United States: The Supreme Court Holds Argument In Cochise Consultancy

Potential Outcomes and Implications for the False Claims Act

On March 19, 2019, Seyfarth's Anthony LaPlaca and Teddie Arnold witnessed oral argument at the U.S. Supreme Court in a government contracts case that has major implications for future enforcement of the federal False Claims Act (FCA).¹ In Cochise Consultancy, the Court is asked to interpret the FCA's statutes of limitations, which govern the time frame in which the government may initiate a civil false claim suit against a contractor.² While the Court will likely consider the case for several months before it issues any decision, the questions posed at oral argument seem to hint at how it will ultimately decide the issue.

The Basics of Qui Tam Suits

Most FCA civil suits are filed directly by the government against the contractor, asserting some false statement or false claim. However, the FCA is one of four statutes in the United States Code that also authorizes private parties to file civil actions on the government's behalf. Known as "qui tam" actions, these suits are most commonly initiated by employees or former employees of government contractors who witness false statements or false claim submissions by their employer. Upon filing a qui tam action, the person filing the suit (called the "relator") must notify the government that a complaint has been filed.³ Within 60 days of receiving notice from the relator, the government must elect to either: (i) proceed with the action and take over as the plaintiff, or; (ii) notify the court that it declines to take over the action, in which case the relator may conduct the suit on its own.⁴

Dueling Statutes of Limitations Under the FCA

The FCA establishes two distinct limitations periods applicable to civil actions. Under Section 3731(b)(1), any civil action may not be filed more than 6 years after the date on which the alleged violation of the FCA occurred.⁵ Alternatively, under the Subsection (b)(2) of that provision, no civil action may be filed "more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last."⁶ Thus, as written, the FCA contemplates two different events that could trigger the running of limitations—the first being the date of the FCA offense and the second being the date that the responsible "official of the United States" knew or reasonably should have known of the offense. These provisions have generated considerable confusion among contractors and spawned the underlying appeal in Cochise Consultancy.

The Relevant Background of Cochise Consultancy

In 2006, Billy Joe Hunt learned of an alleged fraud committed by his employer, a federal contractor to the Department of Defense.⁷ Seven years later, Mr. Hunt filed a qui tam action against the contractor, in which the government declined to intervene. Tasked with deciding which statute of limitations applied to the claim, the Court of Appeals for the Eleventh Circuit applied the 3-year limitations period under Subsection 3731(b)(2), which runs from the date that the government knew or should have known of the alleged FCA offense. Even though he was personally aware of the alleged fraud much earlier, Mr. Hunt advised the government of the alleged offense in November 30, 2010, and filed his complaint within 3 years of that date. The Court therefore held that, although the government was not a party to the civil suit, the 3-year statute of limitations applied, and the claim was therefore timely.⁸

On appeal to the Supreme Court, the petitioners framed the question presented as follows: "The question presented is 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).”⁹ Relying largely on the Court's 2010 decision in Graham County. Soil & Water Conservation District v. United States ex rel. Wilson,¹⁰ the Petitioners argued that Congress did not intend for Subsection 3731(b)(2) to apply to cases where the government is not a party to the case. Petitioners contended that the term "civil action under section 3730," as used in the FCA, was not intended by Congress to encompass every FCA suit. Petitioners further argued that application of the 3-year rule would lead to counterintuitive results because it would link the timing of an FCA suit to the knowledge of the government, even where the Department of Justice refused to take on the relator action.

The government argued in favor of the 3-year limitations period, based primarily on what it considered to be the plain language of the statute. According to the government, the FCA cannot function the way Congress intended if the Court holds that separate statutes of limitations apply to government suits and qui tam suits. The government took the position that the literal, plain meaning of the statutory language at issue was not ambiguous and, therefore, that the Court should apply the statute as written and allow claims to be filed as long as the government did not first learn of the issue more than three years prior. The government urged the Court to disclaim any distinction between direct actions and qui tam suits because the government remains the real party in interest entitled to the bulk of any proceeds recovered against the FCA defendant. Whether or not the government ultimately intervenes in a given action has no bearing, says the government, on which limitations period should apply.

Seyfarth Insights on Questions Posed at Oral Argument

Nobody at this firm claims to have a crystal ball that forecasts the outcome of Supreme Court cases. Ms. Cleo does not (and never has) worked here. Our attorneys, while skilled, are nearly as likely to predict the exact rationale, outcome, and makeup of the Court in Cochise as they are to fill out a perfect bracket for March Madness. That said, certain questions posed by Justices during the Cochise hearing may warrant inferences about where the decision is headed. The discussion below is nothing more than the author's ruminations about what issues are at the forefront of the Court's mind.

