FCA Now

The past 18 months have been a (relatively) wild time for the False Claims Act — on the books since 1863. In FY2018 the Department of Justice obtained more than $2.8 billion in settlements and judgments from cases involving fraud and false claims against the United States government. Add to this staggering statistic the fallout of the Supreme Court’s decision in Universal Health Services Inc. v. United States ex rel. Escobar, circuit splits on key timing provisions, and a change in DOJ leadership, and we are left with some very costly questions. Fortunately, government enforcement agencies and the Supreme Court are providing some much-needed guidance on open issues and interpretative revisions that make it an opportune time to take another look at “Lincoln’s Law.” DOJ and Barr to curb qui tam actions? The vast majority of recoveries from FCA cases come from lawsuits filed by whistleblowers, or “relators,” suing on behalf of the government under the FCA’s qui tam provisions. In 2018, the director of DOJ’s Civil Frauds section issued a memorandum encouraging DOJ trial attorneys to consider dismissing unmeritorious qui tam cases (even over the objection of the relator). The DOJ’s authority to dismiss FCA cases has long been built directly into the governing statute, 31 U.S.C. § 3730(c)(2)(A). But in practice DOJ trial attorneys rarely used this power, preferring to allow qui tam cases in which DOJ declined to intervene to continue being prosecuted by the relator. The new internal guidance suggests that DOJ attorneys should be more energetic in dismissing qui tam cases that lack substantial merit, are the product of parasitic relators, or that would unduly tax government resources. Meritless qui tam cases may also “generate adverse decisions that may affect the government’s ability to enforce the FCA.” The early returns show that DOJ seems to be more willing to dismiss declined qui tams than at any point in recent memory. This development is notable under a department headed by Attorney General William Barr. Before serving as AG under George H.W. Bush, Barr served in the department’s Office of Legal Counsel, where he provided legal advice to the president and executive branch agencies. In 1989, Barr authored a memorandum arguing that the qui tam provisions of the FCA were “patently unconstitutional,” in violation of the Appointments Clause, the Article III standing doctrine, and the doctrine of separation of powers. Barr wrote that private qui tam actions are a “devastating threat to the Executive’s constitutional authority.” When pressed, Barr walked back this position during his recent confirmation hearing before the Senate Judiciary Committee, noting he would enforce the FCA “diligently” and “in good faith.” While it remains to be seen whether dismissals increase under his leadership, DOJ has already moved to dismiss at least one high-profile case after SCOTUS denied review. See Gilead Sci. Inc. v. U.S. ex rel. Campie, U.S. No. 17-936, pet. denied Jan. 7, 2019 (9th Cir.). Consolidated guidelines regarding cooperation credit The DOJ also recently released a revised and consolidated set of guidelines for determining cooperation credit for organizations facing exposure under the FCA. The consolidated guidelines — revisions to the U.S. Attorney’s Manual — identify the main factors that the DOJ will consider when assessing the maximum “credit” parties will get for (1) voluntarily self-disclosing misconduct; (2) proactively cooperating with FCA investigations; and (3) taking effective remedial measures. The guidelines define “credit” as, typically, “reducing the penalties or damages multiple sought by the Department.” The guidance aims to consolidate and add uniformity to how these issues will be addressed — something that historically could vary considerably. Although the guidelines do not significantly alter existing DOJ policy, they provide a clearer and concise set of guidelines to the AUSAs and Civil Frauds trial attorneys who will evaluate an organization’s cooperation and self-disclosure. For organizations seeking to understand their own obligations and potential options, understanding the government’s playbook has never been more important. SCOTUS settles circuit split regarding tolling of statute of limitations While circuits remain divided on many key issues (see below), on May 13, 2019, the U.S. Supreme Court decided Cochise Consultancy, Inc. v. United States ex rel. Hunt, 587 U.S. ___ (2019), and resolved a circuit split regarding the statute of limitations for an FCA claim brought by a relator between six and 10 years after a violation, but fewer than three years after the government knew or should have known the relevant facts. The court held that relators can invoke a statute that tolls the usual six-year FCA statute of limitations to permit suit until up to three years “after the date when facts