Kang Haggerty News
In Kellogg Brown & Root Services, Inc., et al. v. United States ex rel., __, 575 U.S. __ (2015), two questions were presented before the U.S. Supreme Court: first, whether the Wartime Suspension of Limitations Act (WSLA) suspends the already generous statute of limitation under the False Claims Act (FCA); second whether the FCA’s “first-to-file” rule, which states generally that if more than one whistleblowers file the actions on the same fraud, only the first to file survives and others are dismissed, bars later filed whistleblower actions if the first filed action has been dismissed.
Reversing the Fourth Circuit Court’s decision to extend the WSLA to civil offenses, the Supreme Court unanimously held in that the WSLA only applies to criminal offenses, meaning the WSLA does not suspend the statute of limitation for an individual action brought under the FCA. The Supreme Court further held that the False Claim’s Act’s first-to-file bar applies only while related claims are active. Once the first filed case is settled or dismissed, the bar does not apply.
In 2005, the whistleblower, Carter, filed a qui tam complaint alleging that his former employer fraudulently charged the U.S. government for water purification services inadequately or fraudulently performed during the Iraq War. Nearing trial, the complaint (Carter I) was dismissed under the first-to-file rule based on an earlier filing with similar claims in United States ex rel. Thorpe v. Halliburton Co., No. 05-cv-08924 (C.D. Cal., filed Dec. 23, 2005).
Carter appealed the decision. Soon after, the Thorpe suit was dismissed based on failure to prosecute, and Carter immediately filed a new complaint (Carter II). Because of the pending appeal of Carter I, Carter II was also dismissed under the first-to-file bar. Carter quickly dismissed the pending appeal of Carter I in response, and in June 2011, over six years after the initial filing of the complaint, filed Carter III. Unfortunately for Carter, Carter III was eventually dismissed in light of another similar pending lawsuit, and now exceeding the six year statute of limitations for a qui tam action. On appeal to the appellate court, the Fourth Circuit reversed the trial court’s decision and concluded that the WSLA applied to civil claims and that the first to file bar ceases to apply once a related action is dismissed. The instant appeal before the U.S. Supreme Court arose out of the Fourth Circuit’s decision reversing the district court’s dismissal of Carter III.
The WSLA historically protects the government against wartime defense contract fraud. Originally enacted following the Civil War, the WSLA was modified after WWI and WWII to extend the statute of limitations in cases involving fraud against the government during war. In 2008, the WSLA was amended to extend tolling to include times of Congress authorized use of military force. The Supreme Court, as explained by Justice Alito, ruled “the text, structure, and history of the WSLA show that the act applies only to criminal offenses.” The WSLA modifies statute of limitations when “applicable to any offense … involving fraud or attempted fraud against the United States or any agency thereof.” The U.S. Supreme Court interpreted the word “offense” as a crime, and therefore limited the WSLA to criminal matters. The Supreme Court disagreed with the Fourth Circuit and concluded that Congress could have included a “civil proceedings” clause in the WSLA, but failed to do so.
Regarding the first to file rule issue, the Supreme Court agreed with the Fourth Circuit. It stated “[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.” 31 U. S. C. §3730(b)(5) (emphasis in original). Giving the plaining to the term “pending,” the Supreme Court held that once an earlier filed action is settled or dismissed, it is no longer “pending” (meaning it is no longer undecided). Agreeing with the Fourth Circuit, the Supreme Court held that once an earlier filed action is dismissed, it is no longer pending and may not bar the later filed actions (on the same fraud) based on the first to file rule.
It is imperative that if you have a potential qui tam action under the False Claims Actjchuto proceed swiftly. For more information on a qui tam action, please read here. Please contact Edward T. Kang with any question regarding a potential qui tam action under the False Claims Act.