Circuit Split Widens in Tolling False Claims Act Cases

Cochise broadens the limitations period for three years where the material facts only become known by a government official after the initial six-year period. In so doing, the opinion deepens the circuit split on private relator tolling. The Fourth and Tenth Circuits held that the three-year extension applies only in cases filed by the government. The Ninth Circuit, in contrast, held the extension applies to relators as well.

The Cochise court takes a middle path. Relators can take three more years where the government declines to intervene, but only if a government official did not learn of the material facts until after the six-year period. Cochise permits private relators to extend the limitations period, but only if the reason for the delay was the ignorance of a government official with authority to act. There must be a government nexus.

The Private Relator’s Delay in Disclosing the Fraud to the Government

In Cochise, the relator filed an FCA claim after six years, but within three years of when he disclosed the fraud to the government. The fraud involved government contractors in Iraq forging a subcontract award by getting a blind contracting officer to sign the award after misrepresenting the document’s contents.

When the blind contracting officer signed, he believed a different company received the award. The fraud remained unknown until the relator disclosed the fraud to the Federal Bureau of Investigation (FBI) after questions about his role in a different kickback scheme. For his role in the separate scheme, the relator faced federal criminal charges, pled guilty, and served ten months in prison.

Upon his release from prison, the relator filed under seal an FCA complaint related to the scheme to defraud the blind contracting officer he disclosed to the FBI. After the government declined to intervene, the relator moved to unseal the complaint. The defendants moved to dismiss, arguing that the statute of limitations barred the action. The defendants argued the relator waited seven years after the fraud occurred to sue. The relator responded that his claim was timely because he filed within three years of his interview with the FBI. The district court disagreed and held §3731(b)(2) unavailable because the government declined to intervene.

On appeal, the relator asserted that a relator acts as a partial assignee of the United States, and thus stands in the shoes of the government. The relator also claimed that nothing in the statute precludes a private relator from relying on the statute. The defendants replied that permitting a relator’s claim to depend upon a government official’s knowledge would lead to “absurd results.”

The Eleventh Circuit disagreed, ruling the extended limitations period is triggered by “a federal official’s knowledge.” The court reasoned it is not absurd “to peg the start of the limitations period to the knowledge of a government official even when the United States declines to intervene.” The United States remains the real party in interest, retains significant control over the case, and is the victim of the fraud entitled to the bulk of the recovery, the court explained. The government cannot act without knowledge and knowledge triggers the extension.

The Pendulum Swings in Favor of Private Relator Tolling

“The case is significant because it applies tolling in favor of relators,” says Sarah M. Frazier, Houston, TX, past chair of the ABA Health Law Section, Healthcare Litigation and Risk Management Committee. “The pendulum has been moving towards tolling to apply to relators for some time,” observes Frazier.

“The analysis is thoughtful, but also a bit of a surprise,” notes Kathleen McDermott, Washington, DC, past cochair of the ABA’s Criminal Justice Section, White Collar Crime Committee, False Claims Act Subcommittee. “Prior Supreme Court decisions have not recognized procedural equivalence in rights of the government and relators, and a few other jurisdictions have gone the other way,” explains McDermott.

Crime Pays?

“As a practical matter,” adds McDermott, “it is difficult to see how the result in Cochise advances the FCA’s public policy goals of avoiding parasitic and opportunistic suits. Here, the relator has dodged for now the maxim that crime does not pay. Equally interesting is why the DOJ has not intervened and dismissed the case, especially in light of the Granston memorandum announcing a new policy for proactively dismissing qui tam cases that are declined.”

Erik A. Christiansen is a contributing editor for Litigation News.

Hashtags: #FCA #Tolling #Relators #SupremeCourt

Related Resources

• United States ex rel. Eisenstein v. City of New York, 556 U.S. 928 (2009).
• Graham Cty. Soil & Water Conservation Dist. V. United States ex rel. Wilson, 545 U.S. 409 (2005).
• United States ex rel. Sanders v. N. Am Bus Indus. Inc., 546 F.3d 288 (4^th Cir. 2008).
• United States ex rel Sikkenga v. Regence Blue Cross BlueShield of Utah, 472 F.3d 702 (10^th Cir. 2006).
• United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9^th Cir. 1996).
• United States ex rel. Hyatt v. Northrop Corp., 80 F.3d 1425 (9th Cir. 1996).

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