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Supreme Court To Decide Two Key False Claims Act Questions

The Supreme Court is stepping into the fray to decide two important procedural issues related to the False Claims Act (FCA).  The Supreme Court is currently accepting briefing in Kellogg Brown & Root v. United States ex rel. Carter, No. 12-1497 and the highest Court’s decision in this case will likely have a deep and broad impact in FCA litigation.

The first issue to be decided by the Roberts Court is whether the Wartime Suspension of Limitations Act—a criminal statute which tolls the limitations period for any “offense” against the government “[w]hen the United States is at war,” 18 U.S.C. § 3287—applies to a civil FCA claim brought by a qui tam relator. The second issue relates to the False Claims Act’s “first-to-file” rule, 31 U.S.C. § 3730(b)(5).  Specifically, the Roberts Court is considering whether the rule—which incentivizes relators to promptly disclose fraud against the government by rewarding the “first-to-file” relator—precludes  a FCA suit when a related suit was previously filed but has been dismissed by the time the second action is commenced.

The case arrived at the Supreme Court after the relator, former KBR employee Carter, won before the United States Court of Appeals for the Fourth Circuit.  Carter alleges that KBR, one of the largest federal government contractors, fraudulently billed the government for logistical services it provided to the U.S. military during the Iraqi war.  Carter’s complaint was dismissed with prejudice by the District Court pursuant to the first-to-file rule, but was brought back to life by the Fourth Circuit when it ruled that, because the earlier-filed action had been subsequently dismissed, the trial court’s dismissal should not have been with prejudice and Carter was free to re-file his case.  The Fourth Circuit also held that Carter’s claims were not time-barred because the Wartime Suspension of Limitations Act applies to civil FCA suits, including cases in which the government has declined to intervene.

As to the first-to-file issue, KBR hopes to convince the Supreme Court that the Fourth Circuit’s ruling would improperly allow whistleblowers to bring one case after another, if those cases do not overlap in time.  Carter argues, on the other hand, that the plain language of the first-to-file rule—which bars related actions “based on the facts underlying the pending action”, 31 U.S.C. § 3730(b)(5) (emphasis added)—does not apply to lawsuits that have already been dismissed.  Further, Carter contends that KBR’s position—which would permanently bar any future private actions after the filing of the first action—improperly shields defendants from liability even if, for instance, the first-filed case was dismissed for reasons other than the underlying merits.  According to Carter, defendants like KBR are protected from seriatim filings by other legal principles such as issue and claim preclusion.

As to the Wartime Suspension of Limitations Act question, KBR seeks to limit the statute’s application to crimes and argues that it only applies if Congress has made a formal declaration of war.  Carter contends that the WSLA applies to both civil and criminal “offenses” so long as they involve “fraud or attempted fraud against the United States.”  Thus, according to Carter, civil FCA claims are clearly covered.

The Supreme Court’s rulings on these issues may have broad consequences on FCA practice.  Should the Roberts Court agree with the Fourth Circuit, the Government will be better protected against wrongdoers who take advantage of greater opportunities to defraud the Government during wartime.  As to the first-to-file issue, the Supreme Court should reject KBR’s draconian interpretation of the first-to-file bar and, instead, follow a commonsense approach supported by the plain language of the FCA.  Otherwise, meritorious later-filed cases will be mechanically thrown out of court regardless of the status of the first-filed action.