United States Ex Rel. Hunt v. Cochise Consultancy, Inc.
Opinion
*1083
Relator Billy Joe Hunt filed a
qui tam
action alleging that his employer The Parsons Corporation and another entity, Cochise Consultancy, Inc., violated the False Claims Act ("FCA"),
• "6 years after the date on which the violation ... is committed,"31 U.S.C. § 3731 (b)(1), or
• "3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,"id. § 3731(b)(2).
The question we answer today, which is one of first impression, is whether § 3731(b)(2) 's three year limitations period applies to a relator's FCA claim when the United States declines to intervene in the qui tam action.
The district court concluded that the limitations period in § 3731(b)(2) is inapplicable in such cases and thus Hunt's claim is time barred. After careful consideration of the statutory scheme, we hold that § 3731(b)(2) 's three year limitations period applies to an FCA claim brought by a relator even when the United States declines to intervene. Further, because the FCA provides that this period begins to run when the relevant federal government official learns of the facts giving rise to the claim, when the relator learned of the fraud is immaterial for statute of limitations purposes. Here, it is not apparent from the face of Hunt's complaint that his claim is untimely because his allegations show that he filed suit within three years of the date when he disclosed facts material to the right of action to United States officials and within ten years of when the fraud occurred. The district court therefore erred in dismissing his complaint. We reverse and remand to the district court for further proceedings.
I. FACTUAL BACKGROUND
A. The Fraudulent Scheme
Hunt alleges that Parsons and Cochise (the "contractors") defrauded the United States Department of Defense for work they performed as defense contractors in Iraq. 1 The Department of Defense awarded Parsons a $60 million contract to clean up excess munitions in Iraq left behind by retreating or defeated enemy forces. Hunt worked for Parsons in Iraq *1084 on the munitions clearing contract, managing the project's day-to-day operations. One facet of the contract required Parsons to provide adequate security to its employees, its subcontractors, and others who were working on the munitions clearing project. Parsons relied on a subcontractor to provide the security services.
After seeking bids for the security subcontract, a Parsons committee awarded it to ArmorGroup. But an Army Corps of Engineers contracting officer in Iraq whom Cochise had bribed with trips and gifts, Wayne Shaw, was determined to override this decision and have the subcontract awarded to Cochise. Shaw directed Hunt to have Hoyt Runnels, another Parsons employee who served on the committee that selected ArmorGroup, issue a directive awarding Cochise the subcontract. When Hunt did so, Runnels refused to issue the directive, explaining that such a directive had to come from the Corps.
Shaw then created a forged directive rescinding the award to ArmorGroup and awarding the subcontract to Cochise. The directive had to be signed by Steven Hamilton, another Corps contracting officer. Hamilton, who was legally blind, relied on Shaw to describe the document he was signing. Shaw did not disclose that the directive rescinded the award to ArmorGroup so that the subcontract could be awarded to Cochise.
After Hamilton signed the directive, Shaw directed Runnels to execute it. Runnels again refused because he believed the award to Cochise had been made in violation of government regulations. Shaw threated to have Runnels fired. Two days later, Hamilton learned that the directive Shaw had him sign rescinded the award to ArmorGroup and awarded Cochise the subcontract. Hamilton immediately rescinded his directive awarding the subcontract to Cochise.
After Runnels refused to follow Shaw's directive to award the subcontract to Cochise, another Parsons employee, Dwight Hill, replaced Runnels and was given responsibility for awarding the security subcontract. Rather than give the subcontract to ArmorGroup, Hill awarded it to Cochise through a no-bid process. Hill justified using a no-bid process by claiming there was an urgent and immediate need for convoy services and then defended the choice of Cochise to fill this immediate need by asserting that Cochise had experience that other security providers lacked. But Hunt alleges that Hill selected Cochise because he was its partner in the fraudulent scheme.
