Most people might be embarrassed to admit that they have been repeatedly
accused of cheating the American taxpayers. Defense contracting giant
KBR, however, tried to use the fact to its advantage. It argued that a
court should dismiss a whistleblower’s lawsuit because other, prior
lawsuits also had alleged that KBR violated the False Claims Act by defrauding
the U.S. military. In
U.S. ex rel. Carter v. Halliburton Co., et al (3/18/13), the Fourth Circuit rejected KBR’s argument, ruling
that two prior fraud lawsuits could not prevent the whistleblower from
pursuing his FCA suit, because the two prior lawsuits had been dismissed
voluntarily and were no longer pending.
Under the False Claims Act, only the first relator to file a complaint
can bring a whistleblower lawsuit. The FCA provides that: “When
a person brings an action under this subsection, 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).
According to the allegations, KBR had a contract to test and purify water
for military camps in Iraq. In 2006, a former KBR employee, Benjamin Carter,
filed a False Claims Act lawsuit alleging that for nearly four months
KBR actually did not do the testing and purification it was hired to do.
Despite the fact that it was not performing the services, the former employee
said, KBR represented to the United States that it was testing and purifying
the water. It also billed the U.S. for the testing and purification work
that its employees were supposed to be doing, but weren’t.
Carter initially filed suit in the United States District Court for the
Central District of California, but the case was transferred to the Eastern
District of Virginia, which is in the Fourth Circuit, which issued the
March 2013 opinion.
When it instituted the “first to file” rule, Congress no doubt
intended to avoid headaches that could result if people read about False
Claims Act cases and then filed their own suits. FCA cases might devolve
into long squabbles among plaintiffs about who was entitled to the whistleblower’s
share of the FCA recovery.
In recent years, however, defendants have begun to try to take advantage
of the first to file rule. In the FCA arena, suits often are dismissed
for a host of complicated reasons. The reasons could range from the plaintiff’s
desire to remain anonymous to a concern that the plaintiff has valid evidence
but lacks access to some critical piece of proof he needs.
The Defendants have tried to turn the first to file rule to their advantage,
arguing that any earlier suit bars the new whistleblowers’ lawsuit
– even if the first claim was dismissed.
KBR claimed that two similar cases had been filed earlier, and argued that
those cases barred Carter from filing his claim, because he was not the
first to file. KBR made the argument even though the two prior cases had
been voluntarily dismissed and were no longer pending.
In evaluating KBR’s argument, the 4th Circuit joined a number of
other Circuits in adopting the “same material elements of fraud”
standard. Analyzing the two cases presented by KBR, the 4th Circuit determined
that the two other cases did have the same material elements of fraud.
However, the Court thought it was important that neither of the two cases
was pending. The court decided that: “once a case is no longer pending
the first-to-file bar does not stop a relator from filing a related case.”
Since both of the original actions had been dismissed, plaintiff Carter
could pursue his claims.