The False Claims Act's First-to-file Bar: Jurisdictional or Not?

• Publication year: 2018

The False Claims Act's First-to-File Bar: Jurisdictional or Not?

Robert A. Magnanini

Jason S. Kanterman

THE FALSE CLAIMS ACT'S FIRST-TO-FILE BAR: JURISDICTIONAL OR NOT?

Robert A. Magnanini^* Jason S. Kanterman^**

Introduction to the False Claims Act and the First-to-File Provision

The False Claims Act (FCA)¹ is the United States of America's (the "Government") "primary weapon" to combat fraudulent activity affecting the Government and American taxpayers.² Recognizing that the Government would be unable to uncover all such fraudulent activity on its own, Congress enacted the qui tam provisions of the FCA, which rewards whistleblowers for reporting previously undisclosed fraud.³ Besides the psychic rewards of doing the right thing, righting a wrong, and saving lives, successful FCA cases can result in monetary rewards, sometimes even large monetary payouts.⁴ Therefore, qui tam whistleblowers, known as Relators, have substantial incentive to present their claims on behalf of the Government. Because these rewards can be substantial, Congress recognized the need to place certain limits on the FCA to protect both whistleblowers and defendants from repetitive and unjustified use of the qui tam provisions. For example, Congress enacted the Public Disclosure Bar, which precludes receipt of an award by

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Relators who present information that is substantially available in the public forum, e.g., information already disclosed in news articles or available to the public on the internet.⁵ Another of Congress' limitations—and the one at the center of this article—seeks to prevent repetitive cases from being filed; this limitation is known as the first-to-file rule/bar.⁶

While the general theory behind the First-to-File bar may appear relatively simple, properly and practically applying it is a difficult task.⁷ Though there are many complexities involved with First-to-File litigation, this article focuses on the current disagreement among the various circuit courts of appeals as to whether the First-to-File bar is a jurisdictional bar to litigation.⁸ This article is not intended to offer an exhaustive analysis or resolution to this issue, but rather, will simply introduce the current debate and offer initial thoughts on why the authors believe the First-to-File bar is a non-jurisdictional provision. Those seeking a more detailed analysis of the case law are encouraged to review, inter alia, Chapter 25 of the American Bar Association's 2018 Edition of Developments in Business and Corporate Litigation.

I. The First-To-File Bar

The first-to-file bar states that "[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."⁹

Despite the statutory command that no person can bring a subsequent related action, in practice, Relators routinely bring related actions under seal and, therefore, do not learn until years into litigation that another Relator has filed a sealed case against the same defendant. This practical reality is largely due to the fact that, unlike more typical matters, actions brought pursuant to the FCA must be filed and investigated under seal, thereby concealing their existence from other Relators attempting to determine whether any other related action has been filed. As a result, it is not until a pending action is unsealed, or the Government alerts Relators in similarly-situated matters of competing cases by partially unsealing the cases, that Relators learn of any

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related actions. The question facing courts then becomes, since multiple related actions may be pending at any one time, and in different jurisdictions, how does the First-to-File bar impact those actions.

II. Application of the First-to-File Bar

The recent trend amongst the circuit courts aligns with the practical realties of qui tam practice, concluding that the First-to-File provision is not jurisdictional and requires reviewing all related actions at the time a First-to-File objection is lodged.¹⁰

In United States ex rel. Heath v. AT&T, Inc.,¹¹ the D.C. Circuit concluded that because the First-to-File provision does not explicitly state that it is jurisdictional in nature, it is not within the court's province to expand Congress' intent.¹² Following the Supreme Court's holding in Kwai Fun Wong, the court found that deeming the First-to-File bar jurisdictional would be improper in light of the fact that Congress did not clearly command the courts to do so. Absent a clear statement by Congress to apply a procedural rule as jurisdictional, the Court held that, "courts should treat the restriction as nonjurisdictional in character."¹³

In supporting its conclusion, the D.C. Circuit looked to the plain language of the First-to-File provision and the FCA as a whole, ultimately concluding that the First-to-File bar's "statutory structure confirms what the plain text indicates[:] . . . [w]hen Congress wanted limitations on False Claims Act suits to operate with jurisdictional force, it said so explicitly."¹⁴ "For example, while the first-to-file bar appears in a subsection labeled 'Actions by Private Persons,' a neighboring subsection is labeled 'Certain Actions Barred' and a number of those provisions are expressly couched in jurisdictional terms."¹⁵ Pointing to Section 3730(e)(1), the D.C. Circuit noted that Congress directed—for that provision—that "[n]o court shall have jurisdiction over an action brought by a former or present member of the armed forces * * * against a member of the armed forces arising out of such person's service[.]"¹⁶ The D.C.

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Circuit found similar support in Section 3730(e)(2), which commands that "[n]o court shall have jurisdiction over an action brought * * * against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought."¹⁷ Therefore, the D.C. Circuit found that "Congress, in other words, knew how to reference 'jurisdiction expressly' in the False Claims Act if 'that [was] its purpose.' But it did not do so in the first-to-file rule."¹⁸ As such, "[b]ecause nothing in the text or structure of the first-to-file rule suggests, let alone 'clearly state[s],' that the bar is jurisdictional, Kwai Fun Wong, 135 S. Ct. at 1632, we hold that the first-to-file rule bears only on whether a qui tam plaintiff has properly stated a claim."¹⁹

A year later, the Second Circuit followed the D.C. Circuit's lead in United States ex rel. Hayes v. Allstate Ins. Co.²⁰ Under a similar analysis, the Second Circuit concluded that

Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion. Kucana v. Holder, 558 U.S. 233, 249 (2010) (brackets omitted). Because the FCA "clearly state[s]" that other limitations on qui tam actions are jurisdictional, but does not "clearly state[]" that the first-to-file rule is jurisdictional, we must treat the first-to-file rule "as nonjurisdictional in character." Auburn Reg'l Med. Ctr., 133 S. Ct. at 824 (quoting Arbaugh, 546 U.S. at 515-16).²¹

Diverging from the D.C. Circuit and Second Circuit's opinions, several circuit decisions predating Heath and Hayes concluded that the First-to-File bar was jurisdictional, despite no explicit direction from Congress to implement the provision as a jurisdictional bar to litigation.²² These courts determined that the First-to-File bar is applied by looking at all pending actions, the date they were filed, and dismissing for lack of subject matter jurisdiction those complaints filed after the initial, related action.²³

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For example, in United States ex rel. Branch Consultants v. Allstate Ins. Co., the Fifth Circuit concluded that the existence of a first-filed FCA action divests the court of subject matter jurisdiction as to the later-filed, related FCA action.²⁴ In reaching that conclusion, the Fifth Circuit turned to the historical lineage of congressional intent in drafting and amending the FCA, setting forth its view of Congress' intent in enacting the First-to-File bar:

The history of the FCA's qui tam provisions demonstrates

...