Courthouse Steps Decision Teleforum: Cochise Consultancy Inc. v. United States, ex rel. Hunt

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Criminal Law & Procedure Practice Group, was recorded on Thursday, May 16, 2019, during a live teleforum conference call held exclusively for Federalist Society members.          

Micah Wallen:  Welcome to The Federalist Society's teleforum conference call. This afternoon’s topic: the recent Supreme Court decision on Cochise Consultancy Inc. v. United States, ex rel. Hunt. My name is Micah Wallen, and I'm the Assistant Director of Practice Groups at The Federalist Society.

      As always, please note that all expressions of opinion are those of the experts on today's call.

      Today we are fortunate to have with us Brandon Moss, who is an Associate at Wiley Rein, and Mark Sweet, who is a Partner at Wiley Rein. After our speakers give their remarks, we will then go to audience Q&A. Thank you for sharing with us today. Mark, the floor is yours.

Mark B. Sweet:  So today we’re going to talk about the latest decision out of the Supreme Court involving the False Claims Act. And for those of you who may be new to this topic, the False Claims Act is the government’s primary tool for recovering money from people or businesses that do business with the government. So any time the government has paid money out to an individual under a contract, to a company under a contract, or through a grant, or if they’re owed money by a company or an individual, for example, if they have a lease or something else like that where it’s a business type transaction, and the government believes it has been defrauded, it can use the False Claims Act to recover damages: the amount it lost times three, plus penalties each time a false claim was submitted to the government.

      So it’s a pretty powerful tool and one that it uses quite a bit. Last year alone, the government was able to recover, I think something like $2.8 billion. And that was candidly a down year for the government. In years past, they’ve been able to recover $3-, $4-, $5 billion from people, or companies, that they believe defrauded them. So it is pretty powerful, and they do use it quite a bit. And one of the things that makes the statute interesting is that it allows for whistleblowers to bring actions in the name of the government.

      The statute has a provision that allows a private party to file a complaint under seal, and the government has the ability to then investigate and determine whether it wants to intervene and take over the case or not. And if it doesn’t intervene in the case, then the whistleblower, also known as the qui tam relator, can bring its own lawsuit or keep going with its lawsuit that it’s filed. And if it recovers money at the end of that process, it’s entitled to a share of the government’s recovery. So the government still gets most of the money, but if the government intervenes, the relator can get something like 25 percent of the total recovery. If the government does not intervene, the relator can get as much as 30 percent of the total recovery.

      So for a whistleblower it can create quite a significant financial incentive to bring fraud to the attention of the government and to pursue it in litigation if it believes the case is meritorious and can be won, and that there’s money at the end of the tunnel from the defendant on the other side.

      So this case in particular dealt with the statute of limitations. And the statute of limitations has two provisions in the False Claims Act. The first provision is pretty straightforward. It just says that civil action must be brought within six years after the date when the violation occurs. That’s pretty easy. But there’s a second provision that is a little bit more challenging. And I think one of the Justices, Justice Alito, called it a “terribly drafted statute” during the hearing. Another one, Sotomayor, I think said it, was a poorly written statute. I think everybody would agree with that. I would like to think that Congress knew that they were dealing with brilliant False Claims Act lawyers, and they didn’t want to make it simple. So they made it a little extra challenging. But the long and short of it is there’s a second provision that says that, essentially, if the government doesn’t know of the fraud, then they can invoke the second provision. So it’s what’s commonly referred to as the “tolling” provision. If the government doesn’t know of the fraud immediately, they can get some extra time.

      And the way it’s worded, if you don’t want to invoke the first provision, you can invoke the second provision. And you have up to three years from the time when the facts material to the right of action are known, or reasonably should’ve been known, by the official of the United States charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed. So what that means, essentially, is that if the government doesn’t know about the fraud on day one, and they usually don’t because it’s fraud and that’s the nature of these types of cases, then the clock would start when the government knows, or reasonably should’ve known, about the material facts of the case. And you’d have up to three years from the time in which they know, or reasonably should’ve known, of those material facts to bring your lawsuit. And in those circumstances you can look back as much as ten years from the date you file to recover fraudulent claims.

