As we have previously reported, the Supreme Court will decide a case this term that will address the viability and scope of the implied certification theory. Earlier this week, numerous stakeholders filed amicus briefs supporting the petitioner, illuminating the practical consequences of the vast scope of potential liability under the implied certification theory.
The hallmark of the implied certification theory is the notion that virtually any regulatory obligation can be invoked as being “material” to the government’s payment decision. Courts thus must ex post define a claim as “false or fraudulent” by hazarding a guess as to whether the government would have declined to pay had it known of the regulatory violation. The morass of regulations governing numerous industries, but particularly the healthcare industry, leaves participants uniquely vulnerable to potential treble damages and public opprobrium under this theory of FCA liability. The amici advanced numerous statutory and public policy reasons for eliminating the implied certification theory.
On January 19, Petitioner filed its opening merits brief in Universal Health Services v. United States ex rel. Escobar, urging the Supreme Court to reject entirely, or at the very least sharply curtail, the “implied certification” theory of FCA liability developed in the Circuit courts.
Continuing a trend of recent attention to significant False Claims Act issues that have divided the courts of appeals, the Supreme Court this morning invited the views of the Solicitor General in a case that implicates two such issues—(1) dismissal for violation of the seal requirement and (2) the so-called collective knowledge theory of scienter. The specific Questions Presented in the cert petition are:
I. What standard governs the decision whether to dismiss a relator’s claim for violation of the FCA’s seal requirement, 31 U.S.C. § 3730(b)(2)?
II. Whether and under what standard a corporation or other organization may be deemed to have “knowingly” presented a false claim, or used or made a false record, in violation of section 3729(a) of the FCA based on the purported collective knowledge or imputed ill intent of employees other than the employee who made the decision to present the claim or record found to be false, where (i) the employee submitting the claim or record independently made the decision to present the claim or record in good faith after reviewing the available information and (ii) there was no causal nexus between the submission of the false claim or record and the purported collective knowledge or imputed ill intent of those other employees?
The Solicitor General will likely file a brief in time for the Court to reconsider the petition before the summer recess at the end of June, and the invitation itself means that the Court is already taking a hard look at the petition. This is another case to watch closely.
The U.S. Supreme Court today granted certiorari in Universal Health Services, Inc. v. Escobar, No. 15-7. The petition presented three questions for review, of which the Court agreed to hear two. Specifically, the Court agreed to review:
2. Whether the “implied certification” theory of legal falsity under the FCA-applied by the First Circuit below but recently rejected by the Seventh Circuit-is viable.
3. If the “implied certification” theory is viable, whether a government contractor’s reimbursement claim can be legally “false” under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability for a legally “false” reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits.
The various federal circuits have staked out divergent standards on these issues, leading to significant disharmony in application of the FCA. With this case the Court has the opportunity to establish uniform, national standards for FCA liability, and potentially to curtail some of the statute’s more abusive applications.
Posted by Scott Stein and Monica Groat
Today the Supreme Court issued its opinion in Kellogg Brown & Root Services, Inc. et al. v. U.S. ex rel. Carter, a case we have written about extensively here, here, here, and here. In a unanimous opinion authored by Justice Alito, the Court held that the Wartime Suspension of Limitations Act (WSLA) does not apply to toll the statute of limitations in civil FCA cases, rejecting the position advanced by the relator and the Department of Justice. However, relators will find solace in the portion of the Court’s ruling holding that the first-to-file bar applies only so long as a first-filed case is active and pending, and ceases to apply when the first-filed case is settled or dismissed. A copy of the Court’s decision can be found here.
As we previously reported, the Supreme Court last year declined an invitation to resolve a circuit split regarding how much detail about particularized false claims must be pleaded in an FCA case in order to satisfy Rule 9(b)’s particularity requirement. A new cert petition filed this month asks the Court to take up the issue this term. Last year, in an opinion we wrote about here, the 11th Circuit affirmed in part and overruled in part the dismissal of an FCA complaint under Rule 9(b). The court held that while the relator had not pleaded, and was not required to plead facts regarding specific false claims, he had pleaded other facts that provided sufficient “indicia of reliability” with respect to his claims based on conduct allegedly occurring during his employment by the defendants. By contrast, the court held, the relator had failed to plead sufficient “indicia of reliability” that the conduct continued after his employment ended, and therefore affirmed the dismissal of the post-employment claims. It is the latter ruling with which the cert petition, filed by the relator, takes issue. The question presented in the cert petition is “[w] hether, under Rule 9(b), it is sufficient for a relator under the False Claims Act to plead “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted” to the government, or whether Rule 9(b)’s particularity requirement precludes the drawing of reasonable inferences that claims were actually submitted”
In the petition considered last year, the Supreme Court requested the Solicitor General’s views. The SG’s brief, while recognizing a circuit split, encouraged the Court to deny cert, and the Court did just that. It remains to be seen whether the Solicitor General will, or will be asked to by the Court, weigh in on the petition. In any event, we will continue to monitor this case and report on important developments.
