United States: Supreme Court Unanimously Upholds FCA Statute Of Limitation Defense And Clarifies Applicability Of The First-To-File Bar In KBR Case

Yesterday, the Supreme Court of the United States released a unanimous opinion in Kellogg Brown & Root Services Inc. v. United States ex rel. Carter, resolving a pair of open procedural questions that frequently arise in False Claims Act ("FCA") litigation. First, the Court held that the Wartime Suspension of Limitations Act ("WSLA") does not apply to civil actions, affirming the availability of a key statute of limitations defense for litigants in civil fraud cases. Second, the Court held that the FCA's first-to-file statutory bar only applies while related claims are still alive, leaving the door open for serial filings in some cases, but only when the first-filed suit is dismissed before the statute of limitations runs out. The Court noted that its construction of the first-to-file bar left many open questions, and defendants will need to think carefully about how motions practice, appeals, or settlement of a pending qui tam will interact with the first-to-file bar and expiration of the limitations period.

History of the Case

KBR's procedural history, like that of many cases brought under the FCA, is lengthy and complex, but only a few aspects are relevant to the Supreme Court's decision. The relator, an employee of a defense contractor providing logistical services to the U.S. military in Iraq, filed his first qui tam action in early 2006, alleging fraudulent billing practices. The Government declined to intervene, and the action was ultimately dismissed. The relator filed three subsequent complaints in the ensuing years, all on similar grounds, in order to avoid bars based on his own and other relators' similar complaints. 

By the time the fourth complaint was filed, two other relators had filed cases involving similar allegations: one each in federal courts in Maryland and Texas. The district court granted the defendants' motion to dismiss, citing both (1) the pending third complaint and (2) the FCA's six-year statute of limitations, which would also apply to any future suit contemplated by the relator. The Fourth Circuit reversed on both grounds, holding that neither the first-to-file bar nor the FCA's statute of limitations barred the relator's 2011 complaint. On the latter point, the Fourth Circuit reasoned that under the WSLA, the armed conflict in Iraq suspended the statute of limitations for civil FCA claims brought by private relators. 

The Supreme Court granted certiorari last year to consider (1) whether the WSLA applied to civil claims, or only criminal offenses, and (2) whether the FCA's first-to-file rule prohibits a second complaint only while a prior lawsuit is pending, or indefinitely once a prior complaint has been filed.

The WSLA Does Not Apply to Civil Claims

Looking to the text, structure and history of the WSLA, the Supreme Court held that the WSLA applies only to criminal offenses, not to civil claims such as qui tam suits brought under the False Claims Act. After walking through the WSLA's post-World War I roots, and subsequent amendments, the Court held that the statute only tolls the time to file criminal charges. 

The Court focused on Congress's use of the word "offense," which it explained "is most commonly used to refer to crimes," particularly given the WSLA's location within Title 18 (titled "Crimes and Criminal Procedure"). The Court rejected the relator's and the Government's theory that the removal of the phrase "now indictable" from the statute in 1944 broadened its reach to civil claims as well as criminal offenses, reasoning that "[s]imply deleting the phrase 'now indictable under the statute,' while leaving the operative term 'offense' unchanged would have been an obscure way of substantially expanding the WSLA's reach." The Supreme Court concluded that the more plausible explanation of congressional intent in deleting that phrase was to give effect to the intent to change the statute from a retroactive statute applicable to past acts during past wars to a forward-looking one.

The First-to-File Bar Only Applies While Another Case Is Pending

Although the Court held that the WSLA did not extend the statute of limitations for civil claims, it still needed to address the first-to-file question because the operative complaint raised at least one claim that would still be timely. On this question, the Court found the text of the statute, and in particular the word "pending," to be dispositive. The Court looked closely at the statutory language providing that "[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) (emphasis added). The Court concluded that the only sensible reading of the term "pending" is its ordinary meaning (i.e., not yet decided or in continuance). The Court thus rejected the contention that "pending" should be construed "as a short-hand for the first filed action," finding that once an action is dismissed it is no longer pending.

Although the Court's first-to-file holding rested squarely on the statutory text, it did confront some of the policy arguments the parties had raised about the first-to-file bar. The Court noted that a broad reading of the first-to-file bar would block all subsequent related suits even where the first-filed action was dismissed for some reason unrelated to the merits of the case. "Why," the Court asked, "would Congress want the abandonment of an earlier suit to bar a later potentially successful suit that might result in a large recovery for the Government?"

The Court also did acknowledge "some merit" to the concern that its holding "would produce practical problems" in FCA litigation. It acknowledged, for example, that "defendants may be reluctant to settle [FCA] actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims." However, the Court's opinion declined to delve into these issues, choosing instead to highlight the "many interpretive challenges" that remained and noting that "it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine." 

Implications of the Court's Decision

The Supreme Court's reversal of the Fourth Circuit's expansive application of the WSLA provides important certainty to defendants in civil actions. If it had been left intact, the Fourth Circuit's holding had the potential to substantially extend civil liability in the FCA context and beyond. Instead, the Court affirmed the availability of vital statute of limitations protections to civil defendants regardless of any uncertainties that might exist as to the nation's status of being "at war."

While the Court's ruling on the first-to-file bar definitively answers the question whether a prior case must remaining "pending" to bar subsequent actions, many questions remain. For one, as the Court noted in its opinion, considerable uncertainty remains for defendants who settle cases with the government on the basis of less than all of the conduct alleged in the complaint brought against them. It also remains unclear the extent to which other defenses – such as claim preclusion – protect defendants even when the first-to-file bar does not. The court's opinion merely held that a qui tam suit under the FCA ceases to be "pending" once it is dismissed, and so the first-to-file bar on its own may not block subsequent complaints.

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