INSIGHT: High Court’s Expected Decision Good Sign for False Claims Act Defendants

On Nov. 16, 2018, the U.S. Supreme Court granted review in United States ex rel. Hunt v. Cochise Consultancy Inc. to address conflicting decisions on the False Claims Act (FCA) statute of limitations.

The FCA has a two-tiered statute of limitations set forth at 31 U.S.C. § 3731(b). The first tier—Section 3731(b)(1)—allows the government or a qui tam relator to file suit six years from the date of an alleged violation.

The second tier—Section 3731(b)(2)—provides an alternative limitations period, or tolling provision, designed to prevent defendants from escaping liability by concealing fraudulent activity, and delaying the government’s opportunity to learn of the fraud. The tolling period permits suit within three years after a government official knew or had reason to know of the violation, but not to exceed 10 years from the date of the false claim.

The Relator

Billy Joe Hunt, the relator in Hunt, alleged that two contractors violated the FCA while performing a contract to clean up excess munitions in Iraq. Hunt alleged defendants engaged in a kickback scheme from February 2006 through September 2006.

On Nov. 30, 2010, the FBI interviewed Hunt about his role in a separate kickback scheme. During that interview, Hunt informed the FBI of the alleged fraud involving the contract to remediate munitions in Iraq. Hunt pleaded guilty for his role in the separate kickback scheme and served 10 months in prison. After his release, Hunt filed a complaint on Nov. 27, 2013, more than six years after the alleged fraud, but barely within three years after he disclosed the fraud to the FBI.

Issues at Play

The Supreme Court will address two issues:

• whether the tolling provision, based on government knowledge, applies when the government declines to intervene in a qui tam action, and
• whether a qui tam relator can be deemed an “official of the United States” entitled to the benefit of a government official’s lack of knowledge under the tolling provision.

Prediction

We predict the Supreme Court in Hunt will hold Section 3731(b)(2) applies only if the government intervenes in a qui tam action. The facts make Hunt a good vehicle for the court to reach that decision. According to Hunt, the government learned of the fraud when he revealed it during the FBI’s interview with him about a separate kickback scheme. Hunt was aware of the kickback scheme as it was occurring in 2006, thus the interview occurred at least three years after Hunt learned of the fraud.

Hunt’s complaint was time barred under the six-year statute of limitations in Section 3731(b)(1). Hunt’s complaint would also have time barred under the three-year tolling provision in Section 3731(b)(2) if the cause of action accrued when he reasonably should have known of the fraud.

Similarly, had Hunt been “the official of the United States charged with responsibility to act in the circumstances,” the complaint would have been untimely because Hunt filed his action more than three years after he knew of the fraud.

Instead, the Eleventh Circuit allowed Hunt as relator to determine when the alternative limitations period in Section 3731(b)(2) began. Hunt, who filed suit after his release from prison, designated his FBI interviewer as “the official of the United States charged with responsibility to act in the circumstances.”

It defies logic to permit a relator to be given that much power, allowing him to sue on a claim that is time barred under section 3731(b)(2).

Thus, in basing the limitations period on a responsible government official’s knowledge, Congress intended for Section 3731(b)(2) to apply only when the government is a party to the lawsuit through intervention. Also, in enacting Section 3731(b)(2), Congress imported the language from a separate statute—28 U.S.C. § 2416(c)—which tolls the statute of limitations only in actions brought by the United States.

Undue Burdens

On Jan. 10, 2018, Michael Granston, director of the DOJ Commercial Litigation Branch, Fraud Section, issued a memorandum identifying factors to use in evaluating whether to dismiss FCA cases under 31 U.S.C. § 3730(c)(2)(A), which allows the government to move for dismissal of qui tam actions over relator’s objections. In deciding whether qui tam actions should be dismissed, the DOJ considers the burden to government agencies.

Consistent with the Granston memo, on Dec. 17, 2018, the DOJ moved to dismiss 11 FCA cases. The DOJ determined, in part, that the suits would unduly burden the government, including costs of monitoring the litigation and placing additional burdens on the courts.

A Supreme Court decision that allows relators to sue on claims that, properly viewed, are time barred, would encourage the DOJ to move to dismiss more suits on the basis of undue burden to government agencies.

Author Information

John S. Pachter is a founding member of Smith Pachter McWhorter PLC. A practitioner of government contract law for more than 50 years, Pachter has engaged in substantial litigation before the Boards of Contract Appeals, the U.S. Court of Federal Claims, federal district courts, and the U.S. Court of Appeals for the Federal Circuit.

Todd M. Garland is an associate of Smith Pachter McWhorter PLC where he practices in government contracts and construction law, specializing in contract claims and disputes with the federal government.