From February through September 2006, Cochise provided security services under the subcontract. Each month the United States government paid Cochise at least $1 million more than it would have paid ArmorGroup had ArmorGroup been awarded the subcontract. The government incurred other additional expenses as well. For example, armored vehicles were needed to provide the security services, and because Cochise had no such vehicles, the government paid more than $2.9 million to secure the vehicles. In contrast, ArmorGroup would have supplied its own armored vehicles, saving the government millions of dollars. In September 2006, when Shaw rotated out of Iraq, Parsons immediately reopened the subcontract for bidding and awarded it to ArmorGroup.
Several years later, Hunt reported the fraud to the United States government. On November 30, 2010, FBI agents interviewed Hunt about his role in a separate kickback scheme. During the interview, Hunt told the agents about the contractors' fraudulent scheme involving the subcontract for security services. For his role in the separate kickback scheme, Hunt was charged with federal crimes, pled *1085 guilty, and served ten months in federal prison.
B. Procedural History
After his release from prison, on November 27, 2013, Hunt filed under seal in federal district court an FCA complaint against the contractors. Hunt set forth two theories why the claims the contractors submitted for payment qualified as false claims under the FCA. First, he alleged that Cochise fraudulently induced the government to enter into the subcontract to purchase Cochise's services by providing illegal gifts to Shaw and his team. He alleged that Parsons, through Hill, conspired with Cochise and Shaw to rig the bidding process for the subcontract. Second, Hunt alleged that the contractors had a legal obligation to disclose credible evidence of improper conflicts of interest and payment of illegal gratuities to the United States but failed to do so.
After the United States declined to intervene, Hunt's complaint was unsealed. The contractors moved to dismiss, arguing that the claim was time barred under the six year limitations period in
II. STANDARD OF REVIEW
We review
de novo
a district court's dismissal of a complaint for failure to state a claim upon which relief can be granted.
Am. Dental Ass'n v. Cigna Corp.
,
III. BACKGROUND ON THE FCA
Before addressing whether Hunt's claim is timely, we pause to provide some necessary background information about the roles of the government and the private plaintiff in a
qui tam
suit and to discuss the relevant FCA provisions. The FCA was enacted in 1863 to "stop[ ] the massive frauds perpetrated by large contractors during the Civil War."
Universal Health Servs., Inc. v. United States ex rel. Escobar
, --- U.S. ----,
Since 1863, Congress repeatedly has amended the FCA. Today, the FCA continues to prohibit making false claims for payment to the United States.
See
Section 3730 of the FCA sets forth three different enforcement mechanisms for a violation of the Act. Section 3730(a) provides that the Attorney General may sue a violator in a civil lawsuit. Section 3730(b) allows a private plaintiff, known as a relator, to bring a qui tam action in the name of the United States against a violator. Section 3730(h) creates a private right of action for an individual whose employer retaliated against him for assisting an FCA investigation or proceeding.
This appeal concerns the second mechanism, a
qui tam
action brought by a relator under § 3730(b). In a
qui tam
action, the relator "pursues the government's claim against the defendant, and asserts the injury in fact suffered by the government."
Stalley ex rel. United States v. Orlando Reg'l Healthcare Sys., Inc.
,
Special procedures apply when a relator brings an FCA action; these procedures afford the government the opportunity to intervene and assume primary control over the litigation. A relator who initiates an FCA action must file her complaint under seal and serve it only on the United States.
*1087
If the United States decides to intervene, the government acquires "primary responsibility for prosecuting the action," although the relator remains a party.
Although the United States is not a party to a non-intervened case, it nevertheless retains a significant role in the litigation. The government may request to be served with copies of all pleadings and deposition transcripts, seek to stay discovery if it "would interfere with the Government's investigation or prosecution of a criminal or civil matter arising out of the same facts," and veto a relator's decision to voluntarily dismiss the action.
Any recovery obtained from a defendant in an FCA
qui tam
action belongs to the United States, regardless of whether the government has intervened. The relator is entitled to a portion of the recovery, however.
