ABA Health eSource
July 2009 Volume 5 Number 11

Asserting The Government’s Duty To Preserve In False Claims Act Litigation:
Abbott Laboratories Seeks Sanctions For DOJ Spoliation In Health Care Fraud Case

By Robert T. Rhoad, Esq., and Matthew T. Fornataro, Esq., Crowell & Moring LLP, Washington, DC

AuthorAuthorOn June 4, 2009, Abbott Laboratories Inc. (“Abbott”) filed a motion seeking sanctions against the U.S. Department of Justice (“DOJ”), accusing it of spoliation of evidence “on a massive scale” 1 in In re Pharmaceutical Industry Average Wholesale Price Litigation, Civ. No. 01-cv-12257 (D.Mass.). Abbott is one of dozens of drug manufacturers defending themselves against claims that they defrauded Medicare and Medicaid by marketing their drugs to pharmacies and health care providers below the prices set for Government rebates, in violation of the False Claims Act, the federal health care program Anti-kickback Statute, and various state laws. The DOJ claims that the defendants engaged in misconduct by marketing the “spread” of certain drugs, which is the difference between the official and actual prices charged by the companies, thus overstating published prices by up to 1,000% -- with an intent to defraud Medicare and Medicaid.

In its motion for sanctions, Abbott alleges that DOJ did not implement a litigation hold until 2007, more than 11 years after the qui tam suit that prompted the investigation was filed. As a general matter, courts find that a party must preserve evidence that is relevant to present litigation, may be requested during discovery, and even when a party “should have known that the evidence may be relevant to future litigation.” 2 In this case, Abbott claims that DOJ “waited twelve years to direct anyone to preserve evidence” 3 relevant to the litigation, including evidence in the possession of both federal and state governments. Abbott has argued for application of the typical standard, claiming that the duty to preserve evidence arises “when the party has notice [or may know] that the evidence is relevant to litigation,” 4 Abbott claims that DOJ should have instituted a litigation hold in 1995 when Ven-A-Care of the Florida Keys, Inc. (“Ven-A-Care”) first filed the whistleblower action in which the government eventually intervened.

Abbott claims that the False Claims Act’s seal period subjected it to significant prejudice since, during the period in which the case was under seal, Abbott lacked “even the opportunity to answer the complaint, much less conduct discovery.” 5 Abbott alleges DOJ conducted “one-sided discovery” 6 against it for eleven years while Ven-A-Care's suit was under seal. According to Abbott, DOJ “ignored entirely” 7 its duty to preserve evidence during this entire eleven-year period. “Even when manufacturers wrote to DOJ in 2000, specifically reminding it of its obligation to preserve relevant evidence, the DOJ did not lift a pen to stop the destruction of relevant evidence,” 8 Abbott alleged. According to Abbott, DOJ also failed to issue a litigation hold in 2006 when DOJ filed its complaint, and DOJ still did not issue a hold after Abbott served its initial document requests. According to Abbott, DOJ only issued a hold in January, 2007, after Abbott filed a 30(b)(6) deposition notice on document preservation.

As a result of DOJ’s actions, Abbott alleges there has been widespread destruction of pertinent documents and e-mails. Specifically, Abbott claims that DOJ should have preserved evidence from numerous federal and state agencies, including the Department of Health and Human Services, the Centers for Medicare and Medicaid Services, the Office of the Inspector General, state Medicaid Agencies, Medicare contractors, and Medicaid Fiscal Agents. At the federal level, Abbott claims “hundreds of relevant [e-mail] conversations were lost” 9 from the period when the relevant agencies were frequently discussing average wholesale price-related issues internally and with Congress. Abbott also claims the spoliation infiltrated “the highest levels of CMS” 10 as well as numerous state agencies. This lost information, according to Abbott, is directly relevant to the average wholesale pricing issues in the case and is therefore “unquestionably relevant to Abbott’s defenses and the quantum of any potential liability.” 11

Abbott claims DOJ’s actions have significantly prejudiced it in making its defense, and therefore Abbott has asked the Court to exercise its inherent authority to impose monetary sanctions on the Government, to order the construction of evidentiary gaps in Abbott’s favor, and to deny damage recovery related to any alleged false claim where the Government has been found to have spoliated payment data. Indeed, though the case law regarding the government’s document preservation obligations is sparse, it is clear that the Government, just as any other litigant, has a duty to preserve evidence and will be sanctioned if spoliation is found. For example, in United Medical Supply Company, Inc. v. United States, 12 Judge Francis M. Allegra noted that, “[i]t is the duty of the United States, no less than any other party before this court, to ensure, through its agents, that documents relevant to a case are preserved. Indeed … a good argument can be made that, as the enforcer of the laws, the United States should take this duty more seriously than any other litigant.” 13

Thus, the central question presented is not whether the duty to preserve exists for the Government, but when that duty is triggered in the context of False Claims Act qui tam cases. In raising this novel question, Abbott’s motion may pave the way for other similarly situated False Claims Act defendants. If the court finds, as Abbott urges, that the Government’s duty to preserve is triggered when a qui tam action is filed under seal when defendants lack even the opportunity to answer the complaint, much less conduct discovery, it will greatly enhance the limited due process rights of False Claims Act defendants by subjecting the Government and qui tam relators to sanctions if they fail to preserve all relevant and potentially exculpatory documents. The Court has approved the Government’s request for an extension of time within which to respond to Abbott’s motion and its brief is due on July 15 th. A ruling is expected sometime in August.

1 Abbott Laboratories, Inc.’s Memorandum in Support of its Motion for a Finding of Spoliation and for Sanctions at 1, In re Pharmaceutical Industry Average Wholesale Price Litigation , Civ. No. 01-cv-12257 (D.Mass. June 4, 2009).

Kronisch v. United States, 150 F.3d 112, 126 (2nd Cir. 1998).

3 Id. at 1.
4 Id.
5 Id. at 7.
6 Id. at 1.
7 Id.
8 Id.
9 Id. at 11.
10 Id.
11 Id. at 21.
12 77 Fed. Cl. 257 (2007).
13 Id. at 247.

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