1. The Plain Meaning of the Text
   There were a significant number of questions, in particular from Justices Kavanaugh and Gorsuch, that revolved around the issue of whether the language of the FCA was legally ambiguous. In particular, the Justices probed whether the phrase "civil action under section 3730" could be construed to mean one thing as it relates to Subsection (b)(1), and something different as it relates to Subsection (b)(3). Under the Supreme Court's precedent, the Court will not interpret language beyond the clear and plain meaning of the text, except where the plain language would result in "absurdity." One question from Justice Kavanaugh may suggest that the Justices are having difficulty reconciling the plain language of the FCA limitations provision:JUSTICE KAVANAUGH: If it's—if it's not ambiguous, then I don't think there is a statutory interpretation canon any longer that says we can conclude that Congress didn't mean what it said. The only avenues are the absurdity canon or maybe scrivener's error, but you're not arguing any of those. So, if we conclude that it's not ambiguous, is there anything left?
2. The Applicability of the Graham Holding
   The applicability of Graham—which provided the foundation for the Petitioner's textual argument—was called into question as it pertains to the Cochise case. The Graham decision involved a claim of retaliation against a qui tam relator and held that the limitations period did not apply to such a claim.¹¹ Several Justices noted that it was unclear whether Graham should apply to the Cochise matter, which was not a retaliation case. Justice Gorsuch's questioning provided potentially fruitful insight:JUSTICE GORSUCH: In Graham, we held that retaliation claims just simply aren't covered by this provision at all, and they don't qualify under that introductory language for either purposes of (b)(1) or (b)(2). Here, you're asking us to split the baby, as it were. And we normally don't read the same language to mean two different things. And I believe that's a problem you face that we did not face in Graham.

4. The Government as Real Party in Interest
   Several Justices questioned whether there is any meaningful distinction between direct FCA actions and qui tam suits, given that in both actions, the government is the primary beneficiary of the funds recovered in connection with the fraud. For instance, Justice Ginsburg inquired: "Isn't the United States in some sense a party even if it hasn't intervened? After all, it's going to get the lion's share of recovery, and, if I understand correctly, it—the suit can't be dismissed without notice…and approval by the United States." Similarly, Justice Sotomayor surmised that restricting the limitations to three years would effectively force the Government to "step into the shoes of the relator"—which defies the government's statutory prerogative to intervene. These lines of questioning may suggest that the Court is not fully sold on the rationale that Congress intended Subsections (b)(1) and (b)(2) to differ based on whether the government intervenes in the action.
5. The Practical Implications of Applying a 10-Year Limitations Period
   At oral argument the Petitioner contended that it is inequitable and would create perverse incentives to allow relators to sit on evidence for nearly ten years before filing suit against a contractor. The Petitioner observed that the purpose of the FCA limitations provision is to encourage relators to come forward as soon as possible, as well as to prevent the spoliation or loss of evidence relevant to the alleged fraud. But according to Chief Justice Roberts, the concerns about lost documents, faded witness memories, and general unfairness were "really more of an academic concern." Justice Roberts went on to observe that, in the typical qui tam action, relators have ample incentive to file first, to ensure that the government or other relators don't beat them to the punch. According to Justice Roberts: "The theory of a relator just sort of, as you say, waiting in the weeds I think is not a realistic one." Moreover, as observed by Justice Sotomayor, Congress has expressly permitted U.S. District courts to consider, in their FCA award decisions, whether the relator was dilatory in bringing its claim at such a late date. These questions suggests that the Court does not necessarily view the FCA scheme as being unfair or creating perverse incentives that undermine the statutes fundamental purpose.

Conclusion: More to Follow

Questions posed by judges during oral argument are not necessarily indicative of the outcome of a case. In the author's view, the Supreme Court inquiries in the Cochise matter hint that the Court will affirm the Cochise decision and allow relators to bring FCA suits as long as they are filed within 3 years of the government's actual or constructive knowledge of the suit. Time will tell whether that prediction is correct, but until then, readers should operate under the presumption that the rule is as stated by the Eleventh Circuit.

Footnote

1 31 U.S.C. §§ 3729-3733 (2009).

2 Cochise Consultancy, Inc. v. United States ex rel. Billy Joe Hunt, Supreme Court Case No. 18-315.

3 31 U.S.C. § 3730(b)(2).

4 Id. § 3730(b)(4).

5 Id. § 3730(b)(1).

6 Id. § 3731(b)(2).

7 The Eleventh Circuit's decision in United States v. Cochise Consultancy, Inc. provides a full summary of the facts and issues giving rise to the Supreme Courts grant of certiorari. 887 F.3d 1081 (11^th Cir. 2018).

8 887 F.3d at 1097 ("Applying our conclusions that § 3731(b)(2) applies in non-intervened cases and is triggered by the knowledge of a government official, not of the relator, we hold that it is not apparent from the face of Hunt's complaint that his FCA claim is untimely. Hunt alleged that the relevant government official learned the material facts on November 30, 2010 when he disclosed the fraudulent scheme to FBI agents, and he filed suit within three years of this disclosure.")

9 The parties' briefs in the case are available online at: target=_blankhttps://www.supremecourt.gov/docket/docketfiles/html/public/18-315.html.

10 559 U.S. 280, 290 (2010).

11 Graham, 559 U.S. at 296 ("Neither the House nor the Senate Committee Report explained why a federal limitation would be appropriate, and the subsequent addition of "administrative" sources to this Category might be taken as a sign that such a limitation was rejected by the full Chambers.")

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.