The Next Battle over the Wartime Suspension of Limitations Act. Will Take Place on the Criminal Front

[From the Winter/Spring 2015 Edition of the White Collar Crime Committee Newsletter, published by the American Bar Association Criminal Justice Section s White Collar Crime Committee] The Next Battle over the Wartime Suspension of Limitations Act Will Take Place on the Criminal Front By: Douglas W. Baruch, Jennifer M. Wollenberg, and Giulia M. di Marzo 1 On January 13, 2015, the United States Supreme Court heard oral argument in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter ( Carter ). 2 This was the first time in over a half-century that the Court considered any aspect of the Wartime Suspension of Limitations Act ( WSLA ), 18 U.S.C. 3287. The threshold question in Carter is whether the Fourth Circuit was correct in deciding that the WSLA can suspend civil limitations periods, or whether the WSLA applies exclusively in the criminal arena. The Court s answer to that question will have enormous practical import to companies and individuals facing potential civil liability for alleged fraud against the United States, particularly those, such as the petitioner in Carter, facing civil False Claims Act ( FCA ) causes of action. With increasing frequency in recent years, the Justice Department and qui tam relators have invoked the WSLA to revive otherwise stale FCA claims, and several courts have held that the WSLA extends to FCA claims. 1 Douglas W. Baruch is a partner in the Washington D.C. office of Fried, Frank, Harris, Shriver & Jacobson LLP where he represents corporations and individuals in a variety of complex civil and criminal litigation matters and leads the Firm s False Claims Act/Qui Tam practice. Jennifer M. Wollenberg, special counsel at Fried Frank and a member of the Firm s False Claims Act/Qui Tam group, has a practice focused on complex litigation matters and, in particular, cases involving the financial, aerospace, and defense industries. Giulia M. di Marzo is a litigation associate at Fried Frank, having recently joined the Firm after serving as a clerk on the U.S. Court of Appeals for the Eighth Circuit. 2 No. 12-1497 (U.S. argued Jan. 13, 2015). Petition for certiorari was granted to United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), rev g No. 1:11cv602 (JCC/JFA), 2011 U.S. Dist. LEXIS 145236 (E.D. Va. Dec. 12, 2011). 1

A decision in Carter is expected by the end of this term, with many observers predicting and others merely hoping that the Court will return the WSLA to its criminal roots. Such a result will provide welcome relief to FCA defendants (and would-be FCA defendants), but it will not resolve several open questions about how the WSLA applies in criminal prosecutions. This article focuses on three key WSLA issues that likely will be the subject of further litigation (in criminal cases) even after the Supreme Court issues its decision in Carter. The issues are: (1) what is required to trigger application of the WSLA; (2) what is required to cease the WSLA s suspension of a statute of limitations period; and (3) whether the WSLA applies to any crimes other than war-related fraud. WSLA History The most relevant WSLA history in terms of the open questions in the criminal context traces back to World War II. Not long after the attack on Pearl Harbor, Congress passed the WSLA to suspend, until 1945, the statutes of limitations for acts of fraud against the United States. 3 Congress said that it was responding to the concern that the increased wartime procurement activity would lead to increase procurement-related fraud, and that suspension of the limitations periods for fraud offenses made sense to enable the government to focus first and foremost on the war effort. 4 3 Act of Aug. 24, 1942, Pub. L. No. 77-706, ch. 555, 56 Stat. 747 (1942). 4 See Bridges v. United States, 346 U.S. 209, 218 (1953) ( Congress was concerned with the exceptional opportunities to defraud the United States that were inherent in its gigantic and hastily organized [war] procurement program. ); United States v. Sack, 125 F. Supp. 633, 636 (S.D.N.Y. 1954) (stating that the WSLA was needed because many law enforcement officials were preoccupied with offenses in the more vital areas of espionage and sabotage, prevent[ing] them from devoting their attention to offenses related to the commercial aspect of the war program (citing H.R. Rep. No. 77-2051, at 2 (1942))). 2