material to the right of action are known or reasonably known to the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” 31 U.S.C. § 3731(b). This means a relator can claim the benefit of this tolling provision even when the government declines to intervene and the relator knew of the alleged violation before the usual six-year statute of limitations expires. Bottom line: relators under certain circumstances now have more time to sue, and targets of FCA claims must now prepare themselves for the possibility of defending against qui tam FCA claims for up to ten years after an alleged violation. Falsity and materiality post-Escobar SCOTUS’ guidance ends there, as it has denied all six recent petitions asking the court to clarify both the falsity and materiality requirements of its decision in Universal Health Services Inc. v. United States ex rel. Escobar , 136 S. Ct. 1989 (2016). While Escobar clarified that contractors requesting payment could be liable under the FCA for concealing their failure to comply with contract requirements that are important to the government, it did not provide guidance on when a violated contractual requirement is material. One enduring circuit split concerns whether a complaint automatically fails for lack of materiality when a contractor shows that the government knew about noncompliance but still continued to pay the contractor. Compare Gilead, U.S. No. 17-936 (9th Cir.) with United States ex rel. Harman v. Trinity Indus. Inc., U.S. No. 17-1149, pet. denied Jan. 7, 2019 (5th Cir.). Another split involves whether a complaint must identify specific misrepresentations a contractor made about performance, as well as materiality, to adequately allege falsity. One hundred and fifty-six years have passed since the FCA’s passage, but the passage of time hasn’t necessarily clarified many of the FCA’s nuances and ambiguities. For regulated entities that are subject to the FCA (and for the lawyers who represent them), nuance and ambiguity can be a source of liability and grief — or a source for defenses and advocacy. In short, it has never been more important to understand the peril and promise of a very old law.

On May 13, 2019, the U.S. Supreme Court decided Cochise Consultancy, Inc. v. United States ex rel. Hunt, No. 18–325, and resolved a circuit split regarding the statute of limitations for an FCA claim brought by a relator between six and ten years after a violation, but less than three years after the government knew or should have known the relevant facts. The Court held that relators can invoke a statute that tolls the usual six-year FCA statute of limitations to permit suit until up to three years “after the date when facts material to the right of action are known or reasonably known to the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.”  31 U.S.C. § 3731(b).  In doing so, the Court settled the debate about whether a relator can claim the benefit of this tolling provision even when the government declines to intervene and the relator knew of the alleged violation before the usual six-year statute of limitations expires. The Court held a relator can. Relator Billy Joe Hunt worked for a defense contractor in Iraq tasked with cleaning up excess munitions left behind by enemy forces. Hunt alleged that the contractor and others defrauded the United States through a scheme designed to award a security subcontract to a higher priced contractor than the lowest qualified bidder. As a result of the alleged scheme, Hunt claimed that the United States paid for the higher priced services through September 2006. On November 30, 2010, Hunt reported the alleged fraud to FBI agents investigating a separate kickback scheme. On November 27, 2013, Hunt filed a sealed complaint alleging FCA claims against the contractors in federal court in Alabama. The government declined to intervene, and the contractors moved to dismiss the claims as time-barred under the six-year statute of limitations period in 31 U.S.C. § 3731(b)(1). The district court dismissed the claims, but the U.S. Court of Appeals for the Eleventh Circuit reversed, finding that Section 3731(b)(2) tolled the statute of limitations until three years after the United States became aware of the alleged scheme. The Supreme Court agreed to review the decision to resolve a split among the circuit courts about how to apply the tolling provision. The Court agreed that Hunt was entitled to invoke the three-year tolling provision under Section 3137(b)(2), even though the government declined to intervene and Hunt knew of the alleged fraud well before disclosing the scheme to the FBI in 2010. The Court reasoned the text of the statute does not support the contractors’ theories that the United States should have to intervene before the tolling provision applied or that a private relator could himself be “the official” whose knowledge begins the three-year