Brian Tully McLaughlinNkechi KanuSarah Hill

Recently, in United States ex rel. Hunt v. Cochise Consultancy Inc., the Eleventh Circuit widened a split in authority regarding the applicability of the tolling provision of the False Claims Act’s statute of limitations, holding that it is applicable to qui tam actions even when the government declines to intervene.  The court also found that the period is triggered by a government official’s knowledge of the fraud. 887 F.3d 1081 (11th Cir. 2018).  In so holding, the Eleventh Circuit disagreed with the Fourth, Ninth, and Tenth Circuits’ interpretation of the statutory language and arguably extended the filing period for relators within its jurisdiction.

Legal Landscape

The FCA’s statute of limitations provides that actions may not be brought more than six years after the violation occurred or “more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.”  31 U.SC. § 3731(b)(2). This second prong of the statute is sometimes referred to as the FCA’s tolling provision.  In Hunt, it was apparent from the face of the complaint that the relator failed to file his action within six years after the alleged violation occurred.  Thus, the case turned on whether the case was filed within the time period allowed by § 3731(b)(2).

Several circuit courts of appeal had interpreted the applicability of the tolling provision before the Eleventh Circuit did so in Hunt.  Both the Fourth and Tenth Circuits have previously held that relators cannot benefit from the three-year tolling provision where the government declines to intervene.  In United States ex rel. Sanders v. N. Am. Bus Indus., Inc., the Fourth Circuit reasoned that Congress must have intended for the tolling provision to be available only in those cases where the government has intervened and formally become a party to the action.  546 F.3d 288, 293 (4th Cir. 2008).  Applying the tolling provision in cases where the government has not intervened would create a “bizarre scenario in which the limitations period in a relator’s action depends on the knowledge of a nonparty to the action.”  Id. at 293.  The Tenth Circuit reached the same conclusion in United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah: “Surely, Congress could not have intended to base a statute of limitations on the knowledge of a non-party.”  472 F.3d 702, 726 (10th Cir. 2006).

The Ninth Circuit has taken a different approach.  In United States ex rel. Hyatt v. Northrop Corp., it held that the tolling provision does apply in non-intervened cases, but determined that the limitations period is triggered based on when the relator, not the government (as the statutory language states), knew or should have known about the facts material to the fraud.  91 F.3d 1211, 1217 (9th Cir. 1996).  This holding is grounded in the notion that the qui tam relator is suing on behalf of the government, and thus for the purposes of applying the tolling provision of the statute of limitations is considered “an official of the United States charged with responsibility to act.”  Id. at 1217.

Facts in Hunt and Procedural History

The Hunt case arose in connection with a $60 million contract to clean up excess munitions in Iraq left behind by enemy forces.  The relator, an employee of the Parsons Corporation, alleged that his employer and another entity, Cochise Consultancy, Inc. engaged in a bid-rigging scheme in which a subcontract was rescinded so that it could be issued through a no-bid process to a higher-priced subcontractor that was allegedly a partner in the fraudulent scheme.  This allegedly caused the government to pay $1 million per month more than it would have paid if the work had remained with the initial subcontractor.

The relator reported the alleged fraud to the FBI while agents were interviewing him about a different fraud scheme, for which he ultimately pled guilty and served time in prison.  After his release, he filed a qui tam complaint more than six years after the alleged fraud took place, but a few days short of three years from when he had reported the subcontracting fraud to the FBI. The government declined to intervene in the case, and Parsons and Cochise, moved to dismiss the case as time-barred under § 3731(b)(1) – the FCA’s six-year statute of limitations.  The U.S. District Court for the Northern District of Alabama granted the motion, holding that § 3731(b)(2), the three-year tolling provision, did not apply in a qui tam suit where the government declined to intervene.

Eleventh Circuit Decision

The Eleventh Circuit reversed the district court, holding that § 3731(b)(2) applies even in cases where the government has declined to intervene.  It further held that the three-year limitations period is triggered by a government official’s knowledge of the fraud, rather than the knowledge of the relator.

The defendants – relying on the cited precedent from the Fourth and Tenth Circuit – argued that Congress must have intended the three-year tolling provision to be available only when the government intervenes, because it would be absurd to apply a limitations period triggered by a federal official’s knowledge when the United States was not a party to the action.  Thus, relators should not be allowed to avail themselves of the three-year tolling period.

The Eleventh Circuit rejected this argument.  It first looked to the text of the statute itself and found that “nothing in § 3731(b)(2) says that its limitations period is unavailable to relators when the government declines to intervene.”  Hunt, 887 F.3d at 1089.  The court acknowledged that outside of the FCA context, it is generally the case that a discovery-based statute of limitations period begins to run when a party (the plaintiff) knew or should have known about the claim.  However, it distinguished FCA actions, stating that regardless of whether the government intervenes, “the relator brings the suit as the partial assignee of the United States and asserts a claim based on injury suffered by the United States as the victim of the fraud.”  Id. at 1091.

Thus, even if the government declines to intervene, it still “remains the real party in interest and retains significant control over the case.”  The court noted that Congress gave the government a formal role in FCA actions, allowing it to intervene at any time on a showing of good cause, request service of pleadings, seek to stay discovery if it would interfere with an investigation or prosecution based on the same facts, or even to veto a relator’s decision to voluntarily dismiss the action.  Id. at 1091-1092.  The court criticized the Fourth and Tenth Circuits for “reflexively appli[ing] the general rule that a limitations period is triggered by the knowledge of a party” while failing to consider the unique FCA context.

The court also relied on the plain language of the statute to conclude that § 3731(b)(2) is triggered by the knowledge of a government official, and not the relator.  It dismissed the Ninth Circuit’s contrary holding in Hyatt as a “legal fiction,” unsupported by the plain text of the statute.  Id. at 1096.

Impact

As a practical matter, the divergent interpretations of the FCA’s statute of limitations mean that whether a qui tam suit is time-barred may depend on where, not just when, it is brought.  In Hunt, it was undisputed that the relator had not brought the claim within 6 years after the alleged violation occurred.  Such a case brought in the Fourth or Tenth Circuit would have been subject to dismissal, since it would fall beyond the statute of limitations period in § 3731(b)(1).  In the Eleventh Circuit, depending on whether or when the government learns of an alleged violation, relators may have up to ten years to bring a claim under § 3731(b)(2).  For contractors, the prospect of a would-be relator having four additional years to bring a suit under the FCA is obviously not a welcome one.  Not only does it come with legal and financial risks in a landscape already known for lengthy investigations and protracted litigation, but practical ones, too, such as preserving records, employee turnover, and more.  For those facing FCA suits brought more than six years after the alleged violation, it could mean the difference between victory on the pleadings and a resource-intensive litigation and perhaps trial.

Contractors should also be mindful of the potential for documented self-disclosures to cabin the filing period.  Under the FAR mandatory disclosure rule, government contractors are required to timely disclose, in writing, to the agency Office of Inspector General, certain potential violations of criminal law and the False Claims Act, as well as instances of significant overpayments.  Such a disclosure should trigger government knowledge under § 3731(b)(2), as those disclosures are made “to [an] official of the United States charged with responsibility to act in the circumstances.”  Depending on the venue, defendants may be able to cabin the relator’s limitations period to six years after the date of the alleged violation, if the disclosure occurred more than three years before the relator brings a case.

In addition to impacting the practical realities of FCA litigation, the increased depth and complexity of the circuit split might catch the attention of the Supreme Court.  If the right petition presents itself, the Court may be inclined to settle the disagreement among courts of appeals and enforce a consistent approach to the FCA’s statute of limitations.