Another Appeals Court Limits One of the Barriers to a Whistleblower Lawsuit

In United States ex rel. Hayes v. Allstate Ins. Co., et al., Case No. 16­705, 2017 WL 1228551 (2d Cir. Apr. 4, 2017), the Second Circuit addressed an objection that it lacked jurisdiction over a whistleblower’s qui tam suit pursuant to what is known as the “first-to-file” rule.   31 U.S.C. § 3730(b)(5). That provision of the False Claims Act (“FCA”) states that “[w]hen a person brings an action under [the FCA], no person other than the Government may . . . bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).  Defendants argued that an earlier ­filed case deprived the court of jurisdiction pursuant to the first-to-file rule.  Before addressing a multitude of arguments on the merits, the Second Circuit joined the D.C. Circuit in holding that the FCA’s first-to-file rule is not jurisdictional.  2017 WL 1228551 at *3.  Accordingly, the court did not resolve the first-to-file challenge, since it chose instead to rule on other issues.

Importance of the Court’s Ruling

The court’s determination that a first-to-file issue is not jurisdictional is important for several reasons.  First, unlike jurisdictional issues, which a court must consider at any stage of the proceedings, non-jurisdictional challenges can be waived if not timely asserted.  Jurisdictional issues must even be considered sua sponte by a court at any stage of the proceedings. Second, challenges that are non-jurisdictional are more easily remedied by amendment, whereas jurisdictional challenges involve complicated analysis of whether or when an initial complaint can be amended.  The procedural process varies also, for example, in terms of burden of proof and ability to introduce evidence outside the complaint.  Finally, jurisdictional issues are not subject to equitable exceptions, which may apply to certain non-jurisdictional challenges.

Circuit Courts and the First-to-File Rule

As the court noted, there is a split among the circuit courts on the question whether first-to-file challenges are jurisdictional.   The Fourth, Fifth and Sixth Circuits have either held or just assumed that the issue is jurisdictional.  See U.S. 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, 11 135 S. Ct. 1979 (2015); U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376–77 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005).  On the other hand, in 2015, in U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112 (D.C. Cir. 2015), the D.C. Circuit broke ranks with most other courts and concluded that the first-to-file rule was not jurisdictional. Id. at 120-21. As the D.C. Circuit observed, the statutory language states that no person other than the government can bring a (later) action, which “speaks only to who may bring a private action and when,” Id. at 120, but “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts.” Id. (quotation omitted).

In the Hayes decision, the Second Circuit noted that the Supreme Court has warned against careless use of the term jurisdiction, 2017 WL 1228551 at *2, citing Sebelius v. Auburn Regʹl Med. Ctr., 133 S. Ct. 817, 824 (2013). Thus, the Supreme Court has “adopted a ‘readily administrable bright line’ for determining whether to classify a statutory limitation as jurisdictional.”  2017 WL 1228551 at *2. A court should find that a provision is jurisdictional only if Congress has clearly stated the jurisdictional component and absent such a clear statement . . .  ‘courts should treat the restriction as non-jurisdictional in character.’” Id.  As the D.C. Circuit had held, the first‐to‐file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending, ” 31 U.S.C. § 3730(b)(5), which makes no reference to jurisdiction. Heath, 791 F.3d at 121.

The First-to-File Rule and Limitations on Jurisdiction

Both the D.C. Circuit and the Second Circuit contrasted the language of the first-to-file bar with other provisions in the FCA that clearly state limitations on jurisdiction.  For example, there is a clear statement that “[n]o court shall have jurisdiction over an action brought by a former or present member of the armed forces … against a member of the armed forces arising out of such person’s service ….”   31 U.S.C. § 3730(e)(1).  Similarly, the FCA provides that “[n]o court shall have jurisdiction over an action brought . . . against a [government] official if the action is based on evidence or information known to the Government when the action was brought.” 31 U.S.C. § 3730(e)(2)(A).

Interestingly, the simple test of whether the provision in question refers explicitly to the court’s jurisdiction has been the subject of discussion among courts dealing with challenges under the Public Disclosure Bar (“PDB”) of the FCA, where a statutory amendment enacted as part of the Patient Protection and Affordable Care Act deleted a prior reference to jurisdiction. See Patient Protection and Affordable Care Act, PL 111-148, March 23, 2010, 124 Stat 119 (amending 31 U.S.C. § 3730(e)(4) to change the language of the PDB from “[n]o court shall have jurisdiction” to “[t]he court shall dismiss”).   Most courts have concluded that the elimination of the term jurisdiction in the statutory provision resulted in the PDB no longer being considered to be jurisdictional. E.g., U.S. ex rel. Advocates for Basic Leg. Equal., Inc. v. U.S. Bank, N.A., 816 F.3d 428, 433 (6th Cir. 2016)(“ Congress removed the jurisdictional language, and the different language leads to a different meaning. The public disclosure bar is no longer jurisdictional”); U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 300 (3d Cir. 2016)(“amended version does not set forth a jurisdictional bar”);  United States ex rel. Osheroff v. Humana, Inc., 2015 WL 223705 (11th Cir. Jan. 16, 2015)(amendments converted the public disclosure bar from a jurisdictional bar under Fed. R. Civ. P. 12(b)(1) into grounds for dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6));  U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916-17 (4th Cir. 2013)(after the 2010 amendments, “the public-disclosure bar is no longer a jurisdiction-removing provision.” ).

Conclusion

The Second Circuit’s common-sense interpretation of the first-to-file provision of the FCA will lessen the impact of the rule and potentially permit more whistleblower cases to move forward.