Whistleblowers dodge disaster in Supreme Court’s KBR decision

May 27, 2015

The military contractor Kellogg Brown & Root Services won at the U.S. Supreme Court on Tuesday, when the justices ruled unanimously in KBR v. U.S. ex rel Carter that the Wartime Suspension of Limitations Act extends the time limit only for criminal fraud cases, not for civil suits under the False Claims Act. KBR lawyer John Elwood of Vinson & Elkins told my Reuters colleague Lawrence Hurley that the decision should effectively kill a 2011 whistleblower suit accusing the company of billing the U.S. government for months of water purification services in Iraq it didn’t actually provide.

But whistleblowers won the case as well. The Supreme Court rejected KBR’s interpretation of the FCA’s “first to file” rule, which bars any plaintiff other than the government from bringing a suit related to fraud allegations in a pending FCA case. Citing a split 2014 decision from the District of Columbia U.S. Circuit Court of Appeals in U.S. ex rel Shea v. Cellco, KBR had argued that Congress meant “first filed” when it used the word “pending” in the FCA statute. According to KBR and its business-friendly amici – which groused to the Supreme Court about serial complaints by avaricious whistleblowers – a first-filed FCA suit remains pending for the purposes of the first-to-file bar even after the case has been dismissed.

If the justices had agreed with KBR and the D.C. Circuit, the filing of one FCA case would forever preclude whistleblowers from bringing related claims, regardless of why the original case was tossed. The court, however, said KBR’s “very peculiar” definition of pending distorted both the word’s ordinary meaning and Congress’ intention of deterring fraud. (The opinion, written by Justice Samuel Alito, pointed out that under KBR’s analysis, 1803’s Marbury v. Madison is pending, as is, for that matter, the trial of Socrates.)

Justice Alito said that in the KBR case, for instance, the first FCA suit to accuse the company of overbilling for water purification was dismissed for failure to prosecute. It just doesn’t make sense, he said, to assume that Congress meant for “the abandonment of an earlier suit to bar a later potentially successful suit that might result in a large recovery for the government.” The court said it would hew to the conventional meaning of pending: An FCA suit, the opinion concluded, ceases to be pending when it is dismissed.

That holding, said whistleblower lawyer Colette Matzzie of Phillips & Cohen, is a “tremendous victory.” It’s quite common in FCA litigation, she said, for dismissed first suits to be followed by new complaints that flesh out or expand upon the original allegations. The Supreme Court’s decision will permit the government to continue to collect in such cases, she said.

Matzzie and plaintiffs’ lawyer Mark Hurt, who is facing a pending petition for certiorari by Purdue Pharma in another case involving the FCA’s first-to-file rule, said whistleblowers will still have to show their allegations are not based on publicly disclosed information, which includes previous complaints. And the Supreme Court opinion won’t shield follow-on plaintiffs from collateral estoppel defenses in cases in which judges have dismissed first-filed suits on the merits. But considering the potentially disastrous consequences for whistleblowers if the court had sided with KBR, Matzzie and Hurt said, the opinion is great news.

I reached out to lawyers on both sides of the Cellco FCA case in which the D.C. Circuit adopted the broad reading of the first-to-file rule that the Supreme Court rejected in Tuesday’s KBR decision. (Cellco does business as Verizon Wireless.) The justices have scheduled the Cellco case for conference tomorrow. Neither whistleblower counsel at London & Mead nor Cellco lawyers at Wilmer Cutler Pickering Hale & Dorr got back to me.

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