Three years later, Congress amended the WSLA and codified it in Title 18 of the United States Code. 5 The 1948 WSLA provided that: When the United States is at war the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or (2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or (3) committed in connection with the negotiation, procurement, award, performance, payment for, interim financing, cancelation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war, or with any disposition of termination inventory by any war contractor or Government agency, shall be suspended until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress. 6 The principal limitation in the 1948 WSLA was its requirement that the United States be at war before any suspension was triggered. Following a brief flurry of activity arising out of World War II-related cases, the WSLA largely was forgotten for decades. This remained true until the most recent spate of military conflicts in Iraq and Afghanistan. In 2008, presumably recognizing that the WSLA was not triggered by these conflicts in the absence of a war declaration, 7 Congress amended the WSLA by passing the Wartime Enforcement of Fraud Act. 8 The 2008 WSLA which has not been further amended provides in relevant part: When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as 5 Act of June 25, 1948 Pub. L. No. 80-772, 3287, ch. 645, 62 Stat. 683, 828 (1948). 6 18 U.S.C. 3287 (2007). 7 See S. Rep. No. 110-431, at 4 (2008) (discussing the inapplicability of the 1948 WSLA to military operations in Iraq and Afghanistan). 8 The amendment also helped bring the WSLA up to date with the modern statute of limitations rules. During World War II, the limitations period for criminal fraud was three years. See 18 U.S.C. 3282 (1948). That period was permanently extended to five years in 1954. See 18 U.S.C. 3282 (2006). 3

described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)), the running of any statute of limitations applicable to any offense... shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress. 9 The Carter Litigation Carter is an FCA qui tam case where the relator (Carter) alleged that KBR had fraudulently billed the United States for logistical contracting services provided in support of the U.S. military in Iraq. 10 The relator filed his complaint more than six years after the alleged FCA violation and therefore beyond the FCA s six-year statute of limitations (31 U.S.C. 3731(b)) and KBR moved to dismiss. 11 The relator invoked the WSLA in an attempt to salvage his claims. 12 The district court held that the WSLA did not apply to an FCA case pursued by a relator (rather than the Justice Department), 13 but the Fourth Circuit reversed, holding that the WSLA applies to civil claims, including non-intervened FCA claims. 14 The court also held that notwithstanding the 2008 amendments that expanded the WSLA s reach to certain types of military conflicts the 1948 WSLA never in fact required a formal war declaration to trigger its use. 15 As a result, the court did not need to reach the question of whether the 1948 or amended version of the WSLA applied. 16 According to the court, the United States was at war in Iraq from the date of the 9 18 U.S.C. 3287 (2009) (emphasis added). 10 See United States ex rel. Carter v. Halliburton Co., 710 F.3d 171, 174 (4th Cir. 2013), rev g No. 1:11cv602 (JCC/JFA), 2011 U.S. Dist. LEXIS 145236 (E.D. Va. Dec. 12, 2011). 11 See id. at 174, 176. 12 See id. at 176-77. 13 See id. at 176. 14 See id. at 179-81. 15 See id. at 178-79. 16 See id. at 178. 4

[Authorization for the Use of Military Force] issued by Congress on October 11, 2002 17 and [n]either Congress nor the President had met the formal requirements of the [WSLA] for terminating the period of suspension when the claims at issue were presented for payment. 18 When it issues its decision in Carter, the Supreme Court likely will not address anything other than the threshold question of whether the WSLA can suspend the limitations periods for civil causes of action. If so, three key questions relevant to the application of the WSLA to criminal cases will remain unresolved: (1) what is the meaning of at war ; (2) what is necessary to end the suspension period; and (3) whether the WSLA applies to any crimes other than war-related fraud. We address each question in turn. Interpretation of the WSLA s Triggering Clause The United States has not formally declared war since World War II. But this fact has not stopped the government from invoking the WSLA in criminal prosecutions and arguing that the United States was nevertheless at war within the meaning of the WSLA. Defense challenges to this interpretation have had mixed results in the district courts. 19 And, there are no criminal appellate decisions on this issue. 20 17 Id. at 179. 18 Id. 19 Compare United States v. Pearson, No. 2:09cr43-KS-MTP, 2010 U.S. Dist. LEXIS 79242, at *4 (S.D. Miss. Aug. 4, 2010) (adopting Prosperi s reasoning), and United States v. Prosperi, 573 F. Supp. 2d 436, 449 (D. Mass. 2008) ( [T]he at war provision of the [1948 WSLA] was intended to capture any authorized military engagement that might compromise or impede the government s ability to investigate allegations of fraud even without formal declaration of war), with United States v. Latimer, No. CR-11-384-R, 2012 U.S. Dist. LEXIS 41854, at *8 (W.D. Okla. Mar. 27, 2012) ( The Court disagrees with the Court in United States v. Prosperi..., which found that the Authorized Use of Military Force, as set forth above was sufficient to put the United States at war, under the pre- 2008 version of [the WSLA.] ), United States v. Anghaie, No. 1:09-CR-37-SPM/AK, 2011 U.S. Dist. LEXIS 23863, at *6-7 (N.D. Fla. Feb. 21, 2011) (adopting the holding in United States v. Western Titanium, Inc. that the United States was not at war [under the 1948]... WSLA, as there had been no Congressional declaration of war ), United States v. Western Titanium, Inc., No. 08-CR-4229-JLS, 2012 WL 2650224, at *8-10 (S.D. Cal. July 1, 2010) (criticizing Prosperi s post-hoc determination of what constitutes at war as too ambiguous and uncertain in the context of the criminal statute of limitation and holding that a narrow construction of the term at war in the WSLA requires a finding that it encompasses only those wars which have been formally declared by Congress ), 5

