D.C. District Court Applies First-to-File Rule

 

In United States ex rel. Shea v. Verizon Business Network Servs., No. 1:09-cv-1050 (GK), 2012 U.S. Dist. LEXIS 163525 (D.D.C. Nov. 15, 2012) (Kessler, J.), the U.S. District Court for the District of Columbia held that the first-to-file rule in the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., barred an action alleging that Verizon had included improper surcharges under contracts with the United States Postal Service, Department of Defense, Federal Emergency Management Agency, General Services Administration, Department of Justice, Department of Navy, and Federal Aviation Administration for telecommunication services when an earlier action alleged the same sort of improper surcharges by Verizon under other contracts with the General Services Administration.  The court further ruled that the first-to-file rule applied even though the relator was the same in both actions.

Allegations and Procedural History:  The relator filed his first qui tam action against Verizon Communications, Inc. in 2007 based on Verizon’s submission of prohibited surcharges under contracts with the General Services Administration to provide telecommunications services.  The Government intervened in the 2007 lawsuit, and the action was dismissed on February 28, 2011, following a settlement.

In 2009, the same relator filed a second qui tam action against Verizon Business Network Services, Inc., Verizon Federal Inc., MCI Communications Services, Inc. d/b/a Verizon Business Services, and Cello Partnership d/b/a Verizon Wireless (“defendants” and “Verizon”).  The relator alleged that the defendants had improperly billed the United States for tax-like surcharges on twenty contracts between the defendants and various government agencies, including the United States Postal Service, Department of Defense, Federal Emergency Management Agency, General Services Administration, Department of Justice, Department of Navy, and Federal Aviation Administration.  The contracts identified in the relator’s 2009 lawsuit had not been identified in his 2007 lawsuit.  The district court granted the defendants’ motion to dismiss for lack of jurisdiction based on the first-to-file rule.

Ruling on Whether the 2009 Lawsuit Was a Related Action Based on Facts Underlying the 2007 Lawsuit:  The first-to-file rule in the FCA provides that, when a person brings a qui tam 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).   The Shea court explained that in the D.C. Circuit the rule “serves to bar ‘actions alleging the same material elements of fraud as an earlier suit, even if the allegations [of the later-filed complaint] incorporate somewhat different details.’”  Shea, 2012 U.S. Dist. LEXIS 163525, at *17 (quoting United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 217 (D.C. Cir. 2003)) (alteration in original).  According to the Shea court, two actions are related when the first-filed action gives the Government “sufficient notice to discover the fraud” alleged in the second-filed action.  Id. at *18.

The court held that the relator’s 2009 and 2007 lawsuits were based on the same material facts and that the first action sufficed to put the Government on notice as to “Verizon’s allegedly fraudulent billing practices with respect to surcharges on government contracts.”  Id. at *20.  In the court’s view, the following facts were material and shared by both lawsuits: (1) the relator discovered the defendants’ custom and practice of billing certain surcharges through his work as a consultant in the telecommunications industry; (2) the relator received a document in 2004 that showed Verizon was charging the United States for certain surcharges; (3) Verizon used the same system to bill the United States and commercial customers; (4) Verizon was prohibited by the Federal Acquisition Regulation and contractual provisions from charging the United States for the surcharges it was charging; and (5) Verizon billed the United States for certain non-allowable surcharges on contracts.  The court found unpersuasive the relator’s argument that his two lawsuits were not related because they involved different agencies and different contracts, noting that the relator had conceded that “[t]wo D.C. district courts have held that complaints which allege similar fraudulent schemes on different contracts with different federal agencies do not materially differ under the first-to-file rule.”  Id. at *19-*20 (alteration in original) (internal quotation marks omitted).

Ruling on Applicability of First-to-File Rule to a Successive Action by the Same Relator: The court held that the first-to-file rule bars a second action even if the same relator brought the first action: “The statute does not say ‘no other person except the Government may bring an action,’ it simply says ‘no person’ which would apply equally to the original relator as any other person.”  Id. at *12 (quoting United States ex rel. Smith v. Yale-New Haven Hosp., Inc., 411 F. Supp. 2d 64, 74-75 (D. Conn. 2005)) (internal quotation marks omitted).

Ruling on Meaning of “Pending”: The court also ruled on the question of whether the relator’s 2007 lawsuit, which was dismissed on February 28, 2011, barred the claims in his amended complaint in his 2009 action.  Although the initial complaint in the 2009 action was filed before dismissal of the first action on February 28, 2011, the operative amended complaint in the 2009 action was filed after the dismissal of the first action on February 28, 2011.  The court ruled that the 2007 lawsuit barred the claims in the amended complaint, citing the “fundamental rule,” id. at *15, that that “the jurisdiction of the court depends upon the state of things at the time of the action brought.”  Id. (quoting Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 570 (2004)) (internal quotation marks omitted).