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Civil Procedure

United States ex rel. Heath v. AT&T, Inc.

D.C. Circuit Holds that False Claims Act First-To-File Rule Is Nonjurisdictional.

The qui tam, or citizen suit, provisions of the False Claims Act1×1. 31 U.S.C. §§ 3729–3733 (2012). (FCA) are designed to encourage disclosure of insider information revealing fraud in government contracting.2×2. Id. § 3730. The provisions grant a significant portion of resulting awards to private whistleblowers,3×3. Id. § 3730(d). The statute allows treble damages plus a penalty for each “claim,” id. § 3729(a), and up to thirty percent of awards may go to whistleblowers, id. § 3730(d)(2). giving those whistleblowers a financial interest in cases they bring on behalf of the government. Recently, in United States ex rel. Heath v. AT&T, Inc.,4×4. 791 F.3d 112 (D.C. Cir. 2015). the D.C. Circuit found the FCA’s first-to-file bar5×5. 31 U.S.C. § 3730(b)(5) (“When a person brings [a qui tam action], [only] the Government may intervene or bring a related action based on the facts underlying the pending action.”). — which tries to stop duplicative, opportunistic suits — to be “nonjurisdictional.” Because jurisdictional rules bear on the power of a court to hear an issue, their consequences are clear: they cannot be waived or forfeited, may be raised at any time, must be considered sua sponte, and are not subject to equitable exceptions.6×6. Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). As the first circuit to deem the first-to-file bar nonjurisdictional, the D.C. Circuit left open several questions about how courts in general are to apply such a rule and how future parties in that circuit may use this particular rule.

The alleged fraud in Heath arose under the Federal Communications Commission’s “Education Rate” (E-Rate) program. Providers bid on supplying telecommunications services to schools and libraries.7×7. 47 U.S.C. § 254(h)(1)(B) (2012). They must offer a discount on normal rates and charge no more than is charged to any “similarly situated” customer.8×8. 47 C.F.R. § 54.500(f) (2014). The educational institutions or the providers themselves can then receive partial reimbursement from federal funds.9×9. United States ex rel. Heath v. AT&T, Inc., 47 F. Supp. 3d 42, 44 (D.D.C. 2014). Todd Heath, a private auditor, alleged that AT&T and its subsidiaries systematically overcharged schools, violating the E-Rate plan’s requirements by providing lower rates to similarly situated entities; the resulting inflated bills to the federal government were, he asserted, federal false claims.10×10. Heath, 791 F.3d at 117. In 2008, Heath had filed an FCA suit against AT&T subsidiary Wisconsin Bell.11×11. United States ex rel. Heath v. Wis. Bell, Inc., 760 F.3d 688, 690 (7th Cir. 2014). In a second suit filed in the U.S. District Court for the District of Columbia, he claimed this fraud was part of a nationwide overcharging scheme that included parent AT&T and nineteen subsidiaries.12×12. Heath, 791 F.3d at 117–18. When Heath filed this case, his earlier claim against Wisconsin Bell was on appeal in the Seventh Circuit. Heath, 47 F. Supp. 3d at 45.

AT&T moved to dismiss the D.C. suit. It argued that the FCA’s first-to-file bar precluded Heath’s second case or, in the alternative, that the complaint had not met the heightened pleading requirements for fraud.13×13. Heath, 791 F.3d at 115. Federal Rule of Civil Procedure 9(b) requires that the facts underlying fraud allegations be “state[d] with particularity.” Fed. R. Civ. P. 9(b). AT&T argued that Heath had failed to identify specific fraudulent documents and individuals who had committed fraud. See Brief for Appellees at 25–28, Heath, 791 F.3d 112 (No. 14-7094). The district court granted the motion to dismiss.14×14. Heath, 47 F. Supp. 3d at 47. It found that Heath’s case was prevented by the first-to-file bar,15×15. Id. at 46–47. which provides that a “related action” cannot be filed while another FCA case regarding the same facts is “pending.”16×16. 31 U.S.C. § 3730(b)(5) (2012). That is, there can be only one pending complaint involving a particular instance of fraud, regardless of whether that claim is the best or most informative. The court stressed that the FCA’s whistleblower provisions were meant to alert the government to fraud.17×17. See Heath, 47 F. Supp. 3d at 46–47. Because the “methodology of the accused fraud [was] the same in both actions,” the government could have readily understood from the Wisconsin Bell complaint and AT&T’s corporate structure that the parent company and other subsidiaries might be involved.18×18. Id. at 46; see also id. at 46–47. The opinion did not rule that suits against a subsidiary always preclude suits against a parent corporation. See id. at 47. Thus the suits were “related” for purposes of first-to-file and the second suit was barred.19×19. Id. at 46. To avoid the bar, the D.C. defendants “would have to be actors the government was not equipped to investigate after the first complaint.”20×20. Id. at 46–47.

