On Tuesday, the U.S. Supreme Court handed down a ruling addressing two major False Claims Act (FCA) interpretive issues. First, the Court held that the Wartime Suspension of Limitations Act’s (WSLA) tolling of the statutes of limitations on claims involving fraud against the government during wartime does not apply to civil fraud cases. Second, the Court held that the FCA’s first-to-file bar keeps new, similar claims out of court only while related claims are still alive, not “in perpetuity.”
The respondent, Carter, worked for the petitioner defense contractors providing logistical services to the U.S. military in Iraq. In 2005, he filed a qui tam complaint under the FCA alleging that the defense contractors had fraudulently billed the government for services that were either not performed, or not performed properly (Carter I). This complaint was dismissed under the first-to-file bar because an earlier-filed qui tam suit, United States ex rel. Thrope v. Halliburton Co., No. 05-cv-08924 (CD Cal., filed Dec. 23, 2005), included similar claims. Carter appealed that dismissal.
However, when Thorpe was dismissed for failure to prosecute, Carter filed a new complaint (Carter II), which was also dismissed because Carter’s appeal of Carter I was still pending. Carter subsequently dismissed his appeal. Later the following year, Carter filed a third complaint (Carter III), which was dismissed with prejudice both under the first-to-file rule because of two pending and allegedly similar suits (both filed after Carter’s original complaint) and due to the expiration of the FCA’s statute of limitations.
Carter argued that the FCA’s statute of limitation was tolled under the WSLA, which suspends “the running of any statute of limitations applicable to any offense” involving fraud against the Federal Government. 18 U.S.C. §3287. While the District Court held that the WSLA applies only to criminal charges and therefore did not toll the applicable statute of limitations, the Fourth circuit reversed, holding that the WSLA does apply to civil claims and that the first-to-file bar ceases to apply once a related similar action is dismissed.
High Court Holding
The Supreme Court granted certiorari to address two questions: “whether the Wartime Suspension of Limitations Act applies only to criminal charges or also to civil claims . . . [and] whether the False Claims Act’s first-to-file bar keeps new claims out of court only while related claims are still alive or whether it may bar those claims in perpetuity.”
WSLA’s Tolling of Statute of Limitations
The Court reversed the Fourth Circuit on the WSLA’s applicability to civil claims, holding that “the text, structure, and history of the WSLA show that the Act applies only to criminal offenses.” Had the Court adopted the Fourth Circuit’s view, it could have drastically extended the statute of limitations for many whistleblower suits arising out of the Iraq war and other recent U.S. conflicts.
First to File Bar
The Court agreed with the Fourth Circuit’s first to file interpretation. The FCA’s first to file bar provides that when “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.” 31 U.S.C. §3730(b)(5). In Carter, the Court clarified that “pending” means remaining undecided or awaiting decision and therefore “an earlier suit bars a later suit while the earlier suit remains undecided, but ceases to bar that [later] suit once [the earlier suit] is dismissed.” Citing Thorpe’s dismissal for failure to prosecute, Justice Alito questioned why Congress would “want the abandonment of an earlier suit [such as Thorpe] to bar a later potentially successful suit that might result in a large recovery for the Government?”
The Court appeared to temper it’s decision by noting that the outcome might have been different had the suit filed prior to Carter’s been resolved on the merits. In dicta, Justice Alito specifically noted an argument made by Carter and the United States that “the doctrine of claim preclusion may protect defendants if the first-filed action is decided on the merits,” but declined to elaborate, writing, “that issue is not before us in this case.” The Court acknowledged that its decision leaves lingering questions. Echoing sentiments shared by many judges and FCA practitioners, Justice Alito concluded 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.”