statute of limitations

On November 16, 2018, the United States Supreme Court granted certiorari in United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081 (11th Cir. 2018). The question presented to the Court is “whether a relator in a False Claims Act qui tam action may rely on the statute of limitations in 13 U.S.C. § 3731(b)(2) in a suit in which the United States has declined to intervene and, if so, whether the relator constitutes an “official of the United States” for purposes of Section 3731(b)(2).”

Section 3731(b) requires an FCA case be filed either (1) six years after the date on which the violation…is committed, or (2) three 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 is later.

In Cochise Consultancy, Inc., the Eleventh Circuit held that § 3731(b)(2) was available to a relator in a non-intervened case. The court also held that the relevant person whose knowledge triggers the limitations period is an official of the United States.

The Eleventh Circuit’s decision deepens the divide among circuits as to how to apply § 3731(b)(2), creating a three-way circuit split. The decision is a departure from the Fourth Circuit and Tenth Circuit. Both courts determined that § 3731(b)(2) extends the statute of limitations period only if the government is a party. See United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288 (4th Cir. 2008); United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006).

The decision is also a departure from the Third Circuit and Ninth Circuit. The Third Circuit and Ninth Circuit also held that § 3731(b)(2) is available when the government does not intervene.  However, the three-year period depends on the relator’s knowledge. See United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270 (3d Cir. 2003); United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996).

The Supreme Court’s decision to tackle this issue will provide clarity to businesses subject to the FCA because it will likely provide an answer as to how long a relator has to bring an action when the government has not intervened. It could also do away with any forum shopping that relators currently have the ability to engage in.

Health Care Enforcement Q2 Roundup Webinar
Date: Tuesday, July 17, 2018
Time: 11:00 am PDT | 12:00 pm MDT | 1:00 pm CDT | 2:00 pm EDT

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How will recent developments and emerging trends related to health care fraud and abuse impact future investigation targets and litigants?

Our upcoming Health Care Enforcement Quarterly Roundup webinar will address this critical question and discuss trends related to:

  • Continued interpretations of landmark Escobar case
  • Recent guidance from DOJ leadership regarding enforcement priorities
  • Uptick in state and federal efforts to combat the opioid crisis
  • Court guidance on the use of statistical sampling in False Claims Act (FCA) cases
  • Growing Circuit split on key FCA provisions, including the public disclosure bar, statute of limitations and tolling of claims
  • Other trends that are critical to health care business operations and compliance with the ever-changing regulatory landscape

Attendees will also receive an advance copy of McDermott’s Health Care Enforcement Quarterly Roundup report on the day of the webinar and will have the opportunity to ask questions of the panel through the webinar platform.

On May 26, 2015, the Supreme Court issued a unanimous opinion in Kellogg Brown & Root v. United States ex rel. Carter (S. Ct. No. 12-1497), a case addressing several important issues under the False Claims Act (FCA).  In a previous post, we laid out the two issues in this case.  First, when the United States is at war, does the Wartime Suspension of Limitations Act (WSLA) toll the statute of limitations in civil FCA lawsuits?  Second, does the FCA’s so-called “first-to-file” bar prevent all future cases based on the same alleged fraud, or is it a one-case-at-a-time rule, allowing duplicative claims in the future as long as the first action is settled or dismissed?

The Court ruled in favor of Kellogg Brown & Root (KBR) on the first issue, holding that the WSLA only tolls the statute of limitations for criminal offenses, not in civil false claims like the relator filed against KBR.  The WSLA tolls the statute of limitations for “any offense” involving fraud against the government during war.  First, the Court reasoned that the term “offense” usually refers to a crime.  And, in Title 18, where Congress chose to place the WSLA, the term always refers to a crime.  Next, the Court looked to the history of the WLSA.  In doing so, it was most persuaded by Congress’ decision to remove the language “now indictable” from the statute.  According to the Court, this revealed Congress’ intent to apply the WSLA to future fraud as well as past fraud, not—as the government and relator argued—to expand it to civil lawsuits.  Finally, the Court reasoned that it has repeatedly called for a “narrow” construction of the WSLA.  Therefore, even in times of war, relators bringing civil actions against companies like KBR will have to follow the FCA’s statute of limitations provision.  See 31 U.S.C. § 3731(b).

On the second issue, the Court agreed with the government and relator, holding that a previously-filed qui tam lawsuit under the FCA is no longer “pending” under the statute’s first-to-file bar once it is dismissed.  When a relator 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.”  See 31 U.S.C. § 3730(b)(5) (emphasis added).  In finding that a previously-filed lawsuit only qualifies as “pending”—thereby prohibiting subsequent qui tam suits—if the first action is still being litigated when the subsequent action is filed, the Court said it was construing the term “pending” per its usual meaning.  The Court further reasoned that any other interpretation would mean that Congress intended to abandon potentially successful false claims actions even in situations where the first-filed suit is dismissed for reasons that do not involve the merits.

