Why it matters: In a May 26, 2015, opinion, the U.S. Supreme Court ruled on two “tolling and timing” questions under the whistleblower provisions of the False Claims Act, namely (1) whether the statute of limitations (SOL) for qui tam claims tolls by operation of the Wartime Suspension of Limitations Act (short answer: it doesn’t); and (2) once a qui tam suit has been filed, at what point can a second lawsuit alleging the same fraudulent acts be filed under the FCA’s “first-to-file” rule (short answer: the second suit is barred only for so long as the first suit remains “pending”).
Detailed discussion: On May 26, 2015, the U.S. Supreme Court issued its opinion in Kellogg Brown and Root Services, Inc. v. U.S. ex rel. Carter, resolving two “tolling and timing” questions that had arisen under the whistleblower, or qui tam, provisions of the False Claims Act (FCA). The first question addressed by the Court was whether the Wartime Suspension of Limitations Act (WSLA), which tolls SOLs for fraud offenses against the government during wartime, applies to FCA civil claims. The Court concluded that it does not. The second question addressed by the Court was one of timing under the whistleblower statute’s “first-to-file” rule, which provides that, once a qui tam suit has been filed against a defendant, later qui tams against that same defendant alleging the same fraud are barred so long as the first action is “pending.” The Court defined the term “pending” in the traditional sense, and held that a dismissal of the first qui tam case means that it is no longer pending for purposes of the first-to-file rule.
First, a brief recap of the underlying case: Kellogg Brown and Root Services, Inc. (KBR) is a defense contractor that provided logistical services to the U.S. military during the armed conflict in Iraq. During the time in question, KBR was a subsidiary of Halliburton Co. (Halliburton). From January through April 2005, Benjamin Carter (Carter) worked in Iraq for KBR as a water purification operator. In February 2006, Carter filed a qui tam complaint under seal in the Central District of California against Halliburton for fraudulent billing practices. That complaint was unsealed in 2008 and transferred to the Eastern District of Virginia, where it went through a couple of rounds of amendments and refilings. In 2010, shortly before trial was to commence, the government informed Carter and KBR about an earlier qui tam lawsuit against Halliburton, filed in December 2005 in the Central District of California, which contained claims similar to those in Carter’s complaint (Thorpe suit). The Virginia district court held that Carter’s lawsuit was related to the Thorpe suit, and dismissed Carter’s case without prejudice under the “first-to-file” rule. Carter appealed to the Fourth Circuit, and while his appeal was pending, the Thorpe suit was dismissed in California for failure to prosecute. Carter quickly refiled a second qui tam complaint against Halliburton in the Eastern District of Virginia, which was again dismissed by the district court under the first-to-file rule because his first complaint was still pending on appeal. Carter then voluntarily dismissed the Fourth Circuit appeal and filed a third qui tam complaint (third Carter complaint) against Halliburton in June 2011, more than six years after most of the alleged fraudulent conduct occurred. It is this third Carter complaint that was at issue before the Supreme Court in this case.
The Virginia district court once again dismissed the third Carter complaint, this time with prejudice, holding that it was barred under the first-to-file rule because by then there were qui tam complaints pending against Halliburton in both Maryland and Texas alleging the same fraudulent misconduct. Also supporting dismissal was the district court’s finding that all but one of the claims alleged in the third Carter complaint were barred as untimely by the qui tam provision’s six-year SOL. Carter argued that the SOL had been tolled under the WSLA and, as there had been no formal proclamation declaring the cessation of hostilities in Iraq, was still tolled with respect to his claims. The district court rejected this argument, finding that the WSLA only applies to criminal offenses against the government.
The Fourth Circuit reversed and remanded the case in 2013, finding that the WSLA does apply to civil claims and thus the qui tam SOL had been tolled and Carter’s claims in the third Carter complaint were still timely. The Fourth Circuit also rejected the district court’s analysis of the first-to-file rule and its dismissal of the third Carter complaint with prejudice, holding that the bar ceases to apply once a first-filed action is dismissed . . . which the Maryland and Texas cases were by the time of the Fourth Circuit’s decision. Thus, the Fourth Circuit remanded the third Carter complaint to the district court, with instructions that it be dismissed without prejudice so that Carter could refile. Carter subsequently did file a fourth complaint, but the district court again dismissed it on the grounds that the third Carter complaint was the subject of a pending writ of certiorari to the Supreme Court, which was granted in 2014.
On May 26, 2015, the Supreme Court unanimously reversed in part and affirmed in part the Fourth Circuit’s opinion. Writing for the Court, Justice Alito began by analyzing the “text, structure and history” of the WSLA and found that, based on such analysis, the WSLA only applies to criminal offenses. Thus, the Court held that “because this case involves civil claims, the WSLA does not suspend the applicable statute of limitations” and reversed the Fourth Circuit decision on this point.
The Court next analyzed the first-to-file rule with respect to the single claim in the third Carter complaint left standing after the Court’s WSLA ruling, and found that the district court’s dismissal of the third Carter complaint “with prejudice” was improper. KBR had argued that the term “pending” in the first-to-file rule should be interpreted so as to mean that the first-filed action remains “pending” indefinitely, thus barring all additional claims against the defendant for the same fraud. The Court found this reading to be “very peculiar” and stated that “[u]nder this interpretation, Marbury v. Madison, 1 Cranch 137 (1803), is still ‘pending.’ So is the trial of Socrates.” The Court concluded that “[w]e see no reason not to interpret the term ‘pending’ in the FCA in accordance with its ordinary meaning,” thus holding that “a qui tam suit under the FCA ceases to be ‘pending’ once it is dismissed. We therefore agree with the Fourth Circuit that the dismissal with prejudice of respondent’s one live claim was error.”
The Court found “some merit” to KBR’s argument that defendants will be reluctant to settle first-filed qui tam actions for the full amount if they know that settlement will lift the first-to-file bar and bring later-filed suits asserting the same claims. The Court noted, however, that that particular issue was not before it in this case and would thus have to be addressed at a later date, stating that “[t]he False Claims Act’s qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine.”
See here to read the U.S. Supreme Court’s opinion in Kellogg Brown and Root Services, Inc. v. U.S. ex rel. Carter, No. 12-1497(5/26/15).