On June 19, in a widely-publicized False Claims Act (FCA) case known for its high-profile defendant, Lance Armstrong,  a federal judge in the District of Columbia issued a significant procedural ruling barring the plaintiff’s ability to toll  the statute of limitations on the basis of the Wartime Suspension of Limitations Act (WSLA). U.S. District Judge Robert  Wilkins rejected the argument raised by the relator, Floyd Landis, that the WSLA tolled the FCA’s applicable statute of  limitations period beginning September 18, 2001, when Congress authorized the use of military force in Afghanistan.  Judge Wilkins held that the WSLA tolls only those offenses involving a specific intent to defraud the government,  which the FCA does not require. This is the first time that a federal court has reached this conclusion. Although the  decision may be later appealed, it is for now a significant victory for FCA defendants seeking to time-bar stale claims  alleged by relators to have been fraudulent.

Background

In United States ex rel. Landis v. Tailwind Sports Corp., 10-CV-00976, 2014 WL 2772907 (D.D.C. June 19, 2014), the relator brought suit against Lance Armstrong and other individuals and companies associated with the United States Postal Service (USPS) cycling team alleging that the defendants breached their sponsorship agreements and submitted false claims for payment. Two sponsorship agreements between the USPS and the defendants—one in 1995 and one in 2000—included provisions that mandated compliance with the rules of the Union Cycliste International (UCI) and the International Olympic Committee (IOC). The UCI and IOC both prohibited the use of certain performance enhancing drugs. The relator and the government (which intervened in the case) alleged that the defendants had used banned performance enhancing techniques or encouraged such use, leading to the submission of false claims to USPS for sponsorship funds.

The District Court’s Decision on the WSLA

The defendants moved to dismiss all claims on a variety of grounds, including the statute of limitations. The district judge found that the six-year limitations period for FCA allegations applied to the relator and thus claims based on conduct prior to June 10, 2004—six years prior to the relator’s filing of the complaint on June 10, 2010—were dismissed. The relator attempted to argue that the statute was tolled under the WSLA, which would allow him to bring claims based on allegedly fraudulent payments prior to the 2004 date. Judge Wilkins disagreed. Citing a 1953 Supreme Court decision, United States v. Grainger, 346 U.S. 235 (1953), which held that the WSLA applied only to offenses that “include fraud as an essential ingredient,” Judge Wilkins interpreted that phrase as requiring specific intent to defraud the government as an essential element of the cause of action.

The district court noted that the FCA was amended in 1986 to specify that “no proof of specific intent to defraud is required” to establish FCA liability. Because FCA liability may lie without proof of specific intent to defraud, the court concluded that an FCA claim is not an offense that includes the necessary “fraud as an essential ingredient” to trigger tolling under the WSLA. Judge Wilkins therefore rejected the plaintiff’s argument that the WSLA tolled the FCA allegations.

Takeaways

Whether the district court’s decision will be appealed and/or followed by other federal courts outside of the District of Columbia remains to be seen. What is clear, however, is that Judge Wilkins’ ruling is at odds with a decision issued last year by U.S. District Judge Jesse Furman of the Southern District of New York, in United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593 (S.D.N.Y. 2013).

Judge Furman also analyzed the Grainger decision in considering the plaintiff’s argument that the WSLA tolled the statute of limitations for the FCA claims, but did not interpret the Supreme Court’s phrase “fraud as an essential ingredient” as requiring proof of specific intent to defraud. Rather, Judge Furman noted that the FCA, at the time Grainger was decided, only required proof that the claims be submitted “knowing such claim to be false, fictitious, or fraudulent.” Judge Furman then cited to numerous cases that define the knowledge component of fraud as including both actual knowledge as well as reckless disregard for the truth. Therefore, Judge Furman concluded, the FCA as amended in 1986—which includes liability for actual knowledge, deliberate ignorance of the truth, and reckless disregard of the truth—could be an offense that has “fraud as an essential ingredient” to trigger tolling under the WSLA.

Landis’ conflict with Wells Fargo, and the absence of any appellate decision on point, suggests that there may be further developing case law on this issue. Alston & Bird will continue to monitor and report on these developments as they occur. However, unless and until such time that other courts rule on this issue, the Landis decision is a significant development and provides defendants with another tool to counter attempts by plaintiffs to shoehorn otherwise stale claims into their complaints alleging violations of the False Claims Act.