First-To-File Rule of False Claims Act Continues to Present Interpretive Challenges
Two years ago, when the Supreme Court addressed the “first-to-file” bar of the False Claims Act (FCA) in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, it predicted that its holding might “produce practical problems,” as “[t]he 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.” Immediately validating this prediction, upon remand of the Carter case, a new interpretative challenge emerged in the same case regarding the first-to-file bar. That challenge was presented to the Fourth Circuit in oral argument last week.
According to the FCA’s first-to-file rule, “[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). Until the Carter case, courts had disagreed about whether the first-to-file bar perpetually barred future actions about the same claims even after the first-filed action was dismissed.
In Carter, the Court ignored statutory intent and instead simply focused on the word “pending” in the FCA, holding that the bar only applied if the earlier-filed action was “pending” when the later-filed action was brought. Here is the context. In Carter, the relator had asserted a FCA claim against defense contractor KBR, but the parties subsequently learned that two other plaintiffs had previously filed similar claims against the contractor in other courts, and that those other cases remained pending at the time the relator filed his case. KBR contended that the relator’s case was therefore barred by the first-to-file rule, and that because the first-to-file bar was a perpetual bar to bringing new actions, the relator’s claims should be dismissed with prejudice. The relator disagreed, arguing that those two other cases had already ended by the time briefing was complete on KBR’s motion to dismiss, and therefore did not remain “pending actions” that would perpetually bar Mr. Carter’s bringing a new action or justify dismissal with prejudice (as opposed to without prejudice dismissal). See 31 U.S.C. § 3730(b)(5) (emphasis added).
To the surprise of many observers, the Supreme Court ruled in favor of the relator. Adopting a mechanical reading of the statute’s reference to a “pending action,” the Court explained that “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.” Therefore, because the two previously filed suits had already concluded, the relator’s FCA claim could not be dismissed with prejudice under the first-to-file rule because first-to-file would not bar Mr. Carter’s filing a new action. The Court affirmed the Fourth Circuit’s decision ordering the case dismissed without prejudice, and remanded the case for further proceedings.
After the case reached the district court again, a new controversy immediately surfaced. At the time the relator had originally brought his action, the earlier-filed two FCA actions were still ongoing. KBR contended that the district court had already held, and the Fourth Circuit and Supreme Court had affirmed, that the first-to-file rule applies “[w]hen a person brings an action” and therefore Mr. Carter’s case should be dismissed at least without prejudice because the earlier-filed actions were “pending” when he filed his action. KBR also observed that even if the relator were permitted to amend and re-file his lawsuit, at that point, his claims would be barred by the statute of limitations, and thus KBR asked that the claims be dismissed with prejudice. Predictably, the relator took the contrary position, contending that the first-to-file rule allows cases in this posture to proceed without the need for dismissal and re-filing of the litigation, and that the first-to-file bar can be overcome through an amended complaint. The district court agreed that Mr. Carter’s claims should be dismissed without prejudice, but declined to dismiss them with prejudice. The relator promptly appealed to the Fourth Circuit.
Mr. Carter contends that the Fourth Circuit is not deciding this issue on a blank slate. In United States ex rel. Gadbois v. Pharmerica Corp., the First Circuit held that qui tam relators could overcome the first-to-file bar by supplementing their complaint without re-filing, in the event that the first action ceases to be pending while the second action is ongoing. The Gadbois court explained that in that case dismissing the case and having the relator re-file “would be a pointless formality” and “would needlessly expose the relator to the vagaries of filing a new action.” The relator in Carter believes Gadbois is indistinguishable; KBR has noted that Gadbois is factually and procedurally distinguishable, not least because relator’s claims would be untimely if re-filed, and that, in any event, Gadbois should not be followed by the Fourth Circuit.
At oral argument, the Fourth Circuit dealt with a series of threshold issues, and may decline to reach the first-to-file issue. Nevertheless, contractors should closely watch the outcome of the case if the Court rules on the merits. Tactical decisions about how and when to file first-to-file motions will depend on which way the Fourth Circuit and other courts rule on this issue. (Defendants should also consider our earlier post here when considering when to bring a first-to-file argument.)