Introduction
Background
Facts
Supreme Court decision
Comment
Introduction
Following the Supreme Court's decision in Kellogg Brown & Root Services, Inc v United States ex rel Carter, the False Claims Act has been limited and expanded – providing contrasting consequences for False Claims Act practitioners. The case resolved whether:
- the Wartime Suspension of Limitations Act applies to criminal charges only or whether it also applies to civil claims; and
- the False Claims Act's first-to-file bar applies only when related claims are still pending or whether it bars related claims in perpetuity.(1)
Based on the text and history of the Wartime Suspension of Limitations Act, the court held that its tolling of the statute of limitations for any offence involving fraud against the federal government during a war or congressional authorisation of the use of military force applies only to criminal charges and not to civil claims.(2) The court also held that the False Claims Act's first-to-file bar applies only to related pending actions and not to any related actions that have been filed in the past, but have since been dropped or dismissed.(3)
Wartime Suspension of Limitations Act
Congress first enacted a statute similar to the Wartime Suspension of Limitations Act in 1921 to address concerns regarding fraud against the government during World War One.(4) The act originally applied to criminal cases – that is, "offenses involving the defrauding or attempts to defraud the United States… and now indictable under any existing statutes".(5) The act was:
- repealed in 1927;(6)
- temporarily re-enacted in 1942 for World War Two; and
- codified in 1948 "as permanent legislation to be applicable whenever the country is at war".(7)
In 1944 the 'now indictable' clause was deleted from the act and by 1955 some jurisdictions determined that the amendment rendered the Wartime Suspension of Limitations Act "applicable to all actions involving fraud against the United States whether the Government should seek redress by criminal or civil means".(8) Although the act had remained unsolicited in the False Claims Act claims for almost 50 years, more recently plaintiffs have successfully sought the tolling period in civil fraud claims. Until the Kellogg Brown decision, only one lower court had found that the act did not apply to civil claims – all other courts deciding the issue came out in favour of extending its reach.
The implications of this broad interpretation became wider in 2008 when Congress amended the statute to cover congressional authorisations of military force in addition to declared wars and extended the statute of limitations' suspension period to five years. The statute's relevant language states that:
"[w]hen the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces… 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 5 years after the termination of hostilities."
In a time when wars have no clear ending, tolling periods could have remained indefinite, but for the recent Supreme Court ruling in Kellogg Brown.
First-to-file bar
The False Claims Act's first-to-file bar reads that "[w]hen 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".(9) The question addressed by the Supreme Court was whether the clause bars new claims "only while related claims are still alive", or whether it bars new claims "in perpetuity".(10) Prior to Kellogg Brown, the circuits were split on whether the first-to-file bar applied after the first-filed action was no longer pending. For example, the DC Circuit ruled in 2014 that the bar to subsequent related cases was still in place, even after the first action had been concluded.(11) The DC Circuit majority reasoned that "[t]he simplest reading of 'pending' is the referential one; it serves to identify which action bars the other". The majority also supported its conclusion by considering the policy implications of the bar. It noted that "[t]he resolution of a first-filed action does not somehow put the government off notice of its contents". The court also argued that reading the bar temporally (ie, while the first-filed suit was pending and not thereafter), would "allow related qui tam suits indefinitely".(12) The DC Circuit's decision divided the circuits, many of which had determined that the first-to-file bar applied only to cases that were still pending. Instead, the Fourth and Seventh Circuits had found that the bar applied only to actions that were pending at the time the action in question had been filed – the Ninth and Tenth Circuits agreed with this position in dicta.(13)
The respondent in Kellogg Brown worked in Iraq for one of the petitioners – a group of defence contractors and related entities – for four months in early 2005. Following this period, the respondent filed a qui tam complaint (Carter I) alleging that the petitioners had "fraudulently billed the government for water purification services".(14) Several years later, the district court held that Carter I was related to another lawsuit that had been filed previously (ie, United States ex rel Thorpe v Halliburton Co) and dismissed the respondent's case under the first-to-file bar; the respondent then appealed.(15) Thorpe was subsequently dismissed for failure to prosecute and the respondent filed a new complaint (Carter II), which the district court also dismissed because Carter I's appeal was still pending.(16) The respondent then dropped Carter II and filed a third complaint (Carter III) in June 2011. The district court dismissed the complaint, holding that:
- the statute of limitations had expired because the Wartime Suspension of Limitations Act did not apply to civil claims and the case had been filed more than six years after the alleged fraud; and
- the suit was barred by another then pending related case.(17)
The Fourth Circuit reversed on both issues, holding that the Wartime Suspension of Limitations Act applies to civil claims and that the first-to-file bar applies only when a related action is still pending, not after it has been dismissed – the related case had been dismissed by the time of the Fourth Circuit decision.(18) The Supreme Court granted certiorari in July 2014.
