Supreme Court Trues Up False Claims: Recent decision limits impact of wartime suspension and first-to-file bar on FCA suits

On May 26, 2015, the Supreme Court ruled on two significant questions impacting FCA claims – (1) whether the Wartime Suspension of Limitations Act (“WSLA”) tolls the statute of limitations in civil FCA cases during times of war; and (2) whether a first-filed case is still deemed to be “pending” even after the case is settled or dismissed.

In Kellog Brown & Root Services, Inc., et al. v. United States ex rel. Carter, a former employee brought a qui tam FCA suit in the Eastern District of Virginia against Halliburton and KBR alleging fraudulent billing in connection with water services provided to military bases in Iraq. Defendants moved to dismiss based on the six-year statute of limitations for FCA actions and pursuant to the first-to-file bar. Relator argued that the WSLA suspended the limitations period in the case and that the claim was not barred because, among other reasons, the previously filed actions were dismissed. The District Court dismissed the complaint. The Fourth Circuit reversed. Defendants petitioned for a writ of certiorari, arguing that “[t]he Fourth Circuit, which supervises much of the nation’s qui tam litigation and oversees numerous government agencies and contractors in the Washington, D.C. suburbs, has suspended the running of the statute of limitations for every claim of fraud against the government, from at least 2002 to some not-yet (and likely never-to-be) determined point in the future, while simultaneously eliminating any vestige of repose by construing the ‘first-to-file’ bar to permit perpetual refiling of allegations long known to the government from prior suits.”  Petition at 3. 

The Court held that the WSLA is inapplicable to civil cases, including qui tam FCA suits. The WSLA “suspends the statute of limitations for ‘any offense’ involving fraud against the Federal Government” while the country is at war or Congress has authorized the “use of the Armed Forces.” Slip Op. at 3. The Court held that, because the WSLA only applies to “indictable” offenses, the statute “is quite clearly limited to the filing of criminal charges.” Slip Op. at 5. Had the Court adopted the Fourth Circuit’s interpretation of the WSLA, defendants would be facing potentially endless FCA liability because the statute of limitations will not begin to run until the conflicts in Iraq and Afghanistan have been formally terminated by the United States.  Instead, relators and the government will have to file suit within the statutorily prescribed limitations period, i.e. within “6 years after the date on which the violation . . . is committed, or . . . 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.” 31 U.S.C. §3731(b).   

Defendants did not fare as well with the Court’s second ruling where the Court held that the first-to-file bar only blocks subsequently filed claims while the earlier-filed claim is pending. The first-to-file bar states that “[w]hen 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). Before this decision, some courts dismissed subsequent-filed FCA claims even if the first-filed case had been dismissed pursuant to Federal Rule of Civil Procedure 9(b) or for failure to prosecute. Following the Court’s ruling, “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.” Slip Op. at 11. 

Prior to this ruling, relators and the government have attempted to use the WSLA in a wide variety of cases ranging from alleged mortgage fraud, see, e.g., U.S. v. Wells Fargo Bank NA, et al., No. 1:12-cv-07527 (S.D.N.Y.), to violations of professional sports’ anti-doping rules, see United States ex rel. Landis v. Tailwind Sports Corp., et al., No. 1:10-cv-00976 (D.D.C.), with varying degrees of success. This ruling eliminates the possibility of having endless liability in civil FCA suits for conduct that allegedly occurred from 2008 onward, but leaves open the possibility that the government could use the WSLA in criminal FCA actions.  

The ruling has also significantly limited the first-to-file bar, such that defendants may need to rely more heavily on other defenses, including the public disclosure bar or res judicata, to prevent copycat actions. The public disclosure bar precludes qui tam FCA suits based on “substantially the same allegations or transactions” as “were publicly disclosed – (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media,” unless the relator is an “original source.” Res judicata, also known as claim preclusion, may prevent the re-litigation of claims after an earlier-filed suit has been litigated on the merits. 

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