Court Rules False Claims Act's Statute of Limitations is Tolled While United States Is "At War"

A recent Fourth Circuit Court of Appeals decision may have far-reaching impacts on contractors performing federal government construction projects.[i]  The court ruled that when the United States is “at war,” the statute of limitations on the False Claims Act (“FCA”) is extended until five years after the termination of hostilities.  Since the U.S. has been embroiled in armed conflicts virtually since the end of World War II (1945),[ii] this ruling may affect all contractors who are performing government projects.

  1. 1.                  False Claims Act / Qui Tam Actions

The FCA (31 U.S.C. §§ 3729, et seq.) generally applies to two classes of misconduct.  The first is the presentation of a claim knowing it to be false.  The second is use of false documentation in support of a claim.  In recent years, there have been numerous cases in which zealous government lawyers have sought to expand the use of the FCA by exploring new theories of its application.  In fact, some commentators have indicated that the government may in fact be using filing of an FCA violation as a deterrent to otherwise meritorious contractor claims.  In this instance, the Fourth Circuit has likely pushed the expansion of the FCA too far.  The contractors are seeking review of this case to the U.S. Supreme Court.

Notably, this case was initiated through the FCA’s qui tam provisions.  These provisions allow for people or groups not affiliated with the government (i.e., a private plaintiff or “Relator”) to sue in place of the government and keep a share of the proceeds (usually about 15-25%) that are recovered against the FCA violators.

  1. 2.                  Case Background

The Relator (Carter) alleged that the government contractors who were providing services to two military camps in Iraq were not purifying water during the term of the contract, and repeatedly misrepresented to the United States that they were indeed complying with the water purification specifications.  Carter maintained that he and his fellow employees were instructed to submit timesheets for 12-hour workdays for work they performed on the water purification plant; however, Carter asserted that he was not actually working any hours during this time.  Carter claimed he was part of an overall scheme by the contractor to overbill the government for labor which was not performed.  Carter concluded that his contractor employer knowingly presented a false claim for payment to the government, and knowingly used false records to have false claims paid or approved by the government in violation of the FCA (§ 3729(a)(2)).  If the contentions were proven, the contractor could have been subject to substantial penalties.  However, because Carter filed his qui tam action after the six-year FCA statute of limitations had run, the trial court dismissed the complaint as untimely.

  1. 3.                  The Appellate Court’s Ruling

The Fourth Circuit Court of Appeals overturned the trial court, relying on the Wartime Suspension of Limitations Act (“WSLA”).  18 U.S.C. § 3287 (2011).  The WLSA provides that when the U.S. is at war, the statutes of limitation pertaining to the FCA are suspended and extended until five years after the termination of hostilities.  The court stated that the purpose of the WLSA, which is to combat fraud at times when the United States may not be able to act as quickly because it is engaged in “war,” would be thwarted were the court to require that the U.S. to be involved in a declared war for the act to apply.  Thus, although the Iraq conflict was not a “declared war,” the Fourth Circuit found that the United States was “at war” in Iraq.  Accordingly, since the purpose of the WSLA is to root out fraud against the United States during times of war, the court concluded the statute of limitations was tolled by the WLSA and Carter’s lawsuit was brought in a timely manner.

Finally, this case is not limited to military-related contracts.  The broad wording of the case makes it applicable to all contracts, regardless of armed services involvement.  This case will likely be interpreted as suspending the statute of limitations for all FCA claims brought during “wartime” (broadly interpreted), no matter the nature of the underlying contract.

Comment:  This case raises the concern that extending the applicability of the FCA to false claims actions where the U.S. is not a plaintiff or intervenor could run contrary to its goals because to do so would incentivize private plaintiffs to delay filing their claims to maximize the potential recovery.  If the purpose of the FCA is to root out fraud, it seems counterintuitive to allow Relators a strong financial incentive to permit claims to build up over time before they are filed, thereby increasing the Relator’s potential recovery.  This argument did not convince appellate court justices, but now we will see how the Supreme Court deals with this issue.  We will keep our readers advised of any further developments.

[i] United States, ex rel. Benjamin Carter v. Halliburton Co.; Kellogg Brown and Root Services, Inc.; Service Employees International, Inc.; KBR, Inc. Morgan, 710 F.3d 171 (4th Cir. 2013).

[ii] The U.S. has been involved in extensive military engagements in Korea, Vietnam, Kosovo, as well as twice in Iraq and in Afghanistan.

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