A federal appellate court has overturned decades-old precedent, which previously held that a dismissal under the “first-to-file rule” contained in the False Claims Act (FCA) was “jurisdictional.” In Stein v. Kaiser Found. Health Plan, Inc., an en banc federal appellate court held the precedent was inconsistent with a recent U.S. Supreme Court decision and remanded the case back to the three-judge panel. ABA Litigation Section leaders welcome the resolution of a circuit split and the court’s willingness to reveal a behind-the-scenes look of its inner workings.
Two plaintiffs sued several healthcare related entities in the U.S. District Court for the Northern District of California, alleging Medicare fraud under the FCA. Because a similar lawsuit was already pending against the same defendants, the district court dismissed the lawsuit as barred by the FCA’s first-to-file rule, which provides: “When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”
On appeal, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal, observing that “the first-to-file rule is jurisdictional and bars this case.” Months later, the Ninth Circuit issued an order that the case be reheard en banc.
In its en banc decision, the Ninth Circuit focused on its 2001 decision in United States ex rel Lujan v. Hughes Aircraft Co., in which the court held that federal courts lacked subject matter jurisdiction over FCA claims that violated the first-to-file rule. As the en banc panel observed in Stein: “Two decades ago, we labeled this rule ‘jurisdictional’ without any analysis.”
Since that time, however, “the Supreme Court has repeatedly cautioned against the profligate use of the term jurisdiction.” And in its 2023 decision, Santos-Zacaria v. Garland, the U.S. Supreme Court held that a statutory bar affects subject matter jurisdiction “only if Congress ‘clearly states’” that it does. The Supreme Court referred to this as the “clear-statement principle.” This is because, as the Court noted, courts “cannot grant equitable exceptions to jurisdictional rules” because they are “not able to exceed limits on their adjudicative authority.”
Following Santos-Zacaria, the Ninth Circuit reconsidered the FCA’s first-to-file rule in Stein. It reasoned that the term “jurisdiction” does not appear in the rule. And it also determined that the rule “says nothing” about the court’s authority. The court further contrasted the first-to-file rule with other provisions in the FCA that do mention the word jurisdiction. It then applied a canon of statutory construction that, if Congress includes language in one section of a statute but omits that language in another section of the statute, it is “generally presumed” that Congress did that on purpose.
With this reasoning, the Ninth Circuit held that there is no authority supporting its prior holding that the FCA’s first-to-file rule deprives courts of subject matter jurisdiction and overruled Lujan, bringing the Ninth Circuit in line with five other sister circuits. The court noted that the First and Sixth Circuit had “previously held that this rule was jurisdictional, but reversed course” as the U.S. Supreme Court’s clear-statement principle was developed. Although observing that the Fourth, Fifth, and Tenth Circuits have held the rule to be jurisdictional, “these cases predate the Supreme Court’s reinvigoration of the clear-statement rule,” and as a result, the circuit split “does not give us pause.” The Ninth Circuit acknowledged that its ruling overturned decades of precedent and noted that when “our law is wrong, it is our duty to correct it.”
On remand, the three-judge panel acknowledged the holding that the first-to-file rule is not jurisdictional and observed that the “district court’s dismissal under the first-to-file rule for lack of jurisdiction cannot stand. But that does not mean the district court erred in dismissing this case.” The court thus still held that the district court did not err in applying the first-to-file rule, and the court affirmed the district court’s decision.
Section leaders agree with the outcome in Stein. “Simply put, there was not much analysis when the Ninth Circuit established that the FCA’s first-to-file was jurisdictional,” says Monette M. Davis, New Orleans, LA, Chair of the Social Media Subcommittee of the Litigation Section’s Pretrial Practice & Discovery Litigation Committee.
“It should not come as a surprise to the bar that the Ninth Circuit has joined the majority,” states Joseph V. Schaeffer, Pittsburgh, PA, Co-Chair of the Section’s Pretrial Practice & Discovery Litigation Committee. Even though there is still a circuit split, “we should not expect the Supreme Court to take up this issue,” adds Schaeffer. Davis is not so sure, commenting, “I believe the Supreme Court will eventually take it up, simply because there may be constant misunderstandings.”
Section leaders also appreciate the court providing a behind-the-scenes look into the innerworkings of the Ninth Circuit. “The concurrence is the reason to read the decision,” notes Schaeffer, “including its criticism of its binding dicta rule. It is very interesting both to understand what the Ninth Circuit rule is, but also how it got there.” “This is a big deal. I am surprised that the court explained its reasoning and I am very impressed that they took accountability,” observes Davis.
