Kellogg Brown & Root Services, Inc. v. U.S. ex rel. Carter: Two Important Rulings for Defendants Facing Civil Suits Under the False Claims Act
On May 26, 2015, in Kellogg Brown & Root Services, Inc. v. U.S. ex rel. Carter (KBR),1 the U.S. Supreme Court resolved two important issues for government contractors and other entities facing qui tam actions under the civil False Claims Act (FCA). First, the Court held that the Wartime Suspension of Limitations Act (WSLA) applies only to certain criminal cases, and therefore does not toll the FCA's statute of limitations. Second, the Court held that the FCA's first-to-file bar is triggered only when an earlier-filed case is actually "pending" before another court, such that the earlier-filed action loses its preclusive effect upon its dismissal.
The WSLA suspends "the running of any statute of limitations applicable to any offense...involving fraud or attempted fraud against the United States or any agency thereof" during times of war.2 In KBR, the Supreme Court concluded that Congress intended the word "offense" to refer only to crimes, not violations of civil statutes like the FCA. As a result, the WSLA had no effect on the FCA's statute of limitations, under which an FCA action must generally be brought within six years of an FCA violation (or within three years of when the government should have known of a violation).3 This ruling is important to companies that may be subject to FCA suits, because it limits the ability of the government or a qui tam relator to bring stale civil claims on the theory that the statute of limitations was tolled by congressionally authorized military actions such as those in Iraq and Afghanistan.
The FCA's first-to-file rule provides that "[w]hen a person brings an action" under the FCA's qui tam provisions, "no person other than the Government may intervene or bring a related action based on the facts underlying the pending action."4 Thus, a later qui tam action will be barred by an earlier filed "pending" action that makes related allegations. In KBR, the Supreme Court interpreted the word "pending" essentially as "undecided," such that the dismissal of an earlier action means that it is no longer "pending." This ruling could leave companies subject to recurring qui tam cases after an earlier case raising similar allegations is dismissed.
On both issues, the Supreme Court's unanimous opinion by Justice Samuel Alito relied heavily on the presumptions that Congress used the terms "offense" and "pending" consistently with their plain dictionary meanings.5 However, although the Court also extensively analyzed the WSLA's statutory structure and history, it did not give similar attention to the FCA and its first-to-file provision as a whole.
The WSLA Holding
The Court concluded that the WSLA's "text, structure, and history" showed that it "applies only to criminal offenses."6 The earliest version of the WSLA was enacted in 1921 to address fraud against the government committed during World War I, by temporarily extending the statute of limitations for fraud "offenses" that were "now indictable" under federal law.7 In 1944, however, Congress deleted the "now indictable" language, so the WSLA would apply prospectively, to future wartime fraud offenses not yet committed.8
In KBR, the Court emphasized that "offense" is commonly understood as referring only to crimes, citing Black's Law Dictionary.9 The Court rejected as "most improbable" the argument that Congress broadened the WSLA's scope to include suspending civil limitations periods, when it deleted the "now indictable" language in 1944.10 The Court explained that "[f]undamental changes in the scope of a statute are not typically accomplished with so subtle a move.... If Congress had meant to make such a change, we would expect it to have used language that made this important modification clear to litigants and courts."11 The Court concluded that, regardless of any possible ambiguity in the term "offense," its prior decisions favored resolving that ambiguity "in favor of the narrower definition," limited to crimes.12
The First-to-File Holding
Despite its holding that the WSLA did not toll the FCA's statute of limitations, the KBR Court observed that at least one of relator Carter's FCA claims might still be timely on remand if it were not barred by the FCA's first-to-file rule. In the district court, his claims had been dismissed "with prejudice," meaning they could not be re-filed, because a related but earlier-filed qui tam suit was still pending before another federal court.13 However, by the time Carter appealed the district court's decision, the earlier-filed suit had been dismissed.14 Given that fact, the Supreme Court reasoned that dismissal of Carter's action "with prejudice" was inappropriate, because the first-to-file rule no longer applied, as no earlier-filed actions remained "pending" that might bar him from re-filing another qui tam complaint.15
Once again, the Court cited dictionary definitions of "pending": "'[r]emaining undecided; awaiting decision'" and "not yet decided: in continuance: in suspense.'"16 Under this interpretation, "an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed."17 The Court saw "no reason not to interpret the term 'pending' in the FCA in accordance with its ordinary meaning."18
Notably, the Court did not scrutinize the full text of the first-to-file provision, nor did it analyze the first-to-file bar's statutory purposes or the policy considerations underlying the qui tam provisions. Instead, the Court simply declared that the FCA's qui tam provisions "present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine."19
The Court's holding that the WSLA only suspends the limitations period for certain criminal charges, and not for civil statutes such as the FCA, eliminates significant uncertainty facing companies - not just military contractors - that operate in heavily regulated industries where qui tam suits are common. Because congressional military force authorizations trigger the WSLA's application, and because several such authorizations currently remain in effect, the government and qui tam relators could have argued that military operations in Iraq or Afghanistan served to toll the statute of limitations for stale civil FCA claims of, for example, Medicare fraud by a domestic healthcare provider. The Court's decision regarding the WSLA now forecloses such arguments.
Conversely, the Court's holding regarding the FCA's first-to-file rule introduces significant uncertainty for companies that operate in industries where qui tam suits are common. First and foremost, companies could see a revival of claims by relators arguing that their cases were improperly dismissed based on the now-rejected interpretation of the first-to-file rule. The Court also acknowledged the petitioners' argument that the Court's interpretation "would produce practical problems" by reducing settlement incentives in FCA cases, because the first-to-file bar would no longer serve as a shield against future copycat suits: "if the first-to-file bar is lifted once the first-filed action ends, defendants may be reluctant to settle such actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims."20
The Supreme Court's twin holdings in KBR present a mixed bag for the government, FCA relators, and defendants alike. Ultimately, defendants will face the threat of recurring law suits that may be virtually identical to qui tam actions that they previously settled. Notably, however, the Court declined to decide the issue presented by the government as amicus curiae: whether and under what circumstances the doctrine of claim preclusion may protect defendants against copycat suits.21 This makes for almost inevitable future litigation over exactly what preclusive effect the dismissal of a qui tam complaint will have on later complaints raising similar allegations.