The size of the relator's share depends upon whether the United States intervenes. In an intervened case, the relator usually is entitled to between 15 and 25 percent of the proceeds, as well as reasonable expenses, attorney's fees, and costs.
Even though the relator receives a smaller share in an intervened case, relators generally try to persuade the United States to intervene because the government's intervention makes it far more likely that there will be a recovery. When the United States elects to intervene, about 90 percent of the time the case generates a recovery, either through settlement or a final judgment. But only about 10 percent of non-intervened cases result in recovery. 6
*1088
See
David Freeman Engstrom,
Public Regulation of Private Enforcement: Empirical Analysis of DOJ Oversight of Qui Tam Litigation Under the False Claims Act
,
IV. ANALYSIS
With this general background in mind, we now turn to the issue in this case: whether it is apparent from the face of Hunt's complaint that his FCA claim is time barred. To answer this question, we must interpret the FCA's statute of limitations provision, which creates two limitations periods that potentially apply:
(b) A civil action under section 3730 may not be brought-
(1) more than 6 years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,
whichever occurs last.
A. Section 3731(b)(2) Applies When the United States Declines to Intervene.
The primary question before us is whether Congress intended to allow relators in non-intervened cases to rely on § 3731(b)(2) 's limitations period. We must begin "where courts should always begin the process of legislative interpretation, and where they often should end it as well, which is with the words of the statutory provision."
Harris v. Garner
,
We conclude that the phrase "civil action under section 3730" in § 3731(b) refers to civil actions brought under § 3730 that have as an element a violation of § 3729, which includes § 3730(b)
qui tam
actions when the government declines to intervene. Section § 3731(b) begins by providing that its limitations periods apply to "[a] civil action under section 3730."
To ascertain its meaning, we must, of course, view § 3731(b)(2) in the broader statutory context. Looking to the statutory context, the Supreme Court has recognized that the phrase "[a] civil action under section 3730" did not refer to
all
types of § 3730 civil actions because it excluded retaliation actions brought under § 3730(h).
Graham Cty. Soil & Water Conservation Dist. v. United States ex rel. Wilson
,
The Supreme Court resolved this ambiguity by concluding that § 3731(b)(1) 's limitations period did not apply to retaliation claims under § 3730(h). The Court recognized that Congress generally drafted statutes of limitations to begin to run when a cause of action accrues.
Here, the contractors raise several arguments contending that the statutory context and the canons of statutory construction show that Congress intended for § 3731(b)(2) to be unavailable to relators in non-intervened cases. They claim that allowing a relator in a non-intervened action to rely on a limitations period that is triggered by a government official's knowledge would lead to absurd results and render a portion of § 3731(b) superfluous. We reject each of these arguments. The text of § 3731(b)(2), when viewed in context, shows that § 3731(b)(2) is available to relators when the government declines to intervene. But even if we were to conclude that § 3731(b)(2) is ambiguous making it *1091 appropriate to consider legislative history, as the contractors urge us to do, we still would conclude that § 3731(b)(2) is available to relators when the government declines to intervene.
1. We Reject that Allowing a Relator in a Non-Intervened Case to Rely on § 3731(b)(2) 's Limitations Period Is Absurd.
The contractors' primary argument is that the statutory context shows that § 3731(b)(2) is available only when the United States is a party to the case because the limitations period is triggered by a federal official's knowledge. They argue that Congress must have intended such a limitations period to be available only when the government is a party to the case because to apply a limitations period triggered by a federal official's knowledge when the United States is not a party would create a "bizarre scenario." Parsons' Br. at 12 (quoting
United States ex rel. Sanders v. N. Am. Bus Indus., Inc.
,
This case presents no such rare instance when the absurdity doctrine applies. Certainly, it is generally the case that a discovery-based limitations period begins to run when a
party
-the plaintiff-knew or should have known about the fraud or claim.
See, e.g.,
Merck & Co. v. Reynolds
,
Even in a non-intervened case, the relator brings the suit as the partial assignee of the United States and asserts a claim based on injury suffered by the United States as the victim of the fraud.
