Several weeks ago, we wrote about the case of United States ex rel. Baker v. Community Health Sys., Inc, in which a magistrate judge recommended that the government be sanctioned for failing to preserve key evidence in a False Claims Act case. That recommendation was recently adopted in its entirety over the government’s objections by the district court, which concluded that the government’s preservation efforts were both untimely and inadequate, causing the destruction of relevant evidence.
In reaching its decision, the district court did not find that the government acted in bad faith or that it intended to hide exculpatory evidence. But it nonetheless ordered the government to produce a swath of documents that had been withheld on claims that such documents were protected work product or privileged deliberative process materials, because these documents were “critical to one of the Defendants’ theories of defense”— government knowledge.
The district concluded that the withheld documents were relevant to whether a senior official in the Centers for Medicare and Medicaid Services (“CMS”) was aware that other hospitals were making the same donations that defendants were alleged to have made—i.e., non-bona fide donations to local counties in New Mexico. If the CMS official was in fact aware of the alleged donations—which was difficult to determine due to lost electronically stored information—it might contradict any finding that defendants had an intent to “knowingly submit a false claim.” Id. at 12. “[T]he knowing submission of a false claim is logically impossible when responsible Government officials have been fully apprised of all relevant information,” the district court noted. Id. (citing United States ex rel. Lamers v. City of Green Bay, 998 F. Supp. 998 (E.D. Wis. 1998)).
When Must the Government Preserve Evidence?
The Baker decision does not create a bright-line rule pinpointing the moment when the government must preserve evidence in qui tam cases. Nonetheless, it is clear from the decision that the government may not always wait until it intervenes. The government’s burden, the district court reasoned, was to preserve evidence once it “reasonably anticipates litigation” and to “take affirmative steps to monitor compliance [with a preservation hold notice] so that all sources of discoverable information are identified and searched.” Id. at 7 (quoting Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003). In FCA cases, the government’s duty to preserve evidence may be triggered—as the district court held it was—when a defendant notifies the government that it will not settle the case. From that moment, the government should be on notice that litigation is reasonably likely.