In United States v. Shelton, 21 a case involving alleged crimes committed before May 1987, the government argued that a June 1992 indictment was not time-barred under the WSLA because the congressionally authorized conflict in the Persian Gulf in 1991 tolled the five-year statute of limitations. 22 The court rejected that reading, construing the WSLA to require a formal congressional recognition of the conflict as a war. 23 Several years later, in United States v. Prosperi, 24 but still prior to the 2008 amendments, the government argued that the Authorizations for the Use of Military Force in Afghanistan and Iraq suspended the statute of limitations pursuant to the WSLA, rendering timely a May 2006 indictment for criminal conduct that occurred more than five years earlier. 25 This time, the government was successful, with the court criticizing Shelton s formalistic reading of the WSLA. 26 The court instead applied a more functional approach, holding that the at war provision was intended to capture any authorized military engagement that might compromise or impede the government s ability to investigate allegations of fraud. 27 Prosperi set forth four criteria that a court should consider in deciding whether the United States was at war for purposes of the WSLA: (1) the extent of the authorization given by Congress to the President to act; (2) whether the conflict is deemed a war under and United States v. Shelton, 816 F. Supp. 1132, 1135 (W.D. Tex. 1993) ( For the Persian Gulf conflict to have amounted to war under [the 1948 WSLA], Congress should have formally recognized that conflict as a war. ). 20 The Fourth Circuit, in United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), is the only appellate court to address the issue but does so in the civil context. See supra p. 4. 21 816 F. Supp. 1132 (W.D. Tex. 1993). 22 See id. at 1134. 23 See id. at 1135. 24 573 F. Supp. 2d 436 (D. Mass. 2008). 25 See id. at 439. 26 See id. at 444-46. 27 Id. at 449. 6

accepted definitions of the term and the rules of international law; (3) the size and scope of the conflict (including the cost of the related procurement effort); and (4) the diversion of resources that might have been expended on investigating frauds against the government. 28 Applying these criteria, the court concluded that the United States was at war when Congress authorized the use of military force in Iraq and Afghanistan. 29 Even after the 2008 WSLA amendment, the interpretation of the at war term remains significant because the government may still attempt to pursue fraud indictments based on pre- 2008 conduct. If so, not only will the meaning of at war be subject to debate, but a retroactivity analysis also may be necessary. It is well established that the application of a statute of limitations extended before the original limitations period has expired does not present a retroactivity issue that would violate the Ex Post Facto Clause. 30 Consequently, if at war requires a formal war declaration, the amended WSLA retroactively would apply and would not violate the Ex Post Facto Clause only if the original limitations period has not expired prior to the September 30, 2008 effective date of the WSLA amendment. 31 28 Id. 29 See id. at 450-54. 30 See Stronger v. California, 539 U.S. 607, 618 (2003) (recognizing that the extension of existing limitations periods is not ex post facto provided, so long as, because, or if the prior limitations periods have not expired ); United States v. Grimes, 142 F.3d 1342, 1351 (11th Cir. 1998) (joining its fellow circuits in holding that application of a statute of limitations extended before the original limitations period has expired does not violate the Ex Post Facto Clause ). 31 See United States v. Loman, No. CR-12-265-M, 2013 U.S. Dist. LEXIS 61980, at *4 (W.D. Okla. May 1, 2013) ( [T]he Court finds that the 2008 amendments to WSLA do not violate the Ex Post Facto clause as the extension of the statute of limitations applied before the original limitations period in this case specifically, December 2011 had expired. ); United States v. Anghaie, No. 1:09-CR-37-SPM/AK, 2011 U.S. Dist. LEXIS 23863, at *7 (N.D. Fla. Feb. 21, 2011) ( [A]s to the counts for which the limitations period had expired prior to the effective date of the WSLA amendment, there is no suspension of the limitations period pursuant to the WSLA. However, as to the counts for which the limitations period would have lapsed after the WSLA amendment, the limitations period has been suspended pursuant to the WSLA, as there has been an authorization of military force, though no formal declaration of war. ); see also United States v. Arnold, 991 F. Supp. 2d 1307, 1315 (S.D. Ga. 2014) (quoting Anghaie); United States v. Latimer, No. CR-11-384-R, 2012 U.S. Dist. LEXIS 41854, at *8 (W.D. Okla. Mar. 27, 2012) (same). 7

