Imagine your company wants to sell cutting-edge aircraft parts to the U.S. Air Force. The parts are novel, so the Air Force asks all bidders to estimate costs and profits in their proposals. Your company wins a five-year, $50 million contract because of its superior technology and price. Five years later, the Air Force is so pleased that it extends the contract another five years for another $50 million. After ten years, the Air Force has all the parts it ordered, and the parts work flawlessly. So that’s the end of it—right? Wrong.
A year after the last contract ends—without the customer ever complaining about quality or price—a disgruntled former employee alleges that your company made huge profits on the contract, far more than projected in its proposal. The government investigates for a few years, decides your company’s proposal estimate was “false,” and launches a False Claims Act lawsuit against the corporation. By the time it reaches trial, the case will turn on witnesses’ recollections of 20-year-old financial projections. Key employees will be long gone; some may not even be alive. Correspondence (especially emails) capable of revealing intent will be sparse, at best. However, while the evidence is foggy, the stakes are enormous: a loss could result in your company owing the government hundreds of millions of dollars and facing the prospect of debarment from all government contracts.
This hypothetical may seem absurd; but it is not uncommon. Each year, the United States government awards contracts for billions of dollars’ worth of goods and services. Not all those contracts go as planned. When the government believes its failure to receive the benefit of the bargain is attributable to contractor fraud, it may seek to recover under the False Claims Act, 31 U.S.C. § 3729—a statutory sledgehammer that imposes treble damages and penalties for each false claim submitted. And sometimes the government does not even have to bring the case itself. Under the False Claims Act, a whistleblower, known as a “qui tam relator,” can sue the alleged violator on the government’s behalf for a percentage of the government’s recovery. The relator’s cut is sometimes millions of dollars.
Defending these high-stakes cases on the merits is challenging for many reasons. But perhaps the most complex factor in a False Claims Act case is how much time passes between the alleged misstatement and when witnesses are asked about it. The False Claims Act already contains a lengthy period of limitations. Courts have concluded, however that the period begins anew after each invoice is submitted—no matter how long ago the misstatement occurred. Add to that the slow pace of government investigations and federal litigation, and a trial 20 years after the fraud allegedly occurred is a real possibility.
Statutes of limitations are designed to protect defendants from such unfair—and unreliable—outcomes. Unfortunately, by not starting the clock until after submission of a final invoice, courts have stripped the False Claims Act of such protections. To ensure justice is done and to fulfill the intent of statutes of limitations, courts should apply a common-sense—and plain-language—approach to interpreting the statute of limitations in the False Claims Act and find that the period of limitations begins to run when the underlying false statement occurred, not each time an invoice is submitted.
Why Are Statutes of Limitations Necessary for Justice?
Statutes of limitations “protect defendants and the courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or otherwise.” United States v. Kubrick, 444 U.S. 111, 117 (1979). They “represent a pervasive legislative judgment that it is unjust to fail to put the adversary on notice to defend within a specified period of time and that the right to be free of stale claims in time comes to prevail over the right to prosecute them.” Id.
Continually extending a limitations period “bar[s] repose, prove[s] a godsend to stale claims, and doom[s] any hope of certainty in identifying potential liability.” Rotella v. Wood, 528 U.S. 549, 559 (2000). When interpreting other laws’ statutes of limitations, the Supreme Court has been reluctant to restart the limitations period each time a new act harms the plaintiff. In Klehr v. A.O. Smith Corp., for example, the Court held that such a “last predicate act rule creates a limitations period that is longer than Congress could have contemplated. Because a series of predicate acts . . . can continue indefinitely, such an interpretation, in principle, lengthens the limitations period dramatically. It thereby conflicts with a basic objective—repose—that underlies limitations periods.” 521 U.S. 179, 187 (1997).
Why Do False Claims Act Cases Reach So Far Back?
The False Claims Act imposes a two-pronged statute of limitations. Cases can be brought up to six years “after the date on which the violation of section 3729 is committed” or three years after the responsible government official knew or reasonably should have known about facts material to the case. See 31 U.S.C. § 3731(b). The latter provision, which is designed to protect the government if it was not aware of the fraud at the time, is limited to a maximum of ten years “after the date on which the violation is committed.” § 3731(b)(2). In other words, the period of limitation ranges between six and ten years after the violation, and the longer of the two periods governs. As a result, the False Claims Act usually permits actions up to a decade after a violation occurs.
Courts stretch the False Claims Act’s statute of limitations to extend the period of limitations even further. Section 3729 identifies a variety of violations. The most commonly cited violation is the knowing presentation of a false or fraudulent claim for payment or approval under § 3729(a)(1)(A). However, the government and qui tam relators are often able to implicate a broader set of claims for payments, and thus seek larger damages, by alleging that a defendant has knowingly made a false statement or used a false record that is material to a false or fraudulent claim for payment or approval under § 3729(a)(1)(B). In many cases, this scenario arises where a false statement is made in a bid or a proposal that the government deems material to its decision to award the contract and pay claims for the contract performance.
