United States: CIVIL FALSE CLAIMS ACT: U.S. Supreme Court Requests Solicitor General Input On Cases Involving The Wartime Suspension Of Limitations Act, The "First-To-File Bar," And Pleading The "Presentment" Requirement

On the opening day of its new term, the Supreme Court invited the Solicitor General to weigh in on two cases involving three topics with enormous practical consequences for False Claims Act ("FCA") litigants. Acting on a pending petition for certiorari, the Supreme Court invited the Solicitor General to state his views on United States ex rel. Carter v. Kellogg Brown & Root, No. 12-1497, which involves: (1) whether the Wartime Suspension of Limitations Act ("WSLA"), 18 U.S.C. § 3287, suspends the statute of limitations for certain civil FCA claims, and (2) the operation of the FCA's "first-to-file" bar when the first-filed claim is dismissed during the pendency of a later-filed claim. In addition, the Court invited Solicitor General briefing on the petition for certiorari in United States ex rel. Nathan v. Takeda Pharm., N.A., Inc., No. 12-1349, which involves whether a § 3729(a)(1)(A) claim can be alleged "with particularity" absent pleading specific facts that a false claim was actually "presented" to the government.

The potential stakes are enormous, particularly with respect to the WSLA, the expansive reach of which has begun to take root in various jurisdictions to resurrect clearly stale claims. What effect the Solicitor General's opinions will have on the Supreme Court is subject to debate, however, since this Court has not been particularly receptive to government arguments that seek to unfairly expand the FCA's reach.

The WSLA Issue

The WSLA is a sixty-year old criminal code provision that purports to suspend the statute of limitations for "any offense" involving fraud against the government when the United States is "at war." As we have observed over the past year, the Justice Department and relators have dusted off this statute, advocating its application to civil FCA claims with increasing and alarming frequency. See FraudMail Alert No. 12-08-16; FraudMail Alert No. 13-03-21. Until the recent spate of cases, the WSLA was last applied to the civil FCA more than fifty years ago, with countless claims falling victim to the FCA's statutory limitations period in the interim without any mention of the WSLA as a time-bar panacea. The status quo has now changed dramatically, with the government and relators arguing—and convincing some courts—that the limitations periods in § 3731(b) of the FCA have been suspended and cannot bar their claims in all manner of FCA cases.

Earlier this year, in one of the cases that prompted the Supreme Court's invitations to the Solicitor General, the Fourth Circuit became the first Court of Appeals in modern times to apply the WSLA to certain civil FCA claims. United States ex rel. Carter v. Halliburton Co., 710 F. 3d 171 (4th Cir. 2013). In addition, several district courts have allowed the WSLA to suspend the § 3731(b) limitations periods in affirmative FCA cases brought by the Justice Department, in qui tam cases brought by relators, and in cases having nothing to do with wartime contracting. See, e.g., United States v. Wells Fargo Bank, N.A., No. 12 Civ. 7527 (JMF), 2013 WL 5312564 (S.D.N.Y. Sept. 24, 2013) (relying on Carter and ruling that the WSLA applied to civil FCA claims);1 United States ex rel. Paulos v. Stryker Corp., No. 11-0041-CV-W-ODS, 2013 U.S. Dist. LEXIS 82294 (W.D. Mo. June 12, 2013) (relying on Carter and ruling that the WSLA applied to civil qui tam claims); see also United States v. BNP Paribas SA, 884 F. Supp. 2d 589 (S.D. Tex. 2012) (pre-Carter decision applying WSLA to non-defense industry civil FCA claims). In our view, the Fourth Circuit's Carter decision and similar decisions rest on a flawed interpretation of the WSLA text, ignore legislative history, ignore the importance of the FCA's statute of repose, misinterpret the appropriate duration of any WSLA tolling, and fail to address numerous other arguments demonstrating that Congress never intended the WSLA to apply in such an expansive way. See FraudMail Alert No. 13-03-21; FraudMail Alert No. 12-08-16.

The consequences to defendants of the Fourth Circuit's rationale are huge, as the Carter defendants laid out in their petition for certiorari:

The Fourth Circuit, which supervises much of the nation's qui tam litigation and oversees numerous government agencies and contractors in the Washington D.C. suburbs, has suspended the running of the statute of limitations for every claim of fraud against the government, from at least 2002 to some not-yet (and likely never-to-be) determined point in the future ... . Put simply, for any entity that has done business with the government in any industry over the past ten years, the panel decision means that the statute of limitations has not even begun to run on any of the possible fraud claims that the government or a self-interested relator might eventually choose to bring. And it will not expire until years after the President or Congress has formally terminated the conflicts in Iraq and Afghanistan—which has not happened yet and, as a practical and political matter, may never happen. Such a reading fundamentally affects the relationship between the government and those who do business with it. This Court's review is urgently needed.

