Fourth Circuit: when United States declines to intervene in False Claims Act qui tam action, relator’s claims are subject to strict six-year statute of limitations

The U.S. Court of Appeals for the Fourth Circuit, addressing an issue of first impression within the circuit, recently held that when the United States declines to intervene in a qui tam action brought by a private party (i.e., a relator) under the False Claims Act (FCA), the relator’s False Claims Act claims are subject to a six-year statute of limitations. In United States ex rel. Sanders v. North American Bus Industries, Inc., 546 F.3d 288 (4th Cir. 2008), reh’g denied (Jan. 7, 2009), the Fourth Circuit affirmed dismissal of False Claims Act claims on statute of limitations grounds, rejecting the relator’s reliance on a subsection of the False Claims Act that authorizes a qui tam action to be brought up to three years “after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances,” holding that the subsection relied upon by the relator applies only in actions in which the United States is a party. Sutherland represented Deloitte & Touche USA, LLP, as counsel in the district court and on appeal. To view the opinion, click here.  

Background

North American Bus Industries, Inc. (NABI), a manufacturer of transit buses, imports bus shells built by its corporate parent in Hungary. Prior to June 1998, NABI’s imported bus shells were classified under the Harmonized Tariff Schedule of the United States (HTSUS) subheading for “Bodies (including cabs), for . . . motor vehicles” and therefore carried a duty of 4%.  

In June 1998, NABI hired Deloitte & Touche USA, LLP (Deloitte), to file a protest on NABI’s behalf with the U.S. Customs Service. NABI sought to have its imported bus shells reclassified under the HTSUS subheading for “Motor vehicles [with a diesel engine] . . . [d]esigned for the transport of 16 or more persons, including the driver,” which would make those imports eligible for duty-free treatment.  

In November 1998, the U.S. Customs Service granted NABI’s protest. NABI received a refund of duties paid on its imports between April and August 1997, and NABI began classifying its imported bus shells under the duty-free category for “motor vehicles.”  

Thornton G. Sanders, the plaintiff, served as President and Director of NABI until his employment was terminated in 1997. Sanders filed a qui tam action against NABI under the False Claims Act in 2002, alleging that NABI’s Customs protest contained a false description of the imported bus shells in order to justify the reclassification of those imports as “motor vehicles.” In 2004, more than six years after NABI’s 1998 Customs protest was filed, Sanders amended his complaint to add Deloitte as a defendant.  

As an FCA relator bringing suit on the federal government’s behalf, Sanders filed his complaint under seal and notified the federal government of the action. Under the FCA, the United States could elect either to intervene in Sanders’ action or to allow Sanders to continue to prosecute the action alone. The United States repeatedly declined to intervene in Sanders’ action.  

Ultimately, the district court concluded that Sanders’ claims relating to the 1998 Customs protest were time-barred under the six-year statute of limitations set forth in subsection (1) of the FCA’s limitations provision, 31 U.S.C. § 3731(b). The district court also held that the limitations period applicable to Sanders’ claims could not be extended beyond six years under subsection (2) of § 3731(b) because, in the district court’s view, subsection (2) applies only in FCA actions in which the United States has intervened. Sanders appealed.  

The Fourth Circuit’s Opinion

In addition to finding “no reason to believe” that the alleged misrepresentations regarding NABI’s imports “had any bearing on Customs’ holistic analysis,” the Fourth Circuit addressed at length the statute of limitations that applies in False Claims Act qui tam actions in which the United States is not a party.  

Writing for a unanimous three-judge panel, Judge J. Harvie Wilkinson III agreed with the district court that Sanders’ FCA claims relating to the 1998 Customs protest were barred by the six-year statute of limitations set forth in 31 U.S.C. § 3731(b)(1). In reaching that conclusion, the panel answered a question of first impression within the Fourth Circuit, holding that 31 U.S.C. § 3731(b)(2) can extend the FCA’s statute of limitations beyond six years only in cases in which the United States is a party.  

The False Claims Act’s statute of limitations provision, 31 U.S.C. § 3731(b), provides:  

A civil action under section 3730 may not be brought—  

(1) more than 6 years after the date on which the violation of section 3729 is committed, or  

(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.  

Although his claims regarding the 1998 Customs protest were not asserted within six years of the date of the alleged FCA violation, Sanders argued that his claims nevertheless were timely under subsection (2). Sanders contended that § 3731(b)(2) allows a relator to bring an FCA claim within ten years of an FCA violation as long as the relevant government official has not had actual or constructive knowledge of the violation for more than three years, regardless of whether the United States intervenes in the relator’s qui tam action.  

The Fourth Circuit rejected Sanders’ argument. Describing Sanders’ interpretation of the statute as “problematic,” Judge Wilkinson observed that subsection (2) refers only to the United States; it does not refer to relators. While it makes “perfect sense,” Judge Wilkinson wrote, to extend the limitations period based on the government’s knowledge when the government brings or intervenes in an action, extending the limitations period based on the government’s knowledge when the government declines to intervene “makes no sense whatsoever” and produces “the bizarre scenario in which the limitations period in a relator’s action depends on the knowledge of a nonparty to the action.”  

Supplementing its analysis of the statutory language, the panel made several observations giving further support to its conclusion that only a subset of civil actions under the FCA—specifically, actions in which the United States is a party—may benefit from the extended limitations period in subsection (2) of § 3731(b). First, the text of subsection (2) is almost identical to the language of another federal statute, 28 U.S.C. § 2416(c), which provides a tolling rule that applies only to actions brought by the United States. Second, if the timeliness of a relator’s claim were to turn on the government’s knowledge of the “facts material to the right of action,” as Sanders contended, FCA defendants would be forced to seek discovery regarding the government’s knowledge and the government, in turn, “would be subjected to the disruption and expense” of responding to discovery in actions in which it has affirmatively elected not to participate. Third, under Sanders’ interpretation, relators would have a “strong financial incentive” to sit on their claims for up to ten years before informing the government of the material facts underlying those claims, thereby frustrating the FCA’s objective of stimulating actions by private parties to quickly combat fraud perpetrated on the federal government.