Supreme Court Reins In Qui Tam FCA Limitations But Allows Revival of Cases Initially Barred Under First-To-File Rule, Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, No. 12-1497
On May 26, 2015, the Supreme Court unanimously rejected efforts of False Claims Act (FCA) qui tam relators to use the Wartime Suspension of Limitations Act (WSLA) to extend the statute of limitations for their actions. In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Court ruled that the WSLA suspension of the FCA limitations period applies only to criminal matters, thereby forcing relators back into the traditional statutory limitations period and restoring some greater certainty for contractors and other businesses subject to potential qui tam actions. The Court further ruled that the first-to-file bar on a qui tam FCA action when another similar action is pending is not a permanent bar but remains effective only while the preceding action survives. As a result, an action, though barred when filed, might be reasserted should a previously-filed matter be dismissed or resolved during the statutory filing period.
The FCA was enacted to “combat rampant fraud in Civil War defense contractors.” In recent years it has become a favorite tool of the U.S. Government to penalize and recoup monies paid out to anyone who, “knowingly presents . . . a false or fraudulent claim for payment or approval”, 31 U.S.C. § 3729(a)(1)(A), “to an officer or employee of the United States.” 31 U.S.C. § 3729(b)(2)(A)(i). The FCA can be enforced not just by the Government, but also through civil qui tam actions filed by private parties, called relators, in the name of the Government. 31 U.S.C. § 3730(b). Aggressive qui tam actions, often brought by a disgruntled employee or former employee, have become the bane of many a company that engages with the Government.
The Court noted that there are two pertinent restrictions on qui tam actions. (1) The FCA’s statute of limitations provision, which prescribes that a qui tam action must be brought within six years of a violation or within three years of the date by which the United States should have known about a violation. In no circumstances, however, may a suit be brought more than 10 years after the date of a violation. 31 U.S.C. § 3731(b). (2) The FCA’s “first-to-file” bar, which precludes a relator from bringing a qui tam suit when the new action would be “based on the [ same general] facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5) (bracketed material added).
In recent years, qui tam relators have asserted that the WSLA indefinitely suspends the FCA statute of limitations because the United States is at war. They claimed that the WSLA suspends the FCA statute of limitations for “any offense” involving fraud against the Federal Government and that the term “offense” applies to civil FCA matters. Moreover, they contend that Congress’ enactment of the Authorization for Use of Military Force Against Iraq Resolution of 2002, 116 Stat. 1498, note following 50 U. S. C. § 1541, at 312, is sufficient to satisfy the “at war” requirement in the pre-2008 version of the WSLA or the 2008 amendment that extends the WSLA provisions to apply whenever Congress has enacted “a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)).” Not only had qui tam relators endeavored to apply this theory to combat-related contracts, such as the KBR matter, but also to matters completely unrelated to wartime-related contracts. E.g., United States ex rel. Landis v. Tailwind Sports Corp., 10-CV-00976, 2014 WL 2772907 (D.D.C. June 19, 2014) (rejecting qui tam relator’s effort to extend limitations period based upon WSLA to case involving alleged fraud on Postal Service bicycle racing sponsorship contract).
In KBR, defendants were defense contractors and related entities performing work in Iraq. The relator initiated a qui tam action for alleged fraud regarding water purification services that was dismissed in 2010 because there was an earlier filed action. During a tortured procedural process relator initiated a second and then a third FCA action in 2011, more than six years after all but one of the claims had arisen. Relator contended that the limitations period had been tolled by the WSLA, which he contended covered FCA actions. The trial court dismissed all but one claim as untimely, ruling that the WSLA applied only to criminal actions. The trial court also dismissed the entire matter with prejudice on the grounds that there were pending earlier filed actions.
The United States Court of Appeals for the Fourth Circuit reversed. Concluding that the WSLA applies to civil claims based on fraud committed during the conflict in Iraq, the Court of Appeals held that respondent’s claims had been timely filed. The Court of Appeals also held that the first-to-file bar ceases to apply once a related action is dismissed. Since the other matters had been dismissed, it ruled that the case should be dismissed without prejudice so that the matter could be refiled.
The Supreme Court on certiorari reversed the portion of the Fourth Circuit’s decision regarding the WSLA, but affirmed the portion regarding the first-to-file rule. The Court rejected the argument that the word “offense” could be extended to cover civil matters based upon its review of the common understanding of the term, its placement in the U.S. Code, and the reasonable interpretation of the changes that have occurred to the WSLA. The Court rejected the argument that the mere deletion of the words “now indictable under any statute” extended the scope of the WSLA to civil matters. As the Court explained: “Simply deleting the phrase ‘now indictable under the statute,’ while leaving the operative term ‘offense’ unchanged would have been an obscure way of substantially expanding the WSLA’s reach. Fundamental changes in the scope of a statute are not typically accomplished with so subtle a move. Converting the WSLA from a provision that suspended the statute of limitations for criminal prosecutions into one that also suspended the time for commencing a civil action would have been a big step. If Congress had meant to make such a change, we would expect it to have used language that made this important modification clear to litigants and courts.” The Court observed that if there were any ambiguity in the statutory language, its precedent encouraged the Court to resolve ambiguity in favor of the narrower definition, in part because the WSLA should be narrowly construed and interpreted in favor of repose.
With respect to the first-to-file rule, the Court applied a similar plain meaning analysis to the term “pending” in determining that an earlier filed action bars a subsequent action only as long as the earlier action remains active. The Court explained that the “first-to-file bar provides 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).” Observing that the term “pending” generally means “remaining undecided” or “awaiting decision,” the Court reasoned that if the term were so applied to an FCA action, an earlier suit would bar a later suit while the earlier suit remained undecided but would cease to bar the suit after dismissal. The Court rejected the companies’ proposed interpretation that the earlier filed action should permanently preclude a later filed action as being unreasonable. The Court observed that such an interpretation did not comport with any known usage of the term “pending.” “Under this interpretation, Marbury v. Madison, 1 Cranch 137 (1803), is still ‘pending.’ So is the trial of Socrates.” On more practical terms, it expressed concern that under the companies’ interpretation, a first-filed suit would bar all subsequent related suits even if that earlier suit was dismissed for a reason having nothing to do with the merits.
The Court acknowledged that allowing the subsequent revival of a previously barred action under the FCA might raise other problems for defendants but left the resolution of such matters to another day. The Court acknowledged that the FCA’s “qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine.” Considering the ever-increasing onslaught of creatively devised qui tam matters, the Court will no doubt have further opportunities to address these issues. For the time being, however, contractors and other businesses can take some comfort that the Court cut back the time frame when they need to be concerned that a qui tam action will surface regarding past conduct.