In Kellogg Brown & Root Services, Inc., et al. v. United States ex rel. Carter, Supreme Court Holds That Statute of Limitations Suspension Applicable to Criminal Fraud Charges Does Not Apply To Civil Fraud Claims and That First-to-File Bar Does Not Preclude Suits Following Dismissal of First-Filed Action

SUMMARY

On May 26, the Supreme Court issued a unanimous decision concerning the scope of civil fraud claims brought by whistleblowers under the False Claims Act (“FCA”) against government contractors. In Kellogg Brown & Root Services, Inc. et al. v. United States ex rel. Carter, slip op.   , 575 U.S.   (2015), the Court held that the Wartime Suspension of Limitations Act (“WSLA”) applies only to criminal charges, and does not suspend the limitations period for civil claims brought by individual whistleblowers under the FCA. The Court also held that the FCA’s “first-to-file” bar—which bars subsequent claims brought with regard to the same underlying allegations as an earlier filed action—does not bar seriatim litigation if the first-filed claim has been dismissed.

STATUTORY BACKGROUND

The FCA provides for criminal and civil liability for government contractors that “knowingly present[] . . . a false or fraudulent claim for payment or approval” “to an officer or employee of the United States.”1 Private parties may bring whistleblower claims, also known as qui tam actions, to enforce this provision, by filing as relators on behalf of the United States.2  If the lawsuit succeeds or is settled, the whistleblower is eligible to receive a portion of the government’s recovery.3 A qui tam action must be brought within six years of a violation or within three years of the date on which the United States should have known about a violation, and in no event may such an action be brought more than ten years after a violation.4 The FCA also provides a “first-to-file” limitation, barring any later suit “based on the facts underlying [a] pending action.”5

The WSLA, originally enacted in 1921, suspends “any statute of limitations applicable to any offense [] involving fraud or attempted fraud against the United States.” In 2008, Congress amended the statute to provide for suspension of the statute of limitations not only when the United States is at war, but also when Congress has enacted a specific authorization for the use of military force. Congress also extended the suspension period from three to five years “after the termination of hostilities.”6

THE PROCEEDINGS BELOW

The whistleblower claim was brought by Benjamin Carter, a water purification operator who worked in Iraq for Kellogg Brown & Root Services (“KBR”), a defense contractor that provided logistical services to the U.S. military in Iraq. Carter alleged that KBR had “fraudulently billed the Government for water purification services that were not performed or not performed properly” in 2005.7

The United States District Court for the Eastern District of Virginia dismissed Carter’s complaint because a qui tam suit alleging similar claims was pending.8 The first suit was later dismissed for failure to prosecute and Carter filed his complaint anew; his second complaint was dismissed under the first-to-file rule because the original suit was still pending on appeal.9 In 2011, after that appeal was resolved, Carter filed his complaint for the third time, but by then more than six years had elapsed since the alleged fraudulent conduct.10 Carter argued that the FCA’s six-year statute of limitations had been tolled by the WSLA. The district court disagreed and dismissed Carter’s complaint, holding that the WSLA applies only to criminal charges. The court also held that the suit was barred by the first-to-file rule, because two related cases had been filed before Carter re-filed his complaint.11

The Fourth Circuit reversed on both grounds, holding that the WSLA applies to civil claims and that the first-to-file bar no longer applies after dismissal of the first-filed case (the two related cases noted by the district court had been dismissed by the time of the Fourth Circuit’s decision).12 The Supreme Court subsequently granted certiorari.

THE SUPREME COURT’S DECISION

In a unanimous decision authored by Justice Alito, the Supreme Court reversed in part and affirmed in part the Fourth Circuit’s decision. The Court held that the WSLA applies only to criminal actions and does not suspend the statute of limitations for qui tam civil actions under the FCA; and the Court agreed with the Fourth Circuit that the FCA’s “first-to-file” bar ceases to apply if the first-filed suit has been dismissed.13

In reversing the Fourth Circuit with respect to the WSLA, the Court analyzed the statute’s text and legislative history, concluding that the Act only applies to criminal offenses.14 The Court relied principally on the fact that the statutory language refers to “offenses” in connection with the suspension of the statute of limitations, and “offenses,” both in common usage and in legislation, refer to criminal acts only.15

With respect to the FCA’s first-to-file rule,16 the Court focused on the statutory text, which provides that no person may “bring a related action based on the facts underlying the pending action.” The Court reasoned that the common usage of the word “pending” means that “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.”17 The Court thus rejected KBR’s argument that the term “pending” should be interpreted to mean that “the first-filed action remains ‘pending’ even after it has been dismissed, and it forever bars any subsequent related action.”

IMPLICATIONS

Decision affirms the statute of limitations for qui tam suits.

The decision, by declining to suspend the statute of limitations applicable to qui tam claims brought during times of war or when Congress has authorized the use of military force, should provide certainty for companies in opposing untimely civil whistleblower suits.

Seriatim qui tam suits remain possible.

The Supreme Court made clear that its decision as to the first-to-file provision was limited to holding that “a qui tam suit under the FCA ceases to be ‘pending’ once it is dismissed.”18 Notably, the Court expressly declined to reach the question of whether subsequent suits would be barred after a settlement or a decision on the merits of the first-filed suit.19 The Court recognized that its interpretation of “pending” might “produce practical problems” and offered as an example that “if the first-to-file bar is lifted once the first-filed action ends, defendants may be reluctant to settle such actions for the full amounts that they would accept if there were no prospect of subsequent suits asserting the same claims.” The Court noted that the United States had argued that claim preclusion would protect defendants from seriatim suits if the first-filed action were decided on the merits, but the Court determined that issue was not before it.20 In addition to claim preclusion, the FCA statute itself may provide important protections against copycat filings. The FCA bars qui tam actions brought on the basis of publicly available information where the relator was not an “original source” of that information.