The United States Circuit Court for the District of Columbia recently weighed in on the Whistleblower statute’s (False Claim Act’s) first-to-file rule as it applies to a whistleblower filing a second complaint in the case of Shea v. Cellco Partnership. The court issued a ruling on April 11, 2014 and its ruling has created some controversy.
In Shea, Stephen Shea filed a whistleblower action against Cellco Partnership (Verizon) and alleged that:
(1) that Verizon made knowing submission to the United States of certain prohibited surcharges under contracts to provide telecommunications services to the General Services Administration (GSA);
(2) that Shea based his allegations on experience with Verizon’s alleged practice of billing corporate clients not only for federal, state and local taxes levied on the customer but also for surcharges that were added to bills to inflate revenue;
(3) that Verizon used the same billing platform for both business customers and the United States, and that through this practice, Verizon charged the government Federal, State, and local taxes and duties contrary to Federal Acquisition Regulations (FAR);
The United States intervened in the case and in February of 2011,the parties settled the case and Shea received nearly $20 million for his role in the litigation. Shea filed the a second whistleblower action against Verizon on June 5, 2009 He then filed a second amended complaint on September 12, 2012. The second complaint closely
mirrors Shea’s earlier suit and it:
(1) alleged a scheme by Verizon to defraud the United States by knowingly billing the government for non-allowable surcharges;
(2) traced Shea’s knowledge to his experience consulting with large commercial telecommunications customers;
(3) identified the same 2004 document as the source of his information; and
(4) alleged that Verizon overcharged the United States by billing non-allowable charges
on several government contracts.
The court found that the only difference between the 2007 complaint and the later suit was that the second suit expanded Shea’s allegations to more contracts, more
charges, and more governmental agencies.
The district court dismissed Shea’s complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The court held that under the False Claims Act’s first-to-file bar, Shea’s earlier complaint barred the court’s consideration of his
later filed complaint. The district court concluded that second suit was barred
because it alleged “a fraudulent scheme the government already would be equipped to investigate” based on the earlier complaint. Shea argued that dismissal under the first-to-file bar should have been without prejudice and that he should be able to re-file because the first case was was no longer pending when the court disposed of the second case. The DC Circuit Court disagreed.
The court first found that the two complaints alleged the same fraudulent scheme and that the first case was sufficient to equip the government to investigate Shea’s expanded allegations in the second case. As a result, the court ruled that the district court properly held that Shea’s second complaint was “related” to the first within the terms of the False Claims Act first-to-file bar.
Next, the court addressed Shea’s argument that the first-to-file bar is only intended to apply to a second whistleblower, not the same person that files two actions. The court rejected this argument as well.
Finally, Shea argued that the district court erred in dismissing his claim with prejudice. Shea asserted that because the first action was no longer “pending,” the second action was not barred under the language of the statute. Verizon argued for a broader reading of the statute that a related action is barred regardless of the first-filed action is actually pending. The court ultimately sided with Verizon.
Shea argued that three other circuits had reached the opposite conclusion on the construction of the False Claims Act in interpreting the word “pending.” The court noted that it had reviewed those decisions but chose to disagree, thereby creating a split in the circuit court positions on this issue.
If you have any knowledge of fraud against the government, feel free to contact us for a free confidential consultation. The rewards can be significant with the relator receiving a portion of the recovery. Also, as discussed above, there is a first-to-file rule that can prevent you from recovering if someone else files before you so it can be important to consult with an attorney quickly.