On May 26, 2015, the U.S. Supreme Court issued a pair of important rulings for companies that do business with the federal government. The Court’s unanimous decision in Kellogg Brown & Root Services, Inc., et al. v. United States ex rel. Carter, No. 12-1497, marks its latest—though surely not last—foray into the False Claims Act (FCA) sphere. In a victory for those facing qui tam lawsuits, the Court held that the Wartime Suspension of Limitations Act, which tolls the statute of limitations for an “offense involving fraud or attempted fraud against the United States” during a time of war, does not apply to claims made pursuant to the FCA. On the second issue presented in the case, the victory went to the whistleblower, with the Court holding that the FCA’s “first-to-file” bar does not preclude subsequent qui tam actions brought after a previously filed case has been dismissed.
Defense contractor KBR and related entities (hereinafter KBR) provided logistical services to the United States military in Iraq. The relator, Carter, worked for KBR in Iraq testing and purifying water for American troops. In 2006, Carter filed a qui tam action against KBR and related entities, alleging that KBR had fraudulently billed the government for water purification services that it had not performed adequately or had not performed at all.
Following a complex procedural history involving a number of filings, dismissals, and related cases, the case reached the Supreme Court on two questions concerning the timing of lawsuits under the FCA: (1) whether the statute of limitations period applicable to FCA claims (typically six years from the violation, but in no event more than ten years) is suspended during a time of war, pursuant to the Wartime Suspension of Limitations Act (WSLA); and (2) whether the FCA’s “first-to-file” rule, a jurisdictional bar that prohibits claims from being brought if there are other related cases “pending,” applies when a previously filed related case has been dismissed. The Fourth Circuit Court of Appeals held for relator Carter on both issues, finding the statute of limitations tolled by the WSLA and the first-to-file bar inapplicable to Carter’s complaint. KBR sought Supreme Court review.
The Wartime Suspension of Limitations Act suspends statute of limitations periods “for any offense … involving fraud or attempted fraud against the United States” when the United States is at war, or when Congress has specifically authorized use of the Armed Forces pursuant to statute. 18 U.S.C. § 3287. The application of the WSLA to FCA claims hinged on the meaning of “offense” in the WSLA, specifically whether the term in that context is limited to crimes or also includes civil claims of fraud. In determining the scope of the WSLA, the Court considered the dictionary definition of “offense,” the legislative history of the WSLA, and its placement in Title 18 of the United States Code (as well as the other uses of “offense” in and outside of Title 18). The Court acknowledged but ultimately was not persuaded by the relator’s (and, as amicus curiae, the government’s) reliance on a 1944 revision of the WSLA that removed the modifier “now indictable” from the statute. The Court found that the revision “more plausibly” related to Congress’s desire to apply the WSLA prospectively, rather than a desire to bring civil claims within its reach. The Court noted that expanding the WSLA to include civil claims merely by removing “now indictable” would amount to a “fundamental” revision “not typically accomplished with so subtle a move.”
Ruling on these grounds, the Court avoided other questions concerning the application of the WSLA. The Court noted that before 2008, the WSLA “was activated only when the United States was at war,” but in 2008, “this provision was made to apply as well 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.” Because the conduct underlying Carter’s allegations took place in 2005, but the complaint at issue was filed in 2011, the Court avoided having to decide whether the pre- or post-2008 versions of the Act applied, and “whether the term ‘war’ in the 1948 Act applies only when Congress has formally declared war.”
The Court’s ruling on this issue is a significant victory for federal government contractors. Had the Court ruled that the WSLA applied to civil actions like Carter’s, the door likely would have been opened for the government and private citizens to pursue civil fraud claims based on conduct potentially stretching back decades.
The second issue before the Court in Carter concerned the FCA’s “first-to-file” rule, a statutory bar that prohibits qui tam actions that are “based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5). The complicated procedural path that brought Carter before the Court presented the Court with the task of clarifying the meaning of “pending,” namely whether the bar applies “only while related claims are still alive,” or whether it bars them “in perpetuity.”
The Court quickly dispensed with KBR’s argument that “pending” is shorthand for the “first-filed” action (such that, even after dismissed, the first-filed action would bar any subsequent actions). Noting that such an interpretation strained “pending” “far beyond its breaking point,” the Court amusingly remarked that, under KBR’s interpretation, Marbury v. Madison and the trial of Socrates are still “pending.” Upholding the Fourth Circuit’s ruling on the issue, the Court held that the FCA’s first-to-file rule “bars a later suit while the earlier suit remains undecided[,] but ceases to bar that suit once it is dismissed.” Any other reading of the word “pending,” the Court reasoned, “does not comport with any known usage of the term.”
In its brief, KBR argued that the Fourth Circuit’s ruling turned the first-to-file rule into a “one-case-at-a-time” rule that “encourages plaintiffs to allow false claims to build up over time to maximize the value of the alleged fraud.” KBR also argued that this reading of the rule “creates an incentive to disclose information (and litigate claims) piecemeal,” and “encourages relators to re-plead claims repeatedly, even if other cases put the government on notice of the allegations.”
The Court acknowledged that its ruling might produce “practical problems.” For one thing, the Court recognized, “defendants may be reluctant to settle such [qui tam] actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims.”
The United States, arguing as amicus curiae in support of Carter, asserted that the doctrine of claim preclusion may protect defendants in this situation, if the original action is decided on the merits. Noting that the issue of claim preclusion was not before it in this case, the Court declined to address it, likely spurring future litigation on this point.
The certainty of future litigation about the reach of the FCA is a reality the Court addressed in closing. “The False Claims Act’s qui tam provisions present many interpretive challenges,” the Court concluded, “and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine.”
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