Earlier today, the Supreme Court granted certiorari in United States ex rel. Carter v. Kellogg Brown & Root Servs., Inc., 710 F.3d 171 (4th Cir. 2013), cert. granted, No. 12-1497 (U.S. July 1, 2014). This Supreme Court action suggests that the Court may reverse the Fourth Circuit’s sweeping ruling that the Wartime Suspension of Limitations Act (“WSLA”) renders the False Claims Act’s (“FCA”) statute of limitations a virtual nullity. It appears that the Court also agreed to review another Fourth Circuit decision in the same case, one that significantly curtailed the application of the FCA’s first-to-file bar.
The Supreme Court’s decision comes in the wake of the Solicitor General’s attempt to dissuade the Court from addressing these important issues. See FraudMail Alert No. 14-05-30. Given that Carter is a qui tam relator-driven action and that the relator has lost each of the non-intervened qui tam cases heard by the Supreme Court in the past nine years, the Solicitor General’s stance was not surprising.
The Importance of the WSLA Issue
The WSLA is a 72-year-old criminal code provision that suspends the statute of limitations for “any offense” that involves fraud against the government when the United States is “at war.” 18 U.S.C. § 3287. The Fourth Circuit’s ruling that the WSLA applies to the civil FCA has wide-ranging implications. While, given the statute’s name and its textual references, one would expect the WSLA to apply only to defense contractors actively providing goods or services while the United States is at war, both the government and qui tam relators recently have seized upon the WSLA to resurrect stale FCA claims in lawsuits having nothing to do with wartime contracting, including FCA actions involving financial services, healthcare, commodities, and even professional cycling.1 In fact, if the Fourth Circuit’s ruling is not overturned by the Supreme Court, nearly every industry that touches government funds in some way faces new practical concerns as the government and relators advocate for what could amount to an indefinite tolling of the FCA’s statute of limitations. See FraudMail Alert Nos. 14-05-30; 13-10-09; 13-03-21; 12-08-16. The Carter petitioners brought these important practical considerations to the Supreme Court’s attention:
The panel decision… has grave implications for potential defendants, by requiring them to defend against stale fraud claims years or even decades later, as memories fade and helpful evidence is lost. It places intolerable burdens on companies, by requiring them to either retain documents indefinitely or risk discarding records that may only become relevant years later when an unforeseen fraud claim is filed…. The panel majority’s interpretation has fundamental implications for the government’s relationships with potential contractors.
Petition for Writ of Certiorari at 23-24, Carter, No. 12-1497 (U.S. June 24, 2013).
Recent D.C. District Court WSLA Decision Demonstrates That the Issue Is Ripe for Supreme Court Review
In prior FraudMail Alerts, we outlined numerous arguments against application of the WSLA to the FCA, including the following: (1) the incongruity of applying a criminal code provision to the civil FCA; (2) due process concerns; (3) the lack of congressional intent to toll the statute of limitations outside of the wartime contracting context and for non-intervened cases, where there are no exigencies of war; and (4) the Supreme Court’s recent description of the FCA’s ten-year statute of repose as “an absolute provision for repose,” Gabelli v. SEC, 133 S. Ct. 1216, 1224 (2013). See FraudMail Alert Nos. 14-05-30; 13-10-09; 13-03-21; 12-08-16. One additional argument we advanced recently has gained traction.
In prior FraudMail Alerts and in litigation, we pointed out that one reason why the WSLA should not apply to the current FCA is because, quite simply, the modern-day FCA is not the same type of fraud statute as the FCA was when the Supreme Court made its last pronouncements on the reach of the WSLA in the 1950s. The element of deceit was eliminated from the FCA in a 1986 amendment explicitly providing that “no proof of specific intent to defraud is required.” Pub. L. No. 99-562, §2(b), 100 Stat. 3153 (1986). Instead, the FCA now includes expanded definitions for “knowing” and “knowingly” that allow for an FCA violation with the lesser intent standards of “reckless disregard” and “deliberate ignorance.” Since the Supreme Court ruled sixty years ago that the WSLA is limited to offenses “which include fraud as an essential ingredient,” meaning that they include “the element of deceit that is the earmark of fraud,” United States v. Grainger, 346 U.S. 235, 243 (1953), the WSLA should not apply to FCA claims after the 1986 amendments because proof of fraud is no longer required as an “essential element” of a civil FCA action. See FraudMail Alert No. 14-05-30, at 2; FraudMail Alert No. 13-03-21, at 3; Defendant Wells Fargo Bank, N.A.’s Reply in Support of Its Motion to Dismiss the First Amended Complaint at 8-9, United States v. Wells Fargo Bank, N.A., No. 12 Civ. 7527 (JMF) (S.D.N.Y. Feb. 22, 2013).
In a decision released just days before the Supreme Court’s June 26 conference, the United States District Court for the District of Columbia adopted this reasoning for its holding that the WSLA does not apply to FCA claims:
[I]t is clear in this Circuit that civil FCA actions under the modern version of the [FCA] do not require proof of fraud as an “essential element,”…[a]nd the Relator has not contended that proof of specific intent to defraud is required for the FCA claims or any of the other claims at issue. The Court therefore holds that the WSLA has not tolled the running of the FCA’s [statute of limitations] and that the WSLA does not apply to suspend any [statute of limitations] in this case.
