Offering a mixed bag for federal contractors, on May 26, 2015, the Supreme Court of the United States unanimously overturned the Fourth Circuit’s decision in United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013) that the Wartime Suspension of Limitations Act (WLSA) could be used to toll the statute of limitations on civil fraud claims.  At the same time, the Court affirmed the Fourth Circuit’s holding that the relator’s claims were not barred under the first-to-file doctrine where the prior claim had been dismissed for lack of prosecution.  Both holdings have significant implications for federal contractors and recipients of federal financial assistance.

Walking through the WLSA’s text, legislative history, and subsequent revisions, the Supreme Court found that the intent of the statute and the changes made to it over time evinced a clear understanding that the term “offense” applies solely to “crimes,” excluding from the statute’s coverage civil fraud claims.  The Court further explained that to the extent ambiguity existed, based upon past Supreme Court decisions, the WLSA should be narrowly construed and “interpreted in favor of repose.”

This decision offers some reprieve for industry, which has seen a steady uptick in false claims act cases over the past few years; in particular civil suits as enforcement actions are increasingly sought on the grounds of purportedly flawed internal processes and administrative defects.  Successful claims under the civil provisions of the False Claims Act (FCA) can result in treble damages and statutory penalties, in addition to significant investigation and litigation costs.  During briefing, contractors and industry groups argued that the Government’s interpretation of the WLSA could lead to an indefinite statute of limitations given the nature of modern expeditionary warfare.  With this decision, contractors can more safely rely on the FCA’s statute of limitations.

The Court also held that the civil FCA’s first-to-file bar did not preclude bringing a qui tam action after a similar action was brought and dismissed.  The first-to-file bar prevents bringing an action “based on the facts underlying the pending action.”  The Appellants argued that the word “pending” was “short-hand for the first filed action.”  The Court disagreed, commenting that this would mean that “Marbury v. Madison . . . is still ‘pending.’  So is the trial of Socrates.”  Instead, the Court held that once a case under the FCA is dismissed, it is no longer “pending,” and an action on related facts may be brought without violating the first-to-file bar.  Since one of the respondent’s claims was timely filed before the statute of limitations ran out and complied with the Court’s interpretation of the first-to-file bar, it will likely be reinstated on remand.

This aspect of the Court’s holding is less favorable for federal contractors and grantees, as it significantly weakens their ability to use the first-to-file bar as a successful defense in False Claims Act litigation.

Relevant Sources:

Kellogg Brown & Root Services, Inc., et al. v. United States, ex rel. Carter, No. 12-1397; 575 U.S. ___ (2015)

18 U.S.C. §3287 (Wartime Suspension of Limitations Act)

31 U.S.C. §3729 (False Claims Act)