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Government Delay Reduces False Claims Act Verdict – How Can This Protect Your Practice?

Posted on August 24, 2023 in False Claims Act Defense, Health Law News

Published by: Hall Render

The government’s dilatory investigation of a sealed False Claims Act (“FCA”) complaint was so egregious that its $32M award after a nine-week jury trial will be cut nearly in half. The Fifth Circuit Court of Appeals refused the defendants’ request to overturn the entire verdict but enforced the consequences of the government’s prejudicial delay by tying the conduct together with the government’s failure to toll the statute of limitations for many of its claims. This decision strengthens potential defenses for defendants in FCA cases who are routinely left in the dark while the government conducts years-long one-sided investigations in secrecy.

The ruling in U.S. ex rel. Aldridge v. Corporate Mgmt., Inc., et al. addressed several issues raised by a Mississippi Critical Access Hospital (“the Hospital”) and its management company, both of which are owned by the same individuals. Underlying the appeal is a judgment against the Hospital, the management company and its owners, finding that the defendants falsified cost reports to hide inflated executive salaries and paid management fees for work that was never performed. At trial, the jury awarded the government $10.8M, which when trebled by statutory penalties provided under the FCA saddles the defendants with a verdict of over $32M.

The qui tam complaint was filed by the Hospital’s former CEO in May 2007. In August 2007, the government filed its first motion for an extension of time to consider its election to intervene. This is a statutory process that allows the government time to consider the whistleblower’s allegations, review relevant documents and conduct an investigation to determine whether the government would like to direct the litigation or allow the whistleblower to continue with the matter. But in this case, the government filed 18 sealed motions for an extension of time—the most recent of which was filed in 2015. All told, the government investigated this case for eight years while only selectively revealing information to the defendants before intervening in the action with its own claims.

On appeal, the defendants argued that the eight-year single-sided investigation by the government prejudiced the defendants and prevented them from fully defending their case prior to and during trial. The Fifth Circuit agreed finding that “the government’s incessant delay in intervening [was] inexcusable” and that the district court “enabled the government’s gamesmanship” when it granted the 18 requests for extensions of the seal period. But the Court refused to overturn the verdict completely due to the government’s inexcusable delay. Instead, the Court associated the government’s delay with its failure to comply with the FCA’s tolling requirements for the statute of limitations. The Fifth Circuit used that failure to reduce the verdict against the defendants by tossing claims and allegations before the relevant period.

Under the FCA, the government must file suit within three years after the date when facts material to the right of action are known or reasonably should have been known by the United States. The government must also act with due diligence to preserve its claim. In this case, the government acknowledged in a 2011 request to extend the seal that its own expert recommended that it intervene in the case. The government had also been reviewing documents, including hospital cost reports, dating back to 2007 when the whistleblower filed his original complaint. The Fifth Circuit noted that the government reasonably should have known facts material to its causes of action at that time, thus the government cannot invoke the FCA’s tolling provision, and its claims against the defendant before September 2009 should be barred. As a result of the application of the statute of limitations and the government’s failure to diligently pursue its claims, the jury verdict was reduced by more than half, immensely easing the burden placed on the Hospital and its owners.

Practical Takeaways

  • FCA cases often begin with sealed qui tam complaints and informal investigations. Once a hospital or health system learns of these investigations, counsel should be retained immediately to help preserve all possible defenses.
  • The government does not have free rein to investigate FCA allegations indefinitely and in secret. Since cases oftentimes remain sealed for years, the Fifth Circuit’s holding can be used to make critical arguments for dismissal—an early path to resolution in an FCA action.
  • The intricacies of the FCA are regularly interpreted by our Federal Courts. Competent counsel who specialize in this work is necessary to navigate the nuances of these claims and ensure your practice can continue uninterrupted.

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Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.