On December 1, 2009, the U.S. District Court for the Eastern District of Pennsylvania handed down a decision clarifying a number of important legal issues under the statute of limitations of the federal False Claims Act. The ruling should prove very helpful to defendants in future qui tam actions and will be significant to all institutions, whether for-profit companies or universities, that enter into government contracts.

United States ex rel. Bauchwitz v. Holloman, et al.—in which Ballard Spahr was defense counsel—involves allegations by the plaintiff and qui tam relator that scientific researchers at two university medical schools misrepresented the findings of their DNA research when they applied for National Institutes of Health research grants. This action reflects the burdens that whistleblower actions, carrying with them the threat of treble damages and statutory penalties, can place not only on corporations, but also on not-for-profit institutions of higher education. As pointed out by defendants in the court filings, subsequent research validated the research results that are the subject of the action, and as the court noted in its opinion, the NIH's Office of Research Integrity agreed that the statements at issue were not intentionally false and the government did not intervene in the action. Even though the government did not find there was scientific misconduct, the relator proceeded with his claims.

The court's holding addresses two issues under the False Claims Act that had been undecided in the Third Circuit. First, it held that in the "peculiar framework" of the federal grant program, the normal six-year statute of limitations begins to run when the alleged false claim was made to the government, which is when the cause of action accrues. Courts in other jurisdictions have split over whether the event triggering the statute is the date of the claim or the later date of government payment. The Court also rejected relator's claim that it should be the even later date of the submission of financial reconciliation reports after the grant has terminated.

The court further held that the three-year tolling provision is triggered when the relator possesses sufficient information to prompt an investigation. Knowledge of the extent and precise nature of the legal violation is not required to put the relator on the required inquiry notice. Nor does the relator need to know that the suspect conduct constitutes a violation under the False Claims Act.

In addition, the court held that the three-year tolling provision does not apply in cases where the government does not intervene. The court concluded that all but one of the relator's claims were time-barred.

The court examined the intricacies of the federal grant program, and its opinion provides helpful guidance on how the FCA applies to grant cases. If you have any questions about the decision or FCA litigation generally, please feel free to contact defense counsel in the Bauchwitz case,  John C. Grugan (215.864.8226 or gruganj@ballardspahr.com), and Dee Spagnuolo (215.864.8312 or spagnuolod@ballardspahr.com).

Copyright © 2009 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.