5th Circuit Trims FCA Award as DOJ’s Delayed Intervention Runs into Statute of Limitations; Knocks Seal Provision Misuse
August 31, 2023 – Articles
An eight-year delay in the DOJ’s intervention decision in a False Claims Act case led to the loss of more than half of the damages awarded at trial. A divided Fifth Circuit panel determined that the government’s claims did not relate back to the original complaint, leaving much of the litigated conduct beyond the statute of limitations. Finding the DOJ did not diligently investigate the original allegations, the majority also declined to toll the government’s claims—and it rebuked the DOJ’s “inexcusable” overuse of the statute’s seal provision.
A distinctive feature of False Claims Act (FCA) litigation is the requirement that whistleblower, or qui tam, complaints be filed under seal and kept that way for 60 days[1] while the DOJ “diligently . . . investigate[s]” the complaint and decides whether to intervene and take over the action.[2] The DOJ may move the court, “for good cause shown,” to extend the seal period beyond 60 days,[3] and repeated grants of such motions can result in seal periods lasting a year or more.
An FCA Medicare fraud case decided by a partially divided Fifth Circuit panel on August 21, 2023, U.S. ex rel. Aldridge v. Corporate Management, Inc.,[4] had involved eighteen such motions before the district court, resulting in an eight-year-long seal period. On appeal, that delay wound up costing the government over half of the jury’s damages award, for statute of limitations reasons. And, while the majority stopped short of dismissing the government’s claims based on abuse of the seal provision, it subjected the DOJ’s “interminable [seal] extensions” to withering criticism.[5]
Qui tam and intervention
The qui tam complaint in Aldridge alleged Medicare fraud against a hospital, its corporate management company, and executives. The relator alleged that the defendants engaged in fraudulent cost reporting, inflating supply costs, and improperly waiving co-payments and deductibles, among other misconduct.[6] After the government finally intervened, its amended complaint alleged improper billing of luxury automobiles and of executive salaries for work not performed.[7]
Following the government’s intervention, the defendants moved to dismiss its claims, arguing the eight-year delay prejudiced them and violated the FCA,[8] and also moved to unseal the entire record. The district court denied the motion to dismiss, and unsealed only the government’s extension motions and the court’s orders granting them. The government’s eighteen extension memoranda therefore remained sealed.[9] A nine-week jury trial followed, in which the jury found the defendants liable for approximately $10 million in damages—over $32 million, after the statutory trebling.[10] Thirteen years had elapsed since the filing of the original action.[11]
Among other post-trial motions, the defendants again sought to unseal the government’s extension memoranda, moved for judgment as a matter of law based on insufficient evidence, and moved for a new trial.[12] These motions were unsuccessful, and the district court confirmed the judgment.[13]
Appeal to Fifth Circuit
Appealing to the Fifth Circuit, the defendants challenged, inter alia, the sufficiency of the evidence proving the FCA claims, the district court’s application of the statute of limitations, and the court’s grant of eighteen seal extensions.[14] The appellate court reviewed the district court’s denial of the motion for judgment as a matter of law and its statute of limitations decisions de novo, and the rulings on the motions for extension of the seal period and for a new trial for abuse of discretion.[15]
The majority affirmed the district court’s denial of the motion for judgment as a matter of law,[16] finding a “legally sufficient evidentiary basis for a reasonable jury” to have found the defendants liable.[17] It also upheld the denial of a new trial, on the even more deferential standard that there was not “an absolute absence of evidence to support the jury’s verdict.”[18]
However, the district court’s application of the FCA’s statute of limitations did not similarly pass muster,[19] as the majority found the government’s allegations regarding luxury vehicles and improper salary payments involved “conduct different from that” alleged by the relator.[20] The FCA contains a specific relation-back provision available only to the government, allowing the government’s intervenor complaint to relate back to the original filing date of the qui tam complaint so long as the government’s claim “arises out of the conduct, transactions, or occurrences set forth” in the original complaint.[21]
Because the government’s claims were not “tied to a common core of operative facts”[22] with the relator’s claims, the government’s claims did not relate back to the date the relator’s original complaint was filed. As a result, conduct more than six years prior to the date of the government’s intervenor complaint fell outside the FCA’s statute of limitations.[23]
