Supreme Court_839277LargeToday the Supreme Court began a new term. The Court does not often hear cases involving government contracts, but this may be a notable year for contractors at the Court. In the context of the False Claims Act, the Court will hear Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, which involves  two issues—the Wartime Suspension of Limitations Act (WSLA) and the first-to-file bar. Because the Fourth Circuit held that the WSLA extended the statute of limitations for FCA cases, affirming the Fourth Circuit’s decision could result in longer and more expensive litigation as contractors litigate FCA claims that would have otherwise been summarily dismissed as untimely or barred by a prior action. Although DOJ did not intervene in Carter, it filed an amicus brief on the petition for certiorari that states the the Government is unambiguously in favor of the WSLA and of permitting follow-on qui tam actions once the first case has been dismissed.

The WSLA and first-to-file-bar are can be outcome determinative. The WSLA allows the Government–and in some cases relators–to bring older claims, and the Act applies when the underlying claim has no connection to war (except that the act underlying the claim occurred when the U.S. was “at war”). When a court applies the WSLA, it extends the statute of limitations and permits a relator to pursue an aging claim. When the first-to-file bar is applied, it can cut off a subsequent qui tam plaintiff’s claim if similar allegations have been raised in a prior complaint. If the first-to-file bar is not imposed on subsequent actions, defendants are exposed to additional claims and litigation costs.

Carter involves a complex set of facts with respect to the first-to-file bar, with cases filed and dismissed in multiple jurisdictions. In Carter, the relator alleges that KBR falsely billed the Government for services performed in Iraq. Carter worked for KBR at two camps where he tested and purified water for the troops. Carter claims that he and other KBR employees were told to submit time sheets for 12-hour days regardless of the number of hours actually worked. Carter filed his complaint in June 2011, when two related actions were pending in Maryland and Texas. KBR moved to dismiss Carter’s complaint under the first-to-file bar and the FCA’s six-year statute of limitations. Although the Maryland action was voluntarily dismissed before the court ruled on KBR’s motion, the district court held that it was “pending” for purposes of the first-to-file bar because it had not been dismissed when Carter filed his complaint. (The Texas action was later dismissed as well.) The district court further held that Carter’s complaint was time-barred because the WLSA did not apply to claims brought by relators.

The Fourth Circuit reversed on both issues. The Court of Appeals disagreed with the district court that the WLSA was limited to FCA claims brought by the Government and held that the WSLA applies to actions brought by relators–a holding the DOJ has since endorsed–stating that the WSLA’s applicability turns on the nature of the alleged fraud, not on the identity of the plaintiff. The WSLA does not distinguish between claims brought by the Government and claims brought by private plaintiffs. At the Fourth Circuit, Judge Agee wrote a strong dissent explaining that applying the WSLA to a relator’s claim “is inconsistent with the WSLA and its legislative history and would be contrary to the articulated goals of the FCA.”

The Fourth Circuit also held that the first-to-file-bar did not preclude Carter’s complaint because the earlier-filed cases had been dismissed, and “once a case is no longer pending the first-to-file bar does not stop a relator from filing a related case.” The Seventh and Tenth Circuits have followed the same rule, but the First Circuit and District of Columbia Circuit have held that a prior dismissed action bars later-filed actions (with Judge Srinivasan filing a dissent in the D.C. Circuit’s decision). In its amicus brief in Carter, the DOJ noted that once an action has been dismissed, the first relator does not have a continuing interest in avoiding dilution of his recovery. The DOJ drew a distinction between a decision on the merits, which would preclude a subsequent action, and a non-merits dismissal, and appeared to have concerns about the multiplicity of actions that were “pending” for a time, but not addressed on the merits. The approach taken by the Fourth, Seventh, and Tenth Circuits allows relators to file multiple complaints based on essentially the same allegations, which increases litigation costs. The approach taken by the Fourth, Seventh, and Tenth Circuits allows a qui tam plaintiff to bring a complaint when other similar complaints have been dismissed for various reasons, such as failing to plead fraud with sufficient particularity. The Supreme Court has the opportunity to resolve this circuit split and avoid duplicative actions.

The Fourth Circuit’s application of the WSLA raises serious concerns for contractors. The WSLA applies even when the fraud alleged has no relationship to the conflicts abroad, and it has allowed the Government and relators to bring old claims that would otherwise be barred by the statute of limitations. The Fourth Circuit held that a relator–whose fraud-detecting efforts are arguably not affected by war–can invoke the WSLA even when the Government declines to intervene. (The DOJ argues that the constant wartime footing has stretched the Government’s investigative resources and that fact is relevant to all claims.) The broad application of the WSLA is disconcerting to contractors given that the U.S. has been at war for the purposes of the WSLA since Congress authorized the use of force in 2001, and the U.S. remains engaged in the region to the present. As the Carter dissent pointed out, the Fourth Circuit’s approach would allow Carter to file his claim until 2019–almost 14 years after it accrued. The Supreme Court may recognize that the Fourth Circuit went too far in Carter—and impose some limits on the WLSA.

We will be watching to see how the Supreme Court responds to the parties arguments in Carter. (Oral argument has not yet been scheduled.) 2014-2015 could be a notable term for government contractors because the Court also has petitions for certiorari pending in two other cases, Kellogg Brown & Root Services, Inc. v. Harris and KBR, Inc. v. Metzgar (which involve the Federal Tort Claims Act).We will have to see if the Court is willing to consider those cases.