May 27, 2015
The US Supreme Court unanimously held yesterday that the Wartime Suspension of Limitations Act ("WSLA"), which suspends statutes of limitations for any "offense" against the Government involving fraud, does not apply to alleged violations of the civil False Claims Act ("FCA"). Kellogg Brown & Root Services, Inc. v. United States ex. rel. Carter, No. 12-1497, 2015 WL 2456621 (US May 26, 2015). Justice Alito’s opinion stated that the "text, structure, and history of the WSLA show that the Act applies only to criminal offenses." This development is a big win for federal contractors, cutting off increasingly frequent arguments by the Department of Justice and qui tam relators that would have eviscerated the FCA’s already-lengthy statute of limitations. On the other hand, the Carter decision held that a qui tam action ceases to be "pending" once the action is dismissed, thus expanding relators’ opportunities to file duplicative actions.
The WSLA Does Not Apply to the Civil FCA
The Fourth Circuit’s decision in United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), on which we previously reported March 22, 2013, and July 8, 2014, significantly changed then-established conventions regarding the FCA, sending shock waves through the federal contracting community. The complaint underlying that decision was the third complaint by the relator Carter alleging the defendants fraudulently billed the Government for water purification services that were not performed or were not performed properly during the conflict in Iraq. Additionally, a different relator first filed such claims in 2005, which were dismissed. The district court dismissed with prejudice the last of Carter's complaints – filed in 2011– because (1) the allegations were time-barred under the FCA’s six-year statute of limitations and the WSLA did not suspend the limitations period; and (2) the allegations were barred by the first-to-file rule, i.e., the allegations in the complaint involved substantially similar allegations to those asserted in earlier cases.
The Fourth Circuit reversed, holding that civil FCA claims were "offenses" to which the tolling provision of the WSLA applied whenever the United States is "at war," a term the court found to include the conflicts in Iraq and Afghanistan. The Fourth Circuit’s decision effectively eliminated the FCA’s statute of limitations as to allegedly false claims made a decade ago because of ongoing military conflicts, whether or not those claims had any connections to those conflicts.
The Supreme Court carefully analyzed the WSLA’s text and legislative history, finding the Government’s interpretation of the statute “ignores a more plausible" interpretation. The Court noted its prior holdings that the WSLA should be “narrowly construed” and “interpreted in favor of repose,” concluding that the “offenses” covered by the WSLA “must be construed to refer only to crimes.”
The FCA’s First-to-File Bar Applies Only When the Prior-Filed Action Has Not Been Dismissed
The FCA seeks to prohibit parasitic qui tam actions by providing that "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). Carter resolves a circuit split as to when a first-filed action ceases to be "pending." The Court rejected Petitioners’ assertion that the term "pending" was intended by Congress to be "short-hand for the first filed action." Instead, the Court said "pending" should be accorded its "ordinary meaning," e.g., that "a qui tam suit under the FCA ceases to be ‘pending’ once it is dismissed."
Although the Supreme Court now has established a bright-line rule as to when the first-to-file bar applies, the decision is inconsistent with an important purpose of the FCA’s qui tam provisions – to give the Department of Justice notice of potential fraud. Under the Carter ruling, parasitic qui tam suits can be filed even where the Government is fully aware of alleged fraud but regards the allegations as meritless. Justice Alito tacitly acknowledged that the FCA is a poorly drafted statute whose qui tam provisions "present many interpretive challenges" that are "beyond our ability in this case to make ... operate together smoothly like a finely tuned machine."
The Supreme Court’s ruling, while not wholly favorable to federal contractors, provides welcome clarity on these two issues. The Carter decision unequivocally holds that the FCA statute of limitations is controlling as to whether civil FCA claims are timely filed, overruling the Fourth Circuit and several recent district court cases holding to the contrary. While the Court’s decision means that the first-to-file bar now has a readily determinable threshold, as a practical matter, the decision does not address how that threshold will be implemented. The Court’s decision also raises unanswered questions regarding how the basis for and timing of dismissal of a prior action asserting allegations substantially similar to those made in a later-filed action may implicate other contractor defenses, including claim preclusion and the public disclosure bar.