Member Article

The D.C. Circuit recently expanded the scope of the False Claims Act’s first-to-file defense. See United States ex rel. Shea v. Cellco Partnership, __ F.3d __, 2014 WL 1294687 (D.C. Cir. April 11, 2014). The court concluded that this defense – which bars FCA suits based on facts related to a “pending action” – applies even after the first action is dismissed. In reaching this holding, the court rejected the interpretation adopted by the Fourth, Seventh, and Tenth Circuits, which held that the defense applies only where the first action remains “pending.”

Background

In Shea, the relator alleged that Verizon defrauded the government by billing for improper telecommunication surcharges. The allegations were similar to claims raised by the same relator in a prior FCA case – which had been dismissed following a settlement.

In the second action, Verizon moved to dismiss the complaint under the FCA’s first-to-file bar, which provides 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.” 31 U.S.C. § 3730(b)(5). Verizon argued that the relator’s first lawsuit barred his second one. The district court agreed and dismissed the case with prejudice.

The D.C. Circuit affirmed. It held that the first-to-file bar applies even after the initial action is no longer pending because the phrase “pending action” in the statute was intended only to distinguish the earlier-filed action from the later one – not to place a temporal limitation on this defense. As the court noted, this interpretation is most consistent with the FCA’s policy of bringing fraudulent conduct to light because there is no need for a whistleblower after the first case has been adjudicated.

Impact

The D.C. Circuit’s holding creates a circuit split on an important statutory defense to FCA claims. Until that split is resolved, the impact of a first-filed suit may vary by jurisdiction.

Haynes and Boone has extensive experience defending clients in False Claims Act investigations and lawsuits. If you have any questions or would like to discuss these issues further, please visit the False Claims Act/Qui Tam litigation page of the Haynes and Boone, LLP website or contact: