Matthew D. Krueger

16 April 2013

Federal District Court Denies Relator’s Bid for Expedited Discovery of Documents Produced to DOJ During Investigation

Posted by Gordon Todd and Matthew Krueger

A federal district court opinion issued last week could help defendants oppose attempts by relators in non-intervened qui tam cases to seek early discovery of documents produced to the Government during its investigations. In Laughlin v. Orthofix International, N.V., No. 05-10557-EFH (D. Mass. Apr. 10, 2013), the Court denied the relator’s motion for leave to issue a subpoena to the Government—before the parties had commenced discovery—to obtain documents that the defendant had produced to the Government during its investigation of similar allegations.

In 2005, the relator filed suit against several medical-device companies, alleging False Claims Act violations in their sale and distribution of bone growth stimulators. The Government conducted a lengthy investigation of the relator’s claims as well as other potential healthcare offenses. During its investigation, the Government obtained documents from the defendants concerning both the relator’s claims and also the other potential offenses. The Government ultimately decided not to intervene in the case.

Before the parties had held a Rule 26(f) discovery conference, the relator moved for leave to issue a Rule 45 subpoena to the Government, seeking documents the defendant had produced to the Government. The defendants opposed the motion, arguing that the relator had not shown good cause to avoid Rule 26(d)(1)’s prohibition on any discovery—including discovery of third parties—until after a Rule 26(f) discovery conference.

The district court denied relator’s motion. The court agreed with defendants that allowing the relator to obtain the documents from the Government would “effectively remove their ability to lodge objections to particular documents and would deny them the opportunity to designate documents confidential pursuant to a valid protective order.” Slip op. at 3. On the other hand, denying the discovery would only “subject the relator to the normal discovery process.” Id.

The decision highlights an aggressive move that relators in non-intervened cases may make, seeking early discovery of defendants’ documents directly from the Government, outside the normal course of discovery. The district court’s decision provides a terse, but helpful precedent that rejects this move and vindicates the protections built into Federal Rule 26.

23 April 2012

New York Files False Claims Suit Against Sprint Alleging Tax Evasion

Posted by Matthew D. Krueger and Gordon D. Todd

Last Thursday, New York intervened into a qui tam suit against Sprint under the State’s False Claims Act alleging underpayment of sales taxes. This marks the first such case since New York amended its False Claims Act specifically to allow whistleblowers to file state tax-fraud cases.

The complaint alleges that Sprint knowingly failed to collect and pay $100 million of sales taxes over the past seven years. According to the complaint, in 2005, Sprint began attributing a portion of subscribers’ monthly charges to interstate calls and did not pay New York sales taxes on that portion. The lawsuit also alleges that Sprint concealed its practice from state tax authorities. Under New York’s law, if liable, Sprint would have to pay three times the underpaid taxes—$300 million—plus penalties. The case will be closely watched as it tests the often-murky boundary between tax-management strategies that companies may lawfully pursue and false claims that give rise to hefty liability.

In contrast to New York’s law, the federal False Claims Act does not reach tax fraud. A provision of the Tax Code does, however, reward whistleblowers with 15 to 30 percent of proceeds that they lead the IRS to collect. 26 U.S.C. § 7623.

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