Apr 162014

DC Circuit Opens Circuit Split on FCA’s First-to-File Bar

Scott D. Stein and Catherine Kim
,

Posted by Scott Stein and Catherine Kim

We previously reported on the federal district court’s decision in U.S. ex rel. Shea v. Verizon Business Network Services, Inc. (“Verizon II“), which held that the FCA’s first-to-file rule barred a relator from filing a qui tam action based on his filing of an earlier related qui tam (“Verizon I“), despite the fact that the first-filed suit was no longer “pending.” Shea contended on appeal that the district court erred in dismissing Verizon II with prejudice since Verizon I was no longer pending when Shea filed his operative second amended complaint.

On April 11, 2014, the District of Columbia Circuit Court of Appeals upheld the district court’s dismissal in a 2-1 decision, adopting the position that the first-to-file bar applies an earlier-filed related suit, even after the original action is no longer “pending.” In so holding, the court expressly disagreed with contrary holdings by the Fourth, Seventh, and Tenth Circuits. See In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956 (10th Cir. 2009); U.S. ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361 (7th Cir. 2010); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).

After concluding that Verizon I and Verizon II were “related” within the meaning of the FCA, and that the first-to-file bar applied even when the relator in the earlier and later-filed qui tams was the same, the court proceeded to analyze the proper interpretation of the term “pending.” The court rejected Shea’s reading that the first-to-file bar ceases to apply after the first action is settled, in favor of a less temporal interpretation. Specifically, the court held that “the bar commences ‘when a person brings an action . . . ‘ and thence forth bars any action ‘based on the facts underlying the pending action.'”

The court reasoned that if Congress had intended to make the first-to-file bar temporal, it would have done so expressly as it has done in other contexts, such as barring certain actions in the Court of Federal Claims. The court also concluded that its reading “better suits the policy considerations undergirding the statute[,]” namely preventing duplicative suits once the government is on notice of the alleged fraud.

Circuit Judge Srinivasan dissented on this point, asserting that both a plain reading and the broader statutory context favored Shea’s interpretation that the first-to-file bar ceases to apply once the initial action is no longer pending. According to Judge Srinivasan, the FCA provision with “chief responsibility” for “weed[ing] out copycat actions” is the public disclosure bar, not the first-to-file bar.

It remains to be seen which of the competing approaches taken by the circuit courts will prevail, but we will continue to monitor this important issue and provide updates on any new developments. In the meantime, the D.C. Circuit’s decision provides significant protections for defendants by prohibiting relators from bringing suit when the government has already been put on notice of the relevant facts supporting the relator’s claims.

A copy of the circuit court’s opinion can be found here.

Scott D. Stein

Chicago

sstein@sidley.com

Catherine Kim

CatherineKim@sidley.com

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