Federal Circuit Courts Split on Pivotal “First to File” Issue

The False Claims Act is a piece of federal legislation. Therefore, lawsuits arising under its provisions are settled by the federal District, Circuit, and Supreme Courts. While FCA Supreme Court precedent is continuing to emerge each year, District and Circuit courts are regularly faced with issues directly impacting whistleblowers and their ability to collect a portion of the government’s recovery. In today’s article, we explore a recently-dismissed FCA action involving the “first to file” rule and why, as a potential qui tam plaintiff, you should not feel dissuaded by this ruling. The “first to file” rule, along with several other FCA-related issues, are growing ripe for Supreme Court review and will hopefully be settled over the next several Supreme Court sessions. Until then, never hesitate to contact a reputable whistleblower attorney with information you may have involving contractor, healthcare, or other types of fraud against the government.

Understanding the “First to File” Rule

The False Claims Act contains a provision known as the “first to file” rule, which preserves recovery for the plaintiff(s) having filed their lawsuit first in time. Subsequent plaintiffs, even if they had no knowledge of the initial lawsuit, are generally barred from recovering under the FCA so long as there is another lawsuit pending with temporal priority.

Specifically, Section 3730(b)(5) of the FCA states: “When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”

As the details of the following case reveal, the issue of whether an action is “related” is not always cut and dry, requiring courts to sort out whether two FCA lawsuits arising under arguably similar facts preclude recovery.

Court’s Holding in U.S. ex rel. Shea v. Cellco Partnership d/b/a Verizon Wireless, et al.

Earlier this month, the U.S. Circuit Court for the District of Columbia reviewed the relationship between two whistleblower lawsuits against Verizon Wireless to determine if the lawsuits were, in fact, too related for the whistleblower to recover under the subsequently-filed action. Interestingly, the same whistleblower filed both actions, referred to by the Court as Verizon I and Verizon II.

In the 2007 Verizon I case, a former Verizon consultant filed a qui tam lawsuit alleging unlawful surcharges charged with regard to a contract between the company and the General Services Administration. These surcharges were allegedly deceptively included in charges for federal, state, or local taxes and illegally inflated earnings for the wireless provider. In 2011, the government intervened in the litigation and the case was settled. The whistleblower recovered $20 million for his role in uncovering fraud.

Later in 2009, the same whistleblower filed Verizon II, supplemented by a 2012 Second Amended Complaint, alleging Verizon’s intent “to defraud the United States by knowingly billing the government for non-allowable surcharges.” Verizon quickly moved to dismiss the claim under the “first to file” rule, asserting that this claim had already been settled between the parties and the later filing was precluded by the FCA’s prohibitions against duplicitous litigation.

The whistleblower hinged his argument on the precedent established under the “first to file” rule, which interprets the FCA’s provision against bringing a subsequent “related action.” Specifically, an action is considered related if it “incorporates the same material elements of fraud” as the earlier action. This has been further interpreted to mean that a subsequent action is barred if the first would have “sufficed to equip the Government to investigate” the fraud in the later actions. Here, the whistleblower asserted that the second claim would have required a separate and distinct investigation, thereby rendering it unique and not subject to dismissal.

The D.C. Circuit Court sided with Verizon, holding that the misconduct alleged in Verizon I and Verizon II were part of the same common scheme and the government had ample opportunity to investigate both cases.

Contradictory Holdings

The issues presented in this case are not unique and have been addressed by several other courts – some of which have reached an opposite or contradictory conclusion. For example, in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, the Supreme Court is set to decide a similar issue involving the “first to file” rule. In Kellogg, the Fourth Circuit reviewed whether a relator can file a subsequent related action under the False Claims Act when the original action was either dismissed or reduced to judgment. In other words, does the “first to file” rule apply to bar a complaint if the original action is no longer pending?

According to the Fourth Circuit, relators may refile “duplicitous actions” as long as the original, first-in-time action was dismissed or “reduced to judgment.” Defendants in Kellogg assert that this holding runs afoul of years of FCA precedent and will effectively require contractors to defend against identical whistleblower lawsuits for years.

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