The D.C. Circuit reversed and remanded. Writing for the panel, Judge Millett21×21. Judge Millett was joined by Judges Edwards and Griffith. held that the first-to-file bar was a “nonjurisdictional” rule.22×22. Heath, 791 F.3d at 127. The main discussion section of the opinion stated only that the rule is “not jurisdictional,” id. at 119, but the conclusion termed the first-to-file rule “nonjurisdictional,” id. at 127. Another D.C. Circuit judge had previously suggested that this bar should be understood as a nonjurisdictional rule. See United States ex rel. Shea v. Cellco P’ship, 748 F.3d 338, 345 (D.C. Cir. 2014) (Srinivasan, J., concurring in part and dissenting in part), vacated, 135 S. Ct. 2376 (2015). This finding, as the court acknowledged, differed from statements in several other circuit courts.23×23. Heath, 791 F.3d at 119 (citing United States ex rel. Ven-A-Care of Fla. Keys, Inc. v. Baxter Healthcare Corp., 772 F.3d 932, 936 (1st Cir. 2014); United States ex rel. Carter v. Halliburton Co., 710 F.3d 171, 181 (4th Cir. 2013), aff’d in part, rev’d in part on other grounds sub nom. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct 1970 (2015)); see also United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005); United States ex rel. Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1278 (10th Cir. 2004); United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1186 (9th Cir. 2001). In each case, the first-to-file rule was called “jurisdictional,” but little analysis regarding that characterization was provided. Heath looked to a line of recent Supreme Court cases cabining the term “jurisdictional” to situations where a clear statement shows Congress intended a rule to be so.24×24. Heath, 791 F.3d at 119–20 (citing United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632 (2015); Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 824 (2013); Gonzalez v. Thaler, 132 S. Ct. 641, 648 (2012)). Noting the far-reaching consequences of deeming a rule jurisdictional, including that it can then be raised at any point in litigation, the panel asserted that courts “should not lightly attach such drastic consequences to a procedural requirement.”25×25. Id. at 120. It looked to the structure of the FCA, including other sections of the statute that limit jurisdiction in express terms.26×26. Id. The first-to-file rule is found in the section entitled “Actions by Private Persons” rather than a later section that includes several jurisdictional terms. See 31 U.S.C. § 3730(b), (e) (2012). The panel found no clear statement that the first-to-file bar was intended to be jurisdictional.27×27. Heath, 791 F.3d at 120–21. Instead, the rule “bears only on whether a qui tam plaintiff has properly stated a claim.”28×28. Id. at 121.

Having determined the nature of the first-to-file bar, the court found the two complaints were not “related” for purposes of that bar.29×29. Id. at 121–23. The court explained that the first suit was insufficient to give the government notice of a potential nationwide scheme, rather than merely actions of a few “rogue personnel” in Wisconsin.30×30. Id. at 122 (quoting United States ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361, 364 (7th Cir. 2010)). It noted that a “lesser fraud does not, without more, include the greater,”31×31. Id. expressing some incredulity that the government would be expected to investigate corporation-wide behavior after every allegation of misdeeds by a few employees at a subsidiary.32×32. Id. at 122–23. To find the first-to-file bar preclusive of such later, larger-scale fraud claims could improperly “allow isolated misconduct to inoculate large companies against comprehensive fraud liability.”33×33. Id. at 123.

