Supreme Court Decision Has Good News and Bad News for Those Facing False Claims Act Litigation

by BakerHostetler

On May 26, 2015, the Supreme Court of the United States (SCOTUS) issued an opinion in a federal False Claims Act (FCA) case that resolves two important procedural points litigants face: the tolling of the six-year statute of limitations period under the Wartime Suspension of Limitations Act (WSLA) and the application of the “first-to-file” rule. The case relates to a civil FCA action brought by a qui tam plaintiff against his employer, a U.S. military contractor in Iraq. The plaintiff’s third attempt at bringing an action against the contractor was dismissed by the U.S. District Court under the first-to-file rule because of a pending suit in Maryland on the same basis. The District Court further held that because the action was civil in nature rather than criminal, the WSLA did not apply and all but one of the plaintiff’s actions was untimely. The Fourth Circuit reversed on both grounds, concluding that the WSLA applies to civil actions and that the first-to-file bar does not prohibit an action when the first-filed suit has been dismissed.

The Fourth Circuit’s decision with respect to the WSLA sent shockwaves through the healthcare provider community as it would mean that any conduct occurring since the 2002 congressional authorization of the use of force in Iraq would remain actionable until three years after an official termination of the hostilities. SCOTUS addressed the application of the WSLA to the civil action brought by the whistleblower and reasoned that the use of the word “offense” in the statute and the context of its placement in Title 18 of the United States Code meant that only criminal fraud actions were meant to be tolled. Accordingly, providers can breathe a sigh of relief that civil FCA suits will still be limited to the six-year statute of limitations period.

SCOTUS did not, however, decide the first-to-file issue in favor of providers. Defendants in FCA suits often interpret the statute’s language reading “[w]hen a person brings an action... no person other than the Government may intervene or bring a related action based on the facts underlying the pending action” as prohibiting an action brought subsequent to the first-filed action, regardless of whether the first action has been dismissed. The Court concluded the word “pending” in the statute must be given its ordinary dictionary meaning. Accordingly, the Court held that the first-to-file bar operates only to prohibit subsequent claims while related claims are still undecided, but does not bar a claim filed subsequent to the original claim’s dismissal. The Court recognized that defendants may be reluctant to settle cases for the same amount as they would if they had assurance that subsequent actions could not be brought. However, the opinion did not decide whether the doctrine of claim preclusion may provide certainty for defendants when the first-filed action is decided on the merits. SCOTUS has addressed FCA questions seven times over the past 10 years and may likely be asked to resolve this important question in the future.

The case is Kellogg Brown & Root Services, Inc. et al. v. U.S. ex rel. Carter. The frequency of FCA litigation continues to increase as whistleblowers seek a portion of high-dollar settlements and judgments touted by the U.S. Department of Justice. Healthcare providers need to be diligent in implementing compliance measures to mitigate the chance of an issue developing into an FCA concern, but also must use all procedural protections available when a qui tam matter is filed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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