Supreme Court Decides Qui Tam First-to-File Issues
Whether you are on the defense side or the relator side of the qui tam world, you can count the Supreme Court’s opinion in Kellogg, Brown & Root Services, Inc. v. United States ex. Rel. Carter as a win and a loss. Since January’s oral arguments, the False Claims Act bar has eagerly awaited the Supreme Court’s ruling on the Wartime Suspension of Limitations Act (WSLA) and the qui tam “first to file” provision in the False Claims Act (FCA).
The defense bar can celebrate because the Supreme Court reversed the Fourth Circuit and found that the WSLA applies only to criminal offenses, not civil FCA claims. Relators can applaud the Supreme Court’s ruling that the FCA’s first-to-file bar only blocks a claim while a related action is actively pending, but not after it is dismissed.
WSLA Applies Only to Criminal Offenses
The WSLA tolls claims for “any offense” involving fraud against the federal government. Under the relator’s view of the WSLA, which the Fourth Circuit adopted and the United States endorsed in its briefing, the WSLA would apply to all civil actions brought under the FCA. The FCA has a six-year statute of limitations, with an exception that permits claims to be brought for up to ten years. Under the Department of Justice’s (DOJ) interpretation, the WSLA’s tolling for FCA actions would have been triggered by the Authorization for Use of Military Force Against Iraq Resolution of 2002, and thus would have permitted DOJ or relators to bring actions going back as early as 1996, or even earlier.
Only Live Actions Trigger the FCA’s First-to-File Bar
One of the FCA’s restrictions on qui tam suits is the first-to-file bar, which says only the Government can intervene or bring a related action “based on the facts underlying [a] pending action.” 31 U.S.C. §3730(b)(5).
The Supreme Court considered only the ordinary meaning of the word “pending” and decided that a dismissed FCA case is not a “pending” case. In doing so, the Court flatly rejected the defendants’ argument that Congress used “pending” in the FCA as short-hand for any “first-filed action.” Under the reading of “pending” that was advocated by KBR, as well as defense contractors and health care associations, the purpose and structure of the FCA are fulfilled by barring any subsequent actions once the first-filed action is filed, even if it is dismissed.
The Supreme Court acknowledged defendants’ concern that lifting the first-to-file bar when the first-filed action ends could have negative practical consequences, and noted that
“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.”
Possible Increase in Gamesmanship
As we noted in a recent Law360 article, many healthcare industry groups are concerned with the potential for serial qui tam lawsuits clogging the courts and burdening health care providers. There now are unfortunate opportunities for relators and their counsel to tactically dismiss certain matters and quickly file new ones, once the prior action is no longer “pending.” This ruling makes it critical for defendants in FCA actions to carefully understand the terms of any dismissals, as well as the scope of covered conduct to be released in any settlement agreement. In addition, any “second filed” qui tamaction may be subject to claim preclusion, the “public disclosure” bar, or other grounds for dismissal.