Category

First-to-File

26 May 2015

As Expected, Supreme Court Issues Split Decision in KBR v. Carter

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.

(more…)

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14 January 2015

Oral Argument Suggests A Mixed Result in Carter

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.

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A decision in Kellogg Brown & Root is expected by June 2015, and we will provide an update when it is available.

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05 December 2014

First Circuit Holds That First-to-File Rule Bars Qui Tam Complaints Based on Same “Essential Facts” as Prior Complaint, Even if Prior Complaint Offers Significantly Less Detail

Posted by Kristin Graham Koehler and Brian P. Morrissey

Earlier this week, the First Circuit held that the FCA’s first-to-file provision barred a qui tam action against a pharmaceutical manufacturer that was premised on the same “essential facts” as an earlier-filed qui tam complaint, even though the second complaint provided “far more detail[ed]” allegations than the first. United States ex rel. Ven-A-Care of the Florida Keys, Inc. v. Baxter Healthcare Corp., Nos. 13-1732, 13-2083, 2014 WL 6737102, *6 (1st Cir. Dec. 1, 2014). This decision, paired with the First Circuit’s recent ruling in United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 117 (1st Cir. 2014)—which we previously have discussed—emphasizes that the First Circuit will rigorously enforce the FCA’s first-to-file bar to preclude qui tam complaints that allege the same fraudulent scheme as a previously-filed action, even if the second complaint contains different, and more detailed, supporting allegations.

The case has a long and complex history, aspects of which we have covered before. In brief, Linnette Sun and Greg Hamilton, a former employee and a former customer of Baxter Healthcare, respectively, filed a qui tam suit against the Company, alleging that it had fraudulently inflated the prices of its drugs, including the anti-hemophilic drugs Advate and Recombinate, and secured higher-than-deserved Medicare and Medicaid reimbursements as a result.

Years earlier, a pharmacy, Ven-A-Care of the Florida Keys, Inc., had filed a similar qui tam complaint against a number of pharmaceutical manufacturers, including Baxter, alleging that all of them had fraudulently inflated their drug prices in order to obtain higher reimbursements. Baxter and Ven-A-Care ultimately settled that case, with the Government’s consent.

After the Ven-A-Care settlement, Baxter moved for summary judgment in Sun and Hamilton’s case, arguing that the settlement released Baxter from Sun and Hamilton’s similar claims. In response, Sun and Hamilton argued—and the District Court agreed—that the Ven-A-Care settlement could not release their claims until they were granted a fairness hearing, pursuant to 31 U.S.C. § 3730(c)(2)(B), to test the adequacy of that settlement as applied to their allegations. In a novel ruling, the District Court allowed Sun and Hamilton to file a Rule 60(b) motion to reopen the Ven-A-Care judgment for the purpose of conducting this hearing.

In the reopening proceedings, Baxter argued that the FCA’s first-to-file rule, 31 U.S.C. 3730(b)(5), barred Sun and Hamilton’s complaint because it alleged the same “essential facts” as Ven-A-Care’s prior complaint. Engaging in a side-by-side comparison of the two complaints, the District Court agreed, and denied Sun and Hamilton’s Rule 60(b) motion on this ground. The First Circuit affirmed.

The First Circuit readily acknowledged that Sun and Hamilton’s complaint “included many details about the underlying scheme that the first relator (Ven-A-Care) did not supply.” 2014 WL 673102, *8. Indeed, Sun and Hamilton’s later-filed complaint “offer[ed] far more detail than Ven-A-Care about particular actors within Baxter and the role those actors played” in the alleged fraud, and “showed greater familiarity with how Baxter pulled off the supposed fraud,” which was attributable to the “inside knowledge” that Sun and Hamilton possessed but Ven-A-Care lacked. Id. at *6.

Despite Sun and Hamilton’s use of “comparatively greater detail” than Ven-A-Care in describing the alleged fraud, the First Circuit held that this is “not what matters for the first-to-file rule.” Id. at *8. Repeatedly invoking its recent decision in Wilson, the Court declared that “[s]o long as the first complaint sets forth the ‘essential facts’ of the fraud alleged in the second complaint, it does all it needs to do under the first-to-file rule.” Id. at *6 (quoting Wilson, 750 F.3d at 117).