      So you can go back ten years in time and for any fraudulent claim that was filed during that time, you can get treble damages plus penalties. So that’s a really far reach back in time, and can result in quite large amounts of money at stake in each of these cases. And the issue in this case was, in particular, what happens if the government doesn’t intervene in the case? So if they don’t intervene in the case, can the qui tam relator still take advantage of this longer tolling provision? In other words, can they get more than six years? Can they get the full ten years potentially of recovery if the government chooses not to intervene in the case?

      So Brandon, why don’t you tell us a little bit about how we got here and why this case was a little bit more unusual than others?

Brandon J. Moss:  Very briefly because I think most people have heard the facts of this case, but just enough to get you through to the end of the conclusion which Mark will share with you in a second.

      This dates back to either early January 2006 to maybe January 2007. And that is specifically related to our munitions clearing contract in Iraq, or security for the munitions clearing processes. Clearly, there was some sort of allegation that the consultancy and the contractors were involved in either bribing or getting kickbacks to one of the government officials who was in charge of signing the contract. Mr. Hunt, here, was one of the people on the ground and knew about it day one. He knew that people were getting bought off, people were getting paid. Bad things were happening.

      So fast forward to November 30, 2010. That’s the day the FBI knocks on Mr. Hunt’s door and starts talking to him about an entirely different fraud scheme. Different kickbacks. Well, during that nice little chat, Mr. Hunt decides to disclose everything he knows about the munitions contracts in Iraq, all of the bad stuff that went down, etc., etc. Well, poor Mr. Hunt ends up going to jail for another kickback scheme. --

Mark B. Sweet:  Whoops.

Brandon J. Moss:  -- And he’s released in 2013. And on November 27, 2013 he decides to file this action. Dates are key here because remember you have a six-year statute of limitations generally, so if you’re saying at the very end of that that activity was January 2007, that six years is gone by November 27, 2013. However, November 27, 2013 is three days shy of the additional three-year statute of limitations. So if you were to start that provision from the time he told the government in the FBI interview, then the still has time left on the statute of limitations shot clock.

      Now, the third interpretation, though, is because Mr. Hunt knew about this at the very beginning back in 2006, the three-year statute of limitations would’ve been subsumed by the six-year statute of limitations. So he’d lose there too. That means that the majority rule -- which I think just five different circuits said that relators can’t take advantage of this additional three-year period. Well, he lost there. The minority rule at the time, which was the Ninth and Third Circuits, said the realtors could take advantage of the three-year additional period, but it starts when the relator finds out about it because their the official of the government who’s bringing the action here. That would be gone. So the Eleventh Circuit decided to take a different approach. The Eleventh Circuit decided that the claims were still good because the government is the only person who can be the government official who knows it. So therefore, his case was allowed to go forward, and it was appealed to the Supreme Court.

      Mark, what happened?

Mark B. Sweet:  Yeah, so the Supreme Court, interestingly enough, took the view of the Eleventh Circuit, so they were pretty unique in that in their view. And the Supreme Court said that if the government doesn’t intervene, then it doesn’t matter. That the relator’s still entitled to whichever statute of limitations provision is longer, and they can file a claim within six years under the straightforward provision or within the three years of when the government knew even if the government doesn’t intervene.

      So as a result of that, all ten years are still in play -- ten years of potential recoveries, are still in play, even when the government doesn’t intervene. There’s a pretty narrow view. They didn’t really get into too many side issues, but they stuck to the very narrow issue at hand which was can the relator take advantage of this provision even if the government doesn’t intervene. And they said yes. So Brandon, did you think there was anything surprising in this opinion?

