Civil Investigative Demands in FCA Investigations

A CID can be broad, invasive, time-consuming, and expensive. A CID may compel

1. the production of documents,
2. interrogatory responses,
3. sworn oral testimony related to the documents or information requested, or
4. any combination of the above.

The stakes are high. To the extent that the recipient is a target of the investigation, and not merely a witness, the recipient may face the possibility of treble damages, significant civil penalties, reputational harm, potential exclusion from federal health care and other government contracting programs, and more.

Rules for Issuance of CIDs

A CID can be issued when the government has reason to believe that any person or entity may be in possession, custody, or control of any documentary material or information relevant to an FCA investigation. A CID obligates the recipient to produce the requested information absent a valid claim of privilege or narrowing, either by agreement or by order of a court.

Importantly, a CID can only be issued prior to the commencement of formal civil proceedings under the FCA or by making an election under the FCA. 31 U.S.C. § 3733(a)(1). Once litigation is underway, the government must rely on traditional discovery tools (i.e., written discovery and subpoenas).

Power of CIDs

The breadth of the CID in and of itself makes it a powerful tool. While there are some limits on the CID’s authority—for example, 31 U.S.C. § 3733(b)(1)(B) incorporates “the standards applicable to discovery requests under the Federal Rules of Civil Procedure, to the extent that the application of such standards to any such demand is appropriate and consistent with the provisions and purposes of this section”—in practice, few parameters have been defined.

And to the extent that parameters for enforcement have been defined, courts have embraced broad standards applicable to administrative subpoenas. For example, in United States v. Anthem, Inc., a magistrate judge enforced a CID for deposition testimony, concluding that all of the following factors were met: (1) the investigation would be conducted for a legitimate purpose, (2) the inquiry may be relevant to that purpose, (3) the information sought is not already in the government’s possession, and (4) requisite administrative steps were followed. No. 1:18-mc-00379-GBD (S.D.N.Y. Nov. 13, 2018). Under that standard, courts defer to the government’s relevancy determination, provided that it is “not obviously wrong.” Id.

Unsurprisingly, in the rare instance that a CID is challenged in court, federal judges have largely deferred to the judgment and law enforcement expertise of the DOJ and other government agencies.

A case decided by the U.S. District Court for the Western District of Virginia provides one exception to that trend. In In re Civil Investigative Demand 15-349, the court addressed two issues on a motion to quash a CID:

1. Did the government’s six-year investigation, massive document collection, and participation in settlement discussions constitute a de facto commencement of a formal civil proceeding such that the CID was no longer a proper tool of information gathering?
2. Was the CID overly burdensome because it requested information that the government already had in its possession?

No. 5:16-mc-00003-MFU (W.D. Va. Aug. 12, 2016).

With respect to the first question, the district court held that the CID was proper for the fundamental reason that no action had ever been filed. The length of the government’s investigation and amount of evidence gathered was irrelevant.

With respect to the second question, however, the district court clarified that the courts must enforce a CID only when (among other requirements) “the information sought is reasonably relevant to the investigation” and “where the information sought is not unduly burdensome.” Id. On the “unduly burdensome” prong, the district court stated that CIDs and the like are enforceable only to the extent that the “information sought is not already in the DOJ’s possession.” Id. There, because the CID potentially covered documents already in the government’s possession, the court ordered the parties to “meet and confer on categories of relevant, non-duplicative documents to be produced.” Id.

More recently, in Lexington Foot & Ankle Center, PSC v. United States, the recipient of five CIDs successfully challenged CIDs issued by the DOJ after the DOJ had declined to intervene in an FCA qui tam action. No. 5:18-cv-00283-DCR (E.D.K.Y. 2019). The FCA allows private parties to file qui tam actions alleging that defendants defrauded the federal government. A private party who initiates the suit is called a “relator.” Lexington’s argument hinged on the fact that the government had elected not to participate in the relator action; thus, the CIDs did not comport with section 3733(a)(1) because they were issued after litigation had commenced. Within three days of the court challenge, the DOJ rescinded all five CIDs, prompting Lexington to voluntarily dismiss its challenge.

