The D.C. Circuit’s recent opinion involving the False Claims Act’s “first-to file” rule is an notable victory for defendants. The holding restricts relators from filing subsequent suits on the same grounds and require them to bring all of the claims that they intend to assert forward in a timely manner. Because of the impact on relators, the issue likely will continue to be litigated and ultimately resolved by the Supreme Court. The False Claims Act’s (FCA) qui tam provisions contain a “first-to-file” bar that provides: “When 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.” On April 11, the D.C. Circuit issued its decision in United States ex rel. Shea v. Cellco Partnership dba Verizon Wireless, addressing the meaning of the term “pending action.” In particular, the court addressed the question of whether the initial action had to be pending at the time the second action is filed. The court answered the question in the negative.
In 2007, relator Stephen Shea filed a complaint on behalf of the United States against Verizon (Verizon I), claiming that Verizon submitted false claims to the Government. The United States intervened, and the parties settled the case in 2011. Shea then filed a second qui tam action against Verizon in 2009 (with a second amended complaint in 2012), making allegations that closely mirrored his complaint in Verizon I—the only difference was that the second amended complaint expanded allegations to more contracts, charges, and governmental agencies. The district court dismissed Shea’s complaint for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), holding that the FCA’s first-to-file rule barred the court’s consideration of the complaint in Verizon II. Shea argued that dismissal under the first-to-file bar should be without prejudice because Verizon I was no longer pending when the court disposed of Verizon II, and thus he should be able to re-file his action. The district court disagreed.
Shea raised three arguments on appeal: (1) the district court erred in finding Verizon I and Verizon II related because they involved different contracts and agencies; (2) the district court improperly held that the first-to-file bar applies to Shea even though he was the relator in both actions; and (3) the district court erred in dismissing Verizon II with prejudice because Verizon I was no longer pending when Shea filed his second amended complaint in Verizon II.
The D.C. Circuit had little difficulty disposing of the first two arguments. First, the court held that Verizon II was indistinguishable from Verizon I except as to scope, and that the allegations and legal theory of Verizon I would alert the Government to the possibility of a fraudulent scheme that went beyond the specifics of Verizon I. Second, the court focused on the language in the first-to-file bar stating that “no person” is allowed to bring a related suit, noting that courts must presume that a legislature says what it means in a statute.
Turning to the Shea’s argument based on the fact that Verizon I was no longer pending when Shea filed his second amended complaint in Verizon II, the court agreed with Verizon that a related action is barred regardless of the posture of the first-filed action. The court explained that it read the term “pending” in the statutory phrase “pending action” to distinguish the earlier-filed action from the later-filed action, noting that the simplest reading of “pending” is a referential one, i.e., it serves to identify which action bars the other. The court further explained that its reading better suits the policy considerations underlying the statute, noting that “reading the bar temporally would allow related qui tam suits indefinitely—no matter to what extent the government could have already pursued those claims based on earlier actions.”
The relator argued that three other circuits courts (the Fourth, Seventh, and Tenth Circuits) had reached the opposite conclusion on the construction of the word “pending.” The D.C. Circuit explained that it had reviewed those decisions and concluded that none of them convinced the court of a different construction. Judge Srinivasan filed a lengthy dissent on the issue of whether the first-to-file bar persists after the initial action concludes, noting that, in his view, the other courts of appeals to consider the question correctly determined that the bar operates only while the first action remains “pending.”
The opinion will have the result of bringing all of the false claims known to the relator to the fore at the initial filing, hasten the investigation and resolution of the claims(s), and avoid repetitive litigation.