Circuit Split Widens On False Claims Act’s First-To-File Bar

The First Circuit issued an opinion earlier this month finding that the False Claims Act’s first-to-file rule is not jurisdictional. In doing so, the court flipped a $34 million award from one whistleblower to another, and deepened the divide among the circuits that have addressed the question.

A central limitation on qui tam actions is the first-to-file rule, which states that “[w]hen a person brings an action under [the False Claims Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” The rule incentivizes whistleblowers to race their claims to the courthouse by barring cases brought by subsequent whistleblowers. A central question courts face is, when multiple related actions are pending at the same time, which one is considered “first.” Some circuits, including the Fourth, Fifth, Sixth, Ninth, and Tenth Circuits, have held that the first-to-file rule is jurisdictional, which allows courts to consider a broad range of extrinsic evidence in deciding which complaint came first, including relators’ communications with the government. Other circuits, including the D.C. Circuit, Second Circuit, and now the First Circuit, have held that the first-to-file rule is not jurisdictional, and courts are therefore limited to looking at the four corners of the relators’ complaints when determining who came first.

In the First Circuit’s recent decision—U.S. ex rel. McGuire v. Millennium Labs, Inc.—the government alleged two fraudulent schemes: “(1) Millennium’s submission of claims for excessive and unnecessary urine drug testing ordered by physicians through standing orders without an individualized assessment of patient need; and (2) urine drug testing referred by physicians who received free point-of-care testing supplies, in violation of the Stark Act and the Anti-Kickback Statute.” Millennium agreed to pay $227 million plus interest to resolve the claims. The case, however, did not end there. Instead, two relators—Robert Cunningham and Mark McGuire—each asserted that he was the sole whistleblower entitled to entitled to the relator share of the settlement. Cunningham asserted that he was entitled to the relator’s share because his complaint was filed first, and information he disclosed to the government before McGuire’s complaint was on file included the conduct the government ultimately asserted against Millennium. McGuire countered that he should receive the relator’s share because his complaint was the first to allege the essential facts in the government complaint. 

The Massachusetts district court ruled in August 2016 that Cunningham should receive the relator’s share, and that McGuire’s complaint was jurisdictionally barred. The First Circuit reversed, explaining that courts “must ask not merely whether the first-filed complaint provides some evidence from which an astute government official could arguably have been put on notice, but also whether the first complaint contained all the essential facts of the fraud it alleges.”  In applying this standard, the First Circuit found that Cunningham’s allegations made “too general an argument” because a first-to-file analysis requires an inquiry into “the actual mechanism (the ‘essential facts’) of the fraud.” And, the court emphasized, “the fraud the government pursued was that alleged by McGuire.” Because the fraud alleged by McGuire involved a “different mechanism” of fraud and that the fraud took place during a “different stage of testing” than alleged in Cunningham’s complaint, McGuire was the “first relator to file a claim including the essential elements of Millennium’s” fraud.

May 30, 2019