A win and a caution for prospective qui tam defendants

In a recent opinion, the Supreme Court decided two issues of importance to health care providers, defense contractors and other potential defendants in False Claims Act (FCA) qui tam cases. The opinion is Kellogg Brown & Root Services, Inc., et al. v. United States ex rel. Carter, No. 12-1497 (May 26, 2015). In the appeal, the Supreme Court considered two issues arising in civil False Claims Act cases, and resolved one issue in favor of potential FCA defendants while potentially expanding their exposure to protracted litigation on the other. First, the Court limited the statute of limitations on civil False Claims Act cases (filed by either qui tam plaintiffs or the government), holding that the Wartime Suspension of Limitations Act (WSLA) applies only to criminal actions, not to civil actions, and thus does not extend the FCA’s six-year statute of limitations. Second, the Court held that the FCA’s first-to-file bar keeps new FCA claims out of court only while prior related claims are still alive, not in perpetuity, interpreting the word “pending” in the statute consistent with its ordinary meaning.

The defendants in the KBR case were defense contractors and related entities that had provided logistical services to the United States military during the conflict in Iraq. Plaintiff-relator Carter had worked for one of them, and later he filed a qui tam action alleging that they had fraudulently billed the government. Shortly before the case was to go to trial, the government informed the parties about an earlier case (Thorpe, for short), which arguably contained similar allegations. This led, in the words of the Supreme Court, to a “remarkable sequence of dismissals and filings.” Slip op. at 3. The end result was that Carter’s third complaint was dismissed by the district court under the so-called “first to file” bar, which provides, with exceptions not here relevant, that once a qui tam action is brought, no person can bring another action “based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The district court’s theory was that theThorpe matter was “pending” when Carter’s third complaint was filed. But the district court went further and dismissed the third complaint with prejudice, so that Carter could not refile it even though the Thorpe case had itself been dismissed and was no longer “pending” by the time of the district court’s ruling. The district court also ruled that the WSLA did not apply to civil actions, and that all but one of Carter’s claims were also barred by the FCA’s statute of limitations. The case was appealed to the Court of Appeals and then to the Supreme Court.

Carter’s third complaint was filed more than six years after the alleged fraud, though it repeated some allegations he had made earlier. The False Claims Act has a six year statute of limitations, 31 U.S.C. § 3731(b), with certain exceptions not here relevant. In its most recent version, the WSLA suspends the statute of limitations applicable to “any offense” involving fraud against the United States when the country is at war or Congress has authorized the use of military force until five years after termination of hostilities or certain other specified events. 18 U.S.C. § 3287. The question on appeal before the Supreme Court was whether the term “offense” includes only crimes, or also includes civil actions. After considering the language of the WSLA and the various amendments to it since its enactment shortly after World War I, the Court concluded that the WSLA applies only to criminal actions, and not to civil actions. It is worth noting that, given the United States’ long-running conflicts in Afghanistan and Iraq, neither of which has been concluded in a manner that satisfies the statutory termination point of the WSLA, a contrary result could have exposed potential defendants to extraordinarily long, perhaps indefinite, periods of potential liability in civil FCA lawsuits.

The Supreme Court’s resolution of the second issue on appeal was less favorable to potential FCA defendants. The Court ruled that the word “pending” in the FCA’s first-to-file provision means that a first qui tam action only bars a later-filed relatedqui tam action so long as the first action is pending. Thus, Carter’s third complaint in the KBR case (which contained some allegations that survived the six-year statute of limitations) should not have been dismissed with prejudice, because the prior first-filed Thorpe case had by then been dismissed, and thus was no longer a bar.

Health care providers, government contractors and other potential defendants inqui tam actions may face wider potential exposure to, and more protracted litigation in, qui tam actions because of this second ruling. Of course, the first to file bar is not the only defense available to a defendant in a qui tam action. For example, the later plaintiff must still overcome the so-called “public disclosure” bar, or the first-filed action might have been dismissed as part of a settlement agreement that could preclude the later filed action under the doctrine of claim preclusion. The Supreme Court recognized that the qui tam provisions of the False Claims Act “present many interpretive challenges,” slip op. at 13, but left them for future cases. But for now, the Supreme Court’s decision in this case points out how critical timing is in deploying the first-to-file bar, and that it is, at best, a temporary defense.