In practice, the decision may permit second, and even third, lawsuits under the FCA on the same set of facts.  Indeed, rather than reduce litigation, it may have the opposite effect: encouraging more qui tam litigation.  The Court acknowledged that there is “some merit” to this point, and noted that claim preclusion “may protect defendants if the first-filed action is decided on the merits.”  Nonetheless, the Court concluded that this was not the issue before it in KBR.

While the KBR decision addresses two significant questions, it raises many more:  When does an earlier decision—dismissing a first-filed case—bar a later suit under the doctrine of claim preclusion?  When settling an FCA case, will the settlement agreement’s terms, including the government’s civil release, limit the possibility of a future FCA action based on the same conduct?  And, after KBR, will relators seek to refile or revive claims dismissed under the reading of the FCA rejected by the Court?  We will continue to monitor these issues.

On April 13, the U.S. Court of Appeals for the Third Circuit affirmed dismissal of a relator’s retaliation claims as time-barred, holding that the three-year statute of limitations applicable to such claims as a result of the Dodd-Frank Act does not apply retroactively.  In U.S. ex. rel. Sefen v. Animas Corp., 2015 WL 1611698 (3d Cir. Apr. 13, 2015), the Third Circuit observed that before Dodd-Frank, the False Claims Act did not have an explicit statute of limitations applicable to retaliation claims.  Accordingly, courts would apply the most closely analogous state limitations period.  The relator’s claims against Animas and Johnson & Johnson were clearly time-barred under both of the two potentially applicable Pennsylvania limitations periods.

The relator nonetheless argued that the longer Dodd-Frank limitations period should apply retroactively to his claims, asserting that Dodd-Frank enacted a “procedural,” versus “substantive,” change in the law.  In rejecting this contention, the Third Circuit applied the presumption against retroactivity, which can only be overcome if Congress has made a contrary intent clear.  The court then held that because applying the Dodd-Frank limitations period retroactively would increase the defendants’ liability for past conduct by reviving an otherwise “moribund” cause of action, retroactive application was improper.

The Third Circuit’s decision is firmly rooted in Supreme Court precedent on the issue of retroactivity, and is noteworthy for any defendant faced with stale retaliation claims into which a relator attempts to breathe new life via Dodd-Frank.

On January 13, 2015, the Supreme Court held oral argument in the closely followed case of Kellogg Brown & Root v. United States ex rel. Carter.  Two questions with sweeping False Claims Act (FCA) enforcement implications were at issue:  first, whether the Wartime Suspension of Limitations Act (WSLA) tolls the statute of limitations in civil actions under the FCA while the nation is at war; and second, whether the FCA’s so-called “first-to-file” bar prohibits future filings based on the same alleged fraud or functions as a more permissive one-case-at-a-time rule, allowing duplicative claims in future actions.  The lower court, the Fourth Circuit, held that the qui tam relator’s claims were timely.  Kellogg Brown & Root (KBR) appealed.

Made relevant by over a decade of global military action, the WSLA was a little known criminal code provision tolling the statute of limitations for “any offense” involving fraud against the  United States during war. Both the United States and the relator argue that the “any offense” language added in 1944 broadens the statute’s applicability from actions that are criminal in nature to civil actions including under the FCA.

At oral argument, KBR attacked the attempt to broaden “any offense” to include FCA allegations by focusing on the WLSA’s appearance in the criminal code.  The Justices, possibly sympathetic, gave KBR counsel the benefit of long stretches of uninterrupted argument.  At one point, Justice Sotomayor asked KBR counsel if the court would need to address the first-to-file issue if the Court reversed the lower court on the WLSA ruling.  In contrast, the Justices peppered Respondents’ counsel on the strength of their position.

Based on the argument, it is not clear how the Court will come out on the second question.  When a relator 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 interpretation of “pending” sits at the center of the dispute.  The Fourth Circuit agreed that the first-to-file bar serves only to prohibit simultaneous litigation and therefore, the relator’s suit was permissible.

KBR argued that the Fourth Circuit’s interpretation creates the risk of duplicative litigation into perpetuity; however, the Justices appeared to be wrestling with the ambiguity of the statutory language.  Both Justices Kennedy and Scalia seemed persuaded that future duplicative suits were not prohibited by the statute.  The Justices seemed to agree with Respondents that the risk of duplicative suits would be mitigated under claim preclusion principles.

The Court’s hotly anticipated ruling will impact myriad cases filed asserting alleged fraud claims arising over a decade of wartime activity.  The second issue involving relator rights has broad implications for how defendants can achieve finality in the resolution of pending FCA matters.  Stay tuned.