District Court Refuses To Allow Government To Use CID To Try To Remedy Deficiencies In Complaint

Posted by Douglas Axel and Anand Singh

We previously wrote about a decision in United States v. Kernan Hospital, in which a district court dismissed an FCA complaint brought by DOJ based on the failure to plead with particularity under Rule 9(b). The government’s attempt to remedy its pleading deficiencies has spawned another interesting opinion in the same case. In an opinion issued on November 20, the district court held that the authority to issue a Civil Investigative Demand (“CID”) under the False Claims Act is unavailable to the government after it files a complaint.


On June 3, 2008, the government began investigating Kernan Hospital (“Kernan”) for Medicare fraud. On October 17, 2011, it filed a False Claims Act suit alleging that Kernan had engaged in fraudulent practices respecting Medicare billing.

Kernan filed motions to dismiss based on the government’s failure to state a claim (under Federal Rule of Civil Procedure 12(b)(6)) and failure to plead fraud with sufficient particularity (under Federal Rule of Civil Procedure 9(b)). The court agreed that the government had failed to adequately plead its fraud allegations and dismissed the government’s complaint without prejudice.

Following the court’s dismissal, on August 23, 2012, the government served Kernan with a CID seeking additional documents concerning Kernan’s billing practices. Kernan filed a petition to set aside the CID (“Petition”), asking the Court to set aside the August 23 CID on the grounds that section 3733 of the False Claims Act does not authorize the government to issue CIDs after it has filed a False Claims Act complaint.

The Court’s Analysis and Holdings

The court agreed with Kernan and granted the Petition. Under section 3733 of the False Claims Act, an Attorney General may issue a CID “before commencing a civil proceeding under § 3730(a) or other false claims law.” 31 U.S.C. § 3733(a)(1). Thus, the court recognized that “[s]ection 3733 sets out a prefiling limitation on the use of the civil investigative demand.” United States v. Kernan Hospital, No. RDB-11-2916, 2012 WL 5879133, *4 (D. Md. Nov. 20, 2012). However, “neither the statute nor the case law interpreting it suggests whether that limitation expires after an initial complaint is dismissed.” Id. The government advanced two arguments why the court should deny the Petition, both of which the court rejected.

First, the government argued that section 3733 “inherently deprives the Attorney General of the power to issue a civil investigative demand only if a suit is pending.” Id. (emphasis added). In rejecting this argument, the court explained that the “plain words of the statute does not invite an interpretation of ‘before commencing a civil proceeding’ to include the period after the commencement of a civil proceeding when no suit is pending.” Id. The court also analyzed the legislative history of the False Claims Act and concluded that it “suggest[ed] that when Congress circumscribed the period during which the Government could issue a civil investigative demand to the prefiling stage, it did not mean to provide the Government with that power at any time a suit was not pending.” Id. at *5.

Second, the government argued that the Petition should be denied “based on policy,” because the government was considering filing an amended complaint and the granting of the Petition “would prevent [the government] from obtaining the information it need[ed]” to cure the deficiencies in its pleading, i.e., the government’s failure to plead fraud with particularity and satisfy the requirements of Federal Rule of Civil Procedure 9(b). Kernan, 2012 WL 5897133 at *6. In rejecting this argument, the court explained that the government already had “conducted a thorough investigation and gathered the information it needed to determine whether to file suit,” and therefore, the court was “not persuaded that the Government needs to exercise its section 3733 power before it can sufficiently amend its complaint.” Id. The court also explained that “the civil investigative demand provision and Rule 9(b) are intended to encourage careful behavior when alleging fraudulent conduct,” and therefore its granting of the Petition was “in keeping with the policy goals underlying both section 3733 and Rule 9(b).” Id. at *7.

Based on the court’s ruling, the government is not able to use CIDs to obtain information after it has initiated an action. This may benefit defendants in False Claims Act cases. However, the ruling may counsel the government to issue broader CIDs at the pre-filing stage, which may impose additional burdens on companies and individuals that are potential defendants in such cases.