CASE LAW ALERT: Cochise Consultancy, Inc. v. United States ex re. Hunt, 2019 WL 2078086, ___ S. Ct. ___ (2019)
In a unanimous opinion issued on May 19, 2019, the United States Supreme Court resolved a circuit split regarding the statute of limitations applicable to qui tam False Claims Act (“FCA”) cases in which the Government does not intervene.
The FCA permits a private person, referred to under the FCA as a relator, to bring a qui tam civil action, standing in the shoes of the Federal Government, against a person or entity who “knowingly presents … a false or fraudulent claim for payment to the Government.” 31 U.S.C. §§ 3730(b), 3729(a). The Government may, in its discretion, intervene in an action initiated by a relator. See §§ 3730(b)(2), (4).
The statute of limitations applicable to FCA actions, i.e., civil actions under 31 U.S.C. § 3730, is two-pronged. An FCA action must be brought either within 6 years of the violation it asserts, 31 U.S.C. § 3731(b)(1); or within 3 years after “the official of the United States” with the responsibility to prosecute the violation knew or should have known of the material facts, but not more than 10 years after the violation occurred, 31 U.S.C. § 3731(b)(2). The latter provision in essence creates a statutory “discovery rule” that tolls an otherwise applicable limitations period.
This tolling provision was added by amendment to the FCA in 1986 and arose from legislative concern that the government was not discovering instances of fraud in time to pursue them. The new language posed a tricky question regarding how to calculate the limitations period in cases where the Government does not intervene.
A circuit split arose. The Ninth Circuit held that relators can utilize the protection of § 3731(b)(2), but that the extended limitations period is triggered by the relator’s knowledge of the violation, not the Government’s. U.S. ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996). Other circuits held that § 3731(b)(2) only applies only in cases filed by the Government or in which the Government intervenes. See e.g. U.S. ex rel. Sanders v. North American Bus Indus., 546 F.3d 288 (4th Cir. 2008). In other words, relators were beholden to the original 6-year limitations period set forth in § (b)(1) without tolling. Id.
The Supreme Court rejected both of these interpretations, siding instead with the Eleventh Circuit in holding that relators can invoke the (potentially) longer limitations period set forth in § 3731(b)(2) even when the Government does not intervene, and that the 3 year limitations period does not begin running until the Government knows (or should know) of the alleged fraud, regardless of when the relator discovered it.
The Supreme Court based its decision on two key interpretations of the text. First, it noted that Government-initiated, relator-initiated but Government intervened, and relator-initiated but non-intervened FCA suits are all “civil actions” for purposes of applying § 3731. Thus, under the plain language, subsections (b)(1) and (b)(2) apply equally to each type of FCA suit.
Second, the Court held that a relator should not be treated as functionally equivalent to “the official of the United States charged with responsibility to act…” for purposes of tolling under § 3731(b)(2). Rather, the Court found that the plain language clearly and intentionally referred to “the official” as the person whose knowledge triggered the § (b)(2) limitations period. As such, a relator prosecuting a case in which the Government does not intervene can claim the benefit of the tolling provision set forth in § 3731(b)(2), and it is “the [Government] official,” not the relator, whose knowledge triggers the running of the 3-year limitations period.
At first glance, this decision appears to increase the limitations period on relator FCA claims, at least up to the additional 4 years afforded under § 3731(b)(2). However, its impact may not be so great. The decision may only hold practical significance in true whistleblower scenarios wherein a relator has information which the Government does not and cannot know until revealed by the relator. Of course, once the relator conveys his or her inside knowledge to the government—as such relators typically do—the § (b)(2) limitations period will commence.
The ruling will not afford an additional grace period to a relator whose knowledge is no greater than the Government’s, but who simply takes on the risk of pursuing an FCA action where the Government has not. In such cases, the limitations period will run from the date of the Government’s actual or imputed knowledge of the material facts, granting no additional time to the relator to bring suit.
In sum, Government contractors should be aware that under Cochise whistleblower relators may be able to leverage the additional 4 year tolling period on FCA claims afforded by § 3731(b)(2). Although such instances are likely to be fairly limited, the high court’s decision offers much needed clarity regarding tolling of the statute of limitations in relator-initiated, non-intervened cases.