United States ex rel. Eisenstein v. City ofNew York
,
The contractors argue that allowing a relator in a non-intervened case to rely on § 3731(b)(2) 's limitations period conflicts with the Supreme Court's decision in
Eisenstein
. In
Eisenstein
, the relators in a non-intervened case filed a notice of appeal 54 days after the district court entered a final judgment dismissing their claims.
We recognize that our decision to reject the absurdity doctrine is at odds with the published decisions of two other circuits.
See
Sanders
,
These cases do not persuade us. They reflexively applied the general rule that a limitations period is triggered by the knowledge of a party. They failed to consider the unique role that the United States plays even in a non-intervened qui tam case. In light of this role, we cannot say that it would be absurd or "bizarre" to peg the limitations period to the knowledge of a government official when the government declines to intervene. We disagree that Congress, by specifying that § 3731(b)(2) 's limitations period is triggered by the knowledge of a United States official, necessarily intended that this limitations period be available only in § 3730 civil actions where the United States is a party and not in non-intervened qui tam actions. 10 We thus cannot say that the statutory *1093 context shows that § 3731(b)(2) 's limitations period is unavailable to relators in non-intervened qui tam actions.
2. Our Interpretation Does Not Render a Portion of § 3731(b) Superfluous.
The contractors, relying on a canon of construction, next argue that to give meaning to the entirety of § 3731(b), we must construe § 3731(b)(2) to exclude non-intervened cases. Certainly, "a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant."
TRW Inc. v. Andrews
,
The contractors assert that if relators have three years from the date when the government learned of the fraud to file suit under § 3731(b)(2), relators will always delay telling the government about the fraud to increase the damages in the case. Therefore, they say, the limitations period in § 3731(b)(1), which expires six years after the date when the violation occurred, will never apply, rendering the provision meaningless. We disagree. The contractors overlook that other provisions of the FCA create strong incentives to ensure that relators promptly report fraud.
A relator who waits to report a fraud risks recovering nothing or having his relator's share decreased. The relator's claim may be barred if another relator beats him to the courthouse with an FCA claim based on the same facts,
*1094
United States ex rel. Shea v. Verizon Commc'ns, Inc.
,
Looking at the FCA as a whole, we conclude that relators who can rely on the limitations period in § 3731(b)(2) will still have sufficient incentive to report fraud promptly. Because relators will continue to report fraud promptly and under § 3731(b)(2) suit must be filed within three years of the fraud being reported, there will be cases in which § 3731(b)(1) 's six year limitations period will expire later. We thus reject the contractors' argument that our reading of the FCA would render superfluous one of its provisions.
3. To the Extent that Legislative History is Relevant, It Bolsters Our Conclusion.
The contractors argue that the legislative history shows that § 3731(b)(2) 's limitations period is unavailable to a relator when the United States declines to intervene. Assuming that the statutory language, after viewing it in light of the statutory context and the canons of construction, remains ambiguous such that a resort to legislative history is appropriate,
see
United States v. Alabama
,
Congress added the limitations period in § 3731(b)(2) to the FCA in 1986. False Claims Amendments Act of 1986 ("1986 FCA Amendments"), Pub. L. No. 99-562,
The contractors argue that we should not infer Congressional intent to extend the limitations period for non-intervened cases because in the legislative history for the 1986 FCA Amendments Congress indicated that qui tam actions must be brought shortly after the fraud occurred. To support their position, the contractors point to the following portion of the Senate Committee Report, which quotes from the reasoning in a Supreme Court decision:
[The FCA] is intended to protect the Treasury against the hungry and unscrupulous host that encompasses it on every side, and should be construed accordingly. It was passed upon the theory, based on experience as old as modern civilization, that one of the least expensive and most effective means of preventing frauds on the Treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain. Prosecutions conducted by such means compare with the ordinary methods as the enterprising privateer does to the slow-going public vessel.