Finally, the court considered whether Heath’s complaint met the particularized pleading requirements for fraud, an issue not reached by the lower court. The panel discussed and rejected three separate arguments attacking the sufficiency of the complaint. First, while the complaint did not identify any “specific, affirmative misrepresentations,” the complaint could proceed on allegations that AT&T had impliedly certified compliance with the E-Rate program requirements.34×34. Id. at 124. Second, though no individuals were identified who were alleged to have committed the knowing fraud, a corporation could be considered a “specific actor” to satisfy the who of an FCA pleading.35×35. Id. at 125. Lastly, while AT&T argued that the absence of “representative samples” of fraudulent claims meant the complaint was insufficient, the court rejected that the pleading requirements mandated any “checklist” of items.36×36. Id. It instead clarified that “precise details of individual claims are not, as a categorical rule, an indispensable requirement of a viable [FCA] complaint.”37×37. Id. at 126.

Although Heath’s decision that the first-to-file bar is nonjurisdictional was precise and straightforward, the implications of the rule being nonjurisdictional are not so neat. The Supreme Court noted just last Term that “[t]he False Claims Act’s qui tam provisions present many interpretive challenges.”38×38. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970, 1979 (2015). The first-to-file bar alone has generated a great deal of interpretive case law.39×39. See generally John T. Boese, Civil False Claims and Qui Tam Actions § 4.03 (4th ed. 2013). Determining a rule’s jurisdictionality likewise poses difficulties.40×40. See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 161 (2010) (“[T]he distinction between jurisdictional conditions and claim-processing rules can be confusing in practice.”). While it does help signal categories of rules that fall under the classification, labeling a rule “nonjurisdictional” is not enough to define how it operates. The D.C. Circuit’s decision followed established doctrine but left unanswered questions for future courts.

The jurisdictional/nonjurisdictional dichotomy for procedural rules has been teased out following the Supreme Court’s acknowledgment that jurisdictional was a term of “many, too many, meanings.”41×41. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 90 (1998) (quoting United States v. Vanness, 85 F.3d 661, 663 n.2 (D.C. Cir. 1996)); see also Karen Petroski, Statutory Genres: Substance, Procedure, Jurisdiction, 44 Loy. U. Chi. L.J. 189, 221–31 (2012) (describing Supreme Court consideration of jurisdictionality over the last decade). To address this problem, the Court established its clear statement principle: a rule would not be jurisdictional unless Congress indicated it should be.42×42. A clear statement on jurisdictionality can come not only from “magic words” but also from a statute’s structure. See, e.g., Henderson ex rel. Henderson v. Shinseki, 131 S. Ct. 1197, 1204–05 (2011). By requiring a clear statement, the doctrine seeks to limit potentially harsh consequences. For example, the controversial Bowles v. Russell43×43. 551 U.S. 205 (2007). decision strictly applied a fourteen-day time limit, dismissing the appeal at issue despite the appellant’s compliance with (erroneous) court instructions giving seventeen days for filing of that appeal.44×44. Id. at 205. Bowles did not identify a clear statement but found jurisdictionality from longstanding court interpretation. See id. at 209–10. Where a rule is jurisdictional, it has clear consequences and is not subject to equitable exceptions.45×45. See Howard M. Wasserman, Colloquy Essay, The Demise of “Drive-By Jurisdictional Rulings,” 105 Nw. U. L. Rev. 947 (2011) (describing jurisdictional rules and lack of clear distinction between jurisdictional and procedural issues). But see Scott Dodson, Hybridizing Jurisdiction, 99 Calif. L. Rev. 1439 (2011) (reasoning that jurisdictional rules can have “features of nonjurisdictionality,” id. at 1442). Justice Black argued that an admittedly jurisdictional rule may still allow a degree of inherent discretion. See Teague v. Reg’l Comm’r of Customs, 394 U.S. 977, 982–83 (1969) (Black, J., dissenting from denial of certiorari).

