Mar 22021

District Court Issues Rare Rebuke Denying DOJ’s Belated Motion to Intervene

Brenna E. Jenny and Megan Coggeshall
, ,

A federal district court recently issued a rare order denying the Department of Justice’s (DOJ) motion to intervene in a qui tam suit after the government’s initial declination months earlier.  See United States ex rel. Odom v. Southeast Eye Specialists, PLLC, 3:17-cv-00689 (M.D. Tenn. Feb. 24, 2021).  The False Claims Act allows the government to intervene in a case in which it previously declined to intervene upon “a showing of good cause.”  Although DOJ does so not frequently seek to intervene after previously declining to do so, courts are generally deferential to the government’s shift in position.  This decision provides important precedent for defendants in the position of arguing that a late intervention by DOJ is not appropriate.

In the underlying complaint, the relators alleged that the defendant ophthalmologist groups submitted false claims through “a scheme of paying for patient referrals, in the form of kickbacks and improper fee splitting related to eye surgery.”  After granting multiple extensions of the sixty-day seal—resulting in 28 months for the government to investigate—the court ordered DOJ to make its intervention decision by August 9, 2019.  DOJ declined to intervene but explained that its “investigation had not been completed” and that it accordingly reserved the right “to intervene in the action, for good cause, at a later date.”  As discussed further here, DOJ periodically files such “no decision” statements when declining to intervene, as a result of various timing and resource considerations.

Six months later, on February 10, 2020, the government sought to intervene and add two new defendants.  In support of its motion, DOJ cited new information it had learned through witness interviews and continued analysis of documents produced by defendants.  Specifically, the government explained that it had engaged in further data analytics relating to defendants’ referrals and had identified patterns supporting FCA liability.  DOJ’s recent embrace of increasingly sophisticated data analytics in support of FCA investigations is discussed further here and here.

The district court referred the government’s motion to a magistrate judge, who recommended that the district court conclude that the government had shown “good cause” for late intervention because of the presence of new evidence and the absence of prejudice to defendants.  The magistrate judge noted that “courts generally do not closely examine the nature of the newly discovered evidence or whether the information was available to the Government when it initially decided not to intervene.”  Similarly, the magistrate judge pointed out that the caselaw is very deferential to the government in assessing whether defendants would be prejudiced by a belated intervention.

The defendants objected to the Report and Recommendation, arguing that DOJ had not identified new evidence to support its request to intervene and that they would be prejudiced by the late intervention.  Defendants maintained that DOJ’s high-level descriptions of its ongoing investigative work did not provide sufficient detail to identify significant new facts or evidence that would support a belated intervention.  To allow the government to intervene now, they asserted, would be tantamount to finding “good cause” “just because the government says so.” The defendants also argued that permitting the government to intervene would further deplete the defendants’ resources before they could engage in discovery of their own.

The district court held a hearing on September 30, 2020 to consider DOJ’s arguments in favor of intervention and the defendants’ objections.  The court then ordered the government to submit affidavits or declarations describing “in detail the investigation the Government has undertaken in this case,” and discussing “each and every topic identified by the Court in open court on the record.”  DOJ filed the requested affidavits on October 26, 2020.  After a second hearing on February 24, 2021, the court issued an order vacating the Report and Recommendation and denying the government’s motion to intervene.  The order, although brief, is available here, and more information on the judge’s reasoning will be available once the hearing transcript is released.

Brenna E. Jenny

Washington, D.C.

bjenny@sidley.com

Megan Coggeshall

Chicago

mcoggeshall@sidley.com

You might also like
DOJ Reaches Settlement with Laboratory Over Commission-Based Compensation Arrangements with Independent Contractors, Medical Necessity

Earlier this month, the U.S. Department of Justice (“DOJ”) announced a $5.9 million FCA settlement resolving allegations that Genotox Laboratories Ltd., a toxicology and pharmacogenetics testing laboratory: 1) violated the Anti-Kickback Statute (“AKS”), and thereby caused the submission of false claims, through commission-based compensation arrangements with its independent contractors, and 2) submitted claims to federal healthcare programs for unnecessary drug tests.  In parallel proceedings, the U.S. Attorney’s Office for the Western District of Texas and Genotox entered into an eighteen-month Deferred Prosecution Agreement to resolve a criminal investigation into the same conduct.  The settlement highlights DOJ’s ongoing interest in pursuing independent contractor arrangements that do not fit within a safe harbor to the AKS, where such relationships are also accompanied by conduct that traditionally attracts enforcement scrutiny, such as submission of claims for medically unnecessary services.

Sixth Circuit Adopts Limited Definition of AKS “Remuneration,” Robust Standard for Causation in AKS Qui Tams

On March 28, 2023, the Sixth Circuit issued a notable decision rejecting broad theories from DOJ and relators about (1) the definition of remuneration under the Anti-Kickback Statute (AKS) and (2) the causation requirement for AKS violations that trigger FCA liability.  See United States ex rel. Martin v. Hathaway, No. 22-1463 (6th Cir. 2023).  On the first, the court held that “remuneration” under the AKS “covers just payments and other transfers of value,” not “any act that may be valuable to another.”  On the second, the court held that FCA liability attaches only if the claim would not have been submitted but for the AKS violation.

DOJ Reaches Settlement with OraPharma, Inc., Pushing Novel AKS Theory

Earlier this month the U.S. Attorney’s Office for the District of Massachusetts announced a $100,000 FCA settlement resolving novel allegations that a pharmaceutical company violated the Anti-Kickback Statute (“AKS”), and thereby caused the submission of false claims, through incentive compensation payments to its employees for conduct outside the scope of the employee relationship.