30 June 2015

Impact of Supreme Court’s Decision on False Claims Act Cases

On May 26, 2015, the United States Supreme Court handed down its decision in Kellogg Brown & Root Servs., Inc. et al. v United States ex rel. Carter, 575 U.S._____. The Supreme Court’s decision had been heavily anticipated by health care providers who face qui tam actions brought under the False Claims Act (FCA).

In the wake of the unanimous decision, much of the attention focused on the Supreme Court’s refusal to apply the Wartime Suspension of Limitations Act to civil fraud claims under the FCA. While that holding was significant, the Supreme Court’s interpretation of the FCA’s first-to-file bar and the simple phrase “pending action” may have a bigger and more lasting impact.

In affirming the Fourth Circuit’s first-to-file ruling, the Supreme Court adopted a narrow interpretation of the first-to-file bar. The Supreme Court held that the phrase “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action” was unambiguous and applied only when the prior FCA remains pending in court. Once the case has been dismissed, whether following a settlement or a motion to dismiss, it is no longer pending and the first-to-file bar does not preclude a subsequently filed qui tam case.

The Supreme Court was sympathetic to the chilling effect the holding may have on settlement efforts noting that “defendants may be reluctant to settle such actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims.” However, the Supreme Court’s hands were tied by the unambiguous language and the Justices were unable to make the provisions of the FCA “operate together smoothly like a finely tuned machine.”

The practical impact is that any defendant seeking to settle an FCA case must now attempt to get the government to dismiss the case with prejudice; something the government has been reticent to do. In exchange for such terms, the government will most likely seek to extract more in settlement; either in money or through the imposition of a corporate integrity agreement. Failure to negotiate a dismissal with prejudice puts the defendant at risk of facing a second qui tam suit based on the same conduct. In short, qui tam cases just became harder to settle.

Should you have any questions regarding this case or the False Claims Act please contact Matthew Vicari, Timothy Gutwald or your regular Miller Johnson attorney.

The False Claims Act (FCA) involves actions informally called “whistleblowing.” The Act provides a legal tool for individuals with inside knowledge to thwart fraudulent billings to the Federal Government. The false claims typically involve federal contractors in health care, military, or other government spending programs.

Qui Tam is part of the FCA. An informed private individual (whistleblower) brings a lawsuit on the government’s behalf charging the contractor filed false claims for financial gain. After filing, the whistleblower is protected from harassment and retaliation including being fired.