However, deeming a rule nonjurisdictional does not create the opposite of a jurisdictional rule.46×46. See Scott Dodson, Mandatory Rules, 61 Stan. L. Rev. 1, 5 (2008). Professor Scott Dodson convincingly argues that a nonjurisdictional rule is not necessarily devoid of those restrictions that come with a jurisdictional rule.47×47. Id.; cf. Day v. McDonough, 547 U.S. 198 (2006) (sua sponte consideration of habeas petition timeliness permitted, not required); Charles Alan Wright et al., Federal Practice and Procedure § 3950.1, Westlaw (database updated Apr. 2015) (discussing whether nonjurisdictional deadline may be raised sua sponte). But see Henderson, 131 S. Ct. at 1203–04 (concluding jurisdictionality could be shown if Congress attached jurisdictional consequences but that rule at issue was “not meant to have jurisdictional attributes”). Scholars have variously separated out the broadly characterized category of “nonjurisdictional” requirements into segments — merits and procedural issues, for instance, or litigation preconditions and elements of a claim.48×48. See Wasserman, supra note 45. Dodson proposes a category of mandatory nonjurisdictional rules, a class of requirements that a court must enforce without discretion if raised.49×49. Dodson, supra note 46, at 9 (“A mandatory rule is nonjurisdictional but nevertheless has the jurisdictional attribute of being unsusceptible to equitable excuses for noncompliance . . . [and] the nonjurisdictional attributes of being waivable, forfeitable, and consentable . . . .”). The Supreme Court has emphasized that “calling a rule nonjurisdictional does not mean that it is not mandatory or that a timely objection can be ignored.”50×50. Gonzalez v. Thaler, 132 S. Ct. 641, 651 (2012); see also Henderson, 131 S. Ct. at 1203 (explaining that rules should not be branded jurisdictional “even if important and mandatory”); Perry Dane, Jurisdictionality, Time, and the Legal Imagination, 23 Hofstra L. Rev. 1, 39 (1994) (“[L]egal rules can be mandatory without being jurisdictional.”). Nonjurisdictional rules can certainly be couched in mandatory terms.51×51. See, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632 (2015). In addition, not all nonjurisdictional rules allow for the same discretion. In one instance, the Supreme Court deemed a time limit for appeal nonjurisdictional but not subject to equitable tolling,52×52. Equitable tolling allows courts to extend procedural deadlines where, for example, a claimant has actively pursued her judicial remedies or has been induced into allowing the filing deadline to pass. See Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 95–96 (1990) (describing circumstances in which federal courts allow equitable tolling). despite a presumption in favor of allowing equitable tolling and even though other nonjurisdictional time limits had been subject to such tolling.53×53. Sebelius v. Auburn Reg’l Med. Ctr., 133 S. Ct. 817, 827 (2013); see also Kwai Fun Wong, 135 S. Ct. at 1631–32; Irwin, 498 U.S. at 95–96 (recognizing a rebuttable presumption in favor of equitable tolling). Rules that are merely procedural still represent important considerations: Justice Stevens posited that “strict adherence to the procedural requirements specified by the legislature is the best guarantee of evenhanded administration of the law.”54×54. Mohasco Corp. v. Silver, 447 U.S. 807, 826 (1980).

