Opinion analysis: Court resolves twin disputes about timing of suits under False Claims Act
on May 27, 2015 at 3:57 pm
Kellogg Brown & Root Services v. United States ex rel. Carter took the Court once again – for the seventh time in the last ten years – into the sordid world of the False Claims Act. It seems like such a simple idea. Recognizing the limited incentives that government contractors and the officials who deal with them have to disclose their own corrupt dealings, Congress since the Civil War has permitted private parties (“relators”) to collect what amounts to a bounty if they bring to light evidence of serious fraud in a government contract. Those actions are commonly known as “qui tam” actions, based on the opening words of a common-law writ that allowed a recovery for private parties that assisted a prosecution.
Although the United States technically is a party, in practice the cases become disputes between the contractor and the whistleblower. Unfortunately, in recent decades the statute has fallen into a morass of technical complexity, in part because of its uneasy application in areas outside the core context of whistleblowing, in part as a reaction to lawsuits responding to conduct that is either trivially improper or well known, in part as a result of high-stakes litigation motivating ever more inventive arguments to avoid liability. Repeated amendments have not limited the difficulties that the lower courts have faced; one prominent recent amendment removed qui tam liability for the trivial crime of “false marking” – selling an object marked with the number of an expired patent. This case presents two issues under the False Claims Act; the contractor wins the more important, and the whistleblower wins the less important.
The first (and by far the most important) question involves the statute of limitations, which generally runs six years from the challenged conduct. The whistleblower in this case persuaded the court of appeals that the statute of limitations was tolled by the Wartime Suspension of Limitations Act, commonly known as the WSLA. Dating to World War I, but amended at various times, the WSLA currently tolls the statute of limitations for any “offense involving fraud or attempted fraud against the United States . . . until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress.” Because there has been no such termination since the 2002 authorization for the use of force against Iraq, the holding of the court of appeals would mean that no challenge under the False Claims Act targeting conduct since 2002 would be tolled until three years after hostilities there reach a formal termination. Indeed, the briefs raise the possibility that the WSLA might preserve all claims dating back to the Korean War – based on the absence of any formal resolution of that conflict.
You would expect the Court to be powerfully motivated to read the statute as avoiding such a bizarre result, and as it happens the language of the statute makes it quite easy to do so. As the snippet quoted above suggests, the key word is “offense.” The contractor suggests that in context an “offense” is a criminal act. Because the action brought by the relator here is a civil claim, the WSLA does not apply; the WSLA would toll criminal prosecutions (which of course are rare) but not the ubiquitous whistleblower actions under the False Claims Act. The whistleblower (supported by the federal government) points to the history of the statute, arguing that amendments in the 1940s extended the WSLA to civil claims. Before 1948 the WSLA was limited to offenses “now indictable under any existing statutes” – plainly crimes – but now it extends simply to any “offense.” The deletion of the reference to “indictable” offenses, arguably, suggests an intention to broaden the reach of the WSLA.
The Court is unpersuaded; the opinion includes a long passage examining the historical evidence (and concluding that it supports the whistleblower), but the opinion reads as if the textual arguments dominated the Court’s thinking. On that point, the opinion offers two justifications. The first is the common meaning of “offense.” Although dictionaries acknowledge occasional broader usages, the core meaning of the term is limited to crimes.
The second (and more interesting) is the usage of the term in Title 18 of the U.S. Code: nowhere does Title 18 use the term “offense” to refer to conduct that is not criminal. The topic was a salient point of inquiry at the oral argument, where after detailed discussion Deputy Solicitor General Malcolm Stewart acknowledged that the best examples that the Office of the Solicitor General could locate attached civil penalties to criminal offenses. The Court does acknowledge congressional use outside Title 18 of “offense” to describe a civil violation, but it relies on the placement of the WSLA in Title 18 to reject those as irrelevant. My bet is this will be the most widely cited aspect of the opinion: a counterexample to the common statement that the placement of a statute in the US Code is irrelevant to its meaning.
The second question in the case involves the inaptly named “first-to-file rule,” which prevents parallel actions claiming to disclose the same misconduct. Specifically, the statute says that “[w]hen a person brings an action . . . no person other than the Government may . . . bring a related action based on the facts underlying the pending action,” with “pending” being the key word. The contractor argues that the phrase bars any subsequent action based on the same misconduct; the whistleblower (supported by the government) argues that the bar lasts only while the earlier action remains undecided.
That issue is crucial because of the interplay with settlements. If the contractor can terminate all liability for misconduct by settling an early action for a small amount, the incentive for gamesmanship or collusive activity is marked. By contrast, if the settlement that disposes of the early action has no effect on later actions, then it is much harder for the contractor to obtain closure. At oral argument, several of the Justices seemed concerned about the plight of the contractor in seeking final closure; the argument included several protracted colloquies about the preclusive effect of settlements of such claims. But the opinion leaves that topic conspicuously unaddressed: “Respondent and the United States argue that the doctrine of claim preclusion may protect defendants if the first-filed action is decided on the merits but that issue is not before us in this case.”
Avoiding any guidance on that problem, the opinion limits itself to a cursory explication of the language, which could support the contractor only under the most tortured reading. The Court offers several dictionary definitions of “pending,” all of which include the concept of an action that is “not yet decided.” The Court rejects the idea that “pending” could be read as “shorthand for ‘first-filed,’” commenting that “first-filed is itself “a term that is neither lengthy nor complex.” With rhetorical flourish, the Court points out that under the contractor’s reading “Marbury v. Madison, 1 Cranch 137 (1803), is still ‘pending.’ So is the trial of Socrates.”
It is safe to say that the False Claims Act will darken the Court’s docket again soon. The Court’s closing comment is all too likely to be prophetically apt: “The False Claims Act’s qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together like a finely tuned machine.”
PLAIN LANGUAGE: The False Claims Act permits a private party (a “relator”) to file a suit against a government contractor if the relator learns that the contractor has defrauded the United States. The case raises two problems about when the suits have to be brought. The first one is an argument that the deadline for bringing suit doesn’t run while a war continues. This is important because, technically, the country has been at war for quite a while – arguably since the Korean War in the 1950s. The statute in question extends the deadline for suits related to “offenses.” The Court held that the extension relates only to crimes, not to suits under the False Claims Act.
The second problem involves repeated suits about the same fraud. The statute prevents any suit while another suit is “pending” about the same fraud. The contractor says this means that once it wins one suit about the fraud it can never be sued again. This is important because it would allow the contractor to settle the first suit for a small amount and avoid liability even for a major fraud. The Justices disagreed. The second suit is barred only for as long as the first suit remains pending.