S. Rep. No. 99-345, at 11 (quoting
United States ex rel. Marcus v. Hess
,
The contractors argue this language shows that Congress allowed relators to bring qui tam actions under the FCA because *1095 relators are able to expose fraud more rapidly than the United States can discover it, from which they infer that Congress intended for a shorter limitations period to apply when the United States was not a party to the case. But nothing in this statement addresses the length of time that a relator should have to bring a qui tam action or whether the limitations period should depend on the government's decision to intervene. And so we fail to see how this legislative history supports the contractors' position that a shorter limitations period should apply when the government declines to intervene.
All told, there is little legislative history for § 3731(b)(2). And the few references there are do not directly address the question before us. The contractors point to a floor statement from Senator Charles Grassley and testimony from Assistant Attorney General Richard K. Willard before a House subcommittee. But neither piece of legislative history is particularly helpful.
Senator Grassley said in a floor statement that Congress borrowed the language in § 3731(b)(2) from
To understand
Turning to the committee testimony from Assistant Attorney General Willard, he explained that the purpose of § 3731(b)(2) 's limitations period was to give "us a little more flexibility in bringing some cases that otherwise would be barred."
11
The contractors construe Willard's testimony to mean that § 3731(b)(2) was intended to give the government-but
*1096
not relators-more flexibility to bring FCA claims. Certainly, Willard testified that § 3731(b)(2) would extend the time period for the Attorney General to sue under the FCA. But Willard offered nothing about the intended effect of § 3731(b)(2) on
qui tam
actions or, more specifically, whether § 3731(b)(2) was intended to apply to
qui tam
actions when the government declined to intervene. Willard's testimony does not advance the ball for the contractors.
See also
Regan v. Wald
,
To wrap up, we conclude that Congress intended for § 3731(b)(2) 's limitations period to be available to relators even when the United States declines to intervene. The statutory text reflects that this limitations period applies to "[a] civil action under section 3730," and nothing in § 3731(b)(2) makes the limitations period unavailable in qui tam actions under § 3730 simply because the United States decides not to intervene. The contractors argue that because § 3731(b)(2) 's limitations period is triggered by government knowledge, Congress must have intended for it to apply only when the United States is a party to avoid absurd results. But in the unique context of a non-intervened qui tam action, we cannot say that it is absurd to apply a limitations period triggered by government knowledge. And even if the contractors are correct that we may consider legislative history, the legislative history provides no convincing support for their position.
B. The Statute of Limitations in § 3731(b)(2) Depends on the Government's Knowledge, Not the Relator's Knowledge.
Having concluded that the statute of limitations in § 3731(b)(2) is available to a relator in a non-intervened case, we must now address whether that limitations period is triggered by the knowledge of a government official or of the relator. We hold that it is the knowledge of a government official, not the relator, that triggers the limitations period.
Section 3731(b)(2) is clear that the time period begins to run when "the official of the United States charged with responsibility to act in the circumstances" knew or reasonably should have known the material facts about the fraud.
The Ninth Circuit nonetheless adopted such an approach, concluding that the statute of limitations is triggered by the relator's knowledge.
See
United States ex rel. Hyatt v. Northrop Corp.
,
*1097 Again, we find nothing in the text of § 3731(b)(2) or the statutory context to support this legal fiction. Because the text unambiguously identifies a particular official of the United States as the relevant person whose knowledge causes the limitations period to begin to run, we must reject the Ninth Circuit's interpretation as inconsistent with that text.
Applying our conclusions that § 3731(b)(2) applies in non-intervened cases and is triggered by the knowledge of a government official, not of the relator, we hold that it is not apparent from the face of Hunt's complaint that his FCA claim is untimely. Hunt alleged that the relevant government official learned the material facts on November 30, 2010 when he disclosed the fraudulent scheme to FBI agents, and he filed suit within three years of this disclosure. 12 The district court therefore erred in dismissing his complaint on statute of limitations grounds.
