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Article Summary

The Wartime Suspension of Limitations Act applies to civil claims under the FCA and qui tam claims should be filed as early as possible to avoid a first to file bar.

This article by TELG managing principal R. Scott Oswald and TELG principal David L. Scher was published by Westlaw Journal Expert & Scientific Evidence on December 3, 2014.

Reprinted from:

Does the war on terrorism toll the limitations period on contractor fraud?

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Later this term, the U.S. Supreme Court is expected to hear arguments in Kellogg Brown & Root Services Inc. v. United States ex rel. Carter, No. 12-1497, a False Claims Act qui tam case. The case addresses the application of the Wartime Suspension of Limitations Act,  18 U.S.C. § 3287, to qui tam claims, as well as the scope of the FCA’s first-to-file bar. Petitioner KBR is seeking to overturn a decision by the 4th U.S. Circuit Court   of   Appeals applying the WSLA to the FCA in a move that the company and its supporters argue would have the effect of virtually eliminating the FCA’s six-year limitations period for claims of fraud against contractors relating to events after 2002.1 United States ex rel. Carter v. Halliburton Co. et al., 710 F.3d 171 (4th Cir. 2013).

KBR is also arguing for a conservative interpretation of the first-to-file bar, which the 4th Circuit and other courts have interpreted as allowing plaintiffs to file multiple actions so long as no similar matters have been decided on their merits.

The False Claims Act

The False Claims Act, 31 U.S.C. § 3729, imposes civil liability on any person, including a corporation, who knowingly uses a “false record or statement to get a false or fraudulent claim paid or approved by the government” and any person who “conspires to defraud the government by getting a false or fraudulent claim allowed or paid.”2

The FCA’s qui tam provision, Section 3730(b), allows a private person, known as a “relator” or a “qui tam relator,” to bring an action for a violation of the statute for himself and the government. When a private person brings   an   action   under   Section 3730(b), the government may elect to proceed   with

the action (which is  called  “intervening”), or it may decline to take over the action, in which case the relator shall have the right to conduct the case. Violators of the FCA face treble damages and a civil penalty of $5,500 to $11,000 per occurrence. A successful relator may receive a reward of up to 30 percent of the proceeds plus reimbursement for attorney fees, costs and expenses.

Qui tam relators and the government have successfully brought FCA actions against a wide variety of defendants. Examples of common targets under the FCA include defense contractors, for-profit educational institutions and health care providers.

The limitations period under the  FCA  is  the latter of six years or “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.”3

The FCA also contains a so-called first-to-file bar, found at 31 U.S.C. § 3730(b)(5). That provision states, “When 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.”

United States Ex rel. Carter v. KBR

The underlying facts of the case are not complex, though the procedural history is lengthy. Plaintiff-relator Benjamin Carter alleges that while working for KBR as a water purification operator in Iraq in 2005, he was instructed to submit time sheets for hours that he did not work, and that the defendants routinely overbilled the government. In February 2006, Carter filed a qui  tam  action, Carter I,4 but he was unaware that another relator had beat him to the punch in California on Dec. 23, 2005.5

In January 2009 the U.S. District Court for the Eastern District of Virginia dismissed Carter’s claims with leave to amend. On Jan. 28, 2009, Carter filed a second amended complaint, and in July 2009, the court granted a partial dismissal. On March 23, 2010, the week before the case was set for trial, the government revealed the existence of the California case, which was still under seal. On May 10, 2010, the Eastern District of Virginia dismissed Carter I without prejudice, holding that the FCA’s first-to-file bar prohibited his claims while the California case was still pending.

Carter noticed his appeal to the 4th Circuit, and about two weeks later, the U.S. District Court for the Central District of California dismissed the California case after the relators’ counsel withdrew and the relators failed to secure new representation. On Aug. 4, 2010, Carter filed a second action, Carter II, in the Eastern District of Virginia.6 The Eastern District of Virginia dismissed Carter II in May 2011, holding that Carter’s original case, still pending before the 4th Circuit, was indisputably related and prohibited his new case under the FCA’s first- to-file bar.

Carter withdrew his appeal to the  4th Circuit and filed a third action, Carter III, in June 2011.7 The Eastern District of Virginia dismissed Carter’s third attempt with prejudice, holding that it was barred by yet another related action8 and because nearly all of Carter’s claims were barred by the FCA’s six-year statute of limitations.9 Carter again appealed to the 4th Circuit, arguing that the WSLA tolled the limitations period and that the first-to-file bar did not preclude him from bringing a new action once the original actions were dismissed. The 4th Circuit agreed with Carter and reversed and remanded the case, leaving KBR to appeal to the Supreme Court.