In his opinion for the unanimous majority in Kellogg Brown, Justice Alito began by discussing the Wartime Suspension of Limitations Act's text, structure and history.(19) He highlighted that the term 'offence' is most commonly used to refer to crimes, which corresponds to the term's dictionary definition in 1948 and 2008, when the most recent amendments to the Wartime Suspension of Limitations Act were made.(20) Alito further argued that in the context of Title 18, 'offence' is not used to denote a civil violation. Although the court acknowledged that the term can sometimes be employed more broadly, it noted that "when Title 18 was enacted in 1948, the very first provision, what was then 18 U.S.C. § 1, classified all offenses as crimes".(21) Alito concluded that if Congress had intended 'offence' to include civil violations in the Wartime Suspension of Limitations Act, Congress would have been more specific.(22)
Alito also argued that act's history provides what is perhaps the strongest support for the conclusion that it applies only to criminal charges".(23) He highlighted that none of the parties disputed "that the term 'offenses' in the 1921 and 1942 suspension statutes applied only to crimes".(24) Critically, the Wartime Suspension of Limitations Act continued to use the same term, suggesting that "no fundamental alternation was intended". Addressing the removal of the phrase "now indictable", Alito reasoned that removing it "while leaving the operative term 'offense' unchanged would have been an obscure way of substantially expanding the WSLA's reach," and that "[f]undamental changes in the scope of a statute are typically not accomplished with so subtle a move".(25) Instead, Alito stated that a more likely explanation for the removal of "now indictable" was to "make the WSLA applicable, not just to offenses committed in the past during or in the aftermath of particular wars, but also to future offenses committed during future wars".(26)
The court held that even if there were ambiguity regarding the term 'offence', the court should clarify it in favour of a narrower definition, meaning that the Wartime Suspension of Limitations Act does not apply to civil violations.(27) The court therefore reversed the Fourth Circuit's decision and held that the act applies only to criminal offences.
Regarding the first-to-file question, Alito noted that the dictionary definition of 'pending' is "[r]emaining undecided; awaiting decision", and that the court saw "no reason not to interpret the term in accord with its standard meaning".(28) The court rejected the petitioners' claim that 'pending' "is used as a short-hand for the first filed action", stating that this was a "very peculiar" interpretation of the word.(29) Alito reasoned that if Congress had intended 'pending' to mean the first-filed case, it could have used the terms 'first-filed', 'earlier' or 'prior', all of which are equally economical formulations with the meaning that the petitioners favoured.(30) Further, the court held that interpreting 'pending' to mean 'first-filed' would lead to strange results; for example, if a case were dismissed on procedural grounds, no other related complaint could be filed in the future. The court therefore upheld the Fourth Circuit's decision and held that a case "ceases to be 'pending' once it is dismissed".(31)
The Wartime Suspension of Limitations Act's tolling provision had gained traction in recent years, potentially permitting the indefinite tolling of False Claims Act claims during wartime activity – even in the absence of a formal declaration of war.(32) Further, the Fourth Circuit held that the tolling applied to non-intervened cases.(33) Given these holdings, defendants in False Claims Act cases were potentially exposed to claims that could plausibly date back to the 1990s, even if the claim was brought in 2015. The Supreme Court's ruling in Kellogg Brown eliminates this exposure by clarifying that the statute does not apply in civil cases. As such, risk is greatly diminished for would-be False Claims Act defendants.
In contrast, the court's ruling that the first-to-file bar ceases to apply when the prior related action has been dismissed expands liability for claims under the False Claims Act. By announcing that the first-to-file bar should not be read to bar claims in perpetuity, defendants can no longer rely on the bar to the extent previously experienced, exposing them to increased litigation. Specifically, where defendants previously benefited from a poorly argued claim that was dismissed, new relators that qualify as an original source under the False Claims Act may still bring their claims to court.
The Supreme Court's decision in Kellogg Brown clarifies that the Wartime Suspension of Limitations Act will not toll the statute of limitations for civil claims during times of war or authorisations of military force. This reverses the trend that had permitted the use of the act in civil False Claims Act matters over the past five years. The result protects defendants from extended or indefinite tolling in civil matters and incentivises whistleblowers to bring civil suits earlier. The decision also resolves the circuit split regarding the first-to-file bar, which opens up the possibility of increased False Claims Act litigation in the circuits that previously barred subsequent related claims, even after earlier related cases had been dismissed or dropped.
For further information on this topic please contact Marisa Cruz at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email ([email protected]). The Hogan Lovells website can be accessed at www.hoganlovells.com.
Endnotes
(1) Kellogg Brown & Root Services, Inc v United States ex rel Carter, 575 US 135 S Ct 1970 (2015).
(5) Dugan & McNamara, Inc v US, 127 F Supp 801, 802 (Ct Cl 1955) (quoting 18 USCA Section 3287 (1942)).
(6) United States v BNP Paribas SA, 884 F Supp 2d 589, 600 (SD Texas 2012), motion to certify appeal denied, Civ A No H-11-3718, 2012 WL 4754731 (SD Texas Oct 4, 2012).
(7) Id at 601 (quoting Dugan & McNamara, Inc v United States, 127 F Supp 801, 802 (Ct Cl 1955)).
(8) Dugan & McNamara, Inc v US, 127 F Supp 801, 804 (Ct Cl 1955) (quoting 18 USCA Section 3287 (1942)).
(10) Kellogg Brown, 135 S Ct at 1973.
(11) US, ex rel Shea v Cellco P'ship, 748 F3d 338, 344 (DC Cir 2014) cert granted, judgment vacated, 135 S Ct 2376, 192 L Ed 2d 162 (2015).
(14) Kellogg Brown, 135 S Ct at 1971.
?(32) US ex rel Carter v Halliburton Co, 710 F3d 171, 178-79 (4th Cir 2013).
Elizabeth J DiSciullo, a summer associate at Hogan Lovells and student at Georgetown University, assisted in the preparation of this update.
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