NEWS: APRIL 2018
The Eleventh Circuit’s recent decision in United States ex rel. Hunt v. Cochise Consultancy, Inc., has further complicated the answer to what should be a simple question: What is the statute of limitations in qui tam action when the government declines to intervene? There are currently three different answers to that seemingly simple question depending on the forum in which a case is filed. The Eleventh Circuit’s formulation in Hunt is the most relator-friendly interpretation, and it effectively extends the False Claims Act’s (FCA) statute of limitations to 10 years for most qui tam lawsuits within the Eleventh Circuit.
The FCA’s limitations provision requires that an action be brought (1) within six years after the date of the violation, 31 U.S.C. § 3731(b)(1), or (2) within three years after the “official of the United States charged with responsibility to act in the circumstances” knows or should have known of the action’s material facts, but “in no event [may an action be brought] more than ten years after the date” of the violation, 31 U.S.C. § 3731(b)(2). The majority rule – adopted by the Fourth, Fifth, and Tenth Circuits – is that a qui tam relator must bring an action within six years and cannot take advantage of § 3731(b)(2), which expressly refers only to the United States. The Ninth Circuit permits relators to benefit from § 3731(b)(2) and evaluates the three year knowledge rule based on when the relator learned about the material facts underlying the action. See United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir. 1996).
In Hunt, the Eleventh Circuit became the first appellate court to adopt a third approach. The Hunt court held not only joined the Ninth Circuit in holding that § 3731(b)(2) applies in non-intervened cases, but it also held that the relevant knowledge that triggers the three year knowledge rule is that of a government official.
In reaching its decision, the court reviewed and rejected the reasoning of other appellate courts that have considered this issue. First, the court rejected the argument that it would be absurd to have the statute of limitations in a non-intervened case depend on a non-party’s knowledge. The court noted the unique role the government plays as the real party in interest even when it does not intervene. Second, the Hunt court explained that its holding did not render the six year limitations period in § 3731(b)(1) superfluous because – at least in theory – a responsible government official could learn of the material facts underlying an action more than three years before the relator filed a complaint. Third, the court concluded the plain language of the statute required its holding that the responsible government’s official’s knowledge, rather than the relator’s knowledge, controls the analysis under § 3731(b)(2) in both intervened and non-intervened cases.
The holding in Hunt is particularly troubling for FCA defendants because it will make it nearly impossible for defendants to escape the 10 year limitations period and will make it more difficult to defend conduct dating back more than 10 years. First, FCA defendants transacting business within the Eleventh Circuit should now assume the effective statute of limitations in FCA actions is 10 years. A defendant can only prevail on a statute of limitations defense asserted in a motion to dismiss if the necessary facts to support the defense are in the complaint. Because a relator will never allege a responsible government official knew about the material facts underlying the complaint more than three years before filing, the 10 year limitations period in § 3731(b)(1) will always apply in discovery. And, proving government knowledge through discovery will not be easy. There is a split in authority over whether “official of the United States charged with responsibility to act in the circumstances” includes only attorneys in the Department of Justice’s Civil Division or whether it also includes criminal and civil investigators charged with the responsibility to investigate potential violations of the FCA. Under either interpretation, the government will likely resist discovery into its investigative and decision-making processes, which will necessarily require depositions of DOJ attorneys or government investigators.
Second, the FCA’s seal provision, which can result in qui tam claims remaining under seal for several years while the government investigates, exacerbates the harm to defendants. The primary purpose of a limitations period – which the Hunt court never mentioned – is to put defendants on notice of an adverse action and to “spare the courts from litigation of stale claims, and the citizen from being put to his defense after memories have faded, witnesses have died or disappeared, and evidence has been lost.” Chase Sec. Corp. v. Donaldson, 325 U.S. 304, 314 (1945). The FCA’s seal provision deprives defendants of notice even after a complaint is filed, and although a defendant may begin to take steps to preserve documents while responding to a subpoena or Civil Investigative Demand, the government rarely initiates a litigation hold while investigating. As a result, the holding in Hunt will frequently force defendants to defend conduct that occurred more than a decade earlier without access to key exculpatory documents.
We hope the Supreme Court will carefully review this issue at the earliest opportunity.