A Race to the Courthouse: Why Being First Matters in Qui Tam Cases

A major point of emphasis in nearly every discussion of bringing a qui tam case is filing the case as early as possible.  Though there are several reasons for this, the most important is due to a part of the False Claims Act known as the “first-to-file bar.”  In sum, the first-to-file bar creates a literal “race to the courthouse” where the runner-up can be completely excluded from the proceeds of a successful qui tam lawsuit just by being in “second (or third, or fourth…) place.”  This means that, even if an investigation leads to a successful recovery, the so-called “later-filed relator” may walk away empty-handed while the first-filed relator reaps a significant financial award.

Section 3730(b)(5) of the Federal False Claims Act says,

          When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.

In other words, when a person files a qui tam complaint, no one else can file a complaint against the same defendant for the same fraud while the first case is pending.  Though the language of the statute is relatively short, there are several key parts which are equally important when determining whether a case is impacted by the first-to-file bar.

Is the First Case Pending?

The first-to-file bar does not create a permanent ban for all time against a defendant who has faced a qui tam allegations.[1]  However, the bar is in effect for the life of the first case – from the time is it is filed under seal until the time it is dismissed, settled or tried to a verdict.  In re Natural Gas Royalties Qui Tam Litigation (CO2 Appeals), 556 F.3d 956, 964 (10th Cir. 2009)(“The ‘pending’ requirement much more effectively vindicates the goal of encouraging relators to file; it protects the potential award of a relator while his claim remains viable, but, when he drops his action another relator who qualifies as an original source may pursue his own.”)

It can be very difficult to know whether there is a pending qui tam case which would impact a later-filed case.  Of course, if a case has been unsealed, it will appear on the publicly-accessible federal court docket, and there may well be media articles covering the case.  A major difficulty is presented by sealed cases, which by nature are not readily discoverable by the public.  On occasion, a whistleblower may hear water-cooler conversation about another employee filing a qui tam case, or experienced qui tam counsel may be able to read the tea leaves to interpret common corporate practices by a company involved in a False Claims Act investigation.  But, while these may be strong clues, it is impossible to know with certainty whether another qui tam case has been filed and remains under seal.

It is important to remember that for purposes of the first-to-file bar, it does not matter whether the later-filed relator had actual knowledge of the first-filed complaint.  It is strictly a matter of being first-in-time.

What is a “Related Action” for Purposes of the First-to-File Bar?

Later-filed cases are only precluded by the first-to-file bar if it is a “related action based on the facts underlying the pending action.”  While that standard is broad, it is not all-encompassing, meaning that a defendant is not automatically protected from all other qui tam cases just by virtue of one case existing.  There has been extensive case law developed around the issue of what constitutes “a related action based on the facts underlying the pending action” and ultimately a first-filed and later-filed complaint will require a head-to-head comparison to see whether the first-to-file bar is invoked.  U.S. ex rel. LaCorte v. SmithKline Beecham Clinical Laboratories, Inc., 149 F.3d 227, 234 (11th Cir. 1994)

Two complaints do not need to be identical for the first-filed complaint to preclude the later-filed complaint.  U.S. ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1208 (D.C. Cir. 2011).  If the first-filed complaint provided the information necessary to set the government on the trail of fraud, then it will bar any later-filed complaints that would be traveling on the same trail.  LaCorte, 149 F.3d at 232-34.  The bar is exception-free.  U.S. ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1187 (9th Cir. 2001).

However, there are situations where the first-to-file bar does not prohibit a second complaint.  For example, if a complaint alleges a similar fraudulent scheme but identifies different defendant companies than an earlier-filed complaint, then the later-filed complaint may still survive.  In re Natural Gas Royalties Qui Tam Litigation (CO2 Appeals), 556 F.3d at 962.  Similarly, if the later-filed complaint identifies the same defendants but an entirely unique fraudulent scheme, then the later-filed complaint will likely not be subject to the first-to-file bar.  U.S. ex rel. Heineman-Guta v. Guidant Corp., 874 F.Supp.2d 35, 38 (D.Mass. July 5, 2012).

If a whistleblower learns of a first-filed, pending complaint, experienced qui tam counsel will conduct an exacting comparison of the two complaints to determine if there are unique aspects or whether the cases overlap entirely.  The relators and their counsel may reach an agreement on how to proceed, or the government or the judge can assist in the process.  There may even be situations where a second-filed complaint would be precluded by the first-to-file bar, but the two relators resolve to work together to present a stronger case against the defendants.  Experienced qui tam counsel will present a relator with all viable options before determining how to proceed.

Conclusion

Beyond just the first-to-file bar, there are additional reasons why a relator should come forward as early as possible to report fraudulent conduct.  From a purely ethical standpoint, the sooner the fraud is reported, the sooner it can be stopped.  Additionally, the timeliness of a relator’s complaint is considered in the factors that determine the relator’s share at the end of a successful case.  Simply put, a relator is given additional consideration if he came forward with evidence of the fraud as soon as the scheme was apparent, rather than waiting months or years while the government continued to be victimized.

The most important thing a relator can do to avoid the first-to-file bar is to seek out qui tam counsel as soon as he is aware of fraud against the government.  A relator who comes to the first meeting with well-organized and documented allegations will be valuable in moving the case forward quickly and efficiently.  Because the potential consequences of being the second-filed relator are so severe, the relator should expect a sense of urgency to get a case investigated and filed as soon as possible.  Being available and helpful during this period may make the ultimate difference in whether a case can proceed or whether it is precluded by the first-to-file bar.

If you believe you have information regarding fraud against the government and are considering bring a False Claims Act case, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

Written by Jillian Estes



[1] Once a case is resolved and unsealed, there may be other issues such as the Public Disclosure Bar or claim preclusion that effectively preclude a relator from moving forward with a qui tam case.  These are unique from the first-to-file bar and should be given careful consideration by a whistleblower and his attorneys before filing.

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