United States ex rel. Hayes v. Allstate Insurance Co.

853 F.3d 80, 2017 WL 1228551, 2017 U.S. App. LEXIS 5774

• Court: Court of Appeals for the Second Circuit
• Decided: April 4, 2017
• Docket: Docket No. 16-705
• Status: Published

Opinion

PER CURIAM:

Relator J. Michael Hayes appeals from the district court’s dismissal with prejudice of his False Claims Act (“FCA”) qui tarn action as a sanction pursuant to Federal Rule of Civil Procedure 11. On appeal, Hayes argues that the misstatements in his complaint were not made in bad faith and did not justify the sanction of dismissal. He further argues that he should have been granted leave to amend his complaint. Although all of the defendants contend that the district court’s imposition of the sanction of dismissal and denial of leave to amend were proper, several defendants, those not affiliated with Federal Express Corporation (hereinafter the “non-FedEx defendants”), additionally argue that the district court lacked subject matter jurisdiction over the action and consequently did not err by dismissing it. We address in this opinion only the non-FedEx defendants’ challenge to the district court’s subject matter jurisdiction, and we discuss Hayes’s argument that the sanction of dismissal was wrongfully imposed in a separate summary order filed simultaneously with this opinion.

Background

In this FCA qui tam action, see 31 U.S.C. § 3729 et seq., relator Hayes alleged that the defendant companies, which are primarily, but not exclusively, liability insurance companies, have been systematically and intentionally noncompliant with their obligations under the Medicare Secondary Payer Act to reimburse Medicare for certain payments made on behalf of Medicare beneficiaries. As is discussed more fully in the accompanying summary order, Hayes alleged that he had personal knowledge of each defendant’s participation in a nationwide scheme to defraud Medicare. The assigned magistrate judge and district court ultimately concluded that Hayes had no such knowledge and had acted in bad faith by falsely purporting to have it. As a result, the district court dismissed the action with prejudice as to Hayes as a sanction under Federal Rule of Civil Procedure 11.

Hayes appeals from that decision. Although all of the defendants contend that the district court correctly dismissed Hayes’s complaint as a sanction, the non-FedEx defendants also advance an alternative basis for affirming the district court: that the district court lacked subject matter jurisdiction over Hayes’s action because Hayes did not satisfy the FCA’s first-to-file rule. The non-FedEx defendants raised this argument to the district court (although they had not raised it before the magistrate judge), but the district court did not address it.

Discussion

Because “every federal appellate court has a special obligation to ‘satisfy itself not only of its own jurisdiction, but also [of] that of the lower courts in a cause under review,” we will consider the non-FedEx defendants’ contention that the district court lacked subject matter jurisdiction. Arnold, v. Lucks, 392 F.3d 512, 517 (2d ' Cir. 2004) (internal quotation marks omitted).

I.

As relevant to Hayes’s claim, the FCA imposes liability on any person who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G). “The FCA may be enforced not just through litigation brought by the Government itself, but also through civil qui tam actions that are filed by private parties, called relators, ‘in the name of the Government.’ ” Kellogg Brown & Root Servs., Inc. v. U.S., ex rel. Carter, - U.S. -, 135 S.Ct. 1970, 1973, 191 L.Ed.2d 899 (2015) (quoting 31 U.S.C. § 3730(b)(1)). There are, however, certain limitations on FCA qui tam actions. Under the so-called “first-to-file rule” at issue here, “[w]hen a person brings an 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). That rule prevents an individual from bringing an FCA qui tam action if another action invoking the same facts is already pending at the time the individual files suit. See Kellogg Brown & Root, 135 S.Ct. at 1974, 1978.

The non-FedEx defendants argue that Hayes did not satisfy the first-to-file rule because when he filed his complaint in October 2012, a “related” action was already pending, coincidentally in the same district. According to the non-FedEx defendants, that action alleged the same general scheme: that many of the same insurance companies had systematically failed to reimburse Medicare as required under the Medicare Secondary Payer Act. See Complaint, U.S. ex rel. Takemoto v. The Hartford Fin. Servs. Grp., Inc., 157 F.Supp.3d 273 (W.D.N.Y. 2016) (No. 11-cv-613). The Takemoto complaint was filed in July 2011, over a year before Hayes filed his purportedly related complaint. See id. Although the Takemoto case has since been dismissed, see 157 F.Supp.3d at 276, aff'd sub nom. U.S. ex rel. Takemoto v. Nationwide Mut. Ins. Co., No. 16-365, 674 Fed.Appx. 92, 96, 2017 WL 214572, at *3 (2d Cir. 2017), the non-FedEx defendants contend that the existence of the Takemo-to case at the time that Hayes filed his complaint deprived the district court of subject matter jurisdiction over Hayes’s action from the outset.