The procedural application of the first-to-file bar as a nonjurisdictional rule remains an open question after Heath. Nonjurisdictional status does influence features of procedural practice, including the type of motion to dismiss that should be filed.55×55. The Federal Rules of Civil Procedure provide for motions to dismiss for “failure to state a claim upon which relief can be granted” under Rule 12(b)(6), as well as affirmative defenses to pleadings under 8(c) and motions for judgment on the pleadings under 12(c), but permits motions for “lack of subject matter jurisdiction” under 12(b)(1). Fed. R. Civ. P. 8, 12. The opinion, however, did not specify whether the rule can now be invoked only at the pleading stage, though commentators have suggested that conclusion.56×56. See Patrick Stanton & Kathy Brown, D.C. Circuit Creates Circuit Split Regarding Jurisdictional Nature of the False Claims Act’s First-to-File Rule, Nat’l L. Rev. (July 10, 2015), http://www.natlawreview.com/article/dc-circuit-creates-circuit-split-regarding-jurisdictional-nature-false-claims-act-s [http://perma.cc/S3HR-ZKU3]. Heath described potential consequences of jurisdictional rules in general. It did not identify instances in which a nonjurisdictional first-to-file rule would avoid inequitable disposition of a case.57×57. Heath, 791 F.3d at 120.

A second question that Heath left open is whether the first-to-file bar is waivable or subject to equitable exceptions. The rule is phrased in obligatory terms: “no person other than the Government may intervene or bring a related action.”58×58. 31 U.S.C. § 3730(b)(5) (2012). In most of the Supreme Court cases refining the topic, the issue of jurisdictionality was determinative of whether a case could proceed or whether a holding could stand.59×59. Compare Arbaugh v. Y&H Corp., 546 U.S. 500, 504 (2006) (finding nonjurisdictional rule could not be asserted after trial on the merits), with Bowles v. Russell, 551 U.S. 205, 206–07 (2007) (holding jurisdictional rule precluded filing of appeal). These involved arguably easier-to-apply rules like employee numerosity requirements60×60. See Arbaugh, 546 U.S. at 504. or time limits.61×61. See, e.g., Henderson ex rel. Henderson v. Shinseki, 131 S. Ct. 1197, 1206 (2011). Courts have held that violation of the FCA’s sixty-day sealed complaint filing,62×62. 31 U.S.C. § 3730(b)(2). Sealed filing gives the government time to decide whether to intervene. Unlike other seals, the FCA limits access to plaintiffs and the government. Id. another FCA requirement that has been interpreted as nonjurisdictional, does not per se require dismissal of the qui tam.63×63. See, e.g., United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 245 (9th Cir. 1995). But see United States ex rel. Summers v. LHC Grp., Inc., 623 F.3d 287, 289 (6th Cir. 2010) (holding that violation of the rule would lead to automatic dismissal of a claim). Even acknowledging violation of that rule, a suit could proceed. Meanwhile, Heath decided that first-to-file is not jurisdictional but still applied the rule, interpreting the rule to mean that the later suit was not barred instead of using the rule’s nonjurisdictionality to justify a judicially crafted exception to the rule. Nonjurisdictional status does not appear to mean a court can simply decide which parts of the FCA it will apply.64×64. Multiple circuits have described first-to-file as without exceptions. See, e.g., United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 33 (1st Cir. 2009); United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1187 (9th Cir. 2001). In theory, calling a rule nonjurisdictional could have a psychological impact, influencing judges to allow more closely related claims. Yet courts can already use differing interpretations of the first-to-file rule itself to allow such suits. The D.C. Circuit has, at least according to some commentators, adopted a much narrower interpretation of what cases are barred than other circuits. See Douglas W. Baruch et al., Court’s Ruling on “First-to-File” Bar Creates Circuit Split on Key False Claims Act Issue, Wash. Legal Found. (June 6, 2014), http://www.wlf.org/upload/legalstudies/counselsadvisory/06-06-14BaruchBoeseWollenbergCA2.pdf [http://perma.cc/L3N2-ZJTU].

