United States: Self-Disclosure And The FCA Statute Of Limitations

Megan Mocho Jeschke is a Partner in our Tysons office.

Most practitioners are aware that the statute of limitations under the False Claims Act (FCA) is six years after the date on which the violation is committed. 31 U.S.C. § 3731(b)(1). That is, unless the FCA's tolling provision applies, in which case the action may not be brought more than:

[three] years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed[.]

31 U.S.C. § 3731(b)(2).

The intent behind this discovery-based limitations period was to provide additional time to file FCA cases where there is potential concealment of the fraudulent conduct. And the text of the provision appears to apply when the government is the plaintiff. Yet according to the recent decision in Hunt v. Cochise Consultancy Inc., et al., the tolling provision applies to all FCA cases, regardless of whether the government intervenes.

The case is notable in that it creates a split in authority regarding the applicability of the tolling provision to non-intervened qui tam cases. It also highlights how self-disclosure of fraudulent activity might work in a defendant's favor to cabin the qui tam filing period.

Relator Hunt alleged the defendants awarded lucrative subcontracts tainted by alleged conflicts of interest and improper payments to government officials. Hunt was himself involved in improper activity on the contracts and served a period of incarceration. During the government's investigation into his conduct, he disclosed to authorities information providing the underpinning to his qui tam case. Hunt brought his qui tam case more than six years after the alleged conduct but within three years of his disclosure to authorities (which was within 10 years of the alleged conduct).

The government declined to intervene and Hunt continued to pursue the case, arguing that his suit was timely filed under the tolling provision. The district court dismissed the case as time barred, holding that Hunt could not take advantage of § 3731(b)(2) given the government's decision not to intervene.

The Court of Appeals for the Eleventh Circuit reversed the decision, and splitting from published decisions out of the Fourth and Tenth Circuits, found that "nothing in § 3731(b)(2) says that its limitations period is unavailable to relators when the government declines to intervene." United States ex rel. Hunt v. Cochise Consultancy, Inc., No. 16-12836, 2018 WL 1736788, at *6 (11th Cir. Apr. 11, 2018).The court reasoned that § 3731(b) cross references "civil action[s] brought under § 3730" (id.), which by definition includes cases brought by the government and all cases brought by relators regardless of whether the government intervenes.

The Court acknowledged the tolling provision expressly references government knowledge and that discovery-based limitations periods like § 3731(b)(2) are typically based on the knowledge of a party, which the government is not when it declines to intervene. However, according to the Court, § 3731(b)(2) reasonably applies because the government maintains a unique position as the real party in interest and is entitled to the majority of the recovery even in non-intervened cases.

Defendants argued that allowing relators to take advantage of the tolling provision would lead to absurd results and render the six-year statute of limitations in § 3731(b)(1) superfluous. They questioned why a relator would file within six years when he or she can file within ten years instead, thereby dragging out the period of damages. The Court rejected this argument, noting that other provisions of the FCA such as the first to file rule and the public disclosure bar, "create strong incentives to ensure that relators promptly report fraud." Hunt, 2018 WL 1736788, at *10.

In reversing the district court's dismissal, the Court made an interesting observation regarding governmental knowledge:

To be clear, if facts developed in discovery show that the relevant government official knew or should have known the material facts about the fraud at an earlier date, Hunt's claims could still be barred by the statute of limitations. We hold only that at the motion to dismiss stage it was error to dismiss the complaint on statute of limitations grounds.

Id. at *13 n.12.

In other words, defendants may ultimately succeed in cabining relator suits to the six-year statute of limitations if they can demonstrate early government knowledge.

In these instances, self-disclosure of wrongdoing may serve defendants well. The FCA requires knowledge by the "official of the United States charged with responsibility to act in the circumstances."

The Department of Justice (DOJ) clearly falls within this category, but what about a contractor or provider's voluntary self-disclosure or disclosure to an Office of Inspector General (OIG)? For example, under the FAR mandatory disclosure rule, government contractors are required to timely disclose to the OIG:

credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed— (A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or (B) A violation of the civil False Claims Act (31 U.S.C. 3729-3733).

48 C.F.R. § 52.203-13(b)(3)(i); see also 2 C.F.R. § 200.113 (Non-Procurement mandatory disclosure provision requiring self-disclosure of all violations of Federal criminal law involving fraud, bribery or gratuity violations); 45 C.F.R. § 75.113 (requiring HHS grantees to self-disclose violations of Federal criminal law involving fraud, bribery or gratuity violations).

There is some authority to suggest knowledge of officials other than those at DOJ may trigger governmental knowledge for purposes of § 3731(b)(2) in certain circumstances. See, e.g., United States ex rel. Frascella v. Oracle Corp., 751 F. Supp. 2d 842, 852-53 (E.D. Va. 2010) (finding that statute of limitations began when OIG issued a report disclosing salient facts regarding fraud, either because the OIG itself is a government official with responsibility to act or because the report was disclosed to DOJ thus putting DOJ itself on notice.); United States v. Tech Refrigeration, 143 F. Supp. 2d 1006, 1010 (N.D. Ill. 2001) (noting that "there may be circumstances in which the knowledge of government agencies other than the Department of Justice might trigger the running of the FCA statute of limitations."); United States v. Kensington Hosp., No. 90–5430, 1993 WL 21446, at *12 (E.D. Pa. Jan. 14, 1993) (finding knowledge by IRS and FBI agents could trigger the limitations period); United States v. Inc. Vill. of Island Park, 791 F. Supp. 354, 363 (E.D.N.Y. 1992) (attributing to DOJ knowledge held by HUD OIG for purposes of tolling provision); United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 777 F. Supp. 195, 205 (N.D.N.Y. 1991) (dismissing False Claims Act claims where senior officials in charge of the program knew of "the facts material to the relator's cause of action[.]").

Because the specific intent of a contractor's self-disclosure, whether voluntary or mandatory, is to alert the government to wrongdoing, it should serve to trigger governmental knowledge under § 3731(b)(2). (Arguably, it should also trigger the FCA's public disclosure bar, reduce damages and/or limit relator's share, but that is a post for another day.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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