In a unanimous decision, the Supreme Court in Kellogg Brown & Root v. United States ex rel. Carter reversed the Fourth Circuit in part and affirmed in part, holding that the Wartime Suspension of Limitations Act (WSLA) only applies to criminal offenses, and that the popular colloquialism known as the “first to file rule” only prohibits qui tam actions when a similar suit is currently pending. Based on the text of the legislation alone, these holdings are glaringly obvious, but somehow both of these decisions manage to upset generally accepted Government contracts assumptions.
In 2005, a whistleblower filed a qui tam action against Kellogg Brown & Root Services Inc. (KBR) and Halliburton Co. (subsidiaries and the relator’s former employers) alleging that they had submitted a false claim to the Government. The relator alleged that KBR billed the Department of Defense under a water purification services contract for services that were either not performed or not properly performed. Water purification service contracts in Iraq have been a popular area for litigation with the U.S. Army, partly because of the enormity of the operation and expense required to supply deployed soldiers with a steady supply of clean water in an arid environment. Unique to this case, the allegation of fraud was brought as a qui tam action that allows the relator to recover up to 30% of the Government’s total recovery.
The statute of limitations for qui tam actions is within six years of a violation or within three years of the date by which the United States should have known about a violation, but under no circumstances can it be brought more than 10 years after the date of the violation. The Solicitor General argued that the Wartime Suspension of Limitations Act (WSLA) indefinitely suspends any statute of limitations for “any offense” involving fraud against the Government during “hostilities” and therefore also suspended the statute of limitations for qui tam actions. On its face, the WSLA appears broad enough to encompass both civil and criminal accusations of fraud, especially if the reader has an expansive view of the word “offense.” From a practical perspective, this has been very difficult for defense contractors to stomach. As a nation that has been in uninterrupted war for 14 years, Government contractors could be called to disprove an allegation in a qui tam suit stemming from events that transpired more than a decade ago. These liabilities remain on their books and can factor into insurance coverage for dealing with these types of claims. These risks and liabilities inherent in doing business with the Government are often passed on to the Government in the form of less competitive bid proposals and higher costs. Many Government contracts attorneys understood that the Government’s use of WSLA in civil cases was questionable as the WSLA statute is codified in Title 18 “Crimes and Criminal Procedure.” The Supreme Court focused on this location of the WSLA text and the definition in place at that time defining “offenses” as crimes. In the end, the Supreme Court reversed the Fourth Circuit on this point and held that the WSLA does not apply to civil actions involving fraud. While this would seem to be a straightforward result, as noted in the Solicitor General’s brief, “every court of appeals to consider the questions has held that the WSLA applies in civil fraud cases.” The list includes cases in the Ninth and Sixth Circuits as well as the former Court of Claims, so this decision while reasonably anticipated still constitutes considerable reversal.
The Supreme Court’s second holding in this case was similarly obvious from a textualist perspective, but it manages to awaken long dormant liabilities for those contractors that applauded the first part of the Supreme Court’s opinion. This case took an unusual route to get to the Supreme Court. It was filed four separate times after the each of the previous filings was dismissed because similar qui tam cases were pending in other jurisdictions. The False Claims Act, which provides the rules for filing a qui tam states that “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” This is popularly referred to as the “first to file rule.” Unfortunately, that shorthand is so prevalent within the industry that the term “first to file,” which does not appear in the text, took on a meaning of its own when combined with decisions on notice and original source requirements. It was generally accepted that Congress’s intent was to prohibit copycat filings where a business would have to deal with the same qui tam allegations of fraud over and over from different relators. It was thought that the public disclosure required in unsealing a qui tam action should prohibit a future relator from using some of that same information in his own qui tam suit filed immediately upon the dismissal of the first suit. The National Whistleblower Center argued in its brief that if the “first to file rule” precluded future filings on the same issue a “wholly uninformed whistleblower could file a vexatious, frivolous, overbroad, and all-encompassing lawsuit. The Government would be left uninformed of the fraud as it was prior to the filing of the suit, and other well-informed whistleblowers would have no incentive or ability to come forward.” The Supreme Court agreed that there was no support in the text of the statute to interpret “pending” as anything more than “not yet decided” and affirmed this portion of the Fourth Circuit’s judgment. This means that qui tam filers must merely wait until similar cases are dismissed before filing their claims.
This doesn’t mean that qui tam filers will simply be able to adopt the accusations and evidence from the previous case, but it remains to be seen what advantages this approach might have for secondary filers who have had the benefit of observing the first qui tam. There is another pending petition at the Supreme Court, Purdue Pharma v. United States ex rel. May, that provide additional clarity on “whether the False Claims Act’s pre-2010 ‘public-disclosure bar,’ 31 U.S.C. § 3730(e)(4) (2009), prohibits claims that are ‘substantially similar’ to prior public disclosures, or instead bars a claim only if the plaintiff’s knowledge ‘actually derives’ from prior disclosures.”
For now, Government contractors need to be aware that qui tam filings are not necessarily prohibited just because someone previously filed a qui tam on the same issue. Defense contractors who supported military efforts in Iraq or Afghanistan can rely on the normal statute of limitations for civil claims involving fraud, but need to be aware that criminal acts of fraud are still prosecutable years after the cessation of hostilities.
The Criminal Division of the Department of Justice (“DOJ”) recently announced that it will review all complaints filed under the qui tam provisions of the federal False Claims Act (“FCA”) to determine if a parallel criminal investigation is appropriate. This announcement came during a September 17, 2014 speech by the recently-confirmed Assistant Attorney General for the Criminal Division of the DOJ, Leslie Caldwell, at the Taxpayers Against Fraud Education Fund Conference in Washington D.C. This DOJ announcement signals a departure from prior policy, which allowed, but did not require, the Criminal Division to investigate Civil Division claims. In the past, the decision to open a criminal investigation was left to the discretion of each U.S. Attorney’s Office.
Now, the Civil Division of the DOJ will share all new qui tam complaints with the Criminal Division as soon as they are filed. This change in procedure will likely be detrimental for defendants in future qui tam cases. With the Criminal Division more involved in False Claims cases, settlements with the government may become more difficult due to the need for approval from both the Civil and Criminal Divisions. Defendants may also face increased pressure to accept settlement offers from the government to avoid high-risk criminal penalties.