Courts do not distinguish among the various types of violations when applying the statute of limitations. And no court measures the period of limitations from the date a false statement is made. Rather, courts routinely start the clock on the date the last false claim is submitted (or in some jurisdictions the date the last payment is made by the government), regardless of whether the violation is a false claim or a false statement. This is true even when the courts recognize that the only falsehood was in the proposal, and that there was nothing independently false about each subsequent invoice for goods or services.
One illustration is the Sixth Circuit’s decision in United States v. United Technologies Corp., 626 F.3d 313 (6th Cir. 2010). In 1983, the defendant bid on a six-year contract to supply fighter jet engines to the U.S. Air Force. The defendant’s final offer inaccurately described how the company calculated its cost estimates. The Air Force awarded a contract to the defendant that included a series of one-year options. During each of the option years, the parties negotiated new prices for the engines and made other revisions to the contract.
In 1997, after the defendant finished performing the contract, the Department of Justice initiated an investigation into the Air Force’s fighter engine competition program and uncovered the 1983 false statements. The government filed suit under the False Claims Act in 1999, sixteen years after the defendant made the false statements. Applying the applicable ten-year False Claims Act limitations period, the government sought to recover for violations within the last three years of the contract.
When trial finally commenced in 2004, witnesses attempted to testify about their 1983 price calculations and other conduct. Despite the dated evidence, in 2008 the court ultimately found the defendant liable. In 2010, the Sixth Circuit affirmed the trial court’s application of the statute of limitations.
Another example is United States ex rel. Hooper v. Lockheed Martin Corp., No. CV 08-00561, 2014 WL 12561070 (C.D. Cal. Jan. 17, 2014). In 1995, a company (later acquired by the defendant) bid on a contract to modernize the military’s space launch sites through integration of its systems and computer software engineering. As part of its bid, the company estimated its cost to complete the contract based on the rate its employees could write computer software. In 2005, three years after his termination, the relator sued. The relator alleged that the defendant fraudulently underestimated the cost of completing the contract.
The parties disputed whether the relator’s claims were barred by the applicable six-year statute of limitations. The court, however, ruled that “the triggering event was not the submission of Defendant’s allegedly fraudulent underbid, but its submission of invoices for payment on that fraudulent underbid.” Id. at *5. By the time the case finally went to trial in 2014, the key events—the defendant’s calculations of costs and submission of a bid—were nearly twenty years old.
In each of these cases, the court based its ruling on the same foundation—the notion false statements in a bid generate a stream of tainted invoices that all defraud the government. Accordingly, the courts held that each invoice constituted an individual false claim even though the later invoices were for legitimate goods or services. The courts created a cycle of renewed limitations periods, ripe for False Claims Act suit even though the key evidence grew more stale each day.
A Better Interpretation of the False Claims Act’s Limitations Provision
The False Claims Act’s statute of limitations should be construed in a way that avoids absurd results and fulfills the purpose of limitations periods—to preserve judicial resources and protect defendants from stale claims where the evidence supporting their defense has decayed. This construction does not require a statutory amendment. Rather, it requires courts to look again at the existing statute of limitations and the meaning of “violation.”
In cases involving a false statement submitted in a bid, the period of limitations should begin when the false statement is made, rather than when a claim is submitted for payment. This interpretation is faithful to the plain language of the False Claims Act. Both provisions of the False Claims Act’s statute of limitations are triggered by “the violation” of § 3729. See § 3731(b). Although the statute does not define the “violation,” § 3729 uses the same term to describe the discrete acts listed in § 3729(a)(1). See § 3729(a)(1)(C) (creating liability for anyone who conspires “to commit a violation” of one of the other subparagraphs of § 3729(a)(1)). In other words, the statute defines a “violation” as either the knowing presentment of a false claim for payment, § 3729(a)(1)(A), or the knowing making of a false statement material to a false claim, § 3729(a)(1)(B), or one of several other prohibited acts. A defendant who violates one part of the statute has not violated all parts of the statute. Accordingly, the submission of a false statement—not the later presentment of a false claim—is the violation that triggers the statute of limitations if later invoices contain no independent falsities.
Even if a court viewed all claims submitted in connection with a fraudulently obtained contract as “false,” as courts typically do today, starting the clock at the time of the false statement would be a better way to avoid absurd results. As the Supreme Court has ruled, “[i]f a literal interpretation of any part of [a statute] would operate unjustly, or lead to absurd results, or be contrary to the evident meaning of the act taken as a whole, it should be rejected.” Haydenfeldt v. Daney Gold & Silver Mining Co., 93 U.S. 634, 638 (1876). Courts’ current conflation of a “statement” and “claim” under the Act allows plaintiffs to stretch an already lengthy limitations period well beyond the ten-year maximum contemplated in the statute. This often requires parties to litigate what a defendant may have known 15 or 20 years ago, complex procurements involving highly technical subjects. Inevitably, documents will be missing, memories will have faded, and key witnesses will be unavailable. The False Claims Act statute of limitations must be interpreted to avoid such injustice.