Supreme Court Decision Alert - May 26, 2015

Yesterday, the Supreme Court issued three decisions, described below, of interest to the business community.

False Claims Act—Wartime Suspension Of Limitations And "First To File" Rule Bankruptcy—Powers Of Bankruptcy Courts Patent Act—Induced Infringement—Defense of Good-Faith Belief of Invalidity False Claims Act—Wartime Suspension Of Limitations And "First To File" Rule

Kellogg Brown & Root Services, Inc., et al. v. United States ex rel. Carter, No. 12-1497 (previously described in the July 1, 2014, Docket Report)

Government contractors and health-care companies have become increasingly concerned about the application of the Wartime Suspension of Limitations Act ("WSLA"), 18 U.S.C. § 3287, and the Department of Justice's and False Claims Act ("FCA") relators' arguments that the statute extends indefinitely the limitation period applicable to civil FCA cases, see 31 U.S.C. §§ 3729-3733. Today, the Supreme Court unanimously rejected the extension of the WSLA and limited the reach of that statute (and suspension of limitations periods) to the context of criminal law.

The decision in Kellogg Brown & Root Services, Inc. v. U.S. ex rel. Carter, No. 12-1497 ("KBR"), is an important victory for government contractors, health-care companies, and other recipients of federal funding. It provides protection against stale claims, which should be barred by the statute of limitations. It is particularly noteworthy because it removes the risk of stale FCA claims that would otherwise be time-barred and have no connection to wartime activities, such as health-care claims, or are related to civilian-agency programs, like the Department of Agriculture program discussed in United States v. BNP Paribas S.A., 884 F. Supp. 2d 589 (S.D. Tex. 2012).

The WSLA was enacted shortly after World War I and reenacted during World War II. Until 2008, it permitted the period of limitations to be suspended during wartime and for three years after the end of hostilities. Prior to 2008, it was not clear whether the WSLA was triggered by the military operations in Iraq and Afghanistan, as there had been no declaration of war. Congress expanded the WSLA in 2008 to apply when Congress enacts a "specific authorization for the use of the Armed Forces" and increased the suspension period to five years after the termination of hostilities. 18 U.S.C. § 3287. Given the ongoing conflicts in which the U.S. has been involved during the past decade, questions have arisen about whether the suspension of the limitations period has become indefinite and is being used for matters that have no connection to wartime. In KBR, the Supreme Court reversed the Fourth Circuit and held that the WSLA does not toll the statute of limitations in civil fraud cases.

In the case before the Court, a former employee who had worked for a contractor in Iraq brought a civil FCA action as a relator, claiming that the contractor had billed the government for work that was never performed. The government did not intervene in the case. Before the Supreme Court, Carter and the government (as amicus curiae) argued that, even though the WSLA is part of Title 18, it applies to civil fraud. The government noted that, until 1944, the WSLA applied to offenses that were "now indictable under existing law"—and that the "now indictable" language was removed in 1944. (The district court's decision in BNP Paribas provides a detailed history of the WSLA.) The government's amicus brief also defended application of the WSLA to civil cases based on policy considerations, including that its time and resources are overtaxed during wartime and that fraud often requires a substantial amount of time to uncover and pursue.

After discussing the history of the WSLA, the Supreme Court explained why the statute applies only to criminal charges, not civil claims. The Court's analysis focused on the WSLA's text, i.e., "the running of any statute of limitations applicable to any offense . . . involving fraud or attempted fraud against the United States or any agency...