Court Rules That Defendant Precluded From Using Evidence to Support Advice of Counsel Defense in FCA Action By Waiting Until Close of Discovery To Produce Supporting Evidence
Posted by Carol Lynn Thompson and Emily Caveness
On March 14, 2013, U.S. Magistrate Judge Frank J. Lynch, Jr. issued a discovery order which may effectively foreclose defendants’ use of an advice of counsel defense in a FCA suit currently pending in the U.S. District Court for the Southern District of Florida. United States ex rel. Matheny v. Medco Health Solutions, Inc., 2:08-cv-14201-DLG, Dkt. # 258 (S.D. Fla. Mar. 14, 2013). The order prohibits defendants from using an email and meeting minutes supporting an advice of counsel defense because defendants’ production of these materials was untimely. Slip op. at 12-13. The court noted that it was “limit[ing] its ruling to the discovery context since that is the scope of its Order of Reference.” Id. at 13. However, the court went on to note that except for the email and the meeting minutes, “the Defendants produced no other documentary, testimonial, or other evidence of legal advice upon which they relied,” thereby indicating that the order likely will foreclose defendants’ use of an advice of counsel defense as a practical matter. Id.
The key document at issue in the opinion is a September 22, 2006 email from William Eck, former general counsel of Medco subsidiary PolyMedica, in which Mr. Eck opined that Medicare Part D overpayments, which the plaintiffs allege were fraudulently hidden to avoid paying government refunds, do not count as “overpayments” under the governing contracts. Id. at 4-5. The document was produced to the plaintiffs at the deposition of a corporate representative on February 6, 2013, three business days before the February 11 discovery deadline in the case. See id. at 7. At that deposition, defendants also produced a heavily redacted set of meeting minutes relevant to the advice of counsel defense. Id. at 7. Additionally, on February 8, defendants provided plaintiffs their Second Amended Initial Disclosures, in which defendants for the first time, listed Mr. Eck as an individual likely to have discoverable information, and an updated privilege log, which listed the Eck email. Id. at 8.
Defendants argued that their invocation of the attorney-client privilege at an October 2012 deposition put plaintiffs on notice that Mr. Eck had rendered legal advice and thus that defendants might raise an advice of counsel defense. See id. at 9. Judge Lynch disagreed, finding that defendants’ invocation of the privilege signaled that defendants intended to maintain the privilege, not to raise an advice of counsel defense. Id. at 9-10. Judge Lynch also found that defendants produced the email and minutes “too late to be of any use to the Plaintiffs, and the late production [of the email and minutes] fell short of the Defendants’ general obligation to produce relevant discovery in a timely fashion.” Id. at 10-11. As a result, the court granted plaintiffs relief under Rule 37(c) and ordered that defendants are foreclosed from using the email and minutes. Id. at 12-13.
Office of Inspector General Issues Updated Guidelines for State False Claims Acts
The Office of Inspector General of the Department of Health and Human Services (OIG) has issued updated guidelines for determining whether a state false claims act satisfies the requirements of section 1909(b) of the Social Security Act. Where the Inspector General determines that a state act satisfies the requirements of section 1909(b), the state is entitled to an increased share of recovery in false claims cases brought under that state act. Effective March 15, 2013, the new guidelines replace previous guidelines issued on August 21, 2006 and reflect amendments to the Federal False Claims Act (FCA) that have gone into effect since issuance of the previous guidelines.
As part of the revisions, OIG modified the guidelines for determining whether the state act appropriately establishes liability for false or fraudulent claims with respect to state Medicaid expenditures. These revised guidelines reflect amendments to the FCA that expanded liability to include false statements “material” to a false or fraudulent claim. OIG also expanded the guidelines with respect to provisions that reward and facilitate qui tam actions. Among these revisions, OIG restricted state law limits on actions resulting from public disclosures and modified the minimum percentages of recovery that a relator must receive under the state act. With respect to the civil penalty provisions, OIG revised the guidelines to provide minimum civil penalty amounts of at least $5,500 to $11,000, which amounts reflect adjustments per the Federal Civil Penalties Inflation Adjustment Act.
To qualify for the incentive provided by section 1909 of the Social Security Act, a state false claims act must fulfill the requirements of section 1909(b) as amended at the time of OIG’s review. OIG provided a two-year grace period during which states with false claims acts that had been approved before the amendments to the FCA became effective would continue to qualify for the incentive. After expiration of the grace period, a state must amend and resubmit its false claims act to OIG for review and either have its act approved or be under OIG review in order to qualify for the incentive.