On July 1, the Supreme Court granted KBR’s petition for a writ of certiorari to determine two issues (see box).

The Wartime Suspension of Limitations Act

The WSLA, which was enacted in 1942 and amended as recently as 2008, provides in pertinent part:

When  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  or any agency thereof in any manner, whether by conspiracy or not, … shall be suspended until five years after the termination of hostilities as proclaimed by a presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

According to the accompanying 1942 Senate report:

The purpose of the proposed legislation is to suspend any existing statutes of limitations applicable to offenses involving the defrauding or  attempts to defraud the United States or any agency thereof, for the period of the present war … and to insure that the limitations statute will not operate, under stress of the present-day events, for the protection of those who would defraud or attempt to defraud the United States.10

KBR argues that the WSLA is a criminal statute and should not be applied to civil claims brought by private relators. In particular, the company argues that the ordinary meaning of the term “offense” denotes a “criminal    offense.”  KBR’s petition describes the worst-case practical implication of the application of the WSLA to the FCA:

For any entity that has done business with the government in any industry over the past ten years [the 4th Circuit’s holding] 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.11

However, the statutory history of the WSLA and several court decisions over the past 60 years appear to disagree with KBR’s position. The WSLA as enacted in 1942   applied to “offenses involving the defrauding or attempts to defraud the United States … and now indictable under any existing statutes.”12 In 1944, Congress passed the Contract Settlement Act, which amended the WSLA to remove the words “now indictable” from the statute, indicating the intent of Congress to broaden the scope of the WSLA to include offenses other than “indictable” criminal offenses.13 Accordingly, as early as 1955, courts have found that the WSLA applies to civil claims under the FCA.14

The same conclusion has been reached in more recent cases. For example, in 2013, in United States v. Wells Fargo Bank, the U.S. District Court for the Southern District of New York held that the WSLA applies to FCA claims brought by the government.15 And, as recently as May 2014, the U.S. District Court for the Southern District of Texas held that the WSLA applies to qui tam actions in United States ex rel. Carroll v. Planned Parenthood Gulf Coast.

The First-to-File Bar

Section 3730 (b)(5) of the FCA provides, “When 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.” This provision is commonly referred to as the “first-to-file” bar. The 4th Circuit, along with the 7th and 10th circuits, hold that Section 3730 (b)(5) functions as a bar only when the prior claim is still pending.17

Under the 4th Circuit’s interpretation, Carter was free to proceed with his second (and third) complaints once the pending prior cases were dismissed, though his claims are still subject to the requirements of the FCA’s public-disclosure bar and the doctrine of claim preclusion.18

However, other circuits have held that a prior action functions as a complete bar regard- less of whether it was decided on its merits. In United States ex rel. Branch Consultants v. Allstate Insurance Co., the 5th Circuit held that “a relator cannot avoid Section 3730(b)(5)’s first-to-file rule by simply adding factual details or geographic locations to the essential or material elements of a fraud claim against the same defendant described in a prior complaint.”19 The 5th Circuit reasoned that:

Any construction of Section 3730(b)(5) that focused on the details of the later- filed action would allow an infinite number of copycat qui tam actions to proceed so long as the relator in each case alleged one additional  instance  of the previously exposed fraud. This result cannot be reconciled with Section 3730(b)(5)’s goal of preventing parasitic qui tam lawsuits.20

The 1st Circuit and 9th Circuit ruled similarly.21

KBR argues that the 4th Circuit’s interpretation allows “serial refiling” that “defeats the first-to-file bar.”

Practical Implications

Although KBR and its supporters  argue that the 4th Circuit’s decision has the potential to effectively eliminate the FCA’s six-year limitations period and allow a    line of never-ending overlapping qui tam claims, the practical implications for contractors are far less dire.

The WSLA does serve to extend the FCA’s temporal reach, but the FCA’s first-to-file rule, along with the public-disclosure bar and the doctrine of claim preclusion, still operates to encourage relators to come forward as soon as possible. The first-to-file rule, as interpreted by the 4th, 7th and 10th circuits, still prohibits duplicative litigation when a prior claim has been decided on its merits.

In Carter, the prior California case was dismissed only because the relators were unable to secure counsel. KBR never actually faced the duplicative litigation or double jeopardy of which it complains.

The interpretations by the 4th, 7th  and 10th circuits still allows only one full, merit- based bite at the apple. Relators bringing subsequent claims must prove that they are an original source of the information and that their actions are not barred by the doctrine of claim preclusion. Accordingly, qui tam relators and their counsel are still encouraged to race to the courthouse and file their claims as early as possible, protecting contractors from belated repetitive attacks and parasitic claims.

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