Since the Carter Court is not likely to reach the question of whether the WSLA at war provision requires a formal declaration of war, the conflict among lower courts will remain unresolved. Interpretation of the WSLA s Termination Clause Even assuming that the Iraq and Afghanistan conflicts satisfy the WSLA s at war requirement, uncertainty remains as to whether the suspension triggered by those conflicts is ongoing. Some defendants have argued that those conflicts have ended, thereby cutting off the suspension. Two appellate courts the Fourth Circuit (in Carter) and the Fifth Circuit have rejected these arguments, finding instead that, absent a formal termination of hostilities declaration, tolling is ongoing. 32 But the district courts that have considered this issue fall into two camps. 33 Most are in line with the Fifth Circuit s opinion in United States v. Pfluger, 34 which dealt with criminal fraud committed by a United States soldier while serving in Iraq. 35 There, the defendant argued that the statute of limitations had run because the hostilities in Iraq and Afghanistan had ended, 36 but 32 See United States v. Pfluger, 685 F.3d 481 (5th Cir. 2012); see also United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013). 33 Compare Arnold, 991 F. Supp. 2d at 1316 (applying the amended WSLA and holding that there has been neither a presidential proclamation of the termination of hostilities in Afghanistan, nor a concurrent resolution of Congress ), and Latimer, 2012 U.S. Dist. LEXIS 41854, at *8 n.5 ( [T]he conditions set forth in 3287 regarding the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress, have not been met with regard to either authorization. ), with United States v. Pearson, No. 2:09cr43-KS-MTP, 2010 U.S. Dist. LEXIS 79242, at *4-5 (S.D. Miss. Aug. 4, 2010) (adopting Prosperi s reasoning), and Prosperi, 573 F. Supp. 2d at 454-55 (holding that under the 1948 WSLA, the hostilities in Iraq and Afghanistan were terminated, reasoning that the United States involvement in more recent conflicts has ended through less formal methods). 34 685 F.3d 481. 35 See id. at 482. 36 See id. at 484-85. 8

the court disagreed, holding that the plain and unambiguous language of the WSLA mandates formal requirements for the termination clause to be met. 37 Other district courts have taken a more functional approach. For example, in Prosperi, the court recognized that [t]he end of more recent conflicts have been signaled by Presidential pronouncement or by the diplomatic or de jure recognition of a former belligerent or a newly constituted government. 38 Consequently, that court held that the United States recognition and extension of full diplomatic relations to the new Afghani government signaled the cessation of a state of war with Afghanistan and that President Bush s proclamation that major combat operations in Iraq had ended signaled the cessation of a state of war with Iraq. 39 Pending further development of this question in the courts given that the Supreme Court is unlikely to reach this issue in Carter application of the WSLA s termination clause remains fodder for dispute. The Scope of the WSLA While the Carter Court is expected to decide whether a qualifying offense under the WSLA is limited to criminal offenses, the Court will not be resolving open questions about the nature of that qualifying offense i.e., whether the offense must involve a specific type of fraudulent crime and whether the offense must be related to wartime contracting. The WSLA limits its application to offenses: (1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or (2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or (3) committed in connection with the 37 Id. at 485. 38 573 F. Supp. 2d at 454. 39 See id. at 455. 9