To satisfy this “essential facts” test, the First Circuit explained that the first complaint need not disclose every detail of the alleged fraud. Rather, it must only include information that “‘provide[s] . . . the government sufficient notice to initiate an investigation into [the] allegedly fraudulent practices.'” Id. at *4 (quoting United States ex rel. Heineman–Guta v. Guidant Corp., 718 F.3d 28, 36–37 (1st Cir.2013)). Importantly, the First Circuit held that a first-filed qui tam complaint can satisfy this “essential facts” test even if it does “not contain the kind of detailed and particularized allegations of fraudulent conduct . . . required to fulfill the heightened pleading standard for fraud cases set forth in Federal Rule of Civil Procedure 9(b).” Id. at *6.

Applying this standard, the First Circuit concluded that Ven-A-Care’s complaint provided the Government with sufficient notice of the “essential facts” alleged in Sun and Hamilton’s subsequent complaint to bar Sun and Hamilton’s later-filed action. The Ven-A-Care complaint named Baxter as a defendant, specified a date-range in which Baxter’s alleged misconduct occurred, and a “separate section” of the Complaint “devoted solely to Baxter” (rather than the other named defendants) specifically alleged that Baxter “knowingly made false representations about the price and costs of its drugs” and submitted “false records” to Medicare and Medicaid to further this scheme. Id. at *6, *9. In addition, that section of the complaint specifically referenced Recombinate as one of the drugs for which Baxter inflated its prices, and ‘disclosed a pricing spread for Recombinate'” to support this allegation. Id. at *6.

The First Circuit held that these allegations by Ven-A-Care were sufficient to put the Government on notice of the alleged fraud, even though Sun and Hamilton’s subsequent complaint offered considerably greater detail.

Paired with Wilson, this decision strongly demonstrates that the First Circuit will broadly enforce the first-to-file bar against new FCA actions premised on alleged frauds that already have been adequately disclosed to the Government, even in cases in which the new complaint provides significantly more particularized allegations than the first complaint that was filed.

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02 December 2014

Reply Brief Filed in Supreme Court Case Concerning Statute of Limitations & First to File Bar; Case Set for Argument

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.

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05 September 2014

Opening Brief Filed in Forthcoming Supreme Court Case Concerning Statute of Limitations & First to File Bar

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.

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01 July 2014

Supreme Court Agrees To Hear Important Case Involving First to File and Statute of Limitations

On July 1, the Supreme Court granted the petition for a writ of certiorari in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, a case which will have significant implications for two key issues under the False Claims Act: statute of limitations and the first-to-file bar. The petition raises two questions. The first is “[w]hether the Wartime Suspension of Limitations Act – a criminal code provision that tolls the statute of limitations for “any offense” involving fraud against the government “[w]hen the United States is at war,” 18 U.S.C. § 3287, and which this Court has instructed must be “narrowly construed” in favor of repose – applies to claims of civil fraud brought by private relators, and is triggered without a formal declaration of war, in a manner that leads to indefinite tolling.” As we have previously written, courts are divided on whether the Wartime Suspension of Limitations Act in effect permanently tolls the statute of limitations on civil FCA claims. Notably, the Supreme Court has agreed to address this question notwithstanding the fact that the Solicitor General opposed the request.

The second, equally important issue raised by the petition is “whether, contrary to the conclusion of numerous courts, the False Claims Act’s so-called “first-to-file” bar, 31 U.S.C. § 3730(b)(5) – which creates a race to the courthouse to reward relators who promptly disclose fraud against the government, while prohibiting repetitive, parasitic claims – functions as a “one case- at-a-time” rule allowing an infinite series of duplicative claims so long as no prior claim is pending at the time of filing.” As we have discussed in previous posts, there is a split among the circuits on this issue, which the Court has now apparently agreed to resolve – again, over the government’s objection.

The case will not be heard until the Court’s 2015 term (starting in October 2014), meaning a decision is unlikely before next year. We will be following the case closely and provide updates on key developments.

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16 June 2014

Fifth Circuit Applies First-To-File Bar in Fraudulent Billing Suit

Posted by Scott Stein and Catherine Starks

On June 4, 2014, the Fifth Circuit affirmed the dismissal of a qui tam suit under the first to file bar, even though the later-filed complaint referred to specific government programs and the first-filed complaint did not. United States ex rel. Johnson v. Planned Parenthood of Houston and Southeast Texas, Inc., Case No. 13-20206 (5th Cir. June 4, 2014). A copy of the decision can be found here.

Relator Johnson, a former Planned Parenthood employee, alleged that Planned Parenthood falsely billed the Texas Women’s Health Program (“TWHP”), a Medicaid waiver program, for non-reimbursable procedures and services and unperformed laboratory tests, among other activities. The district court dismissed Johnson’s suit under the FCA and Texas Medicaid Fraud Prevention Act based on a case filed before the Johnson complaint by a different relator (Karen Reynolds) who, without explicitly identifying TWHP as a payor, alleged that Planned Parenthood fraudulently billed Medicaid programs for unnecessary medical services or services not rendered, among other activities.