Brandon J. Moss:  The opinion itself is short. It’s well written. It’s very clean. It makes a lot of sense. But you have to step back for a second and take a look at it in the context of everything. For years, the False Claims Act bar has been looking at this two-way determination of how you look at this thing. There’re circuits that say, the majority of which relators can’t take advantage of this. There’s a minority that says, yes, they can and the relator starts the clock. It’s just recently that the Eleventh Circuit decided to go a totally different way. And that totally novel way is the way the Court decides to go to.

      I think it’s interesting. The Court could’ve taken this a lot earlier because this has been kicking around for a while.

Mark B. Sweet:  And there’s been a circuit split for a long time.

Brandon J. Moss:  Yep. But they waited for this one to come out, and then they affirmed it this novel way. So I thought that was interesting.

Mark B. Sweet:  Maybe they just wanted a three-way circuit split, like an appellate lawyer’s dream.

Brandon J. Moss:  You know, it is what it is. The other thing is how they could’ve addressed this whole issue of who is the government official with responsibility to act. And they explicitly sidestepped it. It was teed up. Justice Thomas had provisions of the False Claims out there, talking about how it was the attorney general’s responsibility to do X, Y, and Z. The briefing clearly, from the government, showed that they wanted the Court to figure out and say that it was the attorney general or designee as the official that has the knowledge that’s going to make this determination. Justice Thomas explicitly didn’t answer it. But no matter who it is, it’s not this guy.

Mark B. Sweet:  Not the relator, but I’m not going to say who it is within the government. That’s kind of an important issue because a lot of these False Claims cases, especially now with this materiality standard from Escobar, what the government knew and whether they still pay the claim, there’s a lot of times the question of, “Well, did someone at the government know that this was going on, but they paid the claim anyway?” Or does someone know but by the time the Department of Justice or the relator got around to filing a lawsuit, it’s been a long time. And a lot of times the debate is well, who has to know? Is it the Department of Justice because that’s what the Department of Justice says is it has to be them. But there’s been some cases saying it could be the IG. I think you could make an argument it could be the contracting officer. You could make the argument it could’ve been the suspension and debarment official.

      So you could’ve gone in other directions and the Supreme Court could have weighed in on all that. And I though after Escobar, where they just went off and created a whole body of law that didn’t exist before, that we’re going to get the same thing here, and they might go off and talk for a while about who the responsible government official is. But they didn’t. They were very careful here. Maybe they were trying to preserve the unanimous ruling. I don't know. But there were very careful here, and they only addressed the narrow question and said, “It doesn’t matter who the responsible official is. It’s the same either way. And so we’re just going to leave it at that.”

Brandon J. Moss:  It’s interesting you brought up Escobar because that’s something that occurred to me too. Maybe they were in Escobar shell-shocked. There’s so much back and forth now as to what materiality means and what the dicta in that opinion means. But they're getting inundated with petitions now. They're trying to avoid that happening again.

Mark B. Sweet:  Yeah.

Brandon J. Moss:  Mark, question for you. Clearly, this is a definitive opinion. You have a lot of clients who are in these highly regulated environments who are frequently targeted by these False Claims Act cases. What do you tell them? What does this mean to them? Other than, of course, clearly you should stop going out and committing fraud.

Mark B. Sweet:  Well, on the front end it doesn’t change the advice. You're still trying to improve your compliance programs to make sure your certifications and your representations are accurate and complete and all that. So you don’t want to get yourself into a False Claims Act case. That’s obviously the same no matter what this opinion says. What the opinion does change, I think, is number one, what are your risks if you do get sued? And number two, how do you litigate it if you're in the middle of one of these?

      On the first question about what are your risks, before if you could get the government out of the case, convince them not to intervene, you had an argument that your potential damages were less. There was only six years of potential claims. Now you’ve got to worry about the full ten years whether the government’s in or out. So the risks are a little higher. So that’s bad news.

