Supreme Court Rules on Statute of Limitations and First-to-File Bar of the Federal False Claims Act
In a unanimous decision issued on May 26, 2015, the US Supreme Court decided two key issues related to the Federal False Claims Act (FCA) in Kellogg Brown & Root Servs., Inc. v. U.S., ex rel. Carter, No. 12-1497, 2015 WL 2456621 (US May 26, 2015), a qui tam litigation involving allegations that contractors in Iraq overbilled the United States for water purification projects. First, the Court held that the Wartime Suspension of Limitations Act (WSLA), 18 U.S.C. § 3287, does not toll the FCA’s statute of limitations because it is inapplicable to civil litigation. Second, it held that a first-filed qui tam complaint is no longer “pending” under the FCA’s first-to-file jurisdictional bar once that complaint has been dismissed. The Court’s decision will impact the ability of both the government and qui tam relators to extend the time frame for bringing claims under the FCA, but could enable relators to circumvent the first-to-file bar when filing a copycat suit after the first-filed qui tam suit has been dismissed.
The District and Circuit Court Decisions
Relator, a former water purification unit operator in Iraq from January to April 2005, alleged that defendants overbilled the United States government for water purification projects. Relator first filed his qui tam complaint under seal on February 1, 2006, but later dismissed that complaint without prejudice when the Department of Justice notified the parties of a similar earlier-filed qui tam complaint. Relator then re-filed in the Eastern District of Virginia on June 2, 2011, more than six years after the date of the alleged fraud. To overcome the FCA’s six-year statute of limitations, Relator invoked the WSLA, arguing that his claims nonetheless were timely because the United States was “at war” and the FCA’s statute of limitations was thus tolled. The district court rejected Relator’s argument and granted defendants’ motion to dismiss, finding that: (1) the WSLA did not toll the FCA’s statute of limitations on claims by relators because such a tolling would eliminate relator’s incentive to inform the government of alleged fraud quickly; and (2) a similarqui tam complaint filed before Relator had brought his suit—yet dismissed for failure to prosecute after Relator had filed—barred his suit under the FCA’s first-to-file provision. U.S. ex rel. Carter v. Halliburton Co., No. 1:11-602, 2011 WL 6178878 (E.D. Va. Dec. 12, 2011). Relator appealed, and the Fourth Circuit reversed. U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171, 179 (4th Cir. 2013).
On the first issue, the Fourth Circuit held that the WSLA did in fact toll the FCA’s statute of limitations as to Relator’s claims. As the Circuit explained, the WSLA was enacted in 1942 to extend the government’s time to bring charges against defendants defrauding the United States because the “fog of war” compromised the government’s ability to prosecute cases of fraud. In 2008, Congress amended the WSLA to expand its scope to instances “[w]hen the United States is at war or Congress has enacted specific authorization for the use of the armed forces.” 18 U.S.C. § 3287. Thus, the Circuit found that the WSLA applied because of the Congressional authorization for the use of armed forces in Iraq in 2002. The Circuit held that the WSLA applied to suits brought by relators even when the government declined to intervene because the WSLA becomes effective once Congress has authorized force. Id. at 185. On the first-to-file issue, the Circuit cited the plain language of the statute and held that although the first-to-file rule barred Relator from filing his complaint while the earlier-filed related complaint remained pending, once that prior complaint had been dismissed—albeit not on its merits—and was thus no longer “pending,” Relator could re-file his complaint.
The Supreme Court’s WSLA Holding
Reversing the Fourth Circuit, the Supreme Court held that the WSLA does not toll the FCA’s statute of limitations because “[t]he text, structure, and history of the WSLA show that the Act applies only to criminal offenses,” and not civil litigation, such as claims under the FCA. The Court began its analysis with the language of the statute: “When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces . . . the running of any statute of limitations applicable to any offense . . . shall be suspended . . . .” 18 U.S.C.A. § 3287 (emphasis added). The Court reasoned that, per its plain meaning and as it is used in Title 18 (Crimes and Criminal Procedure), the word “offense” refers only to crimes. The Court rejected the argument that Congress’s removal of the words “now indictable” in a subsequent amendment of the WSLA expanded the WSLA’s scope to encompass civil claims. Instead, by removing the “now indictable” language, the Court ruled that Congress signaled that the statute would apply prospectively, not only as to offenses that had been committed at the time of the amendment.
The Court’s holding—that WSLA does not apply to civil suits, like those brought under the FCA —forecloses the argument often advanced by FCA plaintiffs that the WSLA tolls the statute of limitations for FCA cases, thereby allowing those plaintiffs to bring claims regarding conduct that took place in the distant past. Going forward, the Court’s holding will restrict the limitations period to that set forth in the FCA statute, and will prevent FCA plaintiffs from bringing cases based on claims that have been stale for years.
The Supreme Court’s First-to-File Holding
Affirming the Fourth Circuit, the Court held that “a qui tam suit under the FCA ceases to be ‘pending’ once it is dismissed” and the district court therefore should not have dismissed Relator’s claims under the first-to-file bar with prejudice. The Court’s analysis focused on the plain meaning of the word “pending” in the FCA’s first-to-file provision: “When a person brings an 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)(emphasis added). The Court rejected the argument that “pending” is “short-hand” for the first-filed action and that the first-filed action thus remains pending even after it is dismissed, forever barring later-filed related actions. The Court noted that, under such an interpretation, both Marbury v. Madison and the trial of Socrates would still be pending.
The Court’s ruling has several implications for qui tam defendants. First, qui tam plaintiffs with copycat allegations may now be permitted to evade the FCA’s first-to-file bar—a goal of which is to avoid duplicative, parasitic lawsuits—simply by waiting for dismissal of the earlier-filed qui tambefore they file their complaints. Second, as the Court itself noted, permitting copycat suits could inject uncertainty into the settlement process as defendants might be reluctant to settle an action for an amount they would otherwise accept without the assurance that future complaints with similar allegations will be barred under the FCA. The Court’s decision, however, did not affect the ability of defendants to argue that a later-filed copycat suit should be dismissed under the doctrine of claim preclusion (where the earlier-filed action was decided on the merits), or by application of the public disclosure bar, which bars a suit based on an alleged fraud that has been publicly disclosed.