On appeal, Johnson challenged the first to file dismissal on grounds that the Reynolds complaint did not mention TWHP or other specific Medicaid programs. However, the Fifth Circuit concluded that because both complaints alleged that Planned Parenthood’s billing practices caused the fraudulent receipt of funding from the federal government and the Texas Medicaid programs, an investigation into the allegations would have likely uncovered the same fraudulent activity, particularly because TWHP is a Texas Medicaid program. The court reasoned: “Considering that this court has previously held that fraudulent filings occurring in different states would be discovered through a thorough investigation into the filing system of an insurance company, it is likely that an investigation into fraudulent Medicaid filings would uncover fraudulent filings for related programs, as the alleged fraudulent activity occurred within the same offices.” Additionally, although Johnson argued that her allegations of fraud were different in kind because Reynolds alleged fraudulent billing for services not performed whereas Johnson alleged that the services were improperly coded, the Fifth Circuit held that the specific facts added by Johnson were not sufficient to avoid the first-to-file bar because both complaints alleged that fraud was committed by altering patient records and billing Medicaid programs for services other than those rendered.

The case suggests that, in fraudulent billing cases, the first to file bar may apply broadly where there is a previously-filed case alleging the fraudulent receipt of funds from related government programs, and even where alleged billing practices differ from practices that were the subject of an earlier-filed case.

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05 June 2014

Solicitor General Urges Supreme Court to Deny Certiorari On Question Whether The Iraq Conflict Tolls The FCA’s Statute of Limitations And, Separately, On The Scope Of The FCA’s First-To-File Bar

Posted by Jonathan Cohn and Brian Morrissey

Last week, the Solicitor General filed an amicus brief urging the Supreme Court to deny certiorari on a case that presents two questions of critical importance to FCA defendants. As previously reported gt;on this blog, the Fourth Circuit in United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), held that the Wartime Suspension of Limitations Act (WLSA), 18 U.S.C. § 3287, tolls the FCA’s statute of limitations for frauds committed against the Federal Government at any time since the Iraq conflict began in 2002 until the Government declares a formal end to that conflict. Separately, the Fourth Circuit held that the FCA’s “first-to-file” rule, 31 U.S.C. § 3730(b)(5), bars a duplicative qui tam suit only while the related, previously-filed suit remains ongoing. Once the first suit is resolved, the new suit may be re-filed, despite its overlap with the first.

Benjamin Carter, a former employee of Kellogg Brown & Root Services (KBR) filed a qui tam action against Halliburton and its subsidiaries, including KBR, alleging that the company submitted false claims for services provided to the U.S. military in Iraq during early 2005. After prior versions were dismissed without prejudice, Carter filed his operative complaint in June 2011. The district court held that Carter’s 2011 complaint was barred by the FCA’s six-year statute of limitations, 31 U.S.C. § 3731(b), and, alternatively, that the complaint was barred by the FCA’s first-to-file rule because Carter’s allegations substantially overlapped with a previously-filed qui tam suit that was pending when Carter filed his 2011 complaint, but dismissed shortly thereafter. The Fourth Circuit reversed on both grounds, concluding that the WLSA tolled the FCA’s statute of limitations on Carter’s claims, and that Carter should have been allowed to proceed on his claims once the prior action had been dismissed. The Halliburton parties now seek certiorari.

The WLSA tolls the statute of limitations for “any offense” involving “fraud” on the Federal Government while the Nation is “at war.” 18 U.S.C. § 3287. The Fourth Circuit held that (1) the Iraq conflict constitutes a “war” under the WLSA; (2) that the WLSA tolls the statute of limitations for civil FCA claims, not just criminal “offenses”; and (3) that the WLSA applies to qui tam actions, even if the Government does not intervene. The Solicitor General argues that all three conclusions are correct. Importantly, the text of the WLSA is not limited to acts of fraud committed by military contractors. Thus, under the Fourth Circuit’s and the Solicitor General’s position, the WLSA arguably tolls the statute of limitations for all FCA claims based on conduct that occurred after 2002, even if the alleged conduct is entirely unrelated to military action (e.g., healthcare or mortgage fraud). As Petitioners argue, if this expansive reading is upheld, the FCA’s “statute of limitations has not even begun to run” on any claim based on conduct occurring after the hostilities in Iraq and Afghanistan began. Pet. for Certiorari at 3.

