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Argument preview: Contractor fraud case calls for close reading of the False Claims Act

Kellogg Brown & Root v. United States ex rel. Carter will reacquaint the Justices (and perhaps the readers of this blog) with the strange construct of qui tam litigation under the False Claims Act. The False Claims Act is one of the central tools by which the federal government responds to the regrettably real possibility of fraud by government contractors. As you would expect, the statute permits the government to sue for civil and even criminal penalties as a response to fraudulent claims for payment. What is interesting is the bounty-like system for private “relators,” who can bring their own suits against the contractors (“qui tam” suits – from a Latin phrase that I will not indulge myself in explicating). The relator files its complaint under seal with the United States. The United States can take over the action itself, but if it chooses not to do so, the relator can sue the defendant directly. One problem, however, is that the relator cannot bring suit if somebody else has brought a qui tam suit based on the same fraud. If the relator prevails, the relator receives between twenty-five and thirty percent of the ultimate recovery, with the rest going to the United States.

The facts in this case are assuredly comical, which presumably will color the Justices’ view of the case considerably. Carter first filed suit in 2006, but the suit was dismissed because of a similar suit in California. Carter appealed the dismissal, but then filed a second suit when the California suit was dismissed. The district court dismissed the second complaint because it was duplicative of the still-pending-on-appeal first complaint. Carter then dismissed his appeal of the first complaint and filed a third complaint (we’re now up to 2011). The district court then dismissed the third complaint, because by that time yet another qui tam action (this one in Maryland) was raising similar claims.

On appeal, the Fourth Circuit reversed the dismissal, holding (among other things) that the statute of limitations had not run by the time of the third complaint, because it was tolled until the end of the continuing military activity overseas. It also held that the first-to-file rule did not bar Carter’s case. It found the California case irrelevant because it was dismissed without a determination on the merits, and the Maryland case irrelevant because it was filed after Carter’s early complaints. After calling for the views of the Solicitor General, the Court granted review on both questions.

Like Jesinoski v. Countrywide Home Loans (argued in November), this case involves a statute of repose. Specifically, the False Claims Act states that a qui tam action “may not be brought . . . more than 6 years after the date” of the alleged violation. The principal presentation of Kellogg Brown & Root (KBR) is an incensed challenge to the idea that the statute of repose is tolled by the existence of hostilities overseas. This argument rests on a “big fact” – a single point that gives compelling force to the entire presentation – that the applicable tolling rule (the Wartime Suspension of Limitations Act (WSLA)) would toll the statute of limitations until a formal notice of cessation of hostilities. KBR persuasively points out that the United States probably has been engaged in hostilities without formal cessation for almost a generation – since the beginning of the war in Kuwait. Thus, if the WSLA applies here, then as a practical matter there is no statute of limitations (or repose) for claims under the False Claims Act. The Court’s repeated calls for “narrow” construction of the WSLA doubtless will give weight to this point as the Justices try to work through the statute.

Against that backdrop, the specific textual question is whether a qui tam case under the False Claims Act involves an “offense” against the United States. John Elwood (known to you perhaps from his authorship of this blog’s “Relist Watch” feature) presents a powerful argument that the WSLA applies only to criminal charges, starting with the common usage of “offense” and continuing through the placement of the WSLA in Title 18 (the federal criminal code) and the statute’s long history, which for almost a century explicitly limited itself to offenses that were “indictable.” On the other side, David Stone, representing the relator Benjamin Carter, emphasizes the deletion of the reference to “indictable” offenses in the 1940s. Carter contends that the deletion of the reference to “indictable” coincided with a decision to broaden the WSLA to extend to civil actions.

The debate about the relevance of the related litigation seems much less important, if its small share of the parties’ briefing is any indication. This question also presents a compact statute-reading problem. The relevant language provides: “[W]hen a person brings an action under [the False Claims Act], no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” The key question is the meaning of the italicized reference to “the pending action.” KBR argues that the “pending action” is the action mentioned in the first clause – the action that was the first to be filed. Carter argues that an action qualifies as a “pending action” only if it is still in litigation when the second action is filed. In practice, what that means is that KBR reads the statute as a “first-to-file” bar (the first suit bars all later suits); Carter reads it as a duplicative-litigation bar (only one suit at any given time).

Aside from the question of statutory construction – which seems to me to lean at least slightly to the KBR reading – the most powerful point brought to bear is the problem of preclusion.   KBR argues that a rule under which dismissal of the first action opens the field for subsequent actions will make it difficult or impossible to settle qui tam litigation, because the settlement won’t stop – but rather will encourage – future litigation. [I wish KBR had used the imagery of the Lernean Hydra, but I suppose that would have been too much to ask.] Carter argues that ordinary issues of claim preclusion would limit subsequent litigation, but it is hard to see how that would apply in the typical settlement that leads to a dismissal before any substantive rulings in the matter. Preclusion is largely irrelevant to a settlement in a conventional case – where the settlement by its terms binds the injured party – but the matter is much more serious here, where Congress has granted standing to any person who chooses to challenge the fraud in question.

Perhaps the most interesting aspect of the briefing for me is the presentation of the federal government. The statutory and historical analysis – something that often is devastatingly powerful in a brief from the government – adds little that is not in Carter’s brief. And it doesn’t grapple at all with the fact most likely to repel the Justices – the idea that qui tam litigation as a practical matter has no statute of limitations.

Both of the statutory issues are pretty close, so the Justices easily could take this case in either direction. That suggests, in turn, a case in which atmospheric impressions are likely to be relatively important, which means that the argument should be interesting. I think the key thing to look for is the point with which I started the discussion – whether the Justices explore the practical effect of the WSLA. If that point is important to them, it might be a long morning for Carter’s counsel.

Recommended Citation: Ronald Mann, Argument preview: Contractor fraud case calls for close reading of the False Claims Act, SCOTUSblog (Jan. 12, 2015, 4:13 PM),