As previously discussed on this blog, the Supreme Court announced last year that it would resolve a circuit split over when a relator needed to file a qui tam action under the False Claims Act (“FCA”).  Earlier this month, the Court decided in Cochise Consultancy Inc. v. United States ex rel. Hunt, that relators can — in limited circumstances — take advantage of the FCA’s 3-year “alternative” statute of limitations, which means they may file their complaints up to four years after the default 6-year period has expired.

Now that the dust has settled, it is worth stepping back to take stock of the ruling’s practical effect.  We believe that Cochise will have limited impact on most qui tam actions, although it leaves some important questions open.  For FCA aficionados, the ruling by Justice Thomas also foreshadows a plain-reading, textual approach to future questions that may arise.

The FCA provides that relators must bring their claims within the later of: (a) six years from the conduct at issue, or (b) three years from the date on which the government official “charged with responsibility to act” learns of the conduct at issue, but in any event no more than ten years.  31 U.S.C. § 3731(b).  Some lower courts had held that the alternative 3-year period (based on government knowledge) applies only where the government intervenes.  Other courts had held that the 3-year period (based on government knowledge) applied to qui tam actions even where the government did not intervene.

In Cochise, the Supreme Court adopted the latter view, thereby extending the period of time in which relators may file their qui tam actions by up to four years.  In so ruling, the Court relied on the plain language of the statute, which Justice Thomas found unambiguous.  It is odd — at a minimum — to apply a deadline based on government knowledge to cases in which the government is not a party, a point which the Court implicitly acknowledged.  However, the Court wrote that although the Supreme Court will interpret statutes to avoid an absurd outcome, “a result that ‘may seem odd . . . is not absurd.’”

Here are three takeaways for government contractors. 

1. This Decision is Likely to Have Little Practical Impact on When Qui Tam Lawsuits are Filed

As Cochise and amici argued to the Court, the availability of a longer statute of limitations that begins to run when government officials learn of fraudulent conduct gives qui tam plaintiffs an incentive to wait years to bring their claims and tell the government about alleged fraud, because their potential financial recovery would increase if the alleged fraudulent conduct is ongoing.  The passage of time could materially prejudice defendants, because of the increased difficulty of recalling details of contract performance, locating former employees, and identifying witnesses to explain the facts.  Interpreting the statute to provide an incentive to delay is clearly at odds with the spirit of the statute’s qui tam provision, which is to encourage private citizens to bring potential misconduct to the government’s attention so that it can be addressed.

However, we expect the decision will have relatively limited effect in practice.  Any incentive for relators to delay is likely outweighed by the incentives created by the FCA’s first-to-file bar and public disclosure bar.

The first-to-file bar fosters a race to the courthouse, by allowing only the first relator to go forward with an action.  Would-be relators concerned about others beating them to the courthouse door will likely file their actions as soon as possible, rather than delay and risk the loss of any recovery at all.

Similarly, the public disclosure bar incentivizes prompt reporting, because the possibility of news reports, government audits, or other public disclosures of the alleged fraud could foreclose (or cloud) their ability to go forward with an action.  Again, most relators will likely be concerned about the possibility of such public disclosures, and elect to file their actions promptly, rather than delaying in order to increase a potential recovery.

In short, most relators (especially those represented by capable counsel) will prioritize winning the race to the courthouse over risking it all in the hopes of a potential increase to future — and necessarily uncertain — damages.

2. Questions Remain about Whose Knowledge Matters for Purposes of the Statute of Limitations

The FCA allows cases to be brought up to three years after the relevant facts “are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances.”  31 U.S.C. § 3731(b)(2).  In Cochise, the Court raised the question of which government official might constitute an “official of the United States,” but provided no definite answer.

According to the Court, “the statute provides no support for reading ‘the official of the United States’ to encompass a private relator.”  But the Court did not further define the term “the official of the United States,” except to suggest two different possibilities:

• The Court observed that the government, in the course of litigation, had argued that “the official of the United States” was a term of art that “refers to the Attorney General (or his delegate), who by statute” investigates FCA violations.  Under this definition, only the Department of Justice’s knowledge of the facts would trigger the statute of limitations.
• The Court also discussed, but did not explicitly endorse, the “ordinary sense” of the phrase “official of the United States.”  According to the Court, this would mean an individual who was either “appointed as an officer of the United States” or “employed by the United States.”  Under this definition, any government employee — including those in contracting agencies and audit agencies — who obtains knowledge of the alleged facts would trigger the statute of limitations.

The Court seemed to indicate that it would favor a more limited definition of “official of the United States.”  The Court noted “the use of the definite article ‘the’” in the FCA and explained that the use of a definitive article “indicates that there is generally only one person covered.”  However, the Court did not make clear whether the “one person covered” would be the Attorney General alone; the delegate of the Attorney General within the Department of Justice; an official within the contracting agency with authority that could be construed as “responsibility to act in the circumstances” under Section 3731(b)(2)); or some other person.

The Court’s rumination, without any clear answer, is evidently an invitation to the lower courts to provide their own answers to this question.  We can expect a wide array of answers over the ensuing years.

3. Future FCA Litigation Will Focus More on the Plain Reading of the Statute

A striking feature of Cochise is that, like the Court’s landmark ruling in Universal Health Services Inc. v. United States ex rel. Escobar three years ago, it is a unanimous opinion authored by Justice Thomas, who has assumed the mantle of the Court’s leading False Claims Act jurist.  In both opinions, Justice Thomas has achieved consensus across the entire Court on a strict reading of the literal text of the FCA. Escobar cautioned that “policy arguments cannot supersede the clear statutory text.”  This warning was echoed in Cochise: “[T]he clear text of the statute controls the case.”  And this approach has been taken in other recent FCA litigation.

This lesson will not be lost on litigators – and courts – in future cases.  Going forward, litigants can expect courts to focus on the plain language of the statute, and advocates should be prepared to advance legal arguments that emphasize the text of the statute itself.