29 May 2015

Over Government’s Objection, District Court Permits Bifurcation of Trial Between Proof of Falsity and Other FCA Elements

Posted by Scott Stein and Brenna Jenny

A court in the Northern District of Alabama recently granted defendant AseraCare’s motion to bifurcate its trial, limiting the government in the first phase to proving the element of falsity as to its sample of claims.


04 May 2015

Statistical Sampling As A Means to Prove Liability Continues to Gain Traction

Posted by Scott Stein and Brenna Jenny

A court in the Middle District of Florida is the latest of a growing number of courts (as reported here and here) that has allowed relators to rely on statistical sampling in order to establish liability in FCA cases involving large numbers of claims. See United States ex rel. Ruckh v. Genoa Healthcare, LLC, No. 11-cv-01303 (M.D. Fla. Apr. 28, 2015).

The relator, a former employee of the defendant operators of a chain of nursing and rehabilitation centers, initially filed a qui tam suit alleging upcoding at two facilities where she had worked. After the court dismissed the initial complaint for failing to include sufficient details about the alleged fraudulent scheme, the relator filed an amended complaint citing upcoding at fifty-three facilities.

Following denial of the motion to dismiss the amended complaint, and “[c]iting the voluminous discovery in this action and arguing that producing and processing the relevant medical records at the ‘fifty-three . . . [medical] facilities and some fifty-three . . . off-site storage locations’ within a reasonable time is impossible,” the relator filed a motion in limine for permission to submit an export report that would use statistical sampling and extrapolation in order to estimate the volume of overpayments allegedly retained by the defendants.

The United States filed a Statement of Interest in support of the relator’s motion (accessible here). The government opposed the defendants’ argument that the FCA necessarily requires proof of individual false claims, particularly in cases, such as this one, involving allegations of medically unnecessary care. While medical necessity decisions would be based on unique determinations for the population of patients in the sample, the government argued that so long as the sample was representative, the extrapolated result would be valid, and the defendants should be relegated to attacking the weight of the inferences through competing testimony.

The court relied heavily on the District of Tennessee’s decision in U.S. ex rel. Martin v. Life Care Centers of America, Inc. (discussed here) in ruling that the relator could use statistical sampling to estimate the claimed overpayments. In concluding that there is “no universal ban” on sampling in qui tam suits, court emphasized in particular the Martin court’s observation that proceeding without extrapolation “would consume an unacceptable portion of the Court’s limited resources.”

A copy of the court’s opinion can be found here.

23 April 2015

Southern District of New York Rejects Washington State’s Attempt to Amend Qui Tam Complaint

Posted by Gordon Todd and Paul Sampson

The Rule 15(a)(2) threshold for amending a complaint – that “[t]he court should freely give leave when justice so requires” – is not a high one. But from time to time even a State intervenor manages to miss it, as was the case in U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., No. 1:11-cv-08196, 2015 WL 1650767 (S.D.N.Y. Apr. 10, 2015).

In January 2014, the State of Washington filed a complaint-in-intervention naming only Novartis Pharmaceuticals Corp. (“Novartis”) as a defendant, even though a little over a year earlier the relator’s complaint—which alleged that Accredo Health Group, Inc. (“Accredo”), a specialty pharmacy through which Novartis sells its pharmaceutical products, participated with Novartis in an illegal kickback scheme—was unsealed. Id. at *5. Almost a full year later, in January 2015, Washington filed a motion to amend its complaint, seeking to add claims against Accredo for the alleged kickback scheme. Id.

The district court denied the motion for two principal reasons. First, the district court held that Washington delayed moving for leave to amend without an adequate explanation, noting that “a lengthy delay without a reasonable explanation justifies denying leave to amend.” Id. The district court rejected Washington’s “excuse” that Novartis had produced upwards of 50,000 documents beginning in March 2014, reasoning that “the State should be expected to receive and promptly review large volumes of documents in a complex case such as this one.” Id. at *6. The district court also rejected Washington’s assertion that it did not obtain certain audio recordings of phone calls between Accredo staff and Novartis patients until December 2014, and that those phone recordings “solidified” the extent of the kickback scheme. Id. at *7. The district court explained that “[t]he fact that a party later uncovers additional evidence supporting a theory that it could have raised earlier does not excuse delay in moving to amend.” Id.