The Fourth Circuit also held that the FCA’s first-to-file rule bars duplicative qui tam suits only during the period that a related, previously-filed suit remains “pending,” and permits the duplicative suit to go forward once the prior action has been resolved. This deepens a circuit split on this important question: the Seventh and Tenth Circuits join the Fourth; the D.C. Circuit takes the contrary position, holding that the first-to-file rule bars new suits “even if the initial action is no longer pending.” United States ex rel. Shea v. Cellco Partnership, No. 12-7133, 2014 WL 1394687 (D.C. Cir. Apr. 11, 2014). Petitioners count the First, Fifth, and Ninth Circuits as joining the D.C. Circuit, a point the Solicitor General disputes. The Solicitor General strongly endorses the Fourth Circuit’s view, which Petitioners argue will transform the first-to-file rule from a “crucial limitation” on “parasitic” FCA suits into a mere “one-case-at-a-time rule.” Pet. for Certiorari at 24-25.

Petitioners will have the opportunity to reply to the Solicitor General’s brief before the Supreme Court acts on the petition. The Chamber of Commerce and the National Defense Industrial Association previously filed amicus briefs urging the Court to grant certiorari.

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07 May 2014

First Circuit Issues Important Ruling on First-to-File Bar as Applied to Pharmaceutical Marketing

On April 30, the First Circuit held in a case alleging off-label marketing that the first-to-file bar can apply even where the earlier filed-case was based on different off-label uses. See U.S. ex rel. Wilson v. Bristol-Myers Squibb, Inc., Case No. 13-1948 (1st Cir. April 30, 2014) The basic facts were as follows: Relator Wilson, a former pharmaceutical sales representative, alleged that his former employer engaged in off-label promotion of Plavix and Pravachol. The district court granted a motion to dismiss those claims under the first-to-file bar, based on a case that had been filed by a different relator (Richardson) prior to the filing of Wilson’s initial complaint. The Richardson complaint also alleged that the defendants had engaged in a broad, nationwide scheme to promote and prescribe Pravachol and Plavix for off-label uses. The district court held that both the Richardson and Wilson complaints alleged widespread off-label promotion of the same drugs. The only material difference between the two complaints is that the specific off-label uses alleged in the Richardson complaint were different from the off-label uses (and associated disease states) in the Wilson complaint. The primarily issue raised on appeal was whether the Richardson complaint alleged the “essential facts” on which the Wilson complaint was based such that the first-to-file bar applied, notwithstanding the fact that Wilson’s complaint alleged different off-label uses than the Richardson complaint.

The First Circuit held that the first-to-file bar applied, notwithstanding that the two complaints were based on different off-label uses of the same drugs, because “[t]he overlaps among the two complaints were considerable: the same defendants, the same drugs, the assertion of nationwide scheme, and the allegations of specific mechanisms of promotion common to both and leading to common patterns of submission of false claims under the federal Medicaid program.” Op. at 15. The fact that the two cases were based on different off-label uses, the court held, was “not enough to reasonably conclude the earlier Richardson Complaint was not a related claim to the government based on the facts. Whether the first complaint results in there being an actual government investigation and whether any such investigation extends to off-label uses to treat different diseases is not the point.” Id. at 16.

The First Circuit also affirmed the district court’s denial of Wilson’s motion for leave to file an amended complaint. The proposed amended complaint would have added a new co-relator (Allen, another former sales representative), and expanded the scope of the allegations. The First Circuit agreed that to the extent that the new co-relator’s allegations replicated those of Wilson’s earlier complaint, they were barred by the first-to-file rule. And the First Circuit agreed with the district court’s alternative ruling that to the extent that the proposed new complaint added substantively new allegations not previously disclosed to the government, the proposed complaint violated the FCA’s filing and service requirements, 31 USC 3730(b)(2).

This case suggests that the first-to-file bar may have broad application to pharmaceutical marketing cases where there is a previously-filed case involving the same drug, even where the improper uses alleged are different in the two cases. Pharmaceutical marketing cases typically allege nationwide schemes based on the same type of conduct (e.g., training of sales representatives, speaker bureaus, continuing medical education), so the key types of allegations that the First Circuit found triggered the first-to-file bar in Wilson are likely to be present in other pharmaceutical marketing cases. Wilson supports the argument that the first-to-file bar can be applied even where the indications for which a drug is allegedly being marketed improperly are different from the indications that were the subject of an earlier-filed case.

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16 April 2014

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

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.

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