The FCA and Its First-to-File Provision
The FCA creates civil liability for certain "fraud" on the United States government. Among other things, the FCA provides that any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim" is liable to the federal government. 31 U.S.C. § 3729(a). The FCA allows the United States to bring a civil action alleging violations of the statute, but also allows a private plaintiff (or "relator") to bring a claim on behalf of the government in a qui tam action and keep a portion of the proceeds of the action or settlement. See 31 U.S.C. § 3730.
The FCA has a jurisdictional limit, however, known as the "first-to-file" bar, which provides that when a private person brings an FCA action, "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). While the FCA's qui tam provisions are intended to encourage whistleblowers with valuable information to bring fraud claims on the government's behalf, the FCA's first-to-file bar seeks to discourage the filing of "parasitic lawsuits that merely feed off previous disclosures of fraud." United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376 (5th Cir. 2009). Thus, the first-to-file bar is said to encourage a "race to the courthouse," incentivizing relators to come forward promptly with their knowledge of alleged fraud against the government. In addition, the first-to-file bar is meant to promote efficiency and fairness by preventing multiple lawsuits based on the same allegations.
The FCA's first-to-file provision is routinely invoked by defendants as an absolute defense to relators' claims. The scope of the first-to-file bar, however, has been the subject of frequent litigation. An important question that sometimes arises in FCA actions and that has come to the fore in recent appellate decisions is whether the statute's bar of actions "based on the facts underlying the pending action" requires that the previously filed action be pending (rather than concluded) in order for the first-to-file bar to apply or whether the bar remains in effect even after the original action is concluded.
The Fourth Circuit's Decision in Halliburton
In United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), qui tam relator Benjamin Carter alleged that the defendants—Halliburton Co.; KBR, Inc.; Kellogg Brown & Root Services, Inc.; and Service Employees International, Inc. (collectively, KBR)—violated the FCA by presenting false bills to the United States in connection with services performed in Iraq. Carter averred that KBR, a government contractor providing logistical services to the U.S. military in Iraq, repeatedly misrepresented to the government that it was purifying water when, in fact, it was not, and that Carter and other KBR employees were instructed to submit time sheets for water purification work that they did not perform. In addition, Carter alleged that all of KBR's "trade employees were required to submit time sheets totaling exactly twelve hours per day and eighty-four hours per week and that it was 'routine practice' of the employees to do so regardless of actual hours worked." Halliburton, 710 F.3d at 175.
After a long procedural history, the district court dismissed Carter's most recent complaint with prejudice. The court found that Carter's case was related to two previously filed actions, at least one of which was pending at the time Carter filed his complaint, and was therefore precluded by the FCA's first-to-file provision.
On appeal, the Fourth Circuit, viewing the "first-to-file bar as an absolute, unambiguous exception-free" jurisdictional rule, agreed that Carter's claims were barred by the two previously filed actions. The court found that his claims were materially the same as those of the previous relators and that the previously filed actions were "pending" at the time Carter filed his complaint, because neither had yet been voluntarily dismissed. The Fourth Circuit ruled, however, that the district court erred in dismissing Carter's complaint with prejudice. Relying on decisions of the Seventh and Tenth Circuits, the Fourth Circuit held that "once a case is no longer pending the first-to-file bar does not stop a relator from filing a related case." The court found that because both of the related actions were dismissed after Carter filed his complaint, "the first-to-file bar does not preclude Carter from filing [another] action." Halliburton, 710 F.3d at 183.
The Circuit Split on the Meaning of "Pending"
The Fourth Circuit's statement that a case is not "pending" for purposes of the FCA's first-to-file bar after that case has been dismissed is consistent with the views of the Seventh and Tenth Circuits. However, the Fourth Circuit's ruling has since been contradicted by the District of Columbia Circuit, creating a clear circuit split and ripening the issue for Supreme Court review.
In United States ex rel. Chovanec v. Apria Healthcare Group Inc., 606 F.3d 361, 362 (7th Cir. 2010), the Seventh Circuit noted that "once the initial suit is resolved and a judgment entered (on the merits or by settlement), the doctrine of claim preclusion may block any later litigation," but the FCA's first-to-file provision does not prevent the refiling of suits. The court explained that the FCA's first-to-file provision "applies only while the initial complaint is 'pending.'" Finding that in the case before it, the two previously filed complaints "are no longer pending (and weren't pending when the district court denied [the relator's] motion for reconsideration)," the Seventh Circuit held that the district court should not have dismissed the relator's complaint with prejudice. Apria Healthcare, 606 F.3d at 365.
Similarly, in the Tenth Circuit, the first-to-file rule appears to prevent the filing of substantially similar FCA claims only so long as the original suit is pending. In In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956, 964 (10th Cir. 2009), the Tenth Circuit observed in dicta that despite the fact that the first claim already put the government on notice of the alleged wrongdoing, "if that prior claim is no longer pending, the first-to-file bar no longer applies." Without providing any analysis, the Tenth Circuit stated that the first-to-file rule "protects the potential award of a relator while his claim remains viable, but, when he drops his action another relator . . . may pursue his own."