Some of those older claims could potentially be resuscitated via the FCA’s tolling provision, which gives the government “3 years after the date when facts material to the right of action are known or reasonably should have been known” to the government,[24] provided the government acted “diligently” to preserve its claims.[25] However, because the government likely knew “facts material to the right of action” nearly four years before it eventually intervened (and four years after it began investigating),[26] the majority concluded the government did not show diligence and declined to toll those claims.[27]
Repeated use of the FCA seal provision
Aldridge’s harshest language was reserved for the DOJ’s “incessant delay in intervening,”[28] which resulted in years of unfair “unilateral discovery” by the government.[29] Both the defense and relators’ bar have expressed frustration with the length of government investigations, but courts have rarely addressed this issue outside the context of a request to extend the seal. With the issue squarely before it, the Fifth Circuit amplified the observations of an earlier district court opinion that characterized a four-year prolongation of the seal period (only half as long as in Aldridge) as “approach[ing] the abusive.”[30] The district court itself, in the majority’s view, bore some responsibility for “enabl[ing] the [g]overnment’s gamesmanship” by granting all of the government’s “increasingly rote requests for extension of the seal period.”[31] This echoed Martin, where the district court faulted its own participation in what had become an inappropriately “comfortable routine” of granting such extensions, perhaps fostered by “the absence of any opposing party to object”[32] and the resulting inadequately “searching inquiry” into the government’s good cause showing.[33]
Despite finding the prolonged series of seal extension requests “inexcusable,” the majority balked at granting the “extraordinary sanction” of dismissing the government’s claims on that ground.[34] For this, the majority cited two reasons. First, it found the defendant-appellants failed “to pinpoint when the court’s cumulative indulgence” of the government’s repeated delays “rose to an abuse of discretion.”[35] Second, and “[m]ore importantly,” the court could find no precedent for dismissal based on abuse of the seal provision—though it cautioned that “lesser sanction short of dismissal” could be warranted in such cases.[36]
Although it declined to “break new ground . . . by granting such drastic relief” as dismissal, the majority concluded that the government did not “escape unscathed.” Due to the statute of limitations implications of the government’s prolonged delays, the court noted pointedly, the “consequence of [that] dilatory conduct is the reduction by over half of the judgment” in the case.[37]
Conclusion
Aldridge provides ammunition for FCA defendants to try to check abuse of the seal period. First, it makes clear district courts must scrutinize new claims added by the government after lengthy investigations to ensure compliance with the FCA’s statute of limitations. Second, it is strong, persuasive authority that the government cannot use the seal period to conduct unilateral discovery. Because the standard of review for civil investigative demands and subpoenas issued in furtherance of an investigation is extremely deferential, Aldridge and similar district court decisions may provide a path to challenge lengthy, overbroad discovery as abusive of the FCA’s seal provision.[38]
[1] 31 U.S.C. § 3730(b)(2).
[2] Id. § 3730(a) (alteration added). The idea behind the seal provision is to safeguard the DOJ’s ability to evaluate the relator’s (i.e., whistleblower’s) claims without the defendant being alerted to the existence of the lawsuit and pending investigation. See State Farm & Cas. Co. v. U.S. ex rel. Rigsby, 580 U.S. 26, 34–35 (2016).
[3] 31 U.S.C. § 3730(b)(3).
[4] Nos. 21-60658 et al., 2023 U.S. App. LEXIS 21926 (5th Cir. Aug. 21, 2023). The appeal was from the judgment in Civ. A. No. 1:16-CV-369 (S.D. Miss. May 10, 2020). The qui tam complaint was originally filed on May 31, 2007, and the jury verdict was rendered on March 12, 2020. A brief separate writing, labeled as a partial dissent, took issue with a single aspect of the majority’s decision: the determination that the claims asserted by the government in its intervenor complaint did not “relate back” to the original complaint and therefore were partially time-barred by the FCA’s statute of limitations. See id. at *56–58 (Ho, J., partially dissenting).
[5] Aldridge, 2023 U.S. App. LEXIS 21926, at *38 (quoting U.S. ex rel. Martin v. Life Care Ctrs. of Am., Inc., 912 F. Supp. 2d 618, 625 (E.D. Tenn. 2012)) (alteration added). While Aldridge’s vehement criticism of the government’s serial extensions of the seal period is, strictly speaking, the opinion of the panel majority, the partial dissent (as noted below) expressed no disagreement with that criticism. See infra n.28.
[6] Aldridge, 2023 U.S. App. LEXIS 21926, at *9, 30.
[7] Id. at *30.
[8] Id. at *11.
[9] Id. at *11–12.
[10] Id. at *12; see also 31 U.S.C. § 3729(a)(1).
[11] Aldridge, 2023 U.S. App. LEXIS 21926, at *12.
[12] Id.
[13] Id.
[14] Id. at *12–13.
[15] Id. at *13.
[16] Id. at *14–25.
