WSLA”) can suspend any civil limitations period, let alone the specific statute of limitations under the civil False Claims Act (“FCA”). If those sentiments carry the day in the Court’s decision, expected by June, that result will put an end to Justice Department and relator attempts to use the WSLA to revive otherwise stale FCA claims. However, with respect to a separate question argued yesterday in Carter, relators may fare better. Many of the Justices appeared to struggle to accept the argument that the FCA’s “first-to-file” bar operates to prevent a second FCA suit that is filed after dismissal of the first-filed complaint, especially if the dismissal was on non-merits grounds.
The WSLA Issue
The WSLA is a 72-year old criminal code provision that suspends the statute of limitations for “any offense” involving fraud against the government when the United States is “at war.” 18 U.S.C. § 3287. As explained in more detail in prior Alerts, the Fourth Circuit—the only appellate court to reach this issue—interpreted this Title 18 statute to apply to the civil claims in an FCA qui tam action. See FraudMail Alert Nos. 13-03-21; 13-10-09; 14-05-30; 14-07-01. Under the Fourth Circuit’s rationale in United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), cert. granted sub nom. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 134 S. Ct. 2899 (U.S. July 1, 2014), the FCA’s statute of limitations becomes a virtual nullity in most cases since the court also held that the WSLA’s suspension provision was triggered in 2002—when the United States was “at war” in Iraq. The practical implications of such indefinite tolling affects anyone doing business with the government. It would allow FCA claims to be brought decades after the alleged violations and place intolerable burdens on companies, requiring them to retain documents indefinitely in order to defend against potential claims. Given this unpleasant prospect, a wide range of industries joined KBR as amici in calling for the Supreme Court to reverse the Fourth Circuit’s decision in Carter. See Br. for the Chamber of Commerce of the United States of America, Pharmaceutical Research and Manufacturers of America, the Clearing House Association L.L.C., American Hospital Association, and the American Medical Association in Support of Petitioners; Br. for the National Defense Industrial Association, the Coalition for Government Procurement, and the National Association of Manufacturers in Support of Petitioners1 ; Br. for New England Legal Foundation in Support of Petitioners.
In prior FraudMail Alerts, we outlined a number of reasons why the WSLA should not be applied to the civil FCA, including: (1) the incongruity of applying a criminal code provision to the civil FCA; (2) due process concerns; (3) the lack of congressional intent to toll the statute of limitations outside of the wartime contracting context where no exigencies of war are present; (4) the Supreme Court’s description of the FCA’s ten-year statute of repose as “an absolute provision for repose;” and (5) the disconnect between the Supreme Court’s call for “fraud” as an “essential ingredient” for WSLA application and the post-1986 FCA’s “reckless disregard” standard. See FraudMail Alert Nos. 14-05-30; 13-10-09; 13-03-21; 12-08-16.
At the oral argument, the Justices focused almost exclusively on the gateway question of whether the WSLA applies to anything other than criminal statutes of limitations. All parties—and the Justices themselves—accepted the premise that the WSLA’s origins were in the criminal (and not also civil) context. This reality caused the Justices to suggest that the relators and the government needed to show that the WSLA somehow morphed into a statute that also applied to civil limitations periods. And while relator’s counsel argued that “there is nothing in that text [of the WSLA]…which limits offenses to criminal offense[s]” and that a 1944 amendment’s removal of the words “now indictable” and addition of the word “any” preceding “offense” expanded the WSLA’s reach to civil actions, those arguments appeared not to resonate with the Court for a number of reasons.
First, several Justices suggested that the term “offense,” especially when found within Title 18, necessarily connotes a crime. For instance, Justice Ginsburg emphasized the WSLA’s placement in the Criminal Code, and Justice Sotomayor asked whether any other Title 18 offenses can be characterized as civil. When relator’s counsel pointed to a footnote in the Solicitor General’s brief that purportedly identified seven such “civil” offenses, Justices Scalia, Kennedy, and Breyer questioned that assertion, noting that each citation referenced a criminal offense for which Congress also allowed a civil remedy. Indeed, when probed by the Justices about those supposed Title 18 civil offenses, government’s counsel admitted that “[the offenses] are still crimes, yes.”
Second, Justice Alito asked relator’s counsel: “What is your answer to the argument that this would be a big change if it previously applied only to crimes and then, according to you, it was changed so that it applied to civil claims as well?” When the response came back pointing to a Senate Report referencing “litigation” and claiming that criminal prosecutions are not normally referred to by that term, Justice Alito seemed unimpressed, asking, “Is that your…best evidence, that there was a reference to litigation?”
Third, the Court extensively questioned the relator’s and government’s contention that textual changes to the WSLA—such as the removal of the phrase “now indictable”—indicated that the post-1944 WSLA extends to civil statutes of limitations. But Justices pointed to a sound reason for the removal of those words—i.e., because Congress intended the suspension provision to also apply prospectively, rather than only retrospectively—an explanation put forward by various amici. See Br. of the National Defense Industrial Association et al. as Amici Curiae Supporting Petitioner at 10-18. Specifically, Justice Ginsburg observed: “Well, there was a reason [for the removal of the “now indictable” language]...The statute acted retrospectively for the first part of its history, and then they took it out when it was going to operate prospectively.” And, Justice Scalia later commented that the implication that the WSLA applied only to criminal offenses was not affected by “taking out the ‘now indictable’ language, which could have been eliminated for a very different reason; and that is, to show that it…operates prospectively.” Justice Scalia also gave little credence to the relator’s argument that the addition of the word “any” in 1944 extended the WSLA to the civil context, noting that an “offense” is normally criminal and that does not change “if you put the word ‘any’ in front of it.”
One of Justice Ginsburg’s questions neatly summarizes what may emerge as the consensus view of the Court on the WSLA issue: “Everyone agrees that from 1921 on, it was understood that this was a criminal statute and I think the point has been made before. If Congress really was going to change it, to vote it all onto the excision of two words which can be explained on other grounds, it’s a bit much. Wouldn’t Congress have said, now we’re going to make it—we want it to be civil, so we’re going to make it clear that it’s civil?”
The First-to-File Issue
Under Section 3730(b)(5) of the FCA, when a relator brings a qui tam action, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” This “first-to-file” provision operates to bar multiple qui tam suits based on the same underlying conduct. The main first-to-file issue before the Court in Carter is whether the bar only applies if the first-filed suit remains pending—i.e., has not been dismissed—at the time the subsequent suit is filed. Presumably, the Court granted certiorari in order to resolve the emerging circuit court split on this question. We have discussed the competing interpretations advanced by the Fourth Circuit and the D.C. Circuit (in United States ex rel. Shea v. Cellco P’ship (d/b/a Verizon Wireless), 748 F.3d 338 (D.C. Cir. 2014)) in prior FraudMail Alerts. See FraudMail Alert Nos. 14-04-15; 14-07-01.
Confronting this issue at oral argument, the Justices seemed to be less receptive to an interpretation that would allow the term “pending” to refer to anything other than an action that had been filed and had not been dismissed (i.e., was still active). Nevertheless, there is some prospect that the Court will not even reach the first-to-file question. During argument, Justice Sotomayor asked KBR’s counsel whether, if the Court finds in favor of KBR on the WSLA issue, the Court should even entertain the first-to-file question. KBR’s counsel confirmed that his client would get complete relief from a ruling reversing the Fourth Circuit on the WSLA issue alone.