Monday, April 1, 2019

Challenging the Relator's Standing to Bring a Qui Tam Can Open the Door to Jurisdictional Discovery

Dear Readers:

Is a relator’s release of claims valid and enforceable if she or he executed it prior to filing a False Claims Act qui tam against the same defendants whom the relator released? There is an “emerging agreement” among the circuits that a relator’s pre-filing release of claims is effective in non-intervened cases. United States ex rel. Class v. Bayada Home Health Care, Inc., 2018 U.S. Dist. LEXIS 162962, 2018 WL 4566157 (E.D. Pa. 2018). In fact, a relator’s pre-filing release of claims will deprive a court of subject matter jurisdiction over a relator’s qui tam against those same defendants provided that (1) “the release can be fairly interpreted to encompass qui tam claims; and (2) public policy does not otherwise outweigh the enforcement of that release.” Id. Of course, “public policy” is really a euphemism for whether a defendant seeking to enforce a release of claims sufficiently informed the Government of the fraudulent conduct at issue prior to the relator filing a qui tam.

So, how can you determine if the qui tam defendant seeking to enforce a release sufficiently informed the Government of the misconduct subsequently alleged in the relator’s qui tam and thereby satisfied “public policy”? In United States and State of Delaware ex rel. Sherman v. Christiana Care Health Services, Inc., et al., 2019 U.S. Dist. LEXIS 49804, 2019 WL 1349523 (D. Del., March 26, 2019), the Court surveyed the law on “pre-filing” releases and answered this question. The Court found that a relator may conduct jurisdictional discovery of the sufficiency of defendants’ disclosure to Government in light of what is alleged in the relator’s qui tam.

In Christiana, Defendants moved pursuant to Fed. R. Civ. P. 12(b)(1) to dismiss the relator’s non-intervened qui tam. Defendants argued that since the Relator had executed a release of claims in favor of the Defendants prior to filing his qui tam, the Relator did not have standing to bring his qui tam and the Court was without subject matter jurisdiction. In support of their motion and to satisfy the “public policy prong,” Defendants attached the Relator’s release and their disclosures to HHS-OIG. [Though not referenced in the Court's opinion, these “disclosures” consisted of “compliance disclosure logs submitted to the Government pursuant to a Corporate Integrity Agreement.”] Disclosures to HHS-OIG, the Court explained, are “sufficient” to satisfy public policy if they are “truthful and not misleading and alert the government that potential fraud has been alleged.”

Prior to responding to Defendants’ motion, the Relator moved for jurisdictional discovery as to the sufficiency of defendants’ disclosure. The Court found that the Defendants’ 12(b)(1) motion challenging Relator’s standing raised “factual” issues as to whether the Court had subject matter jurisdiction. Rule 26, Fed. R. Civ. P., the Court noted, permits jurisdictional discovery to “ascertain the facts bearing on such issues.”  In turn, the Third Circuit “allows” a plaintiff to conduct jurisdictional discovery unless a plaintiff’s claim is “clearly frivolous.” Such discovery is “warranted,” the Court stated, where a party can “at minimum, state a non-frivolous basis for subject matter jurisdiction and do so with reasonable particularity.”

Christiana found that the Relator alleged a non-frivolous basis for subject matter jurisdiction in his qui tam and permitted the Relator to conduct jurisdictional discovery.  The Court observed that the Relator’s complaint had alleged “concrete and specific instances of fraud,” including “initial reports to the Defendants, conduct of the internal investigation by the Defendants into those reports and the failure of the Defendants to disclose the results of those investigations to the government.” Additionally, the Relator pointed to the small size of the Defendants’ alleged disclosures (supposedly only 500 words) as not being sufficient to fully disclose Defendants’ alleged fraud. The Court noted further that the Government took 18 months to investigate the allegations before deciding not to intervene. Though such a time period does not indicate that the Defendants' disclosures were insufficient, “it counsels in favor of permitting Relator to engage in jurisdictional discovery that could aid in determining whether or not the disclosures were truthful and not misleading.” The Court permitted the Relator jurisdictional discovery on the “limited issue of the facts related to Relator’s allegations that were known to the defendants at the time they submitted the disclosures to HHS-OIG.”

From a defendant’s perspective, Christiana is somewhat disturbing for a number of reasons. First, the Relator was the Defendants’ former compliance officer who signed a severance agreement, apparently years before. Second, Defendants claimed that they disclosed the conduct at issue years before in compliance logs –- and now the Relator gets discovery in order to evaluate the sufficiency of that disclosure? Where is the Government? HHS-OIG apparently did not have a problem with it. The Government should step up and say so. Third, the fact that the Government took 18 months to “investigate” the Relator’s qui tam complaint means very little and presumes much. The Government is slow and in FCA cases is often very deliberate in its decision making. Moreover, while it may have taken 18 months to decline, that certainly does not mean it was “investigating” the entire time. With courts increasingly accepting "pre-filing" releases, I predict we will see more disputes like that found in Christiana in the future.

A. Brian Albritton
March 31, 2019