05.28.2015

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Updates

The United States Supreme Court handed False Claims Act (FCA) defendants a mixed decision on May 26, 2015.  In a win for defendants, the Supreme Court held that the statute of limitations for False Claims Act lawsuits was not suspended for the duration of the Iraq and Afghanistan conflicts.  At the same time, the Court narrowly read the False Claims Act’s “first-to-file” bar, holding that the bar no longer applies after an earlier-filed lawsuit is resolved.  Both rulings may have an impact on companies defending False Claims Act lawsuits.

The False Claims Act

The False Claims Act, 31 U.S.C. §§ 3729-3733, imposes treble damages and civil penalties on those who knowingly present false claims or use false statements to obtain or withhold money from the federal government.  The FCA may be enforced by the U.S. Department of Justice or by private parties, called relators, who may bring civil qui tam actions under the FCA “in the name of the Government.”  Relators who bring such cases are entitled to share in any recoveries.  Qui tam cases have proliferated in recent years, as Congress has amended the FCA to encourage relators to file cases, and relators and DOJ have successfully applied the FCA to more and more types of conduct.

The Supreme Court Decision

In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, No. 12-1497, --- S. Ct. ---, 2015 WL 2456621 (May 26, 2015), the Supreme Court addressed two defenses provided by the FCA.

The Supreme Court first considered the statute of limitations for FCA claims.  Under the FCA, a qui tam case must be filed within six years of a violation or within three years of the date by which the government should have known about a violation, whichever is later, but in no case more than 10 years after the date of a violation.  The U.S. Court of Appeals for the Fourth Circuit expanded this already generous statute of limitations by holding that the Wartime Suspension of Limitations Act, 18 U.S.C. § 3287 (WSLA), applies to civil claims under the FCA.  Because the WSLA suspends the running of any covered statute of limitations while the country is at war, the court of appeals concluded that the FCA’s statute of limitations was suspended for the duration of the conflict in Iraq.

The Supreme Court unanimously rejected the court of appeals’ interpretation, holding that the WSLA applies only to crimes, not to civil claims under the FCA.  The Supreme Court reasoned that the “text, structure, and history of the WSLA show that the [WSLA] applies only to criminal offenses.”  First, the WSLA suspends the running of any statute of limitations applicable only to “any offense,” and the “term ‘offense’ is most commonly used to refer to crimes.”  Second, the WSLA is codified in Title 18 of the United States Code, which is titled “Crimes and Criminal Procedure.”  Third, the parties did not dispute that the term “offenses” in prior versions of the WSLA referred only to crimes, and the version of the WSLA now at issue continued to use that same term, suggesting that no “fundamental alteration was intended.”

The Supreme Court next considered the so-called “first-to-file” bar, which provides that once a qui tam case is filed, no person other than the government may bring a related action “based on the facts underlying the pending action.”  The Supreme Court unanimously ruled that the first-to-file bar only applies while the first-filed case is pending.  Thus, an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar the later suit once it is dismissed.  The Supreme Court acknowledged that its holding may “produce practical problems,” but concluded that its task is to interpret statutory provisions, not “make them operate together smoothly like a finely tuned machine.”

Practical Consequences of Carter

The Supreme Court’s decision in Carter is a mixed bag for defendants.  By holding that the WSLA does not apply to FCA claims, the decision protects defendants from stale claims and preserves the integrity of the FCA’s statute of limitations.  But the Supreme Court’s narrow interpretation of the first-to-file bar could expose companies to duplicative—and consecutive—qui tam lawsuits over an extended period of time.

© 2015 Perkins Coie LLP


 

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