Petition for Cert. at 3-4. And allowing the WSLA to eradicate the FCA statute of limitations would not be without problems for the government, as it would have the burden of preserving all potentially relevant documents and information indefinitely or else face spoliation of evidence accusations when attempting to pursue such stale claims. For these and other reasons, we believe the Supreme Court should grant certiorari and hold that the WSLA does not overrule the FCA statute of limitations.

The "First-to-File" Issue

In addition to broadly applying the WSLA, the Fourth Circuit in Carter reversed the district court's ruling that the relator's claims were precluded by the FCA's first-to-file bar, applying a narrow and bizarre interpretation of the term "pending" as found in the first-to-file bar, 31 U.S.C. § 3730(b)(5) (precluding duplicate claims "based on the facts underlying [a] pending action"). While the Fourth Circuit acknowledged that first-filed complaints were "pending" in two separate qui tam suits when the Carter relator filed his claims, it ruled that the subsequent dismissal of those first-filed complaints revived the Carter relator's claims.

The Fourth Circuit's narrow interpretation, which allows duplicate claims to be brought seriatim, reinforces an emerging circuit split. Compare United States ex rel. Chovanec v. Apria Healthcare Group, Inc., 606 F.3d 361 (7th Cir. 2010); In re Natural Gas Royalties Qui Tam Litig., 566 F.3d 956 (10th Cir. 2009) with United States ex. rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371 (5th Cir. 2009); United States ex. rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181 (9th Cir. 2001). We are in agreement with the line of thinking in the Fifth and Ninth Circuits and believe a proper analysis applies the plain meaning of "pending" and recognizes that the first-to-file bar is not simply a sequencing rule, but a way of distinguishing between the first-filed action and subsequent actions. See, e.g., United States ex rel. Powell v. Am. Intercontinental Univ., Inc., No. 1:08–CV–2277–RWS, 2012 WL 2885356, at *4-5 (N.D. Ga. July 12, 2012) ("Plaintiffs' definition would create perverse incentives and ‗reappearing' jurisdiction. ... Plaintiffs' definition does not comport with who is the actual plaintiff in a qui tam suit—the Government. ... Ultimately, once the Government has notice of potential fraud, the purposes of the FCA are vindicated.").

The "Presentment" Pleading Issue

In the second petition for certiorari discussed above, the relator requests review of the Fourth Circuit's decision in United States ex rel. Nathan v. Takeda Pharm. N.A., Inc., 707 F.3d 451 (4th Cir. 2013), which emphasized the importance of pleading presentment of false claims to the government, a requirement for liability under § 3729(a)(1)(A).

The Supreme Court last addressed presentment before the 2009 FERA amendments in Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008), where the issue was raised in the context of § 3729(a)(2) liability (which, in amended form, is now found in § 3729(a)(1)(B)). The Court ruled that, while § 3729(a)(1) explicitly required presentment of a false claim to the government, presentment was neither explicitly nor implicitly required under subsection (a)(2). In order to prevent the FCA from being used as an ―all-purpose antifraud statute,‖ however, the Court read the phrase ―to get‖ in subsection (a)(2) to impose an additional intent requirement, which Congress eliminated in the 2009 amendments by removing that phrase. See FraudMail Alert No. 08-06-09.

The presentment requirement, however, remains in the FCA, specifically in § 3729(a)(1)(A), and the definition of "claim" in § 3729(b)(2)(A)(i) makes clear that the presentment must be directly to the government. The Fourth Circuit's decision in Nathan emphasizes that this requirement is still of primary importance under § 3729(a)(1)(A), and that it must be pled with particularity under Rule 9(b) even when a fraudulent "scheme" is being alleged. Nathan, 707 F.3d at 456 ("[T]he critical question is whether the defendant caused a false claim to be presented to the government, because liability under the Act attaches only to a claim actually presented to the government for payment, not to the underlying fraudulent scheme." (internal citations omitted)). The Fourth Circuit also compared the Nathan relator's allegations with those in United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) and United States ex rel. Duxbury v. Ortho Biotech Products, 579 F.3d 13 (1st Cir. 2009), and drew clear distinctions between allegations of fraudulent conduct that necessarily lead to an inference that false claims were presented to the government and the allegations made by the Nathan relator, which did not lead to the same inference. The Fourth Circuit's approach in Nathan—drawing careful distinctions between allegations that meet the standards of Rule 9(b) and those that fail to show that claims alleged to violate § 3729(a)(1)(A) were presented to the government—is clearly correct and should not be overturned. The Supreme Court need not review the Fourth Circuit's decision in Nathan.

Footnote

1 The reader should note that the authors are counsel to the defendant in the Wells Fargo case.

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