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United States ex rel. Carter v. Halliburton Co.

United States Court of Appeals, Fourth Circuit

July 31, 2017

UNITED STATES ex rel. BENJAMIN CARTER, Plaintiff-Appellant,

          Argued: March 22, 2017

         Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. James C. Cacheris, Senior District Judge. (1:11-cv-00602-JCC-JFA)


          David Smart Stone, STONE & MAGNANINI LLP, Berkeley Heights, New Jersey, for Appellant.

          John Patrick Elwood, VINSON & ELKINS LLP, Washington, D.C., for Appellees.

         ON BRIEF:

          David Ludwig, DUNLAP, BENNETT & LUDWIG, PLLC, Leesburg, Virginia; Robert A. Magnanini, STONE & MAGNANINI LLP, Berkeley Heights, New Jersey, for Appellant.

          Craig D. Margolis, Jeremy C. Marwell, Tirzah S. Lollar, Ralph C. Mayrell, VINSON & ELKINS LLP, Washington, D.C., for Appellees. Kate Comerford Todd, Steven P. Lehotsky, U.S. CHAMBER LITIGATION CENTER, Washington, D.C.; Jonathan S. Franklin, Mark Emery, NORTON ROSE FULBRIGHT U.S. LLP, Washington, D.C., for Amicus Curiae.

          Before AGEE, WYNN, and FLOYD, Circuit Judges.

         Affirmed by published opinion. Judge Floyd wrote the opinion, in which Judge Agee and Judge Wynn joined. Judge Wynn wrote a separate concurring opinion.

          FLOYD, Circuit Judge.

         The False Claims Act (FCA) empowers private individuals acting on behalf of the government to bring civil actions against those that defraud the government. The FCA contains a provision, known as the "first-to-file" rule, which bars these private individuals, known as relators, from bringing actions under the FCA while a related action is pending. In this case, back before this Court for a third time, we consider whether the first-to-file rule mandates dismissal of a relator's action that was brought while related actions were pending, even after the related actions have been dismissed and the relator's complaint has been amended, albeit without mention of the related actions. We conclude that it does.



         The FCA imposes liability for knowingly presenting false or fraudulent claims to the government of the United States for payment or approval. 31 U.S.C. § 3729(a)(1). "In adopting the FCA, 'the objective of Congress was broadly to protect the funds and property of the government.'" United States ex rel. Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir. 2010) (quoting Rainwater v. United States, 356 U.S. 590, 592 (1958)).

         Liability under the FCA is no small matter. An FCA violator may be held responsible for treble damages in addition to civil penalties. See 31 U.S.C. § 3729(a)(1). The FCA's liability scheme is enforced through civil actions filed by the government, 31 U.S.C. § 3730(a), as well as through civil actions-known as qui tam actions-that are filed by private parties-known as relators-"in the name of the Government, " 31 U.S.C. § 3730(b)(1).

         In a qui tam action under the FCA, a relator files the complaint under seal, and serves a copy of the complaint and an evidentiary disclosure on the government. 31 U.S.C. § 3730(b)(2). This procedure enables the government to investigate the matter, so that it may decide whether to take over the relator's action or to instead allow the relator to litigate the action in the government's place. See Smith v. Clark/Smoot/Russell, 796 F.3d 424, 430 (4th Cir. 2015); 31 U.S.C. § 3730(b)(4). A relator who brings a meritorious qui tam action receives attorney's fees, court costs, and a percentage of recovered proceeds. See State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 137 S.Ct. 436, 440 (2016); 31 U.S.C. § 3730(d).

         "Although designed to incentivize whistleblowers, the FCA also seeks to prevent parasitic lawsuits based on previously disclosed fraud." United States ex rel. Beauchamp v. Academi Training Ctr., 816 F.3d 37, 39 (4th Cir. 2016). To that end, the FCA contains strict limits on its qui tam provisions, including a statutory "first-to-file" rule. Under that rule, "[w]hen a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. § 3730(b)(5). "If a court finds that the particular action before it is barred by the first-to-file rule, the court lacks subject matter jurisdiction over the later-filed matter, " and dismissal is therefore required. United States ex rel. Carson v. Manor Care, Inc., 851 F.3d 293, 303 (4th Cir. 2017).[1]


         Appellees Halliburton Company; Kellogg Brown & Root Services, Inc.; KBR, Inc.; and Service Employees International, Inc. (collectively, "KBR"), are a group of defense contractors and related entities that provided logistical services to the United States military during the armed conflict in Iraq. From January to April 2005, Appellant Benjamin Carter worked for KBR at a water purification unit employed to provide clean water to American troops serving in Iraq.