Though we wrote last week to summarize our take on the oral argument in Carter, this post focuses on a particular exchange in which the Assistant Solicitor General arguing on behalf of the United States conceded a key point that DOJ has, in the lower courts, resisted. When it comes to non-intervened qui tam cases, DOJ routinely argues that while it is entitled to any financial benefits accruing from such litigation, the United States is not bound by any judgment on the merits against the relator. In our experience, whenever DOJ files a Statement of Interest in a non-intervened case, it requests that if the district court dismisses the case against a relator on any grounds that such dismissal be without prejudice to the United States, theoretically allowing DOJ to pursue the same claims against the same defendants notwithstanding even a dismissal on the merits of the relator’s claims. Defendants are typically loathe to challenge the government’s request, perhaps due to a desire not to engage the United States any more than necessary in a non-intervened case, or the recognition that as a practical matter the odds of the government deciding to intervene in any particular case once an adverse ruling has been rendered against a relator are fairly small.
But an admission by the Associate Solicitor General arguing in Carter may require DOJ to change its position in the lower courts. In considering the application of the first-to-file bar to serial relators, several Justices appeared concerned about the prospect of serial liability if, as DOJ contends, the first-filed bar applies only when a first-filed case is still “pending.” That led to the following exchange:
JUSTICE SCALIA: Mr. Stewart, before your time runs out, what – what is the Government’s position on the — on the point raised by counsel for Respondent; namely, if there is a dismissal of — on the merits of a – a civil action, is the government barred from later bringing a different action on the same claim?
MR. STEWART: Yes, we would think we would be barred. We think that was Congress’s expectation in 1986 and that’s the understanding of the statute that we’ve been operating under; that is, our protection under the statute is that when a qui tam suit is filed, we have an initial opportunity to decide whether to intervene or not. Even if we initially decide not to intervene, we can move later to intervene for good cause shown and so if we initially think the relator can do a capable job but then we decide later, no, he can’t, our protection against the claim being badly litigated is that we can take over the suit, and if we don’t avail ourselves of that protection and the case is decided against us on the merits, then claim preclusion would apply.
This is the correct view of the law (see Federal Rule of Civil Procedure 41(b)), but yet it is contrary to the view that DOJ advocates in the lower courts. (As Ronald Mann wrote on SCOTUSBlog, the Justices appeared “surprised that the government took such a moderate view” – as were we) . What practical effect this admission will have remains to be seen, but we hope that it may inspire defendants (and courts) to cite this language in explaining why DOJ cannot claim to be unaffected by adverse judgments on the merits. Perhaps if DOJ fully internalizes the fact that it can no longer claim to be unaffected by adverse decisions in unmeritorious non-intervened cases, it will consider dusting off its little-used authority to cause such cases to be dismissed. If it doesn’t, then as the Assistant Solicitor General conceded, the United States appropriately will be bound by adverse judgments rendered against the private citizens it allows to litigate on its behalf.
Posted by Scott Stein and Monica Groat
Yesterday, the Supreme Court heard oral argument in Kellogg Brown & Root v. Carter, a case which raises two important issues under the False Claims Act: (1) whether the Wartime Suspension of Limitations Act (WSLA) applies to toll the statute of limitations in civil FCA cases, and (2) whether a first-filed case is still deemed to be “pending” within the meaning of the FCA, barring any subsequently-filed suit, even after the first-filed case is settled or dismissed. We have previously written about this case here, here, and here. Though it is always precarious to predict the outcome of a case based on oral argument, the questioning at the argument suggests that while many of the justices were receptive to KBR’s argument that the WSLA does not apply to civil FCA claims, the relators and DOJ appeared to have the upper hand with regard to the scope of the first-to-file bar.
The lawyer for petitioner Kellogg Brown & Root (KBR) framed the first question before the Court as “whether Congress changed [the WSLA] along the way to make it civil” when the statute was amended in 1944 to delete the phrase “now indictable” from the phrase “offenses now indictable,” referencing the scope of actions to which the statute’s tolling provisions applied. Most members of the Court seemed skeptical of the arguments advanced by both respondent Carter and the Solicitor General that these amendments were intended to broaden the scope of the WSLA to apply to both criminal and civil matters. The Justices appeared to be far more receptive to KBR’s argument that Congress removed the phrase “now indictable” from the WLSA to ensure that the statute operated prospectively, and added the word “any” to clarify that the statute was applied to any offenses “against the United States.”
Carter’s lawyer and the Deputy Solicitor General arguing on behalf of the United States as amicus curie advanced several arguments in favor of reading the 1944 amendments to expand the WSLA to civil matters, but the Justices did not appear particularly receptive. Several of the Justices appeared wary of the argument advanced by both Carter and the Solicitor General that the use of the term “offenses” used in the WSLA and other sections of Title 18 of the United States Code could be read to refer to civil offenses.