If the non-FedEx defendants are correct that the first-to-file rule is jurisdictional, their arguments on that point are not merely an available alternative on which we may affirm the district court; instead, they raise an issue to resolve before turning to the merits of Hayes’s appeal. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999) (“Article III generally requires a federal court to satisfy itself of its jurisdiction over the subject matter before it considers the merits of a case.”). As a result, we consider below whether the first-to-file rule is jurisdictional.

II.

Several circuits have stated or assumed that the first-to-file rule is jurisdictional. See, e.g., U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171, 181 (4th Cir. 2013), aff'd in part, rev’d in part on other grounds sub nom. Kellogg Brown & Root, 135 S.Ct. at 1979 (2015)¹; U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376-77 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005). The D.C. Circuit, however, has reached the opposite conclusion. See U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 120-21 (D.C. Cir. 2015). For the reasons articulated below, we join the D.C. Circuit in holding that the first-to-file rule is not jurisdictional and instead bears on the merits of whether a plaintiff has stated a claim.

The Supreme Court has warned against “profligate use of the term ‘jurisdiction.’ ” Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013). “To ward off’ such use, the Supreme Court has “adopted a ‘readily administrable bright line’ for determining whether to classify a statutory limitation as jurisdictional.” Id. (quoting Arbaugh v. Y&H Corp., 546 U.S. 500, 516, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006)). Courts are to “inquire whether Congress has ‘clearly stated’ that the rule is jurisdictional; absent such a clear statement, ... ‘courts should treat the restriction as non-jurisdictional in character.’ ” Id. (brackets omitted) (quoting Arbaugh, 546 U.S. at 515-16, 126 S.Ct. 1235). Under this test, a “provision that ‘does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts’ ” will not be considered jurisdictional. Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235 (quoting Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 394, 102 S.Ct. 1127, 71 L.Ed.2d 234 (1982)).

The first-to-file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending.” 31 U.S.C. § 3730(b)(5); see also Kellogg Brown & Root, 135 S.Ct. at 1974. As the D.C. Circuit observed, this language “speaks only to who may bring a private action and when,” Heath, 791 F.3d at 120, but “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts,” id. (quoting Arbaugh, 546 U.S. at 515, 126 S.Ct. 1235). This is in sharp contrast to other provisions of the FCA that do explicitly invoke the jurisdiction of the district courts. See, e.g., 31 U.S.C. § 3730(e)(1) (“No court shall have jurisdiction over an action brought by a former or present member of the armed forces ... against a member of the armed forces arising out of such person’s service in the armed forces.”); id. § 3730(e)(2)(A) (“No court shall have jurisdiction over an action brought ... against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought.”). “Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Kucana v. Holder, 558 U.S. 233, 249, 130 S.Ct. 827, 175 L.Ed.2d 694 (2010) (brackets omitted). Because the FCA “clearly state[s]” that other limitations on qui tarn actions are jurisdictional, but does not “clearly state[]” that the first-to-file rule is jurisdictional, we must treat the first-to-file rule “as nonjurisdictional in character.” Auburn Reg’l Med. Ctr., 133 S.Ct. at 824 (quoting Arbaugh, 546 U.S. at 515-16, 126 S.Ct. 1235). As a result, we join the D.C. Circuit in holding that the ÉCA’s first-to-file rule “bears only on whether a qui tam plaintiff has properly stated a claim.” Heath, 791 F.3d at 121. Accordingly, a district court does not lack subject matter jurisdiction over an action that may be barred on the merits by the first-to-file rule.

Conclusion

For the foregoing reasons, we join the D.C. Circuit in holding that the first-to-file rule of the FCA is not jurisdictional. Because we conclude in the summary order accompanying this opinion that the district court did not err by imposing the sanction of dismissal, we need not consider the non-FedEx defendants’ argument that Hayes’s action did not satisfy the first-to-file rule. For these reasons, the judgment of the district court is AFFIRMED.

1 . On review, the Supreme Court did not address the Fourth Circuit's observation that the first-to-file rule was jurisdictional but focused instead on whether the first-to-file rule was satisfied in that particular case. See 135 S.Ct. at 1979. We agree with the D.C. Circuit’s conclusion that the Supreme Court’s discussion was “decidedly nonjurisdictional ..., raising the issue after it decided a nonjurisdic-tional statute of limitations issue.” U.S. ex rel. Heath v. AT & T, Inc., 791 F.3d 112, 121 n.4 (D.C. Cir. 2015). As a result, we do not read the Supreme Court’s decision as implicitly affirming the Fourth Circuit’s observation that the first-to-file rule was jurisdictional.