KBR Loses Argument that First to File Rule Bars Whistleblower's Lawsuit

 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. Lawyer firm in Florida. 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.