March 14, 2019
The U.S. Supreme Court’s upcoming decision in Cochise should clarify the issue of whether a three-year limitations period applies to whistleblowers, or relators, in cases in which the government does not intervene.
By articulating a uniform national standard, the Supreme Court can reduce the risk of forum shopping, provide fairness and predictability for defendants, and potentially curtail the scope of defendants’ liability.
The Supreme Court granted certiorari on Nov. 16, 2018, in Cochise Consultancy Inc. v. United States ex rel. Hunt (Case No. 18-315) to resolve a three-way circuit split over the applicable statute of limitations period in non-intervened False Claims Act (FCA) actions.
Specifically, the Supreme Court agreed to consider “whether a relator in a False Claims Act qui tam action may rely on the statute of limitations in 31 U.S.C. § 3731(b)(2) in a suit in which the United States has declined to intervene and, if so, whether the relator constitutes an ‘official of the United States’ for purposes of Section 3731(b)(2).”
The most relator-friendly interpretation of this provision can potentially extend the limitations period in FCA cases for up to 10 years. The prevalence of FCA litigation and the large amounts at stake in these cases underscores this issue’s significance and the need for clarification as to how long a relator can wait to bring an FCA claim when the government has not intervened.
Under the FCA, there are two statute of limitations periods in provision 31 U.S.C. § 3731(b): (1) six years after the date of the alleged violation, or (2) three years after the date on which the “official of the United States” learned or should have known of the relevant facts underlying the claim, but in no event more than ten years after the violation.
Courts Split Three Ways
Courts have split three ways over two questions arising out of this provision: (a) whether relators in non-intervened cases are entitled to invoke the three-year provision at all, and (b) if so, whether reference to knowledge of an “official of the United States” refers only to knowledge of a responsible government official, or also includes knowledge of the relator.
In Cochise, relator Hunt filed suit in 2013, more than six years after the alleged fraud, but within three years of when he informed the government of the alleged fraud. The district court, consistent with decisions from the Fourth and Tenth Circuit, held that Hunt could not rely on the three-year limitations period because the United States had not intervened and, alternatively, because Hunt learned of the alleged fraud more than three years earlier.
However, the Eleventh Circuit Court of Appeals reversed, holding that nothing in the statutory language of § 3731(b)(2) suggested the three-year extension only applies to intervened cases, and that § 3731(b)(2) unambiguously identifies a particular official of the United States, not the relator, as the relevant person whose knowledge triggers the limitations period.
Consequently, a relator in the Eleventh Circuit effectively now has up to 10 years to bring an FCA claim, regardless of when the relator learned of the fraud, provided the case is filed within three years of a Government official obtaining knowledge of the material facts underlying the claim.
Eleventh Circuit Rules Differently
The Eleventh Circuit’s holding departs from other circuits’ approaches. Currently, the Fourth, Tenth, and Fifth Circuits have not applied subsection 3731(b)(2) to cases in which the Government declines to intervene, and instead require relators to bring cases in non-intervened cases within the six-year period under subsection 3731(b)(1). See, e.g., United States ex rel. Jackson v. Univ. of N. Texas, 673 F. App’x 384, 387 (5th Cir. 2016).
Those courts have reasoned, in part, that the legislative history demonstrates that subsection 3731(b)(2) was only meant to apply to cases in which the Unites States intervened because it was borrowed from 28 U.S.C. §2416(c), which tolled actions for those cases brought “only by the United States.” United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F. 3d 288, 294 (4th Cir. 2008).
They further noted that the purpose of section 3731(b)(2) is to provide the government with some flexibility in pursuing cases that would otherwise be blocked by the statute of limitations. Sikkenga, 472 F. 3d at 725.
The Fourth Circuit also reasoned that allowing relators in non-intervened cases to rely on section 3731(b)(2) would create “headaches” for the government, which would then be faced with claimants seeking to litigate the identity of the relevant government officials in the underlying claims.