Second, the district court held that “Accredo would be prejudiced by granting Washington’s motion to dismiss” because “granting the motion would prolong the disposition of this case and require additional time for discovery.” Id. Among other things, additional discovery would be needed regarding a forum selection clause contained in Accredo’s Medicaid core provider agreement with Washington. Id. at *8. Thus, “granting the motion would burden both Novartis and Accredo with added litigation time and expense—well-established forms of prejudice.” Id. at *7.

The Kester case reminds qui tam litigants that a Rule 15(a)(2) motion to amend a pleading is not automatic, and that plaintiffs must seek to amend their pleadings in a timely manner so as not to unnecessarily delay the expeditious resolution of qui tam actions.

31 March 2015

Federal Court Disqualifies Relators’ Counsel from Suit Against His Former Client

Posted by Nicole Ryan and Christopher Rendall-Jackson

On March 9, 2015, in United States ex rel. Bumbury v. Med-Care Diabetic & Medical Supplies, Inc., a court in the Southern District of Florida disqualified the relators’ counsel for having a conflict of interest in violation of the Florida Rules of Professional Conduct.

In 2009, one of the defendants, Med-Care Diabetic & Medical Supplies, Inc. (“Med-Care”), had engaged the law firm Broad and Cassel (“B&C”) to provide legal advice concerning compliance with Medicare regulations. At that time, Parker Eastin was an associate at B&C, and he was involved in at least two matters regarding B&C’s representation of Med-Care. On October 29, 2010, Mr. Eastin left B&C and formed Nicholson & Eastin, LLP (“N&E”), with another former B&C associate, Robert Nicholson. In December 2010, one of the relators decided to retain Mr. Nicholson to file the instant qui tam action. At some point before the initial complaint was filed, Mr. Eastin told Mr. Nicholson that he did not believe that he would have a conflict of interest in representing the relators in the qui tam action, and he remained fully and completely involved in all aspects of the matter.

On January 16, 2015, the defendants filed a motion to disqualify Mr. Eastin and N&E from representing the relators after Med-Care’s attorney recognized Mr. Eastin’s name on historical billing records. On March 9, 2015, after two evidentiary hearings and supplemental briefing by the parties, Magistrate Judge Hopkins granted the motion to disqualify Mr. Eastin and N&E, holding that they had a conflict of interest under federal common law and that this conflict of interest violated the standards of the Florida Rules of Professional Conduct. Regarding Mr. Eastin, the court held that Mr. Eastin’s former representation of Med-Care and his current representation of the relators are substantially related because Mr. Eastin could be required to attack the regulatory advice that he had admitted previously providing to Med-Care and because Mr. Eastin was at B&C when B&C had advised Med-Care on other matters that are relevant to the allegations of illegal conduct made against Med-Care in the qui tam action. As a result, the court held that Mr. Eastin had been pursuing the instant matter under an actual conflict of interest in violation of Florida Rule of Professional Conduct 4-1.9(a). Regarding N&E, the court held not only that there is an irrebuttable presumption that confidential information had been disclosed to Mr. Eastin because the matters are substantially related, but also that Mr. Eastin was actually privy to confidential information because he had access to Med-Care’s files and had participated in two conference calls with Med-Care while working at B&C. As a result, the court held that N&E had been representing the relators in violation of Florida Rule of Professional Conduct 4-1.10(b).

Magistrate Judge Hopkins further held that, although a conflict of interest does not necessarily require the “drastic remedy” of disqualification, Mr. Eastin and N&E must be disqualified in this case. Regarding Mr. Eastin, the court found that it was necessary to disqualify Mr. Eastin in light of the following factors: that, within two months of advising Med-Care on compliance with Medicare regulations, Mr. Eastin began representing the relators regarding claims to sue Med-Care for failing to comply with some of the same Medicare regulations; that Mr. Eastin began representing the relators without performing any meaningful conflicts analysis; that it is “no small factor” that Mr. Eastin’s “ethical violation only serves to perpetuate the perception that lawyers elevate their self-interests above those of their clients”; that prejudice to the defendants can be presumed because the matters are substantially related; and that any prejudice to the relators and any tactical advantage gained by the defendants will be temporary. Regarding N&E, the court held that it was necessary to disqualify N&E because the firm had represented Med-Care in spite of Mr. Eastin’s conflict of interest and without performing any meaningful conflicts check.

