DOJ Backs Down From Challenge to CIDs Issued After It Declined to Intervene in FCA Case

Faced with a challenge to its authority to do so, DOJ recently withdrew several Civil Investigative Demands (“CIDs”) which it had issued after declining to intervene in a qui tam case brought by former employees who had accused their employer, Lexington Foot & Ankle Center PSC, of fraudulent billing.  In re Civil Investigative Demands 18-13-EDKY, 18-02-EDKY, and 18-03-EDKY, No. 5:18-cv-00283 (E.D. Ky.) (filed Apr. 23, 2018). 

Lexington had been responding to a CID that DOJ had issued in October 2017 as part of its investigation into qui tam plaintiffs’ allegations in a pending FCA case.  In February 2018, DOJ notified the District Court for the Eastern District of Kentucky that it would not intervene in the FCA case against Lexington because it had not completed its investigation and could “not decide, as of the Court’s deadline, whether to proceed with the action.”  At this point, however, Lexington was not aware of DOJ’s decision not to intervene.  On April 4, 2018, despite having declined to intervene, DOJ served a second CID on Lexington.  On April 18, 2018, DOJ served two additional CIDs on Lexington.

On April 9, 2018, the qui tam plaintiffs served their complaint on Lexington.  At that time, Lexington learned that the United States had declined to intervene in the case before issuing the CIDs in question.  Lexington then petitioned to have the three CIDs issued after the declination set aside, arguing that the United States’ authority to issue CIDs in an FCA investigation is proscribed by 31 U.S.C. § 3733.  That section states, in relevant part, that the United States “may, before commencing a civil proceeding under 3730(a) or other false claims law, or making an election under section 3730(b), issue in writing and cause to be served upon such person, a civil investigative demand ….”  Lexington argued that the United States cannot issue a CID after it has declined to intervene in a qui tam action under section 3730(b), and requested that the three CIDs issued to it and any others that DOJ may have issued to third parties after the declination be set aside.  The next day, the district court granted Lexington’s motion to stay compliance with the CIDs and ordered a hearing on the petition.  Three days later, just before the scheduled hearing, DOJ agreed to withdraw the three CIDs as well as two others that DOJ apparently had issued to third parties.

In the Lexington Foot & Ankle case, the district court correctly granted the stay and DOJ correctly determined ultimately to withdraw the CIDs issued after its declination notice.  Not only were the results here compelled by the language of the FCA’s CID provision, the results make good sense from a policy perspective.  Courts have previously determined, as reported here, that the government may not serve a CID on a defendant after it has initiated an FCA action.  Permitting DOJ to issue subpoenas after declining to intervene in a case would potentially allow a relator to exploit the power of DOJ’s CID authority, when DOJ is not otherwise invested in the case.  Further, enabling a shifting of investigation costs in a non-intervened case from the relator back to the United States might encourage relators to file more frivolous FCA cases.  In addition, even if a relator was committed to pursuing the case on its own, allowing what would essentially be parallel investigations by DOJ, pursuant to the CID, and a relator, in the form of civil discovery, could significantly increase burdens on FCA defendants.  However, the few cases that have addressed this provision suggest that only an official intervention decision cuts off the government’s ability to utilize the CID power.

A copy of the defendant’s petition, the district court’s stay order, and DOJ’s email agreeing to withdraw the CIDs in the Lexington Foot and Ankle case can be found here, here, and here.