The False Claims Act‟s “first-to-file” jurisdictional bar serves an important gatekeeping function by preventing multiple, related qui tam lawsuits based on the same underlying conduct. 31 U.S.C. §3730(b)(5) (“When 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.”). One obvious purpose of this provision is to ensure that, once the Government is placed on notice of the suspected fraud via a filed qui tam action, it does not have to share any recovery with a relator who files a subsequent suit based on the same, or similar, facts or allegations. In recent years, qui tam plaintiffs have eroded this fundamental objective by successfully arguing in some circuits that the bar does not apply in a variety of circumstances, including where the first-filed action has been dismissed or where there is not an exact overlap in the conduct alleged in each action. One important court has now put a stop to that erosion.
In its decision on April 11, 2014 in United States ex rel. Shea v. Cellco P’ship (d/b/a Verizon Wireless), No. 12-7133, 2014 WL 1394687 (D.C. Cir. Apr. 11, 2014) (“Verizon II”), the D.C. Circuit largely swept away these arguments, thereby restoring the first-to-file jurisdictional bar to its original intended strength. The D.C. Circuit‟s decision takes the focus off the artificial distinction of whether the first-filed action actually is pending at the time the second suit is filed, and places the focus where it belongs: on the government‟s notice of the alleged fraud, based on the recognition that, as a practical matter, once the government has been notified about the fraud, its ability to investigate is not affected in the slightest by whether the first action is still pending or not. In the process, the ruling sets up a clear circuit court split— particularly with the Fourth Circuit‟s 2013 Carter decision—that likely will hasten Supreme Court review of this issue. See United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), petition for cert. filed, 82 USLW 3010 (U.S. June 24, 2013) (No. 12-1497). See also FraudMail Alert No. 13-10-09 (Oct. 9, 2013).
Factual and Procedural Background of the Verizon Cases
The two “actions” at issue in the D.C. Circuit opinion are referred to as “Verizon I” and “Verizon II.” Both actions were brought by the same relator, Stephen Shea, who is described as a telecommunications consultant. In Verizon I, Shea alleged that Verizon applied improper surcharges under several General Services Administration (“GSA”) contracts. The Government intervened in that qui tam suit, and in 2011, the parties reached a $93.5 million settlement, with nearly $20 million going to Shea as his relator‟s share. In 2009, prior to the settlement and dismissal of Verizon I, Shea filed a second qui tam suit, Verizon II, alleging that Verizon Improperly billed this same type of surcharge to different federal agencies under different government contracts. Verizon moved to dismiss the second suit under the first-to-file bar. Shea opposed dismissal, in part, on the grounds that the first-to-file rule did not apply because Verizon I—having been settled in 2011—was not “pending” when the court disposed of Verizon II.
The district court agreed with Verizon‟s first-to-file argument and dismissed Shea‟s second qui tam complaint for lack of subject matter jurisdiction. On appeal, Shea argued that: (1) his two actions were not “related” because they involved different contracts and different government agencies; (2) the first-tofile bar does not apply to the same relator; and (3) the first-to-file rule does not apply because Verizon I was no longer “pending” when Verizon II was dismissed. The court of appeals affirmed the district court and rejected all three arguments.
Reasoning of the D.C. Circuit in Verizon II Since its introduction in 1986, the False Claims Act‟s first-to-file provision has stated as follows:
When 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). The Verizon II court held that a second action is “related” to the first where it incorporates “the same material elements of fraud,” and therefore the first action “„suffice[d] to equip the government to investigate‟ the fraud alleged in the later action.” 2014 WL 1394687, at *2 (quoting United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1209 (D.C. Cir. 2011)). It then applied that test and found that the two complaints were “related” because (1) they were indistinguishable “except as to . . . scope,” and (2) “the allegations and legal theory of Verizon I would alert the government to the possibility of a fraudulent scheme that went beyond the specifics of Verizon I”—including a billing practice that overcharged all government contracts, not just those involving the GSA. The D.C. Circuit also rejected Shea‟s contention that the first-to-file bar does not apply to actions brought by the same litigant, finding that the disjunctive text of the bar defeated Shea‟s interpretation. See 31 U.S.C. § 3730(b)(5) (“no person . . . may intervene or bring a related action”) (emphasis added).
The D.C. Circuit next addressed and rejected Shea‟s argument that the settlement of Verizon I meant that the first-to-file bar does not apply because the first action was not “pending” at the time of Shea‟s complaint in Verizon II. Instead, the court adopted Verizon‟s position, supported by the Chamber of Commerce as amicus, that the term “pending action” is merely shorthand for “first-filed action.” 2014 WL 1394687, at *5 (“[t]he simplest reading of “pending” is the referential one; it serves to identify which action bars the other”). The D.C. Circuit indicated that its interpretation coincided better with the policy considerations underlying the statute:
The resolution of the first-filed action does not somehow put the government off notice of its contents. On the other hand, reading the bar temporally would allow related qui tam suits indefinitely—no matter to what extent the government could have already pursued those claims based on earlier actions. Such duplicative suits would contribute nothing to the government‟s knowledge of fraud.
Id. The D.C. Circuit‟s interpretation not only is consistent with the statutory language and purpose, but it also makes sense from a practical viewpoint. Rather than focusing on the artificial distinction of whether the first-filed action is actually “pending” and applying a vague, unpredictable standard that results from the timing of dismissals of first-filed suits, it focuses on the fraud allegations themselves and advances the goal of dismissing subsequent suits that make repetitive claims and would only serve to diminish any Government recovery or require a defendant to relitigate a case that already has been resolved.
Resulting Circuit Court Split
In reaching its decision, the D.C. Circuit recognized and distinguished (or disagreed with) contrary rulings by other circuit courts. The court noted that the Chovanec decision in the Seventh Circuit and the Tenth Circuit‟s decision in In re Natural Gas Royalties Qui tam Litigation focused on the “relatedness” of the two actions at issue, rather than whether the first action was “pending” at the time of the second suit. See United States ex rel. Chovanec v. Apria Healthcare Group Inc., 606 F.3d 361 (7th Cir. 2010); In re Natural Gas Royalties Qui tam Litig., 566 F.3d 956 (10th Cir. 2009). The D.C. Circuit simply disagreed with the Fourth Circuit‟s ruling in Carter, which did reach the “pending” issue, setting the question up for resolution by the Supreme Court due to the circuit split. Indeed, this newly emerged circuit split may affect the pending certiorari petition in the Carter case (it is currently awaiting invited comments from the Solicitor General), where the first-to-file issue and a question about the application of the Wartime Suspension of Limitations Act are before the Court.