As 2018 closes, Supreme Court signals continued focus on the False Claims Act

November 20, 2018

Government Investigations & White Collar Defense Alert

Author(s): Hannah Bornstein

In Cochise, the Supreme Court will examine the scope of the False Claims Act’s statute of limitations

On November 16, 2018, the Supreme Court granted a petition for a writ of certiorari in Cochise Consultancy v. United States ex rel. Hunt and is thus poised to settle a deepening circuit split involving the False Claims Act’s statute of limitations.

False Claims Act (“FCA”) suits may be filed by either the United States Government or private citizens (called relators). In suits filed by relators, the government may choose whether to intervene in the matter. If the government declines to intervene and a relator’s case is successful, the relator is eligible to collect up to 30 percent of the sum recovered plus attorney’s fees.

Cochise is poised to clarify the FCA’s statute of limitations, which provides that a civil action under Section 3730 may not be brought:

  1. more than six years after the date on which the violation of Section 3729 is committed, or
  2. more than three years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.

31 U.S.C. § 3731(b). The question presented in Cochise is whether a relator (as opposed to only the United States) can rely on Section 3731(b)(2) when the United States declines to intervene in an FCA action and, if so, whether the relator constitutes an “official of the United States” under the statute.

A widening circuit split

In Cochise, the relator filed suit more than six years after the alleged FCA violation occurred and more than three years after he learned of the alleged violation. The suit, however, was filed within three years of the government being made aware of the alleged violation.

Under controlling case law in the Fourth, Fifth, and Tenth Circuits, a relator cannot take advantage of Section 3731(b)(2). Thus, because the relator’s complaint in Cochise was filed more than six years after the alleged FCA violation occurred, it would have been barred in those circuits.

The Third and Ninth Circuits permit a relator to use Section 3731(b)(2); however, the relator is considered the applicable “official of the United States” who knew or should have known of the alleged fraud. Accordingly, under this analysis, a relator’s complaint must be filed within three years from the date the relator learned of the alleged FCA violation. The relator’s complaint in Cochise still would have failed under this alternative interpretation of the FCA.

Noting that it was widening a circuit split, the Eleventh Circuit implemented a third interpretation of the FCA’s statute of limitations. 887 F.3d 1081 (11th Cir. 2018). Like the Third and Ninth Circuits, the Eleventh Circuit held that a relator is permitted to rely upon Section 3731(b)(2), but found that the relator is not the relevant “official of the United States” who knew or should have known of the alleged fraud.  Id. at 1096. Rather, the Eleventh Circuit held that the three-year statute of limitations does not begin to run until the United States knew or should have known of the alleged FCA violation. Because the United States was informed of the allegations in Cochise within three years of the complaint being filed, the Eleventh Circuit found that the district court erred in dismissing the case. Id. at 1096-97.

The petitioners in Cochise have highlighted in their petition that the Eleventh Circuit’s holding incentivizes a relator to “refrain from quickly acting,” rather than encouraging quick disclosure of alleged FCA violations. Petitioners’ Brief at 15. The Eleventh Circuit’s decision also creates the peculiar possibility that the FCA’s statute of limitations analysis hinges upon a non-party’s knowledge of the issues at play, since the United States is not considered to be a party in non-intervened FCA matters.

Impact for False Claims Act defendants

Cochise exemplifies an ongoing challenge for FCA defendants: The forum in which a suit is filed can lead to vastly different potential outcomes and costs for FCA defendants. In many ways, this is similar to the circuit split over the application of Fed. R. Civ. P. 9(b) to FCA complaints. The petition in Cochise seeks to remedy the situation where a case filed in one circuit may proceed to merits discovery when the same complaint filed elsewhere may be summarily dismissed on statute of limitations grounds.

By agreeing to hear Cochise, the Supreme Court is poised to provide a more-predictable and consistent application of the FCA’s statute of limitations. When combined with the court’s potential decision to grant certiorari in Gilead, this term may result in the most significant FCA jurisprudence since the court’s 2016 decision in Universal Health Services v. United States ex rel. Escobar.

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