When a court denies a defendant's motion to dismiss a False Claims Act or qui tam complaint, does that mean that that the relator or government should have free reign on obtaining discovery from the defendant? In many instances it does. The District Court in U.S. ex rel Minge v. Tect Aerospace, Inc, 2012 WL 1118948 (April 3, 2012 D. Kan), however, sought to only permit the parties limited discovery initially and to subject the relators' weak claims to an initial "litmus test" before allowing the case and discovery to be expanded. The Magistrate Judgment's opinion shows just how hard it is to contain limited discovery and why some courts might just throw up their hands.
Tect Aerospace was a qui tam case in which the Court had dismissed the relators' third amended complaint on Rule 9(b) grounds, finding that relators had failed to plead fraud with particularity. Specifically, the Court found that the relators failed to specify "whether any aircraft were equipped with allegedly defective parts, and if so, which parties and planes." The relators then obtained permission to file a fourth amended complaint, and the court found that it cured these Rule 9(b) deficiencies.
Though it permitted the case to proceed, the Court recommended that "discovery be initially limited in this case to determining whether non-conforming parts were in fact present on the planes identified in the fourth amended complaint and the extent of the false statements provided to the government at the time of the claim for payment." After that initial discovery period, the Court invited defendants to file a motion for summary judgment, if appropriate.
In implementing the District Court's decision to limit discovery, the Magistrate Judge interpreted the Court as essentially instituting a "litmus test" on the relators' theories, such that the parties were permitted to conduct discovery "limited to determine whether relators can support their claims as to the exemplar aircraft sufficient to survive a summary judgment challenge." The Magistrate Judge observed further: "The intent of this initial procedure is to require relators to establish their basic claims concerning the exemplar aircraft before allowing the more extensive discovery which may be required to prove their broader claims By recommending limited discovery in this initial phase, and by providing defendants an earlier opportunity to file a dispositive motion, the District Court intended to require relators, whose claims had been resuscitated by the fourth amendment . . . to establish that the parts installed on the exemplar aircraft were defective, before allowing broader discovery and litigation covering the entire manufacturing program."
Limiting discovery proved harder than the Magistrate Judge appeared to have anticipated in the Court's scheduling order. This first phase of discovery was supposed to be limited to 8-10 months with 20 depositions each. The Magistrate Judge ended up entering a second and then a third scheduling order and extending discovery twice further. The Magistrate Judge observed that throughout the discovery period, "defendants have maneuvered to limit, and the relators to expand, discovery based" on their interpretation of the Court's initial limitation of discovery. In turn, the parties filed 14 discovery motions between them.
The Magistrate Judge denied the relators request for 30 more depositions, beyond the initial 20, along with another extension of discovery. That ruling, however, did not bring discovery to a close due to 7 pending discovery motions. The final determination as to whether further discovery was to be permitted awaited the resolution of the motions.
This case illustrates that courts do not have to open the floodgates to all discovery in the event that they permit a qui tam complaint to proceed, especially one that just makes it across the threshold. Subjecting the relator's claims to a litmus test of an early summary judgment and permitting only limited discovery appears to be a very sensible way to proceed. Yet, permitting only limited discovery appears to have created substantial additional work and supervisory headaches for the Magistrate Judge and spawned a tremendous number of discovery motions. Once this case is over, it will be interesting to see if the Court finds its attempt to allow only limited discovery to be worthwhile.
A. Brian Albritton
April 9, 2012