      If you're in one of these cases, though, the fact that the government -- or the Supreme Court didn’t clarify this question about who is the responsible government official means you do really need to take advantage of discovery to find out who at the government knew and when did they know about the alleged misconduct. Because this still leaves the door a little bit open for making the argument that it’s not just the Department of Justice that has to know about these things; that it could be somebody else at the agency, the contracting agency – the contracting officer, the IG, the suspension and debarment official. Any of these people might have known, and so it’s worth pursuing that.

      And I think you can make the argument to the district court because you're probably going to have to file a motion to compel on this issue; the government’s not going to want to give up all of this stuff. But you're going to have to make the argument that the Supreme Court had an opportunity and explicitly did not rule, and therefore it’s still fair game that any of these people could know and that could be relevant, significant. So we’re entitled as a defendant to discovery of that before we can make this determination about what’s material, what the government knew, and what the appropriate timing is for statute of limitations argument.

      What do you think the government thinks about this, Brandon? Do you think they're happy with this decision?

Brandon J. Moss:  No, I think there’s some good and bad to be taken from the government. Of course, overall big picture government, great. Ten years. Ten years for everyone. If we decide not to get our hands dirty in this case, I can still get ten years, and I get a percentage of that. Good stuff. More money coming in. Excellent.

      What’s kind of bad, though, is this whole idea of discovery that you just mentioned and that they didn’t address the government official with the responsibility to act. Because they didn’t explicitly identify that as DOJ, you’ve opened the door wide open to the sort of discovery issues that you just mentioned.

Mark B. Sweet:  They're going to hate that.

Brandon J. Moss:  They're going to hate it, and when you look back at the Granston memo last year which listed copious discovery as one of the main reasons that government might go ahead and just affirmatively move to dismiss a case at the beginning. And you might see more of that coming out of this because of the threat of such discovery. I mean, you already saw it in Gilead earlier this year. I think you might be able to see more of that coming soon.

Mark B. Sweet:  Yeah. I think the government’s got a big weight. They're not equipped to respond well to discovery. I mean, the government investigators are very good at issuing CIDs, issuing subpoenas, taking in the documents, thinking about how that affected their payment decisions, and developing their case. But they do not handle the flipside well of responding to discovery, and especially in situations when they declined to intervene, and it’s the relator perusing it for herself or himself. Yeah, they are even less invested in a case in those situations, and it’s a real nuisance for them to have to go back through ten years potentially of their contract files and figure out who knew what, what they received from the contractor and what they thought about when they made the payments. That’s painful for them, and they don’t like it, and they're not equipped for it.

      And so I agree. I think you could see as a result of this as sort of unintended consequence more of these proactive decisions by the government to just dismiss the case, rather than to let the relator go on with it, and the government suffers all the burdens of discovery.

Brandon J. Moss:  Absolutely. And one more question for you before we turn this over to the audience for questions and answers, Mark, we’ve seen the Supreme Court take up False Claims Act cases dealing with statute of limitations a couple times now. We saw it with retaliation and whether to not that was going to be extended to three years. We talked about Wartime Suspension of Limitation Act and whether or not that applies to both criminal [and] False Claims Act cases. And now we have Hunt. Where do we go from here? Are we finally finished with the statute of limitations? Are we done with this issue or is there more left to come?

Mark B. Sweet:  Oh, I hope not. And maybe because I’m a False Claims Act geek, but there’s one other issue that hasn’t been litigated that involves the statute of limitations. And that’s the question of when is the violation committed? So the language in the statute, both provisions, says the starting point is when the violation is committed. So it’s either six years from the date of violation committed or up to ten years from when the violation was committed if you use the longer provision. But in either case, there’s this question of well, what exactly is the violation? And it’s kind of straightforward in a pure False Claims case. In other words, where the falsity is in the invoice, then you're submission of the invoice is obviously the violation.

