The Intent of the First-to-File Rule

By Andrew Guy, Peter Hutt II and John Sorrenti

Photo: iStock

Two years ago, in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court interpreted the “first-to-file” bar of the False Claims Act in a manner that seemingly authorizes relators to pursue qui tam suits based upon the same allegations made in previously dismissed FCA actions.

On remand from the Supreme Court, the Fourth Circuit recently issued an opinion in Carter in which it took a similarly text-based approach, but reached a different conclusion, holding that the act’s first-to-file bar should be interpreted in a manner that promotes finality and prevents copycat lawsuits. These opinions demonstrate the importance of carefully assessing the act’s statutory text in litigation.

The first-to-file rule states that “[w]hen a person brings an action . . . no person other than the government may intervene or bring a related action based on the facts underlying the pending action.” See, 31 U.S.C. § 3730(b)(5).

The Supreme Court’s decision in Carter declined to examine Congress’ statutory intent and instead looked to the dictionary definition of the term “pending” to hold that a later action is only barred as long as the first action remains undecided or is awaiting a decision.

Thus, the Supreme Court noted that “an earlier suit bars a later suit while the earlier suit remains undecided by ceases to bar that suit once it is dismissed.” Under this interpretation, once the first action ends, a second relator theoretically can bring a suit based on the same facts — provided, of course, that the subsequent suit is filed within the statute of limitations.

The Supreme Court remanded Carter for further proceedings consistent with its decision, but the district court quickly realized that the case presented additional questions involving the first-to-file rule. The relator in Carter had not waited until the first action had ended to file his case: he instead brought the action while two other FCA actions were pending.

And if the court dismissed the relator’s current lawsuit and the relator filed a new lawsuit, the new lawsuit would be barred by the statute of limitations. Recognizing the dilemma, the relator contended that he should be able to amend his complaint without having to re-file.

The district court rejected the relator’s contention, and the Fourth Circuit recently affirmed in United States ex rel. Carter v. Halliburton Co. As the Fourth Circuit explained, the FCA “imposes a restriction on the ‘bring[ing]’ of an ‘action.’”

Just as the Supreme Court had focused on the word “pending,” the Fourth Circuit focused on the word “bring.” The court noted that “[i]n ordinary parlance, one ‘bring[s] an action’ by ‘institut[ing] legal proceedings’” or by “‘commencing suit.’” Thus, the court explained that it “must look at the facts as they existed when the claim was brought to determine whether an action is barred by the first-to-file bar.”

At that time the relator in Carter filed his case, two actions were pending. And although those actions were subsequently dismissed, the Fourth Circuit made clear that facts “that may arise after the commencement of a relator’s action, such as the dismissals of earlier-filed, related actions pending at the time the relator brought his or her action, do not factor into this analysis.”

Carter argued that the Supreme Court’s ruling meant that “an earlier suit bars the continuation of a later suit while the earlier suit remains undecided but ceases to bar the continuation of that suit once it is dismissed.” However, the Fourth Circuit rejected this reading as “unreasonable” and instead interpreted the Supreme Court’s ruling to mean that “an earlier suit bars the bringing of a later suit while the earlier suit remains undecided but ceases to bar the bringing of that suit once it is dismissed.”

Therefore, the district court did not err when it dismissed the case. Moreover, the Fourth Circuit held that courts have no discretion when sanctioning a first-to-file violation and that “the only appropriate response . . . is dismissal.”

In reaching this conclusion, the Fourth Circuit addressed the First Circuit’s decision in United States ex rel. Gadbois v. Pharmerica Corp. There, the court held that a relator could amend its complaint without re-filing, if the first action ceases to be pending while the second action is ongoing.

The Fourth Circuit held that Gadbois was factually distinguishable, as the Gadbois relator had actually referenced the earlier actions in its amended complaint while Carter’s proposed revision to his complaint contained no mention of the related actions pending when he first filed his complaint.

Significantly, the Fourth Circuit also cited several district court cases, which suggested that Gadbois was wrongly decided on the merits.

The law within the Fourth Circuit is clear: a relator cannot file a qui tam action while a previously filed action based upon the same allegations is still pending.

Moreover, it is becoming increasingly clear that a relator cannot avoid the statute of limitations by amending a complaint that was originally barred by the first-to-file rule.

We note that the D.C. Circuit reached a similar conclusion in United States ex rel. Shea v. Cellco Partnership, and suspect that other appellate courts will likely follow suit.

Andrew Guy is an associate, Peter Hutt II a partner and John Sorrenti an associate at Covington & Burling LLP.

Topics: Defense Contracting, Government Contracting Insights

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