The parties spent less time addressing the first-to-file bar. KBR’s attorney argued that if the Court found in KBR’s favor on the WLSA argument, it would not need to address the first-to-file issue at all. KBR did maintain the argument advanced in its briefs that the FCA’s first-to-file bar continues to apply to any subsequently filed suit even after a first-filed case is settled or dismissed. However, a number of justices appeared skeptical of this argument. Justice Kennedy noted that KBR’s arguments “give no significance of the word ‘pending'” and “almost write that out of the statute.” Justice Sotomayor and other justices suggested that the original source provision provided adequate protection from non-meritorious second-filed suits. Justice Ginsburg seemed more receptive to the argument that the first-to-file bar creates a race to the courthouse that incentivizes relators to bring information to the Government’s intention and may ultimately incentivize settlement.
A number of justices expressed concerns about whether the relator in a second-filed non-intervened suit would be bound by an adverse judgment against the relator in a first-filed non-intervened suit. To assuage those concerns, the Deputy Solicitor General argued that the United States, and any relator in a second-filed suit, would be bound by an adverse judgment in a non-intervened suit by a first-filed relator. This is actually a significant concession that runs directly contrary to the position that DOJ routinely takes in lower courts around the county – an issue we plan to cover in a separate post.
A decision in Kellogg Brown & Root is expected by June 2015, and we will provide an update when it is available.
Posted by Kristin Graham Koehler and Monica Groat
As we previously have written about, the Supreme Court has agreed to decide two important issues relating to the FCA in Kellogg Brown & Root v. Carter: (1) whether the Wartime Suspension of Limitations Act (WSLA) applies to toll the statute of limitations in civil FCA cases, and (2) whether the first-to-file bar ceases to apply once a first-filed case is settled or dismissed. Earlier this month, petitioners KBR Inc. and Halliburton Co. (collectively, KBR) filed their reply brief.
With respect to the application of the WSLA to civil FCA cases, KBR asserted that the relator Benjamin Carter and the Solicitor General (participating as amicus curiae) fundamentally have misinterpreted the statutes by ignoring the text, structure, history and purpose of the Act and suggesting that the WSLA’s references to an “offense” include civil violations as well as criminal offenses. Rejecting the argument that amendments to the statute have expanded its scope, KBR maintained that “Congress has repeatedly amended the WSLA to ensure symmetry with the criminal, not civil, statute of limitations.” The petitioners also rejected several policy arguments in favor of applying the WSLA to the FCA, including the Government’s argument that evidence for FCA cases may be difficult to obtain during times of war. KBR noted that “[m]ost FCA claims involve domestic conduct unrelated to war” and that the “record number” of FCA cases suggests that “wartime exigencies are not impairing the government and relators.” The petitioners also noted that the effect of the WSLA on FCA litigation can already be felt; the Government has begun to frequently invoke the statute, including “in cases having nothing to do with war.”
Regarding the FCA’s first-to-file bar, KBR argued that the FCA’s text, structure, and purpose cannot and should not be read to permit a relator to re-file a complaint after an earlier case is dismissed or settled. The petitioners also rejected several arguments in favor of additional flexibility for both relators and the Government.
KBR thus urged the Court to reverse the Fourth Circuit’s decision, which, according to the petitioners, read both the FCA and the WSLA to “effectively repeal[ ] the statute of limitations for claims of civil fraud against the government in the post-9/11 world, and give[ ] private relators leave to re-file duplicative claims indefinitely.”
The case is now fully-briefed and has been set for oral argument on Tuesday, January 13, 2015. The Solicitor General requested and was granted leave to participate in the argument as an amicus curiae on behalf of the respondent. A decision in this important FCA case is expected by June 2015.
As we previously reported, the Supreme Court has agreed to hear argument next term in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter. The case raises two issues of importance to FCA practitioners: (1) whether the Wartime Suspension of Limitations Act (WSLA) applies to toll the statute of limitations in civil FCA cases, and (2) whether the first-to-file bar ceases to apply once a first-filed case is settled or dismissed.
On August 29, the petitioners filed their opening brief. With regard to the statute of limitations issue, the petitioners argue that the WSLA should be narrowly construed and applied only to criminal cases. Furthermore, they note, “it is particularly inappropriate to apply the WSLA to qui tam actions, because the FCA contains a detailed limitations scheme that includes an absolute 10-year statute of repose.” With regard to the first-to-file bar, petitioners argue that the Fourth Circuit’s ruling, which interprets to bar to create a “one case at a time” rule, is contrary to the plain language of the statute. Furthermore, in allowing subsequent relators to file similar claims once a first-filed case has been dismissed, the Fourth Circuit’s interpretation fails to promote the bar’s “twin goals of encouraging prompt disclosure of valuable information about fraud, while discouraging opportunistic plaintiffs who do not contribute to the government’s knowledge of, or ability to pursue, fraud.”
A copy of the petitioners’ opening brief can be found here.