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The First-to-File Fight

clipphotosct.pngDavid Stone, of Stone & Magnanini LLP, argued an important civil war fraud False Claims Act case on behalf of whistleblowers in the United States Supreme Court on January 13, 2015. The Solicitor General joined the argument with Stone & Magnanini and supported ruling in favor of the whistleblower. Kellogg Brown & Root Services, Inc. v. United States, ex rel. Carter, No. 12-1497, is the first case in which the Supreme Court will consider how the first-to-file bar should be applied. It is also the first case to consider whether civil FCA actions are tolled during wartime.

The False Claims Act may appear to be relatively simple as it is only a few pages long, but in practice the law is extremely complex. When Congress passed (and subsequently updated) the False Claims Act, the goal was to strike a balance between encouraging whistleblowers with knowledge of fraud to come forward and partner with the government, while discouraging so-called “parasitic” lawsuits which added nothing.

The first-to-file bar was added to the False Claims Act in 1986 to protect the government and relators from outside interference with pending cases. Under ยง3730(b)(5): “When a person brings an action under [the False Claims Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” Thus, if another lawsuit with similar fraud allegations has already been filed and is still pending, no additional suits can be filed by other whistleblowers. By rewarding the first relator to file, Congress has incentivized whistleblowers to report instances of fraud quickly. Furthermore, it protects businesses who have already been held accountable for their fraudulent actions from having to fight the same case in court over and over again. According to Carter and the Solicitor General, a preclusive effect may attach to future actions against the relator and the Federal Government if the prior case has been heard on the merits.

Even though it is impossible to know before a decision is published, early reports suggest that the Supreme Court was receptive to Stone’s and the Solicitor General’s arguments on the first-to-file issue. The Court seemed particularly interested in establishing that if the first filed cases were decided on the merits that the Federal Government and relators would be barred by res judicata and collateral estoppel from filing future actions. Significantly, the Solicitor General acknowledged this to be the case. This is the first and best opportunity for the Supreme Court to rule on whether the first-to-file bar can be used to dismiss subsequent lawsuits after earlier lawsuits were dismissed without reaching the merits. A victory here could ensure that legitimate relators will have their day in court, instead of granting defendants immunity by allowing them to hide behind failed or quickly dismissed lawsuits.

We anticipate a decision on this case at some point before the end of this term. We hope that Halliburton, now KBR, will finally be held responsible for its fraudulent actions during the war in Iraq. Further updates will be provided as they become available.

The audio recording of the oral argument is available here: [Listen]