Defending False Claims Act/Qui Tam Actions: Properly Applying the FCA’S Statute of Limitations Provision, 31 U.S.C. § 3731(b)

One of the most frequently overlooked defenses to a qui tam action under the False Claims Act, 31 U.S.C. §§ 3729 et seq. (“FCA”), is the differing statute of limitations provisions that apply when the government is a party and when only the relator is litigating the case. Defense counsel should not assume that both provisions of § 3731(b) are applicable in a qui tam situation. In actuality, defense counsel should assert, should a statute of limitations issue arise, that application of § 3731(b)(2)’s more generous provision is foreclosed when the government has declined intervention.In any action alleging violations of the FCA, the statute of limitations provision contained within the FCA controls. See 31 U.S.C. § 3731(b). Under § 3731(b)(1), a six year statute of limitations provision is mandated.1 For FCA purposes, the statute of limitations begins to run once the claim for payment is submitted to the government. SeeUnited States v. Entin, 750 F. Supp. 512, 517-18 (S.D. Fla. 1990).

In 1986, the FCA was amended to include a second statute of limitations provision, § 3731(b)(2). 2 It is this second provision which has generated the confusion that relators have attempted to exploit by arguing that this alternative provision, including the 10 year maximum, is equally applicable to them as well.

The FCA’s statute of limitations, however, does not allow relators to extend the six year period specified by § (b)(1). By its very language (“by an official of the United States”), it is evident that this provision is not meant to be applicable in qui tam cases where the government has declined to intervene. The clear majority of district courts that have considered the issue of whether § (b)(2) is applicable to relators have rejected its applicability to qui tam law suits where the government has declined to intervene. See, e.g., United States ex rel. Capella v. Norden Systems, Inc., No. 3:94-cv-2063 (EBB), 2000 U.S. Dist LEXIS 13352 at *35 (D. Conn. August 24, 2000); United States ex rel. El-Amin v. George Washington Univ., 26 F. Supp. 2d 162, 170 (D.D.C. 1998)3; United States ex rel. Thistlethwaite v. Dowty Woodville Polymer, Ltd., 6 F. Supp. 2d 263, 265 (S.D.N.Y. 1998).4 The Second Circuit has concurred in this interpretation. Manning v. Utilities Mutual Insurance Co., 254 F.3d 387, 397 (2d Cir. 2001) (six year limit is applicable “to private claims brought pursuant to the FCA”).

The limited contrary decisions applying this section to cases where a relator alone is pursuing the action are highly unpersuasive, especially given the pertinent legislative history and the explicit language of the provision. For example, in United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1214-16 (9 th Cir. 1996), despite conceding that the legislative history, as exemplified in the House and Senate Judiciary Committee reports, exclusively refers to “the government” in discussing § (b)(2), the Ninth Circuit nonetheless concluded that the section was applicable to relators as well. The Circuit thus ignored the better reasoned district court decision which had reached far more accurate conclusions after its exhaustive review of the legislative history. Hyatt, Relator v. Northrop Corp., 883 F. Supp. 484, 486-88 (C.D. Cal. 1995). Similar deficiencies in analysis also afflict United States ex rel. Bidani v. Lewis, No. 97 C 6502, 1999 U.S. Dist. LEXIS 3530 (N.D. Ill. March 12, 1999); and United States ex rel. Downy v. Corning, 118 F. Supp. 2d 1160 (D.N.M. 2000).5

Moreover, there is authority holding that even if relators could place reliance upon § (b)(2), they would still be required to allege and prove that a defendant Afraudulently concealed a false claim. @ United States ex rel. Sanders v. East Alabama Healthcare Authority, 953 F. Supp. 1404, 1413 (M.D. Ala. 1996).

It is important to recognize that the Ninth Circuit held in Hyatt, under § (b)(2), the three year statute of limitations period begins to run once a relator has knowledge of the alleged false claims. “Once the qui tam plaintiff has the requisite information, he cannot sleep on his rights. He is charged with the responsibility to act under the circumstances. Thus, as to the qui tam plaintiff, the three-year extension of the statute of limitations begins to run once [the] qui tam plaintiff knows or reasonably should have known the facts material to his right of action.” 91 F.3d at 1216-17.

The Ninth Circuit specifically rejected the argument that relators, in effect, have a 10 year statute of limitations period which begins to run from the date the government learns of the alleged fraud through service of the complaint. As that Court recognized ( id. at 1218):

[Relator=s] interpretation of the tolling provision would permit qui tam relators to control the length of their own limitations period by withholding their allegations until they are prepared to sue. Under this theory, qui tam relators could wait a full ten years after learning of the deceit before suing. This would frustrate the purposes of the limitation period and the purposes of the Act. Granting qui tam relators the power to wait nearly ten years to sue would allow fraud to continue and losses to mount. Furthermore, allowing a qui tam plaintiff to wait ten years might interfere with law enforcement ….

Rather, stressed the Circuit, the three years begins to run when the relator, not the government, has knowledge of the purported false claims. Id. at 1218.

In conclusion, any effort by a relator to assert that its action is governed by § (b)(2)’s more expansive statute of limitations provision should be resisted vigorously. In this way, the potential liability of the defendant can be kept with the appropriate boundaries specified by Congress..


Footnotes

1 Sec. 3731(b)(1) reads: A civil action under section 3730 may not be brought
(1) more than 6 years after the date on which the violation of section 3729 is committed, or…

2 A civil action under section 3730 may not be brought B
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.

3 The El Amin holding recently was reaffirmed in United States ex rel. Fisher v. Network Software Associates, No. 99-3095 (PLF), 2002 U.S. Dist. LEXIS 369 at *2-*7 (D.D.C. Jan. 14, 2002).

4 See alsoUnited States ex rel. Koch v. Koch Industries, 188 F.R.D. 617, 623 (N.D. Okla. 1999), where the district court expressed agreement with those decisions denying the applicability of § (b)(2) to relators, although holding it did not have to reach that point.

5 A third position on the issue has gained no support whatsoever from other courts. See United States ex rel. Colunga v. Hercules, Inc., 1998 U.S. Dist. LEXIS 21811 (D. Utah 1998).

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