tolling period. Although the Court was not enamored with the text of Section 3731(b)(2)—Justice Alito called the FCA “a terribly drafted statute” at oral argument—the justices unanimously agreed it could only be read one way. This decision creates an anomaly in the world of tolling provisions—typically, plaintiffs can claim the benefit of a tolling provision only when they personally did not know they had a potential claim. Not so in FCA cases. Rather, Cochise makes clear that an FCA relator can bring an otherwise time-barred claim that the realtor has long known about if a third party (“the official of the United States”) did not know the claim existed until a later date. This is what the Court decided Congress envisioned when it wrote the statute. After all, in an FCA suit, the United States is always the beneficiary of more than half of any settlement or judgment proceeds. The United States has the authority to move to dismiss an FCA suit, even when it did not intervene, and its consent is always required to settle an FCA suit. Given this unique role, the Court decided it was not illogical to follow the plain meaning of the statutory text and extend to relators tolling rights that depend on the knowledge of the United States. The implications for government contractors and others subject to the FCA are clear: First, relators now have more time—as many as four more years—to bring FCA claims. Second, because claims brought by private relators are initially sealed while the government decides whether to intervene—a process that can itself take years—a government contractor may not learn of a timely-filed complaint until more than ten years after the alleged violation. Third, government recoveries in declined qui tam actions may trend upward, given that there is now a broader universe of conduct that could be encompassed by a relator’s complaint. Fourth, government contractors may want to evaluate their document-retention policies to retain documentation related to government claims until ten years—or more—have elapsed. Burdensome though this may be, it might assist contractors defend themselves against the aged FCA claims made possible by the Court’s interpretation of the statute.

On Tuesday, March 19, the Supreme Court considered whether to extend the FCA’s alternate 10-year statute of limitations to cases in which the government does not intervene.   The case, Cochise Consultancy Inc. v. United States, ex rel. Hunt, involves a whistleblower’s qui tam action alleging that two defense contractors defrauded the government. The case centers on the FCA’s two statutes of limitations. One allows lawsuits to be filed within six years of the alleged fraud. 31 U.S.C. § 3731(b)(1). The other allows lawsuits to be filed three years after the federal government knows of facts “material to the right of action,” but never more than 10 years after the alleged fraud. 31 U.S.C. § 3731(b)(2). In Cochise, the relator filed his complaint in 2013, more than six after the alleged fraud, which took place in 2006 and 2007. The relator argued that his complaint was timely under the 10-year limitations period of § 3731(b)(2) because he filed it within three years after the FBI learned of the fraud in 2010. It was undisputed that if the government had intervened, the 10-year limitations period would have applied.   At issue was whether that period can apply in cases where, as in Cochise, the government does not intervene. The Fourth and Tenth Circuits had previously ruled that it could not, but the Eleventh Circuit created a split when it ruled—in the decision on appeal in Cochise, and as previously reported by this blog here—that that period could apply to cases in which the government is not a party. At Tuesday’s argument, defense contractors’ counsel argued that extending the 10-year limitations period would result in increased claims, impose higher evidentiary burdens, and allow relators to “wait in the weeds” while developing their cases. But relator’s counsel argued that, in practice, relators have a strong incentive to file as soon as possible, because otherwise the potential plaintiff risks their claim being dismissed under the “first to file bar,” which is intended to avoid duplicative FCA litigation by prohibiting subsequent FCA actions based upon the same essential facts as a previously filed qui tam action. The Solicitor General’s Office also argued the relator’s position was consistent with the FCA’s purpose because “the majority of any recovery would go to the United States” even where the government does not intervene. Although it is difficult to predict the Court’s decision based on oral argument, it seems at least possible that the Court will extend the FCA’s 10-year statute of limitations to cases where the government does not intervene. That result would likely increase risk and costs for defendants facing FCA claims.