Supreme Court to Hear Appeal of KBR over False Claims Act Lawsuit

kbrtowerLast week, the Supreme Court granted certiorari in the case of Kellogg Brown & Root Services v. U.S. ex rel. Carter, adding another appeal involving a whistleblower to its schedule in the fall. The petition initiated by KBR asked the Court to review the appropriate statute of limitations and the application of the first to file bar in False Claims Act litigation.

The history of the case is a bit unusual. Benjamin Carter, the relator who worked for the defendant in Iraq, filed a qui tam complaint in 2006. The complaint was amended in 2008 to include allegations of false billing for labor costs. This complaint was dismissed by the district court because of similar allegations in a pending relator complaint filed prior to Carter’s allegations.

As those familiar with the False Claims Act are aware, the statute bars a person from bringing a “related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This is commonly known as the “first to file” bar.

While on appeal, the complaint by the other relator was dismissed. Carter filed a new complaint in 2010. However, since his 2008 appeal was still pending, the new complaint was dismissed because of his own pending appeal. Strategically, Carter dismissed the appeal of the 2008 complaint.

By the time Carter refiled his complaint, another relator had filed against the company with similar allegations. The district court held that this pending complaint barred Carter’s latest complaint. Because a significant amount of time had passed since the events underlying this litigation, the district court also held that most of the allegations were now barred by the statute of limitations of the False Claims Act, set forth in § 3731(b).

Carter appealed successfully to the Court of Appeals. The Fourth Circuit held that the statute of limitations in the case was tolled by the Wartime Suspension of Limitations Act (WSLA). It also authorized him to refile his complaint because there were no other pending actions.

The defendant now contests those issues on appeal.

It contends that the WSLA applies solely to criminal cases brought by the government. It makes three key arguments:

1. The WSLA does not apply to civil fraud cases where the U.S. government is not a party;

2. The WSLA does not apply when the government has not formally declared war; and

3. The WSLA does not modify the ten year statute of repose in the False Claims Act. In other words, the WSLA does not indefinitely toll the statute of limitations.

The Supreme Court will also review whether a previous lawsuit, not dismissed on the merits, bars a subsequent relator from filing a qui tam lawsuit because of the “first to file” requirement of the False Claims Act. The defendant contends dismissal is appropriate because the government has already been put on notice of the fraud.

KBR is the second case involving a whistleblower to be scheduled by the Supreme Court. In May, it agreed to hear the appeal of Homeland Security in the case of TSA air marshall Robert MacLean, Department of Homeland Security v. MacLean. MacLean informed the media that the TSA had discontinued posting air marshals on certain overnight flights because of budget concerns despite an alert about a plot to hijack airlines. He was terminated when the TSA learned of his role blowing the whistle. The Federal Circuit Court of Appeals sided with MacLean in his retaliation claim under the Whistleblower Protection Act.

The Supreme Court has already weighed in on two cases involving whistleblowers this year.

A few weeks ago in June, the Supreme Court decided Lane v. Franks. Lane, in his capacity as director of a statewide program for underprivileged youth, terminated an individual on the payroll that had not been reporting to her office. Subsequently, Lane was compelled to testify in the ex-employee’s criminal trial. He alleged that he was terminated in retaliation for the testimony. In a 9-0 opinion written by Justice Sotomayor, the Court held that the First Amendment protects a public employee providing truthful sworn testimony, compelled by subpoena, outside the course of the employee’s ordinary job duties.

In March, it extended SOX protections against retaliation to whistleblowers who work at private contractors to public companies in Lawson v. FMR LLC. The decision reversed the First Circuit decision denying protection to two employees of a privately held financial institution providing services to mutual fund clients.