District Court Rejects Argument That CID Should Be Quashed Because Government Has Unofficially Decided to Intervene

This month, a judge for the United States District Court for the Western District of Virginia rejected the argument of a private party, Beam Brothers Trucking, Inc. (“Beam”), that a Civil Investigative Demand (“CID”) issued by the United States should be quashed because the United States had already effected a de facto intervention in a qui tam action, despite neither formal intervention nor confirmation of the existence of the suit.  See In re Civil Investigative Demand 15-439, No. 5:16-mc-3 (W.D. Va. Aug. 12, 2016).  The government had been investigating Beam, which had government contracts for the transport of mail, to determine if Beam had used government-issued credit cards for non-government deliveries.  Approximately thirty federal agents executed a search warrant on Beam’s offices in February 2013, after which Beam met with civil and criminal government officials regarding the investigation.  Beam argued to the Court that the government recovered contracts and corporate records in the search that were responsive to the later-issued CID at issue before the Court.

Beam argued that a qui tam action existed and that the government had decided to intervene.  The government, however, did not confirm the existence of the qui tam action and had not filed suit under the False Claims Act.  Beam contended that the government had undertaken a lengthy investigation, during which the government had received a substantial volume of information, such that the government could engage in ultimately unsuccessful settlement negotiations with Beam.   Given this, Beam urged the Court to determine that the government had already decided to intervene, or had made a de facto election of intervention, and that compliance with the CID at issue would enable the government to extract a more favorable settlement without giving Beam the opportunity to conduct discovery.

The Court held that formal steps are required in order for the government to effect an intervention when a qui tam action exists.  The Court could not confirm if a qui tam existed in the instant matter, but because the government had not engaged in the formal intervention steps, the Court held that it retained its right to file a CID.  Therefore, the Court denied Beam’s Petition to Set Aside the CID.  The government had filed a cross-petition to enforce the CID, which the Court took under advisement, in part because the CID requested information from Beam that the government already possessed.

This order is notable because a private party, who was possibly a qui tam defendant, attempted to use the judiciary to check the government’s investigative authority under the FCA.  The effort, however, was unsuccessful, because the Court adopted a formalistic approach that emphasized  strict legal requirements over the practical consequences of the government’s actions.  When confronted with Beam’s functionalistic argument that the potential relator would have received a portion of the settlement had Beam accepted, the Court stated that it need not consider those ramifications because no settlement occurred.

A copy of the opinion can be found here.