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High Court Sides With Plaintiffs on False Claims Timeliness (1)

May 13, 2019, 2:25 PMUpdated: May 13, 2019, 4:52 PM

The U.S. Supreme Court adopted a plaintiff-friendly False Claims Act standard for timely accusing government contractors and other defendants of defrauding the government May 13.

Allowing a whistleblower to rely on a three-year filing period, even when the government doesn’t intervene in a case, satisfies the FCA’s text, the court ruled in a unanimous decision written by Justice Clarence Thomas.

Under the FCA, a case must be filed within six years of when the violation occurred, or three years after the date when the material facts are known or reasonably should have been known by a relevant government official, but in any event within 10 years of the alleged violation.

The ruling affirmed that a whistleblower pursuing an FCA case on behalf of the government enjoys the same amount of time to file a case as the government would have if acting alone or in concert with the whistleblower, said David Chizewer of Goldberg Kohn, Chicago.

“The number of cases, in practice, that actually will be materially affected by this decision may be limited. But the broader message is impactful,” he said.

“The court affirmed that whistleblowers pursuing cases without government intervention are fulfilling a function on par with cases the government brings or joins,” he said.

The result wasn’t surprising because at oral argument the court focused on the plain meaning of the statute, the government as the real party in interest at all times, and the practical implications of applying the same limitations period whether or not the government intervenes, said Lori Pines of of Weil, Gotshal & Manges LLP, New York.

“By articulating a uniform national standard, the Supreme Court has taken steps to reduce the risk of forum shopping by whistlebowers seeking the most favorable limitations period for their cases,” she said.

“One practical impact of the decision to allow whistleblowers to reach back up to ten years is that defendants will shoulder the burden of more expansive discovery,” said Jason Crawford of Crowell & Moring LLP, Washington.

“It is not unusual for whistleblower suits to remain under seal for years, during which time the statute of limitations is tolled. By the time a case enters the discovery phase, a whistleblower could very well be seeking documents from over a dozen years ago,” he said.

“The decision comes at a time when the Justice Department has been more aggressive in seeking the dismissal of declined qui tam lawsuits—a ray of sunshine for the whistleblower who has brought a declined qui tam,” said Alex Hontos of Dorsey & Whitney LLP, Minneapolis.

Iraq Munitions Contract

Whistleblower Billy Joe Hunt sued his former employer Parsons Corp. and subcontractor Cochise Consultancy Inc., alleging that they defrauded the government while performing a $60 million munitions clearing contract in Iraq.

Hunt said Cochise obtained its subcontract from Parsons by providing illegal gifts to an Army official, and the defendants’ failure to disclose these payments to the government violated the False Claims Act. The fraudulent acts took place some time prior to January 2006 until early 2007, Hunt said.

A district court dismissed the case for failing to satisfy the FCA’s six-year statute of limitations period. Hunt couldn’t rely upon the the three-year government knowledge period because the government declined to intervene, the district court said.

The Eleventh Circuit reversed, saying the suit was timely under the three-year period because he told the FBI about alleged misconduct on Nov. 30, 2010, and filed his case on Nov. 27, 2013.

The contractors challenged this ruling in their Supreme Court petition.

Not Unusual

The court affirmed that the FCA allows whistleblowers to rely on the three-year period when the government declines to intervene.

It said the contractors believed this interpretation would lead to counterintuitive results, noting that if the government discovers fraud on the day it occurs, it would have six years to bring suit.

But if a whistleblower discovers fraud on the day it occurred, and the government doesn’t discover it, the whistleblower could have as many as 10 years to bring suit, the court said.

The court saw “nothing unusual about extending the limitations period when the government official did not know and should not reasonably have known the relevant facts, given that the government is the party harmed by the false claim and will receive the bulk of any recovery.”

The court also rejected the contractors’ "fallback argument” that a whistleblower in a nonintervened suit should be considered a government official, which would mean the three-year period should start when the whistleblower knew or should have known about fraud.

A whistleblower is a private person, not a government official, under the FCA, the court said.

Private whistleblowers aren’t responsible for investigating or prosecuting false claims actions, the court said.

This holding is a “positive take-away” because it “further reinforces the strong distinction that the court has already made between the interests of the government and the self-interest of a whistleblower,” said Mark Troy of Crowell & Moring LLP, Los Angeles.

“An important theme in any defense of a non-intervened qui tam action is to show the court or jury that that the whistleblower does not represent the government’s interests. This decision helps with that theme,” he said.

Repair a Split

The Supreme Court needed to provide clarity on this timeliness issue and repair a three-way circuit split, the contractors said in their petition challenging the Eleventh Circuit’s ruling.

The petition said Hunt’s case would have failed in the Fourth, Fifth, or Tenth circuits, which don’t allow a whistleblower to rely on the three-year period if the government hasn’t intervened against a defendant.

A case filed in the Third or Ninth circuits may rely on the three-year period as long the complaint is filed within three of years of when the whistleblower knew or should have known about the alleged fraud. Hunt’s case wouldn’t have survived in these circuits because he didn’t satisfy their three-year rule interpretation, the petition said.

The Eleventh Circuit standard conflicted with the first group of courts by allowing whistleblowers to invoke the three-year period even though the government didn’t intervene, the petition said.

And it conflicted with the second group of courts by saying that the three-year period doesn’t begin to run until the U.S. government—as opposed to the whistleblower—knows about the alleged fraud, the petition said.

The decision here affirmed the Eleventh Circuit’s decision, adopting that reading of the FCA.

Juris Day PLLC represented Billy Joe Hunt. Shumaker, Loop & Kendrick LLP and Gibson, Dunn & Crutcher LLP represented the contractors.

The case is Cochise Consultancy Inc. v. United States ex rel Hunt, U.S., No. 18-315, 5/13/19.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com