Limiting Geographic and Temporal Discovery in False Claim Act Cases: Dalitz v. Amsurg Corp.

Dear Readers:

Relators in False Claims Act ('FCA") cases are always looking for more discovery in order to expand their qui tam claims and put pressure on the defendants, especially in health care qui tam cases where the FCA penalties can easily dwarf any damage claims. Thankfully, courts in FCA cases are increasingly willing to impose reasonable limits for both the geographic scope and time period for discovery. See e.g., here and here. 

A recent example of this trend may be found in the case of Douglas Dalitz et al. v. Amsurg Corp., et al, 2:12-cv-2218-TLN-CKD (December 15, 2015, E.D. CA). In Dalitz, the Court refused to permit the relators to conduct nationwide discovery when they had only alleged FCA violations at one California location of the defendants. The Court also rejected the relators' request for 8 years of discovery and confined the scope of discovery to a much shorter period.

The Court based its ruling primarily on three different factors. First, the Court relied on the recent amendment to Rule 26(b)(1) which provides that discovery be "proportional to the needs of the case." Second, the Court limited discovery in large part based upon its reading of the relators' complaint and its "factual" allegations. Third, the Court relied on an affidavit submitted by the defendants which explained that their business was made up of ambulatory surgical centers ("ASCs") throughout the country; that local management operated each ASC; and that there was no central "database" for all locations.

The Court confined relators' geographic discovery to the only ASC alleged in their complaint and denied the relators' request for nationwide discovery or, alternatively to discovery of defendants' 14 California locations. In limiting geographic discovery, the Court observed:

• Relators' factual allegations were confined to the one California location at which they worked and there were no factual allegations to back up their claim that the fraudulent conduct they observed was the "standard practice of the entire . . . corporate enterprise";

• Defendants' affidavit further explained that "clinical management and billing operations" of each their locations was handled locally by the physicians or Board of each ASC and thus not "dictated by [defendants'] national directives";

• Nationwide discovery in the 34 states where defendants operated would be an "extreme burden" on defendants because there was "no central nationwide database from which they can obtain the requested documents from each ASC"; and

• That state-wide discovery of all 14 California locations was "still disproportionate to [relators'] need" because relators' "allegations almost exclusively centered on defendants' actions" at the one location.

The Court also limited the temporal scope of discovery sought by relators. Relators had requested discovery from January 1, 2007 to the present, but the Court confined discovery to the period of December 2008 to August 2012. The Court rejected the defendants' request to limit discovery to the relators' 5 month period of employment from late 2010 to early 2011 because the relators' complaint "demonstrated" that the "alleged wrongful behavior" occurred prior to and continued after the relators had left. Yet, the Court noted that relators had not shown why discovery "relating back to January 1, 2008" was warranted, since the defendants' had not acquired the location until December of that year. In turn, the Court did not permit relators to pursue discovery after the date on which they filed their original complaint because the complaint itself "repeatedly refers to those actions in the past tense, strongly suggesting that [relators] claims are limited to the time frame prior to the date on which this action was initiated."

A. Brian Albritton

January 19, 2016

Why the 5th Circuit's Rigsby v. State Farm Fire and Casualty Opinion Is Favorable to False Claims Act Defendants

Dear Readers:

In US ex rel Rigsby v. State Farm Fire and Casualty Co., 2015 WL 4231645 (5th Cir. July 13, 2015), the 5th Circuit recently addressed the limits of Rule 9(b), which requires that fraud be pled with particularity, and whether it applied to limit discovery after trial. The Court held that the district court abused its discretion when it refused on the basis of Rule 9(b) to permit relators to pursue "at least some additional discovery" after they had prevailed at trial. Though at first glance the Rigsby decision may appear to be favorable to relators, the case is, in fact, quite favorable to False Claims Act defendants.

I originally wrote about the district court's decision in Rigsby in "Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases." Relying in part on Rule 9(b) and scope of the relators' knowledge as an "original source," the district court prevented relators from seeking additional discovery and searching for new claims after they had prevailed at trial. Prior to trial, the district court found that although relators had alleged a broad scheme, the relators only had first hand knowledge of a single claim.  As a result, the district court only permitted the relators to obtain discovery about and proceed to trial on that single claim. The district court reserved ruling on whether to permit the relators to expand their suit and obtain additional discovery until after the trial of that single claim. Having prevailed at trial and shown that the defendant, State Farm, violated the False Claims Act, relators asked the district court after trial to "initiate expanded discovery" for other potential claims. The district court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. The district court noted that satisfying Rule 9(b) with "sufficient detail" and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be "targeted" only to "the claims alleged, avoiding a search for new claims." 