United States ex rel. Landis v. Tailwind Sports Corp., No. 10-cv-00976 (RLW), 2014 U.S. Dist. LEXIS 83313, at *71 (D.D.C. June 19, 2014). In a footnote, the Landis court pointed out that the relator in that case heavily relied on Carter, but found this reliance misplaced because the Supreme Court’s “specific intent to defraud” requirement was not briefed on appeal nor was it discussed in the Fourth Circuit’s Carter opinion. Landis, 2014 U.S. Dist. LEXIS 83313, at *71 n.27. Although this district court decision does not create a circuit split, the timing of this ruling (by Circuit Judge Wilkins, sitting by designation in the D.C. District Court) may have played a role in the Supreme Court’s recognition that the issue is ripe for review.
The First-to-File Issue
The FCA’s “first-to-file” bar specifies that “[w]hen a person brings an [FCA action], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). One purpose of this bar, the text of which has remained unchanged since its inclusion in the 1986 amendments, is to prevent multiple qui tam suits based on the same underlying conduct.
In Carter, the Fourth Circuit recognized that several earlier-filed related complaints were pending when the Carter relator filed his claims, but ruled that the relator’s claims essentially were revived when the earlier complaints were dismissed. This ruling depends on a purely temporal interpretation of the term “pending action”—an interpretation that certainly encourages relators to file qui tam suits and rewards them for doing so, but ignores the bar’s important purpose of preventing multiple, duplicative qui tam suits that provide no new information to the government.
The sheer number of related complaints filed and dismissed in the Carter case illustrates the magnitude of the problem that the Fourth Circuit’s temporal interpretation invites. The Fourth Circuit’s ruling allowed the Carter relator to file a fifth amended complaint following the dismissal of four related qui tam actions— three actions brought by other relators in addition to a prior action brought by the Carter relator that barred his own fourth complaint. Thus, the Fourth Circuit invited the Carter relator to add an eighth qui tam complaint to the series of related complaints that already notified the government of the alleged fraud. Congress anticipated and sought to preclude this result when it enacted the first-to-file bar in 1986 “to clarify … that private enforcement under the civil False Claims Act is not meant to produce class actions or multiple separate suits based on identical facts and circumstances.” S. Rep. No. 99-345, at 25 (1986).
The more natural reading of “pending action” is the referential one that the D.C. Circuit recently adopted in United States ex rel. Shea v. Cellco P’ship, 748 F.3d 338 (D.C. Cir. 2014) (“Verizon II”). See FraudMail Alert No. 14-04-15. After finding the second action essentially indistinguishable from the first and therefore “a related action,” the D.C. Circuit interpreted “pending action” as shorthand for “first-filed action” to identify “which action bars the other,” and dismissed the second action, noting that “[t]he resolution of the first-filed action does not somehow put the government off notice of its contents.” 748 F.3d at 344.
Here, as was the case with the WSLA issue, a decision in a federal D.C. court likely made the Supreme Court’s decision to grant certiorari an easier one.
The Increased Importance of the First-to-File Bar Given a Weakened Public Disclosure Bar
Although this argument was not raised to the Supreme Court in the Carter certiorari petition, preventing erosion of the first-to-file bar is more critical than ever, given recent government attempts to exercise a “veto power” against defendants’ challenges to qui tam relators’ claims under the FCA’s public disclosure bar. These government veto attempts are based on a 2010 amendment that changed the jurisdictional nature of the public disclosure bar, which now provides the following:
The court shall dismiss an action or claim under this section unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed.
31 U.S.C. § 3730(e)(4)(A) (emphasis supplied).
Where applicable, this amendment empowers the government unilaterally to decide that a qui tam suit may proceed, regardless of whether the allegations were publicly disclosed. Theoretically, even purely parasitic qui tam suits brought by a relator who would not qualify as an original source could proceed under this amendment. Exacerbating defendants’ concerns is the fact that there has been no provision of standards or procedures for the government’s exercise of its veto power, making it impossible for defendants to predict whether or when it will be used in a given qui tam case.
To date, the government has attempted to exercise this veto power in at least three cases. See United States ex rel. Szymoniak v. American Home Mortgage Servicing, Inc., No. 0:10-cv-01465-JFA, 2014 WL 1910845 (D. S. C. May 12, 2014); United States ex rel. Baker v. Community Health Sys., Inc., No. 05-279 WJ/ACT (D. N. Mex.) (unpublished ruling); Notice of the United States of Its Opposition to Dismissal on the Basis of the Public Disclosure Bar, Mazza v. Miami-Dade Cty, No. 1:10-cv-24546-HOEVELER (S.D. Fla. June 6, 2014). In view of this recent trend, a temporal interpretation of “pending action” in the first-to-file bar that imposes an unpredictable standard will leave defendants more vulnerable than ever to multiple qui tam suits, including those alleging purely parasitic claims