A copy of the opinion can be found here. The relators and the defendants have submitted objections to portions of the Magistrate Judge’s rulings, and we will continue to monitor the case for any significant developments.

29 January 2015

Court Enters Protective Order Limiting Relator’s Access to Competitively Sensitive Information

Posted by Scott Stein and Jessica Rothenberg

A recurring problem in qui tam cases, particularly when the relator is or works for a competitor of the defendant, is the issue of relators’ access to confidential and other competitively-sensitive information produced or created during a government investigation preceding unsealing or once a case is being actively litigated. Recently in one such case, a federal district court in the Northern District of Ohio entered an order limiting the relators’ access to the defendant’s competitively-sensitive information. The relators – the former Director of Contract Services and the then-current Director of Business Development and Technology for defendant Cellular Technology, Ltd. (“CTL”), a laboratory services company, allege that CTL defrauded the U.S. government by inflating direct labor costs under its contracts to provide research services to the National Institutes of Health. Specifically, the relators allege that CTL, in its proposals, to NIH over-inflated the total staff hours it would take to complete various projects and identified its highest paid personnel to perform work, as well as additional employees and individuals who were never employed by CTL, without any expectation of those individuals performing the work being represented. According to the relators’ complaint, CTL’s alleged fraud resulted in at least $3.25 million in excess costs being billed to and paid by the U.S. Government. The U.S. Department of Justice intervened in September 2011, also alleging that CTL represented to NIH that certain employees would work on contracts, knowing that some would never perform any work on the projects, over-inflated the total number of hours it would take to complete the projects, and later billed NIH for far more hours than its employees actually spent on NIH projects.

In an effort to resolve the suit, the United States and CTL jointly agreed to engage an auditor to conduct an audit of the work performed by CTL for NIH under the contracts at issue. In connection with the audit, the United States, CTL, and the auditor signed a confidentiality agreement governing the disclosure of documents and information to the auditor necessary to perform the audit and prepare any reports. In addition, on January 23, the court entered an order limiting the circumstances under which the materials provided to and created by the auditor could be shared with the relators. Under the court’s order, prior to the relators gaining access to any of the audit materials, they must disclose to the U.S. Attorney’s Office their current employer. That disclosure will be forwarded immediately to CTL. Additionally, if at any time either of the relators obtains new or additional employment, a supplemental notice must be filed within five days of beginning the new or additional employment. If either of the relators is deemed to be, or is employed by, a CTL competitor (as defined by the order), neither of the relators will be permitted access to the materials provided to and created by the auditor until the employment or activity that renders the relator a competitor ends. Any materials to which the relators already had been permitted access prior to becoming a competitor, including any notes taken by the relators concerning those materials, must be returned immediately. The order also prohibits relators from making copies of any of the materials provided to the auditor and requires that all materials provided to and prepared by the auditor, and any notes taken by relators in their review of those materials, must be returned to the U.S. Attorney’s Office at the conclusion of the litigation.

This order provides a useful model for other cases in which relators seek access to competitively-sensitive information. A copy of the Order Concerning Materials Produced in Connection with Audit in United States v. Cellular Tech., Ltd., No. 1:09CV01008 (N.D. Ohio 2015) can be found here.