negotiation, procurement, award, performance, payment for, interim financing, cancelation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war or directly connected with or related to the authorized use of the Armed Forces, or with any disposition of termination inventory by any war contractor or Government agency[.] 40 With respect to the first open question, in Bridges v. United States, 41 the Supreme Court tried to clarify what offenses involve fraud for purposes of the WSLA and held that an offense must be of a pecuniary nature or at least of a nature concerning property. 42 As such, mere criminal false statements, such as a false statement under oath to a naturalization court to obtain a certificate of naturalization, 43 would not trigger the WSLA, while crimes that involve fraud relating to money or property such as a false claim under the criminal False Claims Act to induce payment from the government 44 arguably would. As for the open question as to whether the offense must be related to wartime contracting, there is an argument to be made that because the WSLA was a direct response to the greater possibilities for fraud during wartime, the WSLA was intended to apply solely to war-related frauds. 45 Moreover, as the respondent in Carter conceded, the WSLA s text and structure support an interpretation that it is limited to pecuniary offenses connected with or relating to the prosecution of the war. 18 U.S.C. 3287. That phrase appears at the end of the statute and could be read to limit the application of any offense, by applying to all three subsections that precede it. In the context of the overall statute, which applies when the United 40 18 U.S.C. 3287 (2009). 41 346 U.S. 209 (1953). 42 Id. at 215. 43 See, e.g., id. at 213, 221. 44 See, e.g., United States v. Grainger, 346 U.S. 235, 242-43 (1953). 45 See United States v. Sack, 125 F. Supp. 633, 636 (S.D.N.Y. 1954) (noting that the volume of transactions in which the Government was engaged as a result of the war made the three year period too short for effective law enforcement ). 10

States is at war, it would be appropriate to construe the WSLA s language as limiting its application to any offense that is connected with or related to the war. 46 In spite of the text of the WSLA and legislative history to support an argument that the WSLA should be limited to fraud specifically related to the war effort (as opposed to any fraud carried out against the government shortly before or when the United States is at war), no appellate court has directly confronted this question. However, several district courts have addressed this issue, in the civil context, with recent rulings allowing the WSLA to apply to conduct unrelated to wartime contracting. 47 In the criminal context, the only district court decision squarely on point is Prosperi, where the defendants argued for dismissal of the indictment on the grounds that the charges were not related to any military procurement. 48 There, the district court, relying on United States v. Grainger 49 (where the Supreme Court apparently applied the WSLA to fraud having no connection to the war), rejected the argument by holding that it makes no difference that the fraud in this case involved a construction project unrelated to the Iraqi or Afghani conflicts. 50 But the issue of whether the WSLA applies to non-war-related fraud was not directly before the Supreme Court in Grainger. 51 Instead, the Grainger Court was deciding whether fraud was an 46 Brief for Respondent Benjamin Carter at 41-42, Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, No. 12-1497 (U.S. argued Jan. 13, 2015) (footnote omitted). 47 See, e.g., United States ex rel. Landis v. Tailwind Sports Corp., No. 10-cv-00976 (RLW), 2014 U.S. Dist. LEXIS 83313 (D.D.C. June 19, 2014) (claims involving professional cycling); United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593 (S.D.N.Y. 2013) (claims involving mortgage loans); United States ex rel. Emanuele v. Medicor Assocs., No. 10-245 Erie, 2013 U.S. Dist. LEXIS 104650 (W.D. Pa. July 26, 2013) (claims involving medical services); United States v. BNP Paribas SA, 884 F. Supp. 2d 589 (S.D. Tex. 2012) (claims involving financial services). 48 See 573 F. Supp. 2d 436, 440 (D. Mass. 2008). 49 346 U.S. 235 (1953). 50 Prosperi, 573 F. Supp. 2d at 442. 51 See 346 U.S. 235. 11

essential ingredient of violations of the criminal False Claims Act such that the WSLA would apply to the offense. 52 Thus, the question of whether the WSLA applies to non-war-related fraud remains open and will likely be the subject of future litigation in criminal cases. **** In sum, notwithstanding the pending decision in Carter, multiple legal challenges to the application of the WSLA in the criminal arena are likely to remain available to defendants who face charges that would otherwise be time-barred. Given what many expect to be the Supreme Court s decision in Carter, it would not be surprising if the Court is called upon again to decide the scope and application of the WSLA, but in the context of a criminal case. 52 See id. at 242-43. 12