With the application of the first-to-file bar as a nonjurisdictional rule still to be determined, the practical impact of designating the rule nonjurisdictional remains to be seen. A variety of commentators covered the announcement in Heath, some seeing the ruling on the first-to-file rule’s nonjurisdictional status as expanding opportunities for whistleblowers.65×65. See, e.g., Stanton & Brown, supra note 56; cf. Matthew Turetzky, First Circuit Reaffirms FCA’s “First-to-File” Bar as a Broad Jurisdictional Limit, Sheppard Mullin: Gov’t Contracts, Investigations & Int’l Trade Blog (Jan. 22, 2015), http://www.governmentcontractslawblog.com/2015/01/articles/fca/first [http://perma.cc/C2AN-X7YK] (describing jurisdictional first-to-file rule as “a potent defense for FCA defendants”). As highlighted above, it is not necessarily true that future courts will allow equitable exceptions to the bar or allow it to be considered after the pleadings stage. Moreover, even if courts do not allow equitable exceptions and consider first-to-file only at the pleading stage, such applications will not likely open significant opportunities for abuse by either side.

One reason to doubt that a nonjurisdictional first-to-file rule will lead to whistleblower abuse is the typical identity of subsequent defendants. Any defendant who can invoke the rule is either identical or very closely related to a party in an already-pending qui tam. Whether new subsidiaries in a second suit make the suit “related” for first-to-file purposes is a case-specific determination,66×66. Compare, e.g., United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1209 (D.C. Cir. 2011) (finding that complaints involving different subsidiaries were related where both alleged a nationwide fraudulent scheme), with United States v. Sanford-Brown, Ltd., 27 F. Supp. 3d 940, 948 (E.D. Wis. 2014) (finding that suits were not related where second complaint involved different campuses and subsidiaries of education provider parent company). but suits against genuinely new parties are not barred.67×67. See, e.g., In re Nat. Gas Royalties Qui Tam Litig. (CO2 Appeals), 566 F.3d 956, 963–64 (10th Cir. 2009). It is hard to imagine, then, that the same business that has already been fighting one FCA suit would waive or allow itself to forfeit the first-to-file argument.68×68. Because qui tam complaints are filed under seal, and because the seal can be extended by a court, 31 U.S.C. § 3730(b)(2)–(3) (2012), a first-filed suit could theoretically be unknown to a defendant before a second complaint must be defended. Even if that happened, to operate as a true bar, the first-to-file rule should still apply if and when the duplicative case is revealed. It has also been suggested that disclosure could be allowed to prevent wasting resources on suits that would be subsequently barred. See Claire M. Sylvia, The False Claims Act § 11:82, Westlaw (database updated May 2015) (“[T]he Government may request the court to permit disclosure of the existence of the first filed case to the second relator.”). Its incentives against litigating two duplicate cases would be extremely strong. Perhaps such a defendant could deliberately avoid raising the first-to-file bar in hopes of avoiding potentially more damaging allegations down the road in yet another suit, but that strategic use of the rule would seem to fly in the face of the FCA’s limits on qui tam actions.

For litigants, the more jurisdictional rules there are in the FCA, the more possibilities there are for the suit to be overturned late in litigation. Because the qui tam provisions of the FCA provide such large financial incentives to encourage private party reporting (an aspect recognized by critics and supporters alike),69×69. See David Freeman Engstrom, Harnessing the Private Attorney General: Evidence from Qui Tam Litigation, 112 Colum. L. Rev. 1244, 1247 (2012) (discussing differing views on whether these incentives are the “only way to combat” insiders and capture of government agencies or whether they are bounties given to “‘professional’ relators”). the loosening of the FCA’s statutory bars generally could encourage opportunism. That is potentially true after Heath — in theory, some suits might go forward that would have been dismissed under a jurisdictional first-to-file rule. On the other hand, nonjurisdictional status might not loosen the rule at all and could have no practical effect on litigants. The answer depends on fleshing out the application of the nonjurisdictional first-to-file rule.

The potentially harsh consequences of jurisdictional rules mean courts should continue to tease out the rules that have been erroneously labeled jurisdictional. At the same time, more guidance is needed on what removing that label means for future courts’ applications of those rules. In the FCA context, courts should not use nonjurisdictionality as an excuse to disrupt the balance struck by statutory limits on qui tam suits. In the meantime, courts’ understandings of the substance of the rule will still drive the use — and misuse — of the FCA’s first-to-file bar and the success or failure of similar claims.