20 January 2015

In Carter, DOJ Finally Concedes That It Is Bound By Merits Dismissals in Non-Intervened Cases

Though we wrote last week to summarize our take on the oral argument in Carter, this post focuses on a particular exchange in which the Assistant Solicitor General arguing on behalf of the United States conceded a key point that DOJ has, in the lower courts, resisted. When it comes to non-intervened qui tam cases, DOJ routinely argues that while it is entitled to any financial benefits accruing from such litigation, the United States is not bound by any judgment on the merits against the relator. In our experience, whenever DOJ files a Statement of Interest in a non-intervened case, it requests that if the district court dismisses the case against a relator on any grounds that such dismissal be without prejudice to the United States, theoretically allowing DOJ to pursue the same claims against the same defendants notwithstanding even a dismissal on the merits of the relator’s claims. Defendants are typically loathe to challenge the government’s request, perhaps due to a desire not to engage the United States any more than necessary in a non-intervened case, or the recognition that as a practical matter the odds of the government deciding to intervene in any particular case once an adverse ruling has been rendered against a relator are fairly small.

But an admission by the Associate Solicitor General arguing in Carter may require DOJ to change its position in the lower courts. In considering the application of the first-to-file bar to serial relators, several Justices appeared concerned about the prospect of serial liability if, as DOJ contends, the first-filed bar applies only when a first-filed case is still “pending.” That led to the following exchange:

JUSTICE SCALIA: Mr. Stewart, before your time runs out, what – what is the Government’s position on the — on the point raised by counsel for Respondent; namely, if there is a dismissal of — on the merits of a – a civil action, is the government barred from later bringing a different action on the same claim?

MR. STEWART: Yes, we would think we would be barred. We think that was Congress’s expectation in 1986 and that’s the understanding of the statute that we’ve been operating under; that is, our protection under the statute is that when a qui tam suit is filed, we have an initial opportunity to decide whether to intervene or not. Even if we initially decide not to intervene, we can move later to intervene for good cause shown and so if we initially think the relator can do a capable job but then we decide later, no, he can’t, our protection against the claim being badly litigated is that we can take over the suit, and if we don’t avail ourselves of that protection and the case is decided against us on the merits, then claim preclusion would apply.

This is the correct view of the law (see Federal Rule of Civil Procedure 41(b)), but yet it is contrary to the view that DOJ advocates in the lower courts. (As Ronald Mann wrote on SCOTUSBlog, the Justices appeared “surprised that the government took such a moderate view” – as were we) . What practical effect this admission will have remains to be seen, but we hope that it may inspire defendants (and courts) to cite this language in explaining why DOJ cannot claim to be unaffected by adverse judgments on the merits. Perhaps if DOJ fully internalizes the fact that it can no longer claim to be unaffected by adverse decisions in unmeritorious non-intervened cases, it will consider dusting off its little-used authority to cause such cases to be dismissed. If it doesn’t, then as the Assistant Solicitor General conceded, the United States appropriately will be bound by adverse judgments rendered against the private citizens it allows to litigate on its behalf.

29 August 2014

Court Allows Second FCA Suit Alleging Different Fraudulent Scheme in Connection With The Same Underlying False Claims As A Previously-Settled Suit

Posted by Nicole M. Ryan and Ryan G. Fant

In United States ex. rel. Lisitza v. Par Pharmaceutical Cos., Inc., No. 06 C 06131 (N.D. Ill. July 31, 2014), a federal district court in Illinois rejected a drug manufacturer’s argument that the doctrine of res judicata barred an FCA suit based on many of the same underlying false claims involved in a previously-settled FCA suit. The Court held that res judicata did not apply because the fraudulent schemes alleged in each case were different and there were elements of damage available in the second suit that were not resolved by the first suit.

In 2005, Ven-A-Care, a Florida-based pharmacy, in its capacity as relator, sued Par Pharmaceutical Companies, Inc. (“Par”) and other generic drug manufactures under the FCA, with the case ultimately becoming consolidated as part of a much larger multidistrict litigation, In Re Ven-A-Care Cases, No. 06 CV 11337 (D. Mass.). The suit alleged that Par had manipulated and falsely reported pricing benchmarks so as to cause Medicaid to set higher reimbursement amounts for its drugs than would have been set if Par had published accurate benchmarks. Par ultimately settled these claims in 2011 for $154 million, and the case against it was dismissed.

In 2006, another relator, Bernard Lisitza, filed an FCA suit against Par alleging that Par had engaged in an illegal prescription-switching scheme that substituted its own higher-priced products in place of the specific drug that the doctor had prescribed in order to evade Medicaid price limits on generic drugs.

