Sunday, September 15, 2013

Limited Discovery in Qui Tam Cases: Satisfying Rule 9 Is Not Enough to Open Door to Fishing Expedition

Dear Readers:

The recent decision in U.S. ex rel Spay v. CVS Caremark Corp, 2013 WL 4525226 (August 27, 2013, E.D. Pa.) adds to the growing number of qui tam cases in which courts appear willing to limit discovery in the face of weak or limited complaints which have nevertheless satisfied Rule 9 (b), Fed. R. Civ. P. Rule 9 (b) requires that fraud be pled with particularity, and it is usually the chief hurdle in pleading a False Claims Act violation that a relator's qui tam complaint must overcome to avoid dismissal. 

In CVS Caremark, the relator alleged that CVS and its related corporations had "violated the False Claims Act . . . in their role as a Pharmacy Benefit Manager by engaging in a nationwide practice of fraudulently adjudicating and submitting improper Prescription Drug Event claims to the Center for Medicaid and Medicare Services." The defendants moved to dismiss, but the Court denied their motion and permitted the claims to proceed. The relator served a broad request to produce documents on the defendants, to which the defendants objected, and it was in the context of deciding the relator's motion to compel production of documents that the Court addressed the discovery issues.

The Court limited the "temporal scope" of discovery to a two year period. Whereas the relator had sought discovery for a 7 year period, the Court found that the relator's allegations of "continuing misconduct are superficial at best." "Such cursory allegations," the Court pointed out, "made on information and belief alone, are unquestionably insufficient to open the door to broad and burdensome discovery into Defendant's nationwide practices for over seven years." The Court noted further that this was especially true given that so much of the complaint specifically dealt only with a two year period from 2006 - 2008. Relying in part on U.S. ex rel Clausen v. Lab. Corp. of Am., Inc., 198 F.R.D. 560, 564 (N.D. Ga. 2000), aff'd 290 F.3d 1301 (11th Cir. 2002), the Court "decline[d] to allow such a fishing expedition into potential fraudulent claims beyond 2007 absent some particularized pleading that any such claims occurred."

The Court permitted nationwide discovery on 3 of the 6 fraudulent practices alleged by the relator, and it did this in part because the relator had "aptly identified hundreds of specific false claims occurring within a specific contract and then defined various company-wide practices that were part of Defendants' nationwide claims-processing services." Yet, the Court also recognized that notwithstanding the relator's showing of possible nationwide violations, the Court considered what it called an "unwelcome conundrum" between the relator's right to broad discovery and the burdens of such discovery on the defendants. The Court observed: "The cost of discovery in this case could be so prohibitive as to force Defendants into a settlement based not on any assessment of the merits of the case against it, but simply to avoid the undue burden associated with what could potentially be a mere fishing expedition. Such a result is not desirable and does not satisfy the ends of justice."

The Court adopted a phased discovery process of "an initial period of limited discovery to regions in which specific false claims had been alleged, while reserving for a later date broader nationwide discovery on claims that were supported only by reasonable inferences drawn from the allegations of the complaint." The Court explained that this "approach will achieve the dual purposes of protecting Defendants from unduly burdensome and potentially unnecessary discovery while allowing Plaintiff to test the waters of his nationwide claim with the opportunity for broadening its scope should its allegations ring true."

In short, CVS Caremark adds to that growing number of cases wherein courts are increasingly willing to limit discovery or to only permit it to proceed in phases. Simply satisfying Rule 9 and defeating a motion to dismiss is not sufficient to permit discovery. Cases such as CVS Caremark show that the courts will permit discovery only in those areas in which there are substantive factual allegations and will not allow fishing expeditions, especially when allegations are based on "information and belief."

A. Brian Albritton
September 15, 2013

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