Supreme Court to address circuit splits on wartime tolling and first-to-file Bar
On July 1, 2014, the U.S. Supreme Court agreed to hear an appeal from a Fourth Circuit Court of Appeals case that implicates current circuit splits on two critical issues under the False Claims Act (“FCA”). The case, Kellogg Brown & Root Services, Inc., et al. v. United States ex. rel. Carter, raises the issues of “wartime tolling” and the applicability of the FCA’s first-to-file bar. The Fourth Circuit decided that case on March 18, 2013.
Carter arose as a qui tam action by Benjamin Carter, a former employee of the massive defense contractor Kellogg Brown & Root (“KBR”), who alleged that KBR overbilled the government for services it provided in Iraq in 2005. Carter’s original complaint was dismissed for procedural defects and he filed an amended complaint in 2011. The district court dismissed the 2011 complaint on the grounds that it was barred by the FCA’s six-year statute of limitations and that it was barred by the FCA’s first-to-file requirement because it overlapped with a previously-filed case that was dismissed after Carter filed the 2011 complaint.
However, the Fourth Circuit, in Carter, reversed the district court and ruled that the Wartime Suspension of Limitations Act (“WSLA”) applies to FCA claims to toll the statute of limitations. The WSLA’s impact on a statute of limitations is known as “wartime tolling.” The WSLA, 18 U.S.C. § 3287, applies “[w]hen the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces.” In that instance, the WSLA tolls the statute of limitations for any offense “involving fraud or attempted fraud against the United States or any agency thereof in any manner . . . .”
In June 2014, the Court of Appeals for the Federal Circuit ruled that the WSLA does not apply to the FCA. That ruling came in United States ex rel. Floyd Landis v. Tailwind Sports Corporation, et al., which concerned the fraud claims that qui tam relator and former professional cyclist Floyd Landis raised against his former teammate Lance Armstrong. The D.C. Circuit ruled that the WSLA only applies to claims that require proof of specific intent to defraud the government (which the FCA does not). The Landis court noted that although Landis cited to the Fourth Circuit’s Carter ruling in invoking the WSLA, the issue of “specific intent to defraud” was not briefed on appeal there.
In addition to ruling that the WSLA applies to FCA claims, the Fourth Circuit also determined the WSLA does not require a formal declaration of war. As such, the U.S.’ long-running war in Afghanistan was sufficient to trigger the WSLA’s tolling provisions. The resolution of this question is critical, given the nature of the U.S.’ modern military engagements, which over the past several years have included sophisticated military attacks against targets in Pakistan, Libya, Yemen, and Iraq, all without formal declarations of war. If such engagements are sufficient to establish the existence of a state of war for WSLA purposes, there is a risk that the FCA’s statute of limitations may apply in increasingly rare instances.
The FCA’s first-to-file bar, found at 31 U.S.C. § 3730(b)(5), provides that “when a person brings an action under [the Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” Courts have split as to whether this section bars claims that arise from the same facts only while one suit is “pending,” or whether it continues to bar future actions after the first case has been resolved.
In Carter, the Fourth Circuit ruled that the section only bars duplicative suits while one action remains pending, joining the Seventh and Tenth Circuit Courts of Appeals on that side of the issue. The First, Fifth, Ninth, and Federal Circuit Courts of Appeals have all ruled to the contrary, finding that the first-to-file bar prohibits any duplicative action arising under the same facts because the earlier case already served the statutory purpose of alerting the government to the existence of the alleged fraud.
The Supreme Court’s decision on this issue will determine whether the disposition of a qui tam suit re-opens the door to potential suits arising from the same facts, or whether the existence of one suit completely forecloses the filing of another.
The Carter case presents the Supreme Court an opportunity to significantly impact the number of future suits under the FCA, because its treatment of the wartime tolling issue and the first-to-file bar may potentially broaden the number of such suits. We will keep you apprised of future developments in this pivotal case.