After the settlement and dismissal of the Ven-A-Care case, Par asserted the affirmative defense of res judicata in the Lisitza case. Par argued that res judicata applied because both lawsuits accused Par of “taking advantage of increased Medicaid reimbursements,” involving the “very same false claims for the very same prescriptions.” Although the Court acknowledged that some of the claims submitted were the same in both cases, it rejected the application of res judicata. It found that were very few common facts between the two complaints regarding “what Par allegedly did—how it defrauded the government.” The Ven-A-Care case accused Par of manipulating price benchmarks, whereas the Lisitza complaint accused it of a prescription-switching scheme. As a result of this difference, the Court determined that the “material factual allegations in the two complaints are simply not the same except at an extreme level of generality” and thus were insufficient to establish res judicata. In particular, the Court noted that in the original case, the damages at issue were the difference between what Medicaid paid and Par’s “inflated” prices, while in the second case, the court held, “the damages might be the entire amount of the reimbursement (less any portion already paid as damages), if the plaintiffs prove that claims for the particular drug forms and dosages at issue should not have been submitted at all because they were not authorized by a physician or were not the most cost-efficient option.” “Par should not have to pay the same damages twice,” the court continued, “but if the plaintiffs prove liability in this case, they will be entitled to damages for false claims that are unique to this case as well as whatever additional damages they can prove are owing on the false claims that were also at issue in Ven-A-Care.”

The Court also rejected Par’s argument that the scope of the release in the Ven-A-Care case covered all false claims submitted within the applicable time period and thus was broad enough to bar the Lisitza complaint. The Court held that the release encompassed only claims “based upon or arising out of” the conduct alleged in the Ven-A-Care complaint regarding false reporting of pricing benchmarks and therefore did not apply in the Lisitza case.

A copy of the opinion can be found here.

18 August 2014

8th Circuit Affirms Dismissal of FCA Claim, Offering Guidance on the Application of the Public Disclosure Bar

Posted by Scott Stein and Joe Dosch

On August 7, 2014, the Eighth Circuit affirmed the dismissal of a qui tam False Claims Act suit, and in doing so offered helpful guidance regarding the proper application of the public disclosure bar (while highlighting an open issue regarding public disclosure). The court also addressed whether consideration of materials outside of the pleadings automatically requires the court to treat a motion to dismiss on public disclosure grounds as a motion for summary judgment.

Dr. Lonnie Paulos, the relator, alleged that Stryker Corporation and I-Flow Corporation caused false claims to be submitted to federal healthcare programs by fraudulently marketing and failing to disclose material information regarding their pain pump products. Paulos alleged that the defendants marketed pain pumps for placement in joint spaces, while failing to disclose information about the dangers of using pain pumps in joint spaces and falsely indicating that pain pumps were FDA-approved for use in joint spaces. Paulos further alleged that Stryker and I-Flow caused the submission of false claims by misleading healthcare providers about the use of pain pumps in joint spaces. Paulos alleged that he and another physician colleague were among the first to identify the dangers of placement of pain pumps in joint spaces, and that he warned one of the defendant manufacturers of the possible connection between placement of pain pumps in joint spaces and a painful condition called chondrolysis. The district court (Western District of Missouri) granted defendants’ motion to dismiss pursuant to 31 U.S.C. § 3730(e)(4)(A), agreeing that Paulos’ allegations had already been publicly disclosed in various studies and media reports, and that Paulos was not an “original source” of the information underlying his claims.

On appeal, Paulos contended that despite the numerous medical reports, FDA reports, and federal regulatory disclosures relating to the use of defendants’ pain pumps in joint spaces, those materials did not disclose certain of his specific allegations, such as that “surgeons were not being told that the devices could cause joint damage,” “surgeons were told the devices were approved for use,” and “the devices were being marketed off label.” Paulos attempted to distinguish these claims from the public disclosures by arguing that these allegations established defendants’ scienter. The Eighth Circuit rejected this argument, finding that the publicly disclosed reports did in fact “implicate the companies’ knowledge of the pain pumps’ connection to chondrolysis and the lack of FDA approval.”

