Posted by Scott Stein and Jessica Rothenberg
A recurring problem in qui tam cases, particularly when the relator is or works for a competitor of the defendant, is the issue of relators’ access to confidential and other competitively-sensitive information produced or created during a government investigation preceding unsealing or once a case is being actively litigated. Recently in one such case, a federal district court in the Northern District of Ohio entered an order limiting the relators’ access to the defendant’s competitively-sensitive information. The relators – the former Director of Contract Services and the then-current Director of Business Development and Technology for defendant Cellular Technology, Ltd. (“CTL”), a laboratory services company, allege that CTL defrauded the U.S. government by inflating direct labor costs under its contracts to provide research services to the National Institutes of Health. Specifically, the relators allege that CTL, in its proposals, to NIH over-inflated the total staff hours it would take to complete various projects and identified its highest paid personnel to perform work, as well as additional employees and individuals who were never employed by CTL, without any expectation of those individuals performing the work being represented. According to the relators’ complaint, CTL’s alleged fraud resulted in at least $3.25 million in excess costs being billed to and paid by the U.S. Government. The U.S. Department of Justice intervened in September 2011, also alleging that CTL represented to NIH that certain employees would work on contracts, knowing that some would never perform any work on the projects, over-inflated the total number of hours it would take to complete the projects, and later billed NIH for far more hours than its employees actually spent on NIH projects.
In an effort to resolve the suit, the United States and CTL jointly agreed to engage an auditor to conduct an audit of the work performed by CTL for NIH under the contracts at issue. In connection with the audit, the United States, CTL, and the auditor signed a confidentiality agreement governing the disclosure of documents and information to the auditor necessary to perform the audit and prepare any reports. In addition, on January 23, the court entered an order limiting the circumstances under which the materials provided to and created by the auditor could be shared with the relators. Under the court’s order, prior to the relators gaining access to any of the audit materials, they must disclose to the U.S. Attorney’s Office their current employer. That disclosure will be forwarded immediately to CTL. Additionally, if at any time either of the relators obtains new or additional employment, a supplemental notice must be filed within five days of beginning the new or additional employment. If either of the relators is deemed to be, or is employed by, a CTL competitor (as defined by the order), neither of the relators will be permitted access to the materials provided to and created by the auditor until the employment or activity that renders the relator a competitor ends. Any materials to which the relators already had been permitted access prior to becoming a competitor, including any notes taken by the relators concerning those materials, must be returned immediately. The order also prohibits relators from making copies of any of the materials provided to the auditor and requires that all materials provided to and prepared by the auditor, and any notes taken by relators in their review of those materials, must be returned to the U.S. Attorney’s Office at the conclusion of the litigation.
This order provides a useful model for other cases in which relators seek access to competitively-sensitive information. A copy of the Order Concerning Materials Produced in Connection with Audit in United States v. Cellular Tech., Ltd., No. 1:09CV01008 (N.D. Ohio 2015) can be found here.