[17] Id. at *13 (quoting Flowers v. S. Reg’l Physician Servs. Inc., 247 F.3d 229, 235 (5th Cir. 2001)).
[18] Id. (quoting Wantou v. Wal-Mart Stores Tex., L.L.C., 23 F.4th 422, 431 (5th Cir. 2022)) (internal quotation marks and citation omitted by Aldridge).
[19] Id. at *25–31.
[20] Id. at *29–30 (quoting U.S. ex rel. Miller v. Bill Harbert Int’l Constr., Inc., 608 F.3d 871, 881 (D.C. Cir. 2010)); see also id. at *30–31 (finding the government’s complaint did not merely “clarify[]” or “add[] detail” to the relator’s initial allegations, but rather “set forth new ones”) (alterations added).
[21] See 31 U.S.C. § 3731(c).
[22] Aldridge, 2023 U.S. App. LEXIS 21826, at *29 (quoting U.S. ex rel. Vavra v. KBR, Inc., 848 F.3d 366, 382 (5th Cir. 2017)).
[23] Id. at *30–31; see also 31 U.S.C. § 3731(b)(1).
[24] 31 U.S.C. § 3731(b)(2).
[25] Aldridge, 2023 U.S. App. LEXIS 21926, at *31 (citing Baldwin Cnty. Welcome Ctr. v. Brown, 466 U.S. 147, 151 (1984).
[26] Id. at *34–35 (quoting 31 U.S.C. § 3731(b)(2)).
[27] Id. at *35.
[28] Id. at *36. While the panel’s decision in Aldridge was divided, it is worth noting that the partial dissent took issue with the majority solely as to “relation back,” see id. at *56–58 (Ho, J., partially dissenting); the separate writing expresses no quarrel with the majority’s criticism of the DOJ’s repeated seal extension motions.
[29] Id. at *39.
[30] U.S. ex rel. Martin v. Life Care Centers of America, Inc., 912 F. Supp. 2d 618, 623 (E.D. Tenn. 2012); see also Aldridge, 2023 U.S. App. LEXIS 21926, at *37 (quoting Martin, 912 F. Supp. 2d at 623) (four-year prolongation of the seal period “borders on the absurd”).
[31] Aldridge, 2023 U.S. App. LEXIS 21926, at *36 (alteration added).
[32] Martin, 912 F. Supp. 2d at 625.
[33] Id. (quoting U.S. ex rel. Costa v. Baker & Taylor, Inc., 955 F. Supp. 1188, 1191 (S.D. Cal. 1997)); see also ACLU v. Holder, 673 F.3d 245, 254, 257 (4th Cir. 2011) (discussing the government’s burden to show “good cause” to the court for extending the seal period, and the court’s statutory duty to “weigh carefully” such motions for extension).
[34] Aldridge, 2023 U.S. App. LEXIS 21926, at *41.
[35] Id.
[36] Id. (citing State Farm & Cas. Co. v. U.S. ex rel. Rigsby, 580 U.S. 26, 37–38 (2016)) (alteration added).
[37] Id. (emphasis and alteration added); see also id. (noting that, from the standpoint of the defendant-appellants, the slashing of more than half of the government’s damages award “should be consolation enough in this particular case”).
[38] See Martin, 912 F. Supp. 2d at 624 (finding “wholly inappropriate” the government’s “habitual requests for extensions of the [seal] period” over a four-year period); U.S. ex rel. Smith v. Serenity Hospice Care LLC, No. CV 313-001, 2014 U.S. Dist. LEXIS 121297, at *7–8 (S.D. Ga. Aug. 28, 2014) (citing Costa, 955 F. Supp. at 1189–90) (noting that a number of courts “have commented on the dangers of keeping qui tam actions under seal for protracted periods of time” and declining to further delay a case that “has languished for a year and a half on the Court’s docket”); Costa, 955 F. Supp. at 1191 (“This practice of conducting one-sided discovery for months or years while the case is under seal was not contemplated by Congress and is not authorized by the [FCA].”) (alteration added); id. at 1189–90 (finding no warrant in the statute or legislative history for courts to decide motions to extend the seal period in “disregard” of defendants’ interest “in building their defense while the evidence is still fresh” and of the public’s “right to monitor the activities of government agencies and the courts”). Another court of appeals, the Fourth Circuit, has emphasized Congress’s intent in the 1986 amendments creating the modern FCA that courts “weigh carefully any [] extension beyond the 60-day [seal] period.” See Holder, 673 F.3d at 257 (quoting S. Rep. No. 99-345, at 24–25 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5289–90).