The district court had agreed with Paulos that the public disclosures did not demonstrate that healthcare providers submitted claims involving the pain pumps to federal healthcare programs. Nevertheless, it concluded that Paulos’ allegations regarding the submission of false claims merely “add[ed] some color” and did not distinguish Paulos’ allegations from the public disclosures because “any doctor or hospital seeking payment from these federal programs would be submitting a false claim for payment.” The Eighth Circuit noted this aspect of the district court’s ruling, referencing its prior decision in U.S. ex rel. Hixson v. Health Mgmt. Sys., Inc., 613 F.3d 1186, 1188 (8th Cir. 2010) in which the court held that “a relator’s claim cannot be ‘based upon . . . public disclosure of allegations or transactions’ where the public disclosure fails to reveal ‘the false claims itself.'” However, because Paulos did not challenge that aspect of the district court’s reasoning, the Eighth Circuit expressly declined to consider whether Hixson remains good law.

Paulos also contended that he was an original source of the fraud allegations, because he had independent knowledge of the connection between pain pumps and chondrolysis, and he had firsthand knowledge of Stryker’s knowledge. Paulos focused on his assertion that he was among the first to identify the link between pain pumps and chondrolysis. However, the Eighth Circuit concluded that a relator is not an original source simply because he discovered or suspected the alleged fraud first. The court found that the key facts upon which Paulos’ claims were based were in fact disclosed in the prior public disclosures, and his personal knowledge about the link between pain pumps and chondrolysis failed to “materially add[ ] to the publicly disclosed allegations or transactions.” Paulos also argued that he materially added to the scienter allegations by pointing to his communications with a Stryker executive in 2005 raising concerns about the use of certain anesthetics in pain pumps. However, because these communications made no reference to the placement of pain pumps in joint spaces—the key issue in his complaint—the Court held that it did not materially add to the publicly disclosed allegations.

Finally, Paulos raised a procedural challenge to the district court’s ruling, arguing that the district court improperly considered materials outside the pleadings without converting the motion to a motion for summary judgment. The court rejected this argument on two grounds. First, the court noted that when ruling on a Rule 12(b)(6) motion to dismiss, the court “may [still] consider ‘matters incorporated by reference or integral to the claim, items subject to judicial notice, [and] matters of public record.” Furthermore, the court noted that because the FCA “requires a court to dismiss a claim based on public disclosure, a court necessarily considers the alleged public documents in its dismissal.” Accordingly the court rejected Paulos’ contention that the district court erred in failing to convert the motion to dismiss to one for summary judgment.

The Paulos decision provides useful guidance regarding the scope of the public disclosure bar. However, the decision leaves open the question of whether the public disclosure bar applies in the Eighth Circuit when the public disclosures do not explicitly disclose the false claims at issue. The decision also confirms that district courts may continue to consider public disclosure materials beyond the allegations of the complaint, without converting the motion into one for summary judgment.

Connie Trela of Sidley Austin argued the appeal before the Eighth Circuit on behalf of I-Flow. A copy of the court’s opinion can be found here.

24 July 2014

United States Protects Right to Pursue FCA Claims Raised in Non-Intervened, Dismissed Suit

Posted by Gordon Todd and Paul Sampson

In U.S. ex rel. Prince v. Virginia Resources Authority, No. 5:13CV00045, 2014 WL 3405657 (W.D. Va. July 10, 2014), the Western District of Virginia recently held that dismissal of a relator’s suit on procedural grounds does not prejudice the United States’ ability to subsequently to pursue identical FCA claims, despite having declined to intervene in the dismissed action.

Relator Mark Prince filed suit against the Virginia Resources Authority (the “VRA”) and others, alleging FCA violations relating to federal subsidies and tax exempt status for certain bonds through the Build America Bonds program. The VRA moved to dismiss on the basis of collateral estoppel due to Prince’s involvement in prior litigation against the VRA. On April 15, 2014, the District Court granted the motion, dismissing Prince’s claims with prejudice.

