Opposing Endless Extensions of the 60-Day Seal Period in False Claims Act Cases

Is there a limit on the number of times the federal government can request extensions of the 60-day period under seal to decide whether to intervene in a qui tam relator's False Claims Act (FCA) case? The appellants in U.S. v. Corporate Mgmt. Inc., 78 F. 4th 727 (5th Cir. 2023), asked the court of appeals to rule that 18 times over eight years was too many requests for extension as it enabled the government to engage in extensive unilateral discovery, review documents, make deposition requests and press for settlement – all while the appellants were left in the dark about the claims against them.

Background

The FCA is "the Government's primary litigative tool for combatting fraud against the Government."¹ It is a powerful hammer. The FCA imposes liability on anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or "knowingly makes, or causes to be made, a false statement or record material to a false claim."² Violators of the FCA are liable for civil penalties "plus 3 times the amount of damages which the Government sustains because of" their conduct.³

When a qui tam relator brings an FCA action, the complaint is filed "in camera" and "remain[s] under seal for at least 60 days, and shall not be served on the defendant until the court so orders."⁴ "The Government may, for good cause shown, move the court for an extension of the time during which the complaint remains under seal … [and] [t]he defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed[.]"⁵

Appellants' Argument

Relator James Aldridge, who worked at Corporate Management, Inc. (CMI), filed his complaint under seal in May 2007, alleging submittal of false claims to Medicare. The United States filed its first motion for an extension of time to review the complaint under seal on Aug. 13, 2007, then went on to file another 17 "increasingly rote" motions for extensions of time until June 1, 2015. Eight years after its initial motion, on Sept. 18, 2015, the government intervened in the lawsuit with a claim for unjust enrichment.

The government filed an amended complaint in December 2015 with additional allegations and a claim for payment by mistake of fact. After a nine-week jury trial, the court trebled a $10,855,382 verdict for the government. On appeal, the appellants argued that the district court abused its discretion by indulging the government's serial requests for extension so much so that dismissal of the government's complaint in intervention was warranted.

Government's Defense

The government made three arguments in opposition to the appellants, only one of which the court of appeals considered material, but dismissed anyway: Congress did not provide courts with dismissal authority based on the length of the government's investigation. The FCA contains a number of provisions that require, in express terms, the dismissal of a relator's action. Nevertheless, the court of appeals emphasized that a district court has inherent authority to dismiss the lawsuit for failure to prosecute. But the district court did not exercise this authority in this instance.

Ruling

The court of appeals clearly signaled that the district court should not have approved so many extensions and could have exercised its inherent authority to dismiss the case. Agreeing with the appellants, the court of appeals stated, "We agree that the Government's incessant delay in intervening is inexcusable, as is the Government's tactic of hiding behind its sealed extension memoranda in resisting appellants' challenge on this score. And we lament that, faced with eighteen increasingly rote requests for extension of the seal period, the district court enabled the Government's gamesmanship." Still, the court of appeals declined the appellants' invitation to break new ground on the subject in light of CMI's additional statute of limitations argument.

The appellants argued that the relator's claims made no mention of factual allegations which they argued were at the crux of the government's intervening complaint and, consequently, that the government's claims could not relate back to the filing date of the relator's complaint. The court of appeals agreed 2-1 that rather than clarifying or adding detail to the relator's initial allegations, the government's intervening complaint set forth new ones. The appellants also argued that the FCA's tolling period did not apply because the government failed to make a diligent investigation. Once again, the court of appeals agreed and ruled that the government knew or should have known of its basis to intervene long before it did.

As a result, the court of appeals determined, "the FCA's statute of limitations applies to bar the Government's claims against [a]ppellants accruing before September 2009, six years prior to when the Government filed its first intervenor complaint, and the damages awarded against [a]ppellants must be remitted accordingly." The court of appeals added, "The consequence of the Government's dilatory conduct is the reduction by over half of the judgment entered against the appellants. That should be consolation enough in this particular case."

Conclusion

We will never know whether the court of appeals would have dismissed the government's intervention complaint if the statute of limitations did not apply, but there are already many district courts denying government motions for extensions of the 60-day period under seal to decide whether to intervene and criticizing the government for the delay at odds with due process and a strong presumption in favor of open court records. If you are concerned about a government investigation or how to comply with federal and state healthcare laws, the lawyers of Holland & Knight's healthcare team would be pleased to consult about your situation.

Notes

¹ S. Rep. no. 99-345, at 2 (1986).

² 31 U.S.C, §§ 3729(a)(1)(A), (B).

³ Id. § 3729(a)(1).

⁴ Id. § 3730(b)(2).

⁵ Id. § 3730(b)(3).