Supreme Court Rules on Two Important FCA Issues

Split Decision Clarifies Applicability Of The First-To-File Bar and Wartime Tolling of FCA Statute of Limitations
June 4, 2015 — On May 26, 2015, the United States Supreme Court issued a unanimous ruling in the matter of Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter. The opinion resolves two significant issues under the False Claims Act (FCA), which imposes liability on persons or entities who knowingly present false or fraudulent claims to the Government for payment or approval. The FCA, which covers many different types of fraud, may be enforced through litigation brought by the Government or through a civil qui tam action brought by private parties, known as relators, on the Government’s behalf. The FCA is commonly used by whistleblowers in actions against companies who have committed fraud against the United States.

The Carter Ruling

In Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, a relator filed a qui tam action against a defense contractor, Kellogg Brown & Root Services (“KBR”), alleging that KBR had fraudulently billed the government for services performed during the armed conflict in Iraq. After several dismissals, new case filings, and an appeal, the matter went before the Supreme Court wherein two important issues were examined. The first issue concerned whether the FCA’s “first-to-file” bar, which precludes a qui tam suit “based on facts underlying [a] pending action,” precludes new actions while related claims are still active, or whether it may bar new actions in perpetuity. The second issue concerned the FCA’s statute of limitations provisions, under which 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 the violation, but no more than ten years after the date of the violation. The Court examined whether the Wartime Suspension of Limitations Act (WSLA), which suspends the statute of limitations for offenses committed against the government during wartime, applies only to criminal cases or if it also applies to civil qui tam claims under the FCA.
The Supreme Court ruled that the FCA’s “first-to-file” bar only blocks litigation of new claims while related claims are still active. The bar does not obstruct qui tam suits filed after a previously filed action is no longer pending. The Court concluded that use of the word “pending” in the FCA “first-to-file” rule must be interpreted to comply with the common meanings of the word – “remaining undecided” or “awaiting decision.” The Court rejected KBR’s argument that the word “pending” in the “first-to-file” rule was “short-hand for the first filed action.” The Court reasoned that such an interpretation would preclude suits dismissed for reasons other than the merits of the case, preventing potentially successful suits that might result in a large recovery for the Government, a result that Congress likely did not intend.
As to the statute of limitations issue, the Court ruled that the FCA’s statute of limitations could not be extended in civil qui tam lawsuits by the WLSA. The Court reasoned that, historically, the text and structure of the WLSA show that it applies only to criminal offenses and that any ambiguity in its current language must be resolved in favor of a narrow definition that comports with such history. Accordingly, the WLSA may  not be applied to civil claims under the False Claims Act.

Carter’s Implications on Future False Claims Act Lawsuits

While the WLSA portion of the Court’s ruling limits the filing of qui tam actions in a number of cases, the decision concerning the “first-to-file” bar has more far-reaching implication. Prior to Carter, in many jurisdictions, defendants accused of fraud in FCA cases could avoid liability under the “first-to-file” bar by simply illustrating that a previous case, based on related facts, had previously been filed – even if the claims in the prior action had been dismissed without reaching a decision on the merits, crippling countless credible qui tam cases. Under the new rule announced in Carter, the Government and taxpayers no longer face this unfair barrier to justice.
While Waters & Kraus is not handling this particular False Claims Act case, we are representing whistleblowers in similar lawsuits. If you have comparable claims concerning defense and homeland security fraud, contact us or call our qui tam attorneys at 800.226.9880 to learn more about our practice and how we can work together to notify the government about fraud against it. Jonathan R. Davis and Louisa O. Kirakosian, qui tam lawyers in Waters & Kraus’ Los Angeles office, protect tipsters throughout the whistleblower lawsuit process.

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