On the other hand, in a decision issued earlier this year, the D.C. Circuit directly and explicitly contradicted the position of the Fourth, Seventh, and Tenth Circuits. In United States ex rel. Shea v. Cellco Partnership, 748 F.3d 338, 343 (D.C. Cir. 2014), the D.C. Circuit rejected the relator's argument that "[s]o long as the first action is no longer pending, . . . the second action is not barred." The court proclaimed: "We hold that the first-to-file bar applies even if the initial action is no longer pending, because we read the term 'pending' in the statutory phrase 'pending action' to distinguish the earlier-filed action from the later-filed action." In support of this understanding, the court indicated that the statutory text does not provide that another person may not "bring a related action while the first action remains pending"; rather, in the phrase "based on the facts underlying the pending action," the word "pending" is used simply "to identify which action bars the other." The court further noted that Congress "could have expressed its intent to make the first-to-file bar temporal, as it has done in other contexts," but did not do so. Cellco, 748 F.3d at 344. Moreover, the D.C. Circuit reasoned that its interpretation comports with the policy underlying the first-to-file bar—to put the government on notice of the alleged misconduct. As the court noted, "duplicative suits would contribute nothing to the government's knowledge of fraud." The court concluded, therefore, that the district court did not err in dismissing the relator's claim with prejudice.
This newly developed circuit split was likely a significant factor in the Supreme Court's recent decision to grant KBR's certiorari petition in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter.
Competing Arguments in Kellogg
KBR contends that the Fourth Circuit effectively eviscerated the first-to-file bar, "allowing relators to sidestep this crucial limitation on duplicative lawsuits by re-filing a copy of their complaint after an earlier case is dismissed—or, for that matter, reduced to judgment." Brief for the Petitioners at 43, Kellogg, No. 12-1497 (S. Ct. Aug. 29, 2014). According to the petitioners, the Fourth Circuit "read the first-to-file bar as if it provided that when a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action, while the first action remains pending," thus creating a "one-case-at-a-time" rule. Brief for the Petitioners, supra, at 45 (internal quotation marks omitted). The petitioners argue that duplicative claims do not further the goals of the FCA. First, such claims do not put the government on notice of a potential fraud claim; thus, they "do not help reduce fraud or return funds to the federal fisc, since once the government knows the essential facts of a fraudulent scheme, it has enough information to discover related frauds." Second, the petitioners state that the Fourth Circuit's reading of the first-to-file bar "encourages plaintiffs to allow false claims to build up over time to maximize the value of the alleged fraud," thereby "creat[ing] an incentive to disclose information (and litigate claims) piecemeal," thus undermining the FCA's goal of assisting the government in promptly pursuing fraud. Brief for the Petitioners, supra, at 55 (internal quotation marks omitted).
From the standpoint of statutory construction, the petitioners adhere to the view—subsequently adopted by the D.C. Circuit—that the word "pending" in § 3730(b)(5) is not a temporal limitation but a drafting "short-hand" to distinguish between the first-filed action and any subsequent matter. Brief for the Petitioners, supra, at 44. The petitioners posit that Congress would have been explicit if it had intended the first-to-file bar to apply only while the original action is pending. According to the petitioners, this reading is corroborated by the provision's legislative history; not only does the legislative history fail to mention the word "pending" in connection with the first-to-file bar, but the relevant Senate Committee Report explicitly stated that qui tam enforcement is not intended to result in "multiple separate suits based on identical facts and circumstances." Brief for the Petitioners, supra, at 47.
Carter, noting that "there are currently no related cases pending," asserts that the petitioners' "position that a dismissed case [not decided on the merits] should bar all future actions for fraud related to the allegations in that complaint . . . is contrary to the first-to-file provision's text, Congress's express intent, and common sense." Brief for Respondent Benjamin Carter at 47, Kellogg, No. 12-1497 (Sup. Ct. Oct. 14, 2014). The respondent maintains that, by its terms, the first-to-file bar applies only while the prior claim is "pending." According to the respondent, the petitioners' statutory argument amounts to a request that the Court "write the word 'pending' out of the first-to-file provision"—an argument that "is nonsensical." Brief for Respondent, supra, at 48–49.
Taking the position that the Fourth Circuit's decision was legally correct, the respondent highlights that under the petitioners' "expansive interpretation" of the first-to-file provision, future fraud defendants "would be immunized forever by poorly pled cases." Brief for Respondent, supra, at 54. Furthermore, the respondent argues there is no legal basis for KBR's position that the Fourth Circuit's approach would encourage relators to replead claims indefinitely even if the original claims were litigated, because the Fourth Circuit itself recognized that the doctrine of claim preclusion may apply to prevent the filing of subsequent suits.
The government submitted an amicus brief supporting Carter's reading of the first-to-file provision. See Brief for the United States as Amicus Curiae Supporting Respondent, Kellogg, No. 12-1497 (Sup. Ct. Oct. 21, 2014).
Potential Implications of the Supreme Court's Anticipated Ruling
The Supreme Court's awaited ruling in Kellogg will determine whether successive FCA suits based on substantially similar facts may be brought against the same defendants, if the earlier action is no longer pending and was not dismissed on the merits. The decision will be of vital importance to defendants in qui tam FCA actions, as it will inform their ability to rely on the crucial first-to-file defense and determine whether dismissal of a qui tam action provides any good measure of finality with regard to potential future FCA litigation based on the same allegations. The Court's ruling may also impact the incentives of qui tam plaintiffs to bring FCA actions. The first-to-file provision is specifically designed to create a "race to the courthouse" among potential whistleblowers, encouraging prompt notification to the federal government of fraud committed against it. A ruling that the first-to-file provision creates an absolute bar to an FCA action where a related case had already been filed—even if it was already dismissed—could further support the incentive for potential whistleblowers to come forward quickly; on the other hand, a literal reading of the word "pending" may weaken this incentive.
Keywords: commercial, business, litigation, False Claims Act, FCA, Kellogg Brown & Root, qui tam, first-to-file, Halliburton, whistleblower