V. CONCLUSION
For the reasons set forth above, we reverse the district court's order dismissing Hunt's FCA claim as time barred and remand the case for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
In deciding whether the district court erroneously dismissed the complaint as untimely, we accept as true the well-pleaded allegations in the complaint.
See
Ashcroft v. Iqbal
,
The FCA imposes a civil penalty of up to $11,000 for each violation occurring on or before November 2, 2015 and up to $21,563 for each violation occurring after that date.
See
The FCA is one of only a handful of federal laws still in effect that may be enforced through a
qui tam
action.
See
Vt. Agency of Nat. Res. v. United States ex rel. Stevens
,
The United States intervenes in approximately 25 percent of FCA
qui tam
actions. David Freeman Engstrom,
Public Regulation of Private Enforcement: Empirical Analysis of DOJ Oversight of Qui Tam Litigation Under the False Claims Act
,
Relators often provide such assistance while the government is deciding whether to intervene.
See, e.g.
,
United States ex rel. Shea v. Verizon Commc'ns, Inc.
,
To be clear, we do not take the dramatically different success rates for intervened cases and non-intervened cases to mean that if the government declines to intervene, the case necessarily is meritless. The government may decline to intervene based on its evaluation of factors other than the merits of the claim, such as the likely size of the recovery, available agency resources, or whether the relator and his counsel have resources to prosecute the action on their own. See Engstrom, supra , at 1714. Conversely, the fact that most intervened cases generate a recovery does not necessarily mean that every intervened case has merit. The involvement of the Department of Justice in an intervened case may create a strong incentive for a defendant to settle an FCA claim regardless of its relative merit to avoid things like increased publicity of the fraud because the defendant cannot cast the litigation solely as the product of an overzealous relator; the disadvantages of litigating against the government with its considerable resources and ability to coordinate with officials at the affected agency; or the risk that the defendant may be barred from federal contracting, a sanction that is unavailable in non-intervened cases. Id. at 1713.
Section 3730(h) creates a cause of action for an employee, contractor, or agent who "is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and condition of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter."
The Court also considered that Congress used the phrase "action under section 3730" imprecisely throughout § 3731"to refer only to a subset of § 3730 actions."
Graham Cty.
,
Acknowledging that imprecision permeates § 3731, the Court in
Graham County
accepted that the similar language in § 3731(b) and § 3731(d) referred to different categories of § 3730 actions. That is, the phrase "[a] civil action under section 3730" as used in § 3731(b) referred to any civil action that has an element a violation of § 3729, including non-intervened actions brought under § 3730(b), while the phrase "action brought under section 3730" as used in § 3731(d) referred only to those civil actions where the United States was a party.
See
Stevens
,
In
Sanders
, the Fourth Circuit also asserted that allowing a relator in a non-intervened case to rely on the limitations period in § 3731(b)(2) would place an inappropriate burden on the defendant and government by expanding the litigation into the issue of government knowledge.
To prevail on the merits of her FCA claim, the relator must show, among other things, that the defendant made a misstatement that was material and that the defendant "knowingly" submitted a false claim.
See
False Claims Act Amendments: Hearings Before the Subcomm. on Admin. Law & Governmental Relations of the Comm. on the Judiciary H.R. , 99th Cong. 159 (1986) (statement of Richard K. Willard, Assistant Att'y Gen.).
To be clear, if facts developed in discovery show that the relevant government official knew or should have known the material facts about the fraud at an earlier date, Hunt's claims could still be barred by the statute of limitations. We hold only that at the motion to dismiss stage it was error to dismiss the complaint on statute of limitations grounds.
Reference
- Full Case Name
- UNITED STATES of America, EX REL. Billy Joe HUNT, Plaintiff-Appellant, v. COCHISE CONSULTANCY, INC., Doing Business as Cochise Security, the Parsons Corporation, Doing Business as Parsons Infrastructure & Technology, Defendants-Appellees.
- Cited By
- 73 cases
- Status
- Published