Courts adopting this approach emphasize that the statutory language expressly refers only to the knowledge of the United States and not to the relator, and thus reason that § 3731(b)(2) does not apply in cases in which the government is not a participating party. See Sanders, 546 F. 3d at 293, 295 (“Congress intended Section 3731(b)(2) to extend the FCA’s default six-year period only in cases in which the [G]overnment is a party, rather than to produce the bizarre scenario in which the limitations period in a relator’s action depends on the knowledge of a nonparty to the action”); Sikkenga, 472 F.3d at 726 (“Surely, Congress could not have intended to base a statute of limitations on the knowledge of a non-party.”).
Further, these courts have found that if the longer statute of limitations in § 3731(b)(2) applied to both the Government and relators, relators would have an incentive to withhold material facts from the Government for as long as possible in order to increase potential recovery.
In Cochise, the Eleventh Circuit rejected these arguments, finding that the Fourth and Tenth Circuits “reflexively applied the general rule that a limitations period is triggered by the knowledge of a party” and “failed to consider the unique role that the United States plays even in a non-intervened qui tam case.” 887 F.3d at 1092.
The court noted that, even when the United States does not intervene, it continues to have a primary interest in the litigation and is entitled to review discovery, stay discovery if it interferes with an investigation of a related matter, and participate in any recovery. Id. at 1091-92.
Thus, it reasoned that Congress must have meant to peg the limitations period to “the knowledge of a [G]overnment official even when the United States declines to intervene.” Id. at 1092. The court also rejected the argument that potentially extending the limitations period by another three years for relators would encourage delay.
It noted, for example, that relators still face considerable structural pressure to bring their claims as soon as possible, as other relators could bring a claim first, or the underlying transactions could be publicly disclosed. Id. at 1093-94.
Adopting a third approach, The Ninth Circuit agreed with the Eleventh Circuit that a relator may rely on § 3731(b)(2) in non-intervened cases, but reasoned that the limitations period should begin when the individual relator, and not a United States government official, knew or should have known the facts relevant to the claim.
These courts have relied on the lack of statutory language expressly limiting § 3731(b)(2) to actions in which the government is a party and noted that where Congress intended a distinction between the government and the relator, the statute clearly sets forth the distinction.
In addition, these courts have relied on equitable principles and public policy to determine that because the relator is suing on behalf of the government, the relator becomes a government agent and “an official of the United States charged with the responsibility to act” under this provision.
In such cases, therefore, when the relator becomes aware of an alleged fraud, the statute begins to run, and he must act. United States ex. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217-18 (9th Cir. 1996).
Holding otherwise would encourage the relator to withhold filing until the maximum ten-year limit, which would frustrate the goals of the qui tam provision and the FCA itself. Id. at 1218. See also United Sates ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270, 273 (3d Cir. 2003) (unpublished opinion) (holding implicitly that section 3731(b)(2) was available to a private relator).
Although the Eleventh Circuit agreed with the Ninth Circuit in finding that a relator may invoke § 3731(b)(2)’s extended limitations period, it rejected the Ninth Circuit’s “legal fiction” that the relator becomes a government official for purposes of the limitations period since the statutory text “unambiguously identifies a particular official of the United States as the relevant person whose knowledge causes the limitations period to begin to run.” Cochise, 887 F.3d at 1096-97.
Thus, under the Eleventh Circuit’s holding, in some circumstances a private relator may extend the limitations period beyond six years in reliance only on the level of knowledge of the Government as to the underlying facts supporting the claim.
Lori L. Pines is a partner in Weil’s Complex Commercial Litigation practice group and is Head of the Firm’s False Claims Act/Qui Tam group. Based in New York, she has played a central role in managing the defense of some of the nation’s most complex and public disputes throughout her twenty-five year career.
Adam Safwat is a counsel in Weil’s global White Collar Defense, Regulatory and Investigations practice group. Based in Washington, DC, his practice focuses on white collar criminal defense, regulatory enforcement matters, and internal investigations.
Nigar A. Shaikh is an associate in Weil’s Complex Commercial Litigation practice group and is based in New York.Reproduced with permission. Published March 14, 2019. Copyright 2019 The Bureau of National Affairs, Inc. 800- 372-1033. For further use, please visit http://www.bna.com/copyright-permission-request/