Robert RhoadJonathan Cone

A relator filing a qui tam complaint under the False Claims Act must file it under seal, see 31 U.S.C. 3739(b)(2), giving the government an opportunity to investigate the allegations.  While the initial sealing period lasts 60 days, the government routinely receives extensions, which means that FCA cases often stay under seal for months, if not years.  During this time, the government is free to interview witnesses and collect key documents, slowly building a case against the contractor, who is oftentimes unaware of the investigation or, more commonly, unaware of the government’s allegations or evidence.  By the time the complaint is unsealed, the contractor is at a disadvantage: The government may have had years to investigate and get ready for trial, while the contractor is just beginning.

For contractors, this raises a question: When does the government have a duty to preserve evidence in FCA cases?

This question was answered by a magistrate judge in United States ex rel. Baker v. Community Health Sys., Inc, Civ. No. 05-279 (D. NM. Aug. 31, 2012). In Baker, a relator filed a qui tam complaint in 2005. Although the government soon instructed defendants and a New Mexico state agency to preserve documents, the government did not issue a similar preservation notice to the relevant federal agency until 2009— more than three years later. By the time it did, key emails had been lost. The government defended its approach by arguing that it was “DOJ policy to issue litigation holds when intervention was ‘reasonably foreseeable,’” which the government claimed was triggered when it received permission to intervene.

The magistrate judge disagreed. He concluded that litigation was reasonably foreseeable as soon as the government received a letter from defendants “unequivocally” rejecting settlement. At the very least, he believed that litigation was foreseeable as soon as the government requested authority to intervene. The magistrate judge highlighted an inconsistency in the government’s approach: While it required defendants and New Mexico to preserve documents shortly after the case was filed, the government “did not impose a similar obligation on itself.”

In practical terms, what does Baker mean?

  1. The government may now be more likely to issue document preservation notices before it intervenes, perhaps even months before it does so, leading to more documents being available for trial.
  2. Courts may be willing to impose sanctions on the government for failing to issue preservation notices as soon as litigation becomes reasonably foreseeable, regardless of whether it has decided to intervene.
  3. Contractors litigating FCA cases should ensure the government issued timely preservation notices to relevant agencies and key individuals in those agencies.
  4. Contractors in pending FCA cases that are under seal may be able to trigger the government’s duty to issue preservation notices by, as the magistrate judge found, “unequivocally” rejecting settlement in a written letter.

Although the Government has since acknowledged that its preservation efforts were not “perfectly implemented,” it has opposed the magistrate judge’s report and recommendation on other grounds.