The United States had neither intervened in the suit, nor had it been party to Prince’s prior litigation against the VRA. On May 12, 2014, it filed a “Motion to Clarify” the dismissal. Acknowledging that it had “declined to intervene and is therefore not a party to this action,” the Government nevertheless insisted that it “remains the real party in interest, entitled to share in any recovery that may be obtained in the qui tam action.” Accordingly, it asked the Court to amend the order of dismissal “to clarify that the dismissal with prejudice extends only to Relator, and that the dismissal is without prejudice to the United States.”

On July 10, 2014, the district court granted the government’s motion, holding that “dismissals for reasons unrelated to the merits of a FCA claim are appropriately entered without prejudice to the United States.” Prince, 2014 WL 3405657, at *3. The decision not to intervene, the Court observed, does not necessarily suggest that the Government doubts the viability of an FCA claim, but rather may result from “a cost-benefit analysis.” Id. (internal quotation marks omitted). “Accordingly,” it reasoned, “it would be inappropriate to dismiss with prejudice as to the United States … on whose behalf relator brought this claim.” Id. (internal quotation marks omitted). Because the dismissal of Prince’s claims resulted from his procedural failures and not those of the United States, the district court held that “it is proper for the dismissal of these claims to be without prejudice as to the United States.” Id.

The Prince case reminds qui tam defendants that non-intervention is not necessarily the end of the United States’ interest in a matter, and that the Government continues to monitor FCA actions brought on its behalf to maximize its returns.

18 July 2014

FEMA Cannot Hide Behind Touhy Regulations to Avoid FCA Deposition

Posted by Gordon Todd and Marisa West

In a recent decision, the Eastern District of Louisiana compelled the Federal Emergency Management Agency (“FEMA”) to produce a witness for deposition in a qui tam False Claims Act suit despite the agency’s Touhy regulations. Williams v. C. Martin Company Inc., et al., No. 07-6592, 2014 U.S. Dist. LEXIS 91802 (E.D. La. July 7, 2014). The Williams decision may have broad implications for Defendants seeking to discover evidence from Federal agencies in defending against FCA claims.

Robyn Williams filed an FCA suit against Medley Jarvis Defendants (“MJI”) and C. Martin Defendants (“CMC”), relating to contracts FEMA had awarded to CMC. The Supreme Court has held that government agencies may establish regulations to regulate the disclosure of documents and testimony during litigation. U.S. ex rel. Touhy v. Ragen, 340 U.S. 462, 468 (1951). On December 4, 2012, MJI filed a Touhy request with FEMA seeking documents related to the contracts. Over one year later and following litigation over the paucity of FEMA’s initial document production, FEMA produced 26,000 pages of documents responsive to MJI’s request on April 21, 2014. The documents were produced pursuant to a protective order filed with the district court.

On May 22, 2014, CMC noticed a Rule 30(b)(6) deposition of FEMA to discuss topics pertaining to FEMA’s production. FEMA invoked its Touhy regulations to avoid the deposition and CMC moved to compel. FEMA argued that sovereign immunity requires litigants to follow Administrative Procedures Act (“APA”) procedures to challenge its decision to withhold a witness for deposition. The district court found first that it had jurisdiction to review the agency’s decision because “sovereign immunity does not insulate a federal agency from complying with a Rule 45 subpoena.” Id. at *12 (quoting In re Vioxx Products Liability Litigation, 235 F.R.D. 334, 343 (E.D. La. 2006) (internal quotation marks omitted)). The court then held that FEMA’s refusal to comply with the subpoena had been arbitrary and capricious because it failed to set forth a satisfactory explanation for its refusal to comply with the deposition subpoena. Id. at *16. The district court granted the motion to compel and ordered the deposition. Williams v. C. Martin Company Inc., et al., No. 07-6592, 2014 U.S. Dist. LEXIS 91802, at *6-9 (E.D. La. July 7, 2014).

The Williams decision streamlines FCA defendants’ ability to compel Agency testimony in an FCA action by removing the need to file a separate APA challenge. If adopted more generally, this decision may rein in one avenue by which Government agencies avoid producing relevant materials in FCA cases.

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