      But there are more and more cases these days involving false statements, false certifications. And that’s a little bit different violation because in those cases what often happens is a statement is made early on, could be part of the proposal, saying, maybe “We’re certified as a small business. Or we’re qualified. Or we meet the requirements necessary to bid on this contract. Or there’s something about our product or service that is really great and that’s why you should select us as the contractor.” Could be anything in the proposal. And on that basis, the government selects that contractor.

      And then even if you do everything right after that and there’s nothing wrong with each of your particular invoices, the government could come back and say, “Wait a second. We only picked you because you are a service-disabled, veteran-owned small business.” Or, “We only picked you because you promised us that your service met this standard; your ISO certified.” Could be anything. “But it was something in your proposal, and had we known the truth, we would never had issued this contract to you. So as a result of that, all of your invoices are tainted.”

      Well, in those cases it’s not clear when does the violation occur? I would say the violation occurs at the date of the proposal. The day you make your statement. But the government’s always taken the view because they want this to stretch out as long as possible it’s the date that the claim is submitted, or in some cases they say it’s when the payment occurs.

      So that’s one more issue that you could -- I think, could make a big difference to how long these cases drag on. A lot of cases last forever, over a decade, and you could only imagine trying to get a witness to remember, “What did you say to the government 12, 15 years ago?” By the time they get deposed by the long statute of limitations and then a long government investigation and then a long federal litigation, by the time the trial comes up, nobody remembers anything.

Brandon J. Moss:  No.

Mark B. Sweet:  So I think --

Brandon J. Moss:  -- Not to mention what happens to electronic documents over that time. How many times have we switched servers in those years? It’s ridiculous. Things just disappear.

Mark B. Sweet:  Yeah. I mean, these cases can drag on forever. So that’s one issue that I still hope that they’ll take up. The majority of cases say it’s when the claim was paid. But I think the Supreme Court could overrule all that and say, “No. The false statements are when the statement is made.”

      Anyway, that’s the last thing. That’s not in this case, but it’s something else we’ve been keeping our eye on, and we’ll see if that comes up. So with that, does anyone else have any questions? Anything that they thought was interesting that they wanted to talk about?

Micah Wallen:  Not seeing any questions light up right away, Mark, Brandon, is there anything further you wanted to discuss while we wait for a question to come in?

Mark B. Sweet:  Yeah, there’s one other thing. This is another unanimous decision. Brandon, were you surprised it was unanimous?

Brandon J. Moss:  You know, yes and no. We do get a lot of unanimous decisions for some strange reason in these False Claims Act cases. I really can’t make much of that, but it is a fact it happened. The thing I do find strange is it’s unanimous given that the circuit split. It’s a three-way circuit split. And one in which two sides have been pretty dug in for a while. But the Fourth and all those circuits saying, “No, no, no. You can’t do this at all.” The Ninth and Third saying time and time again, “Yes, you can. But it’s the relator whose knowledge triggers it.”

Mark B. Sweet:  The Supreme Court has brushed all that aside.

Brandon J. Moss:  Brushed it aside and went with the new guy on the block. There was a novel opinion, and they said it’s true to the statute. And I kind of agree with that. I see that. Functionally, I think it has some issues, particularly the fact that you have this springing liability now. Something that is -- a case that is, for all good and purposes, dead after six years, the relator can stay quiet about it, quiet about it, quiet about it, file it year eight, nine, right before ten; filing is notice to the government and all of the sudden, you’ve triggered that clock again, and you're within the period.

Mark B. Sweet:  Yeah, and there are some built in protections against that, things like the first to file and other things. But, yeah, the relator still could take that approach if they want to maximize their recovery, and they want to risk it that someone could beat them to the punch. And that’s sitting out there, so you’ve got to worry about it. These things aren’t dead.

Brandon J. Moss:  It’s a little bit of an odd result, but yes, it is fitting, which is the statute.

Micah Wallen:  All right. Well, I guess our audience, due to the comprehensive nature of your overview, is left speechless. So without further ado, I’ll wrap up our call today. Thank you to both of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at info@fedsoc.org. Thank you all for joining us today. We are adjourned.

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