US Supreme Court Decides Landmark False Claims Act Case Resolving Unsettled Statute of Limitations and First-to-File Bar Questions

Justice Alito penned the Court’s unanimous decision, holding that the Wartime Suspension of Limitations Act (WSLA) applies only to criminal charges and therefore does not toll the False Claims Act’s (FCA) statute of limitations applicable to civil actions, including all FCA cases brought by private relators. All nine justices also agreed that the FCA’s first-to-file bar, which precludes a whistleblower from bringing “a related action based on the facts underlying [a] pending action,” does not apply after a first-filed action has been dismissed.

Wartime Suspension of Limitations Act

The WSLA is a World War II-era statute that extends the amount of time the government can bring a lawsuit based on wartime fraud against the United States. At issue in Carter was whether the WSLA, 18 U.S.C. § 3287,  applies to the FCA, and, if so, whether it applies to a case brought by a private qui tam relator after the government declines to intervene and take over the case.

As amended by the Wartime Enforcement of Fraud Act of 2008, the WSLA extends the statute of limitations for “offenses” involving fraud against the government to five years after the termination of hostilities as determined by the President or Congress. Although the statute of limitations for bringing an FCA action is ordinarily the greater of six years from the violation or three years from when the government knew, or should have known, of the violation (but in no event more than 10 years from the violation), 31 U.S.C. § 3731(b), several courts have held that the WSLA applies to FCA lawsuits and therefore suspends the FCA’s statute of limitations during the conflicts in Afghanistan and Iraq.

In Carter, a divided panel of the Fourth Circuit held that the WSLA applies to both criminal and civil fraud claims—including those brought under the FCA by a private relator. Petitioners KBR and Halliburton petitioned for cert to the Supreme Court, arguing that the WSLA should apply to criminal cases only, and that—even if the WSLA applies to FCA actions—it should suspend the statute of limitations only for the government, and not for a private relator, who is not distracted by the demands of a military conflict. The Department of Justice (DOJ), in a brief submitted by the Solicitor General, agreed with the Fourth Circuit’s holding and argued that the Supreme Court should not take the case. Arent Fox reported here that the Court granted cert in July of 2014.

The Supreme Court disagreed and reversed, holding that the WSLA applies only to criminal charges—not civil claims brought under the FCA. The Court explained that the term “offense,” as used in the WSLA, typically refers to crimes, as evidenced by dictionary definitions and other uses of the term in Title 18, the federal government’s criminal and penal code. And according to the Court, “Congress has used clearer and more specific language when it has wanted to toll the statutes of limitations for civil suits as well as crimes.” The Court rejected the government’s argument that a 1944 amendment that removed “now indictable” from the WSLA intended to broaden its application to civil suits, reasoning: “If Congress had meant to make such a change, we would expect it to have used language that made this important modification clear to litigants and courts.” The Court added that, even if the WSLA’s use of the term “offense” were ambiguous, the WSLA should be “narrowly construed” and “interpreted in favor of repose,” consistent with the Court’s precedent.

The Court concluded that, “Because this case involves civil claims, the WSLA does not suspend the applicable statute of limitations under either the 1948 or the 2008 version of the statute.”

First-to-File Bar

Also at issue in Carter was whether the FCA’s first-to-file bar precludes all subsequent related actions, or only those that a relator brings before the earlier suit has been dismissed. The FCA’s first-to-file bar provides, “[w]hen a person brings an action under [the FCA], 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). The first-to-file bar aims to incent relators to file lawsuits promptly while also protecting defendants from facing multiple suits based on the same conduct. Courts have increasingly split, however, on when an earlier suit is “pending.”

In Carter, the Fourth Circuit held that, although dismissal was appropriate because a “related action” was in fact pending, the district court should have dismissed the case without prejudice so that the relator could re-file in the event the related action is dismissed. The Circuit Court explained that the first-to-file bar does not permanently bar a related action, but rather bars a related action only while the first action is pending; if the first action is dismissed, the relator can re-file and avoid the bar. Petitioners argued that the Fourth Circuit improperly transformed the first-to-file bar into a “one-case-at-a-time rule,” frustrating the provision’s purpose. The Solicitor General agreed with the Fourth Circuit’s approach.

The Supreme Court agreed and affirmed, holding that “a qui tam suit under the FCA ceases to be ‘pending’ once it is dismissed.” The Court explained that the ordinary meaning of “pending” is “remaining undecided; awaiting decision.” Under petitioners’ interpretation, the Court observed, “Marbury v. Madison … is still pending. So is the trial of Socrates.” The Court rejected petitioners’ argument that “pending” is shorthand for “first-filed,” reasoning that Congress would not have needed to use shorthand if it intended to express “first-filed,” which is neither a “lengthy or complex formulation.” The Court acknowledged that, “if the first-to-file bar is lifted once the first-filed action ends, defendants may be reluctant to settle such actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims.” But the Court noted, “The False Claims Act’s qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine.” The Court therefore “agree[d] with the Fourth Circuit that the dismissal with prejudice of respondent’s one live claim was error.”

Key Points from the Supreme Court’s Carter Opinion

Carter at once narrows the potential period of liability for FCA civil defendants while also expanding qui tam relators’ ability to bring cases.

The Court’s decision that the WSLA applies only to criminal charges—and not to civil FCA claims—limits the relator and/or government’s reach-back period to a maximum of ten years under the FCA’s statute of limitations, and not back to the beginning of the conflicts in Afghanistan and Iraq. Had the Court ruled the other way, defendants could theoretically face liability during extended conflicts for alleged false claims presented to the government decades earlier.

The Court’s decision that the FCA’s first-to-file bar precludes a later qui tam suit only if the earlier-filed suit has not been dismissed means that a parasitic relator may be able to bring a later action to pursue claims that the government and defendant left unsettled in the earlier action (assuming the separate public-disclosure bar does not preclude the later action). The Court’s WSLA holding may mitigate the impact of this holding, however, because the statute of limitations may bar certain claims in the later-filed action.

The opinion is Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 575 U.S. __ (2015). It is available here.