motion to dismiss
Counts 1 and 2. The two remaining issues to be decided are: (1) whether
the six-year statute of limitations of the False Claims Act bars the
conspiracy claim alleged in Count 3, and (2) whether Network Virginia is
a proper defendant under the federal law of successor liability.
A. Conspiracy Under 31 U.S.C. § 3729(a)(3)
With respect to Counts 1 and 2 of the amended complaint, the Court
ruled at the conclusion of the motions hearing that the six-year
limitations period of 31 U.S.C. § 3731(b)(1) is applicable. The Court
agreed with Judge Flannery's analysis in United States ex rel. El Amin
v. George Washington University, 26 F. Supp.2d 162, 170-73 (D.D.C.
1998), that the six-year limitations period applies in qui tam actions
when the United States decides not to intervene. The statutory language
and legislative history support the conclusion that Section 3731(b)(2),
with its three-year tolling provision and 10-year limitations period,
applies only to the government and not to a qui tam relator. Accordingly,
since the original complaint in this case was filed on November 22,
1999, the Court announced at the hearing that it will dismiss all
purported violations of 31 U.S.C. § 3729(a)(1) (Count 1) and all
purported violations of 31 U.S.C. § 3729(a)(2) (Count 2) that pre-date
November 22, 1993.
With respect to Count 3, the Court held that the six-year limitations
period was applicable but did not decide whether some, all or none of the
allegations raised under this count should be dismissed. Defendants argue
that the heart of the conspiracy claim is the Small Business
Administration Section 8(a) certification which was applied for and
obtained in 1987, well outside of the six-year limitations period. They
maintain that the entire conspiracy claim therefore must be dismissed.
Defendants rely on Judge Robertson's decision in United States v.
Vanoosterhout, 898 F. Supp. 25 (D.D.C. 1995), aff'd, 96 F.3d 1491 (D.C.
Cir. 1996), in which he dismissed a Section 3729(a)(3) False Claims Act
conspiracy on the ground that the false claim giving rise to liability
occurred more than six years prior to the filing of the complaint and
therefore was time-barred. Defendants contend that Judge Robertson's
opinion stands for the proposition that the entire conspiracy claim must
be dismissed when the act central to the conspiracy occurs more than six
years before the complaint was filed.
Defendants misread Vanoosterhout. In that case, Judge Robertson
dismissed the action because the only purported violation of the False
Claims Act ("FCA") was time-barred and not because the central act of the
conspiracy fell outside of the limitations period. See United States v.
Vanoosterhout, 898 F. Supp. at 28-29. Assuming that the application for
the Section 8(a) certification is the central event in this case, relator
has pointed to other acts allegedly constituting violations of the FCA in
furtherance of the conspiracy that occurred within the six-year
limitations period, some as recently as 1997 — such as contracts
awarded to defendants and paperwork completed to maintain the defendants'
Section 8(a) status. Because relator has alleged a conspiracy with overt
acts in support of it that occurred within the six-year period, the
conspiracy claim should not be dismissed just because the Section 8(a)
certification itself occurred more than six years prior to the filing of
The parties also disagree over when the statute of limitations begins
to run for an FCA conspiracy claim. Defendants argue that in civil
conspiracies, the statute of limitations begins to run when the first
overt act in furtherance of the
conspiracy occurs — in this case
the Section 8(a) certification in 1987; in their view, therefore, suit
had to be filed by 1993. Relator argues that the limitations period
should run from the date of the last overt act in furtherance of the
conspiracy. In his view, if any one overt act occurred after November
23, 1993, the conspiracy claim lies and all overt acts, including those
that occurred prior to that date, are relevant as part of the conspiracy
on a continuing violation theory, a theory which relator attempts to
import from employment discrimination case law. Both of these positions
appear to conflict with the prevailing law in this circuit that "the
statute of limitations in a civil damages action for conspiracy runs
separately from each overt act that is alleged to cause damage. . . ."
Lawrence v. Acree, 665 F.2d 1319, 1324 & n. 7 (D.C. Cir. 1981); see
Thomas v. News World Communications, 681 F. Supp. 55, 73 (D.D.C. 1988);
see also Scherer v. Balkema, 840 F.2d 437, 439-40 (7th Cir. 1988). Under
this rule, relator may attempt to prove the underlying conspiratorial
agreement through those overt acts that occurred after November 22,
1993, but not those that occurred before that date; if successful, he may
recover damages for all violations committed as a part of the conspiracy
from that date forward. Thus, the statute of limitations bars recovery
for some but not all of the acts committed as a part of the conspiracy
alleged in Count 3.
B. Successor Liability
In its separate motion to dismiss, Network Virginia contends that as
the purchaser of the assets of Network Federal, it does not incur the
liability of the predecessor entity. The law of successor liability was
set forth by Chief Judge Posner in EEOC v. G-K-G, Inc., 39 F.3d 740 (7th
Cir. 1994), as follows:
The purchaser of the assets, as distinct from the
stock, of a corporation generally does not acquire the
seller's liabilities, even if all the assets are
transferred by the sale so that in effect the entire
business has been sold, and the purchaser intends to
continue it as a going concern. . . . Only if the sale
is merely a step in a corporate reorganization
designed to shift the liabilities to an empty shell
will the creditors be allowed to go against the
"purchaser." . . .
Nevertheless, when a claim arising from a violation
of federal rights is involved, the courts allow the
plaintiff to go against the purchaser of the
violator's business even if it is a true sale and not
a reorganization, provided that two conditions are
satisfied. The first is that the successor had notice
of the claim before the acquisition. . . . The second
condition is that there be substantial continuity in
the operation of the business before and after the
sale, and is satisfied if no major changes are made in
Id. at 747-48. Because Network Virginia was incorporated in June 1997,
and the last false claim and last overt act in furtherance of the
conspiracy alleged by the relator occurred by February 1997, it can only
be liable for violations of the FCA if the two conditions articulated by
Judge Posner are satisfied.