Potential Abuse of CIDs

Recipients of a CID must be cognizant of the fact that the government may be investigating more than just FCA violations. Oftentimes in the health-care context, the government will conduct parallel investigations, such as violations of the Controlled Substances Act or criminal health-care fraud. Indeed, civil investigators can—and will—share information gathered pursuant to a CID with their criminal counterparts.

However, courts have made it clear that criminal investigators may not manufacture, manipulate, or abuse the civil investigation process for their own uses. Information gathered in a civil investigation may be used in a criminal investigation if the subject had notice that the information might be used in criminal proceedings and there is no evidence of government bad faith. United States v. Stringer, 535 F.3d 929, 940 (9th Cir. 2008). Courts have found bad faith where criminal investigators gave direction to civil investigators in an ongoing matter. E.g., United States v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005); SEC v. HealthSouth Corp., 261 F. Supp. 2d 1298 (N.D. Ala. 2003).

Steps After Receipt of CID

So, what should you do if you are served a CID under the FCA?

First, immediately contact your legal department (if applicable) and seek outside counsel experienced in FCA matters right away. In reviewing options for outside counsel, consider the familiarity and experience of counsel with the investigators in question (a group that may include a local assistant U.S. attorney as well as an attorney from the DOJ in another city or state). Also take into account counsel’s experience with the relevant underlying subject matter, for example, health-care matters versus government contracting. Fulfilling a CID can be a long and, at times, stressful process, so look for counsel with whom you have a good rapport and who has a track record of managing lengthy, complex investigations.

Promptly after receiving a CID, the recipient should issue a legal hold to ensure that relevant documents are preserved. Your outside counsel also should contact the government to discuss receipt of the CID, begin to establish a dialogue with the investigators, and discuss an extension to the initial response deadline. This initial outreach will provide counsel with an opportunity to begin learning about the nature and focus of the investigation and whether the recipient is a target or a witness.

Counsel also should carefully review the CID with the recipient and key custodians to formulate a response plan, including what requests can be fulfilled quickly without significant burden and what requests will be extremely burdensome to fulfill. Counsel can use that information to attempt to negotiate the timing and scope of the response with the investigators, such as narrowing the scope of broad requests, delaying fulfillment of particularly burdensome requests, and agreeing on custodians or search terms with respect to document requests. Such conversations are most effective when the recipient makes clear its good-faith intention to comply with the CID and, at the outset, describes in practical and specific terms the time and resources it would take to comply with the CID as drafted.

Next, begin collecting and producing documents and information responsive to the CID. Document collection in response to CIDs can be burdensome and technically challenging, so ensure that you have the necessary support for tasks such as collecting email and text messages, imaging laptops, and scanning documents, and begin the collection process immediately. Meet all deadlines unless an extension is granted. Stay in communication with the investigators about progress and any problems that arise that may justify further negotiating the scope of the response. Also consider whether providing certain categories of information or testimony early may help the investigators justify further limiting the scope of the response.

Throughout all of this, counsel should map out a defense plan—both as it relates to efforts to persuade the government not to file suit or intervene and as it relates to strategy, such as arguments for a motion to dismiss or avenues for further discovery, if the matter moves into civil litigation. Fact witnesses (including current employees and agents as well as, at times, former employees) should be interviewed to help understand the underlying issues, identify potentially helpful documents, and formulate defenses. Also consider the need for one or more expert witnesses (e.g., a damages expert or a billing, coding, or medical expert in the health-care field), and begin vetting potential experts early.

Conclusion

Civil investigative demands are serious and, oftentimes, unnerving and daunting to the recipient. But the receipt of a CID can also present an opportunity to open a respectful and productive dialogue with the government; negotiate different (and, hopefully, less arduous) parameters for the CID; and, where appropriate, educate the government about why it may be focusing on the wrong person.

Sean Bosack and Allison Reimann are shareholders and Nina Beck is an associate at Godfrey & Kahn, S.C. in Milwaukee, Wisconsin. 

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