Last week, the Fourth Circuit issued a decision that exposes government contractors to False Claims Act lawsuits based on allegations which were previously considered untimely and which had already been the subject of prior qui tam action. In U.S. ex rel. Carter v. Halliburton Co. (Mar. 18, 2013), the panel held that the Wartime Suspension of Limitations Act (WSLA), 18 U.S.C. § 3287, tolls the statute of limitations for civil and criminal fraud against the United States during war time, even without a formal declaration of war and regardless of whether the United States intervenes in the case. The panel also held that dismissal of a qui tam plaintiff’s FCA complaint under the first-to-file bar (31 U.S.C. § 3730(b)(5)), should be without prejudice, thereby allowing a relator to re-file his complaint after the earlier filed action is no longer pending.
The Perpetual Plaintiff
Benjamin Carter worked for KBR as a reverse osmosis water purification operator at two military bases in Iraq from January 2005 through April 2005. Carter brought a qui tam action against Halliburton Company and KBR, Inc., alleging that KBR billed the government for water purification services that were never completed and that water-purification employees were instructed to submit time sheets for twelve-hour days, regardless of actual hours worked. Carter filed his original complaint under seal in 2006. That case and two others filed by Carter were dismissed under the first-to-file rule which provides: "[w]hen a person brings an action under [the FCA], 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). When Carter filed his fourth complaint in June 2011, two allegedly related FCA cases, both filed in 2007 by other relators, were pending in United States District Courts in Maryland and Texas. Both cases, like Carter’s, alleged that KBR had a widespread practice of having employees submit time sheets for twelve-hour workdays without regard to actual hours worked. The Maryland case was dismissed in October 2011 when the relator failed to serve the complaint, and the Texas case was voluntarily dismissed in March 2012 when the government declined to intervene.
The Carter district court granted KBR’s motion to dismiss Carter’s complaint with prejudice in November 2011 on two grounds: (1) the WSLA did not apply to non-intervened qui tam cases, and therefore the action was time barred by the six-year FCA statute of limitations, and (2) it was sufficiently similar to the Maryland case, which was "pending" for purposes of the first-to-file bar. The Fourth Circuit reversed on the both grounds and remanded the case to the district court to consider whether Carter’s complaint is barred by the public-disclosure rule.
WSLA Protects Relators When the United States is "at War"
The WSLA tolls "any statute of limitations applicable to any offense[ ] involving fraud or attempted fraud against the United States" "[w]hen the United States is at war." 18 U.S.C. § 3287. In an exercise of statutory construction, the panel interpreted the WSLA to apply not just to criminal fraud actions brought by the United States but also to civil FCA actions which, although often characterized as fraud actions, provide for liability based on recklessness rather than specific intent to defraud. Further, the panel held that the tolling applies even without a formal declaration of war. The panel explained that "requiring a declared war would be an unduly formalistic approach that ignores the realities of today, where the United States engages in massive military campaigns resulting in enormous expense and widespread bloodshed without declaring a formal war." And finally, the court held that tolling applies to qui tam actions regardless of whether the United States intervenes in the case "because the suspension of limitations in the WSLA depends on whether the country is at war and not who brings the case."
In a partial dissent, Judge Agee disagreed with the majority’s holding that the WSLA applies when the United States is not a plaintiff or an intervenor. Judge Agee noted that the WSLA’s text and legislative history are silent as to relators, and a declaration of war or congressional authorization for use of military force (the statute’s triggering provision) and Presidential proclamation or congressional resolution (the statute’s terminating provision) are actions controlled solely by the United States government. Judge Agee also pointed out that the underlying purpose of the statute is to allow the federal government ability to police fraud when the resources of its law enforcement are stretched thin by war. The majority opinion acknowledged this purpose but failed to explain how it justified applying the tolling to relators. Finally, Judge Agee called attention to the fact that allowing relators to benefit from the WSLA when the government has not intervened provides a "strong financial incentive for relators to allow false claims to build up over time before they filed, thereby increasing their own potential recovery."
First-to-File Bar is Exception Free . . . Until a Pending Claim is Dismissed
Under the first-to-file bar, "[w]hen a person brings an action under [the FCA], 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). The panel describes this "as an absolute, unambiguous exception-free rule." Because both the Maryland and Texas cases were pending when Carter filed his complaint in June 2011, the panel agreed that Carter’s complaint was barred by the first-to-file rule. The panel held, however, that the district court erred in dismissing Carter’s complaint with prejudice because "once a case is no longer pending, the first-to-file bar does not stop a relator from filing a related case." On the other hand, dismissal without prejudice enabled Carter to re-file his action once the earlier filed action is no longer pending.
Are These Defenses Now Toothless?
The Carter decision has left government contractors (and their attorneys) wondering, have the FCA statute-of-limitations and first-to-file defenses been rendered toothless?
In the worst-case scenario, courts would allow the government and relators to maintain the position that the FCA statute of limitations remains suspended indefinitely while the United States is forever fighting the war on terrorism. Alternatively, courts might extend WSLA tolling until operations in Iraq and Afghanistan have been terminated by "Presidential proclamation . . . or by a concurrent resolution of Congress" (the statutory formalities required to terminate a WSLA suspension). Claims which survive indefinitely open the door for the quintessential parasitic relator to wait his turn for a related and pending case to come to some conclusion and then to file his complaint. This scenario would force contractors to have to defend indefinitely against related claims and render futile the perceived purpose of the first-to-file rule-to keep a defendant from being subject to endless, harassing lawsuits.
On the other hand, if courts construe non-formally declared wars narrowly, requiring some formal recognition by Congress of the President’s power to enter into armed hostilities, then plaintiffs could not simply rely on the abstract, and possibly indefinite, war on terrorism Courts may also limit the re-filing of cases dismissed under the first-to-file bar where the previously pending action was dismissed on procedural grounds, not on the merits. Additionally, FCA complaints filed by truly parasitic relators will be filtered out by other procedural safeguards, such as the FCA public-disclosure bar and general principles of claim and issue preclusion. Indeed, the Fourth Circuit’s Carter decision has seemingly far-reaching and detrimental implications for government contractors. But defendants can mitigate its true impact by vigorously arguing for a narrow reading of its holding, as well as pursuing other available procedural defenses.