In overturning the district court's decision, the 5th Circuit 

• Observed that the district court "focused discovery and the subsequent trial on a [single] claim rather than permitting [relators] to seek out and attempt to prove other claims in order to 'protect the interests of the parties.'" The district court structured discovery and trial in this manner in order to "strike a balance between the relators' interest in identifying . . . other allegedly false claims and the defendant's interest in preventing a far ranging and expensive discovery process." The Court approved of the district court's decision to limit discovery and initially confine the case to what it referred to as a "bellwether false claim" and to leave till after the trial the decision as to "whether additional discovery and further proceedings were warranted."

• Whereas the parties and the district court had framed much of the dispute on whether Rule 9(b) permitted the prevailing relators to conduct post-trial discovery, the Court found that Rule 9(b) was "inapplicable" to the decision "about whether this case should move forward after trial."  

• As Rule 9(b) did not apply, the Court found that the district court abused its discretion by refusing to permit "at least some additional" post-trial discovery given that the "scope of discovery is broad" and the relators had both alleged and offered proof at trial of a scheme "far beyond the realm" of the single claim that was tried.

• Yet, though it permitted discovery, the Court stressed that Rigsby "presents something exceptional that most (if not all) plaintiffs in FCA cases are unable to show when seeking discovery: a jury's finding of a false claim and a false record" together with allegations in the "final pretrial order."  These two factors, the Court observed, made it "more than probable, nigh likely . . . that additional false claims might have been submitted" and as a result the relators had "at least edged the door ajar for some additional, if superintended, discovery."

• Far from declaring that relators have free rein in discovery to search for FCA claims, the Court "emphasize[d] that our decision hinges in large part on the idiosyncratic nature of this case--seldom will a realtor in an FCA case present an already-rendered jury verdict in her favor while seeking further discovery."  

• "[T]he typical case," the Court observed, "might warrant shutting the door to more discovery."

Overall, the lessons of Rigsby are very favorable to the defense. Courts in False Claim Act cases may "balance" the interests of the relator and the defendant in determining the scope of discovery and may limit discovery and trial to bellwether or representative claims. In turn, far from being confined to a motion to dismiss, the only identified limit of Rule 9(b) and its corresponding application to discovery is after a jury verdict in favor of relators. While the relators may have "edged the door ajar" for some limited post-trial discovery for new claims, the Rigsby case is "exceptional" and "idiosyncratic." In the "typical case," a court appropriately acts within its discretion to limit relators from trying to search out new claims beyond what they have pled with specificity.

A. Brian Albritton

August 18, 2015

Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases

Dear Readers:

Joining the growing number of courts that limit or phase discovery in False Claims Act cases ("FCA"), the Southern District of Mississippi recently rejected attempts by the relators to obtain "unfettered discovery" so that they may search for new claims beyond the single claim for which they were an original source and on which they won at trial. See United States ex rel. Rigsby v. State Farm Fire and Casualty Co., 2014 WL 691500 (S.D. Miss., Feb. 21, 2014).

In Rigsby, two relators sued State Farm alleging that it engaged in a massive scheme to defraud the National Flood Insurance Program ("NFIP") in its administration of flood claims arising from Hurricane Katrina and they filed a list of 18 properties in which they asserted that State Farm had defrauded the NFIP. When initially considering case, the Court found that only one of the properties, the "McIntosh claim," was the sole "instance of State Farm's having submitted an allegedly false claim of which either relator had first hand knowledge." Having first hand knowledge of a single claim, the Court initially permitted the relators to obtain discovery about and proceed to trial on the McIntosh claim. The Court reserved ruling on whether to permit the relators to expand their suit and obtain additional discovery until after the trial of the McIntosh claim, stating it would "consider [then] whether additional discovery and further proceedings are warranted." The jury found that State Farm had presented a false claim for payment to the NFIP in connection with its processing of the McIntosh flood claim. Relators then asked the court to "initiate expanded discovery into claims on other properties insured by State Farm."

The Court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. Relying on the 5th Circuit's decision in US ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009), the Court noted that satisfying Rule 9(b) with "sufficient detail" and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be "targeted" only to "the claims alleged, avoiding a search for new claims." Applying Grubbs, the Court observed: "Armed with knowledge of a purported scheme and evidence related to the single Mcintosh claim, Relators seek far-reaching, unfettered discovery in order to search for new claims beyond the Mcintosh claim, the only false claim which they have firsthand knowledge. Grubbs states that even if a complaint survives a Rule 9(b) challenge, discovery should be tailored to the claims alleged, so as to avoid a search for new claims. To allow expanded discovery in the fashion Relators seek would permit improper smuggling of additional claims beyond the single claim to which Relators have personal knowledge."

In short, the Court showed that simply satisfying Rule 9(b) as to one claim does not open the door for relators to go in search of other claims to which they do not have personal knowledge, even if they have broadly described a scheme to defraud for which they have only one example. Since "Relators have not pleaded sufficient details regarding any other claims to survive a Rule 9(b) challenge . . . . . discovery would necessarily be overly broad because the Amended Complaint lacks enough detail to permit the Court to craft reasonable discovery parameters."

A. Brian Albritton
March 19, 2014

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