Supreme Court Supports Narrow Interpretation of First-to-File Bar; Rejects Wartime Statute of Limitations

kbr-logoIn a rare unanimous decision last week, the United States Supreme Court issued a long-awaited opinion to False Claims Act (FCA) relator Benjamin Carter in the case of Kellogg, Brown & Root, Inc., et al v. U.S. ex rel. Carter, 575 U.S. ___ (2015). Justice Samuel Alito wrote for the undivided Court.

As we’ve written about in the past, the Court addressed two issues: (1) whether the Wartime Suspension of Limitations Act (WSLA) applied to lawsuits brought by individuals under the False Claims Act, and (2) whether the first-to-file bar prohibited new claims only while the first-filed case was pending, or whether it prohibited new claims in perpetuity.  And just as we anticipated, the Supreme Court delivered a well-reasoned and articulate opinion which split the issues, holding (1) that the WSLA did not extend the statute of limitations for the False Claims Act, and (2) that the first-to-file bar only applies so long as a first-filed case is pending.

However, the WSLA issue is a much narrower decision that will impact a lot less cases than the first-to-file issue.  So, even though big-business-friendly organizations are expected to tout this as a divided win, the real win goes to whistleblowers and the United States.

The First-to-File Bar Doesn’t Last Forever

KBR argued heavily that the False Claims Act’s “first-to-file bar” should be read to bar any future case ever brought on the same issues as an earlier-filed case, regardless of the status of the first-filed lawsuit.  Using logic and the plain meaning of the language, the Supreme Court soundly reject this notion.

The first-to-file bar provides that, “[w]hen a person brings an action…no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  KBR argued for the “peculiar” interpretation that “pending” was simply short-hand for “first-filed” and that any first-filed case would therefore forever be “pending” regardless of it’s ultimate resolution.  Indeed, as Justice Alito noted, “[u]nder this interpretation, Marbury v. Madison, 1 Cranch 137 (1803), is still ‘pending.’  So is the tiral of Socrates.”

The Court also noted that KBR’s interpretation would allow even a case dismissed for an issue having nothing to do with the merits of the case (i.e., failure to prosecute) to bar any later case on the same issues.  This, Justice Alito noted, defies reason: “Why would Congress want the abandonment of an earlier suit to bar a later potentially successful suit that might result in a large recovery for the Government?”

Ultimately, the Court held that, “a qui tam suit under the FCA ceases to be ‘pending’ once it is dismissed.”  The Court did not allow for any caveats, exceptions, or other excuses that can be manipulated by FCA defendants to try to avoid liablity by hyper-extending the first-to-file bar.  In doing so, the Supreme Court cleared the way for countless relators who are facing challenges to their meritorious lawsuits simply because a previous lawsuit on the same issues once existed.

WSLA

The Court also evaluated the WSLA, which was first enacted by Congress in 1921 in response to the increase of fraud against the United States during World War I.  A similar suspension statute was enacted in 1942 following World War II and amended in 1948, which remained in force until 2008.  The 1948 version provided that, “[w]hen the United States is at war, the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States…shall be suspended until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress.”  In 2008, Congress expanded the definition to include not just times of war, but also when Congress has enacted a specific use of military force.  The 2008 amendment also extended the period of time from three years to six years.

Of note, under the 2008 definition, the United States has been in a sustained period of military force since Congress authorized President Bush to use military force against Iraq on October 11, 2002.

Justice Alito explained that based on the use of the language of the Act and the history of its adoption, the Act was intended only to apply to criminal proceedings.  As a result, the “WSLA does not suspend the applicable statute of limitations [for the False Claims Act] under either the 1948 or the 2008 version of the statute.”

Conclusions

False Claims Act cases do not make their way to the Supreme Court very often, so when they do, there is a collective holding-of-our-breath by relators’ counsel to see which way the Court will swing.  The Court’s decision in KBR, Inc. et al. v. U.S. ex rel. Carter is a strong sign that the entire body of the Court supports the False Claims Act and the efforts of relators to bring cases on behalf of the United States.  Although it would have required a very strained reading, the Court had the opportunity to eviscerate many FCA cases by expanding the first-to-file bar to extreme lengths.  In refusing to do so, the Court acknowledged Congress’s desire to see meritorious cases come forward to protect federal funds.

This opinion takes an arrow out of the quiver of defendants all around the country, and the False Claims Act will be stronger because of it.

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