         In June 2011, Carter filed a qui tam complaint against KBR in the Eastern District of Virginia. See United States ex rel. Carter v. Halliburton Co. (the "Carter Action"), No. 11-cv-602 (E.D. Va. filed June 2, 2011). In his complaint, Carter alleged that KBR had violated the FCA by fraudulently billing the government in connection with its water purification services.[2]

         At the time the Carter Action was brought, two allegedly related actions were already pending: United States ex rel. Duprey, No. 8:07-cv-1487 (D. Md. filed June 5, 2007) (the "Maryland Action"), and a sealed action filed in Texas in 2007 (the "Texas Action"). However, the Maryland Action was dismissed in October 2011, and the Texas Action was dismissed in March 2012.

         In November 2011, the district court ruled that the Maryland Action was related to the later-filed Carter Action, and that therefore the latter action was precluded by the first-to-file rule. The fact that the Maryland Action had been dismissed prior to the district court's ruling on the Carter Action gave the court no pause, because it believed that "whether a qui tam action is barred by [the first-to-file rule] is determined by looking at the facts as they existed when the action was brought." United States ex rel. Carter v. Halliburton Co. (Carter I), No. 1:11-cv-602, 2011 WL 6178878, at *8 (E.D. Va. Dec. 12, 2011) (citation omitted). Because the Maryland Action was pending on the date the Carter Action was brought, the Carter Action ran afoul of the district court's understanding of the first-to-file rule.[3]

         Additionally, the district court held that all but one of the Carter Action's claims fell outside the applicable six-year statute of limitations on civil actions. The court added that all of the Carter Action's claims would fall outside the limitations period if Carter were to refile his action. Finally, the court explained that neither the Wartime Suspension and Limitations Act (WSLA) nor the principle of equitable tolling could toll the statute of limitations on the Carter Action's claims. See id. at *8-12 & n.11. As such, the district court dismissed the Carter Action with prejudice.

         Carter appealed the dismissal of the Carter Action to this Court. Carter's appeal centered on first-to-file issues, as well as the possibility that the WSLA tolled the statute of limitations on his claims. Carter did not, however, contest the district court's decision to assess the first-to-file rule based on the facts as they existed at the time that the Carter Action was brought.

         This Court rejected the district court's statute of limitations conclusion, reasoning that the WSLA applied to civil actions and suspended the time for filing the Carter Action. See Carter II, 710 F.3d at 177-81. Thus, we reversed the district court's holding that the claims in the Carter Action were time-barred.

         We then addressed the first-to-file rule. We agreed with the district court that courts 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." Id. at 183. As such, we concluded that the Carter Action must be dismissed under the first-to-file rule, because the Maryland and Texas Actions were pending at the time the related Carter Action was brought. We clarified, however, that "once a case is no longer pending the first-to-file bar does not stop a relator from filing a related case." Id. Applying this logic, and finding no statute of limitations issue, we ruled that the district court's dismissal of the Carter Action should have been without prejudice instead of with prejudice.

         KBR subsequently petitioned the Supreme Court for certiorari. KBR's petition challenged this Court's holding in connection with the WSLA, as well as its holding that a relator could bring an FCA action after the dismissal of a related action. See Petition for a Writ of Certiorari at 1-4, Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter (Carter III), 135 S.Ct. 1970 (2015) (No. 12-1497), 2013 WL 3225969. Notably, KBR's petition never questioned this Court's holding that the first-to-file analysis depends on the set of facts in existence at the time an FCA action is filed.

         Carter opposed certiorari, insisting that this Court "correctly decided that the district court's jurisdictional dismissal of the case should have been without prejudice." Brief in Opposition at 17, Carter III, 135 S.Ct. 1970 (No. 12-1497), 2013 WL 4541112. He, too, did not question this Court's decision to conduct its first-to-file ...

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