21 May 2019

First Circuit Changes Course and Finds First-to-File Rule Is Not Jurisdictional

On May 6, 2019, the U.S. Court of Appeals for the First Circuit overturned its own precedent, holding that the first-to-file rule is not jurisdictional. United States v. Millennium Labs., Inc., No. 17-1106, 2019 WL 1987249, at *1 (1st Cir. May 6, 2019).  The First Circuit now joins the D.C. Circuit and the Second Circuit in treating the first-to-file requirement as merely a matter of adequate pleading (see United States ex rel. Hayes v. Allstate Ins. Co., 853 F.3d 80, 86 (2d Cir.) (per curiam), cert. denied, 138 S. Ct. 199 (2017); United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 120-21 (D.C. Cir. 2015)), widening an existing circuit split on the issue. See, e.g., United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 117 (1st Cir. 2014) (first-to-file rule is jurisdictional).

The underlying case arose from allegations that Millennium Health (formerly Millennium Laboratories), a national drug testing laboratory, submitted claims for medically unnecessary testing and caused physicians to submit fraudulent claims. After the government intervened in several qui tam suits against Millennium, the laboratory settled with the government for $227 million, setting aside fifteen percent of the settlement proceeds as a relator’s share. In proceedings before the District Court of Massachusetts, Mark McGuire, a relator in one of the qui tam actions, brought a crossclaim for declaratory judgment that he was the first to file and was thus entitled to the fifteen-percent share. Another relator, Robert Cunningham moved to dismiss. The lower court dismissed McGuire’s crossclaim for lack of subject-matter jurisdiction, citing “documents and information [Cunningham] provided the government which are not contained in his complaint,” to conclude that Cunningham was the first to alert the government to Millennium’s alleged fraud. United States ex rel. Cunningham v. Millennium Labs., Inc., 202 F. Supp. 3d 198, 204 (D. Mass. 2016), rev’d, 2019 WL 1987249.

The First Circuit reversed this decision.  The Court noted that the first-to-file rule prohibits “person[s] other than the Government” from “intervene[ing] or bring[ing] a related action based on the facts underlying the pending action,” 31 U.S.C. § 3730(b)(5).  Departing from its prior precedent, the First Circuit found that the first-to-file issue is to be addressed under Federal Rule of Civil Procedure 12(b)(6), and not Rule 12(b)(1); thus, confining its review to the pleadings and to facts subject to judicial notice.  Critical to its decision, the appellate court looked to the Supreme Court’s most recent caselaw, which has attempted to “ward off profligate use of the term ‘jurisdiction.’” 2019 WL 1987249, at *6 (quoting Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 153 (2013)).

First, the First Circuit considered the Supreme Court decision in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), in which the Supreme Court “addressed the operation of the first-to-file bar on decidedly nonjurisdictional terms, raising the issue after it decided a nonjurisdictional statute of limitations issue.” 2019 WL 1987249, at *7 (quoting United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 121 n.4 (D.C. Cir. 2015)). The First Circuit considered that order of analysis as a “clear implication” that the Supreme Court did not consider the first-to-file rule as jurisdictional.

Second, the First Circuit found that none of its recent opinions had applied the Supreme Court-mandated “readily administrable bright line” rule to see if Congress has “clearly state[d]” that the first-to-file provision is jurisdictional. Id. at *6 (alteration in original) (quoting Arbaugh v. Y&H Corp., 546 U.S. 500, 515 (2006)).

And third, the First Circuit looked to the statutory text and legislative history and found that the language of the first-to-file rule “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts” and “advances [its Congressional] goal even when the provision is not jurisdictional.” Id. at *7-8 (citing Heath, 791 F.3d at 120).

Finally, applying its newly minted first-to-file standard of review, the First Circuit found that McGuire was the first relator to file a claim including the essential elements of Millennium’s fraud, which the government then pursued. Notably, the decision also suggested that the First Circuit may have a more narrow view of the criteria that make cases sufficiently “related” for the first-to-file rule to apply. The First Circuit’s claim-by-claim analysis found that the two fraudulent schemes that McGuire alleged had a different mechanism and focused on a different stage of testing than the one Cunningham described. See Id. at *10.

The First Circuit’s holding is important because it limits the use of the first-to-file rule as a defense in two ways. First, it confines the analysis to allegations within FCA complaints and excludes extrinsic information. Second, it restricts the use of the defense to the more limited time window of responsive pleadings, unlike subject matter jurisdiction, which can be raised at any time.

The First Circuit decision can be found here.

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