Gathering Evidence in Qui Tam Actions

By: Joel M. Androphy1Sarah Frazier, and Rachel Grier

Qui tam whistleblowers first discover fraud against the government in a variety of different ways; some learn it from a business owner’s own statements while others witness it in caring for a patient who has patently not received a billed-for treatment.  Documentary evidence does not always accompany that first discovery of fraud, but without it, a case brought under the False Claims Act can devolve into a swearing match, as the government, relators’ counsel, and most whistleblowers are keenly aware.  Consequently, even after making the difficult decision to blow the whistle on an employer by reporting FCA violations, a soon-to-be qui tam relator must often gather evidence to support his or her allegations.  Although the FCA encourages citizens to investigate and gather evidence to prove a fraud, a tension exists between the interests of the public, the government, and the relator on the one hand, and the defendant’s interest in protecting its property, including potential proprietary information, on the other.  A potential whistleblower may well ask: How much evidence must I muster to support a qui tam action?  What ethical concerns or legal consequences exist when I gather documents and other evidence from an employer?

These questions should not intimidate or prevent a potential relator from reporting fraud against the government.  Generally, a potential relator may gather anything in his or her care, custody, or control that evidences fraud covered by the FCA.

The Relator Has a Duty to Gather Evidence.

Upon filing a qui tam action, a relator must voluntarily provide the government with a “copy of the complaint and written disclosure of substantially all material evidence and information the person possesses” regarding the allegations.2 The more relevant evidence the relator can provide to his or her attorney and the government, the more likely the relator will be able to substantiate the allegations and ultimately succeed in prosecuting the lawsuit.

Section 3730(h) of the FCA protects potential relators from retaliation for “lawful acts done . . . in furtherance of an action under this section, including investigation.”3 Employers often flout the FCA’s “protected activity” provision and terminate whistleblowers under a pretext.  Nevertheless, this section of the FCA “manifests Congress’ intent to protect employees while they are collecting information about a possible fraud, before they have put all the pieces of the puzzle together.”4

Indeed, the relator needs this Protection even after the case is filed because he or she faces special pleading hurdles that apply to fraud cases under Federal Rule of Civil Procedure 9(b),5 yet is not provided access to formal discovery beforehand while the case is under seal.  Although the government has access to certain tools of discovery during the seal period, it nevertheless relies heavily on relators and their counsel to investigate the fraud allegations while the case is under seal, and in particular, to provide it with documentary evidence.6  In its brief in U.S. ex rel. Grandeau v. Cancer Treatment Centers of America, the government emphasized the importance of a relator’s ability to provide documents to the government:

[I]n order to proceed with an FCA action, the FCA requires that relators disclose to the United States alone “substantially all material evidence and information the person possesses,” 31 U.S.C. § 3730(b)(2), and ties relator’s share to the importance of her participation in the action and the relevance of the information she provided. . . . Not only does the FCA contemplate that relators will share evidence with the government, but also that they will do so in secrecy.7

An important reason for such reliance is the risk that a defendant, once asked for a particular document, will respond, truly or falsely, that the document is lost, misplaced, or destroyed in the normal course of business.

The Interests in Disclosure of Potentially Relevant Evidence within a Relator’s Care, Custody, or Control Outweigh a Defendant’s Attempt to Privatize Fraudulent Activity.

Although gathering evidence creates a direct conflict between competing interests, the interest in disclosing the fraud generally outweighs the defendant’s interest in privatizing the fraud.  “Implicit in the very purpose of the statute is an assumption that individuals who become qui tam relators possess and are willing to disclose to the government inside evidence of fraud – whether in the form of documents or other information—that their employers or other potential FCA defendants would rather that relators not disclose to the government.”8  From the defendant’s perspective, the employee’s duties of loyalty and confidentiality trump all other interests, and any breach is intolerable.  As a result, after an employee gathers and discloses the evidence of fraud, employers often file counterclaims against relators for breach of confidentiality agreements, breach of fiduciary duty, and conversion.9  In ruling on these counterclaims, courts consider several factors, including (1) whether the relator had access to the documents in the course and scope of employment, (2) the relevancy of the documents, and (3) the applicability of a valid privilege or enforceability of a confidentiality agreement.

First, the relator must have “legitimate possession and custody of the documents.”10  For example, relators may gather and produce to the government voluminous documents, e-mails, and other communications received during the course of their employment.  As long as the relator is preparing to file a qui tam suit or otherwise disclose the information to the government, his search efforts should be unimpaired.  A relator may not, however, rummage through someone’s office without permission or gain computer access unlawfully or through false pretenses.

Second, courts consider the relevance of the documents at issue.  Qui tam cases typically involve hundreds of thousands, sometimes millions, of documents.  Therefore, relators who have no prior qui tam experience should not have the burden of analyzing the legal significance of each document before gathering and preserving for their qui tam counsel to review—a process that often consumes a significant amount of counsel’s time.11  So long as the relator has some basis to reasonably believe that the documents have some relevance to the allegations, collection of such documents should be permitted.

Finally, equally important in ruling on a defendant’s counterclaims are privilege or confidentiality concerns.  A defendant may attempt to exclude certain evidence gathered by a relator by asserting that the evidence is privileged.  Depending on the evidence at issue, a relator may challenge the defendant’s assertion of privilege.  For example, a relator may contradict a defendant’s claim that a document is protected by the attorney-client privilege by arguing that under the crime-fraud exception, “communications made for an unlawful purpose or to further an illegal scheme are not privileged.”12

Courts have noted that employee confidentiality agreements tend to tie relators’ hands unacceptably in the disclosure of relevant evidence and prohibit relators from carrying out legitimate investigations that are encouraged by public policy.  The Supreme Court has held that a private contract is “unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement.”13  The government has taken the position that “[a] private agreement that broadly prevents a relator from turning over any non-privileged evidence of fraud which she ‘possesses’ to the Government should not be enforced” because such “broad corporate confidentiality agreements would frustrate the purposes of the FCA by proscribing the relator from providing the Government with some of the best evidence of fraud, gleaned from the company’s files.”14  Defendants’ confidentiality agreements are thus unenforceable to the extent that they conflict with the purpose of the FCA and prevent relators from disclosing non-privileged information evidencing fraud.15

In U.S. ex rel. Head v. Kane Co., the court held that a relator did not breach a separation agreement by failing to return an e-mail containing direct evidence of the defendant’s fraud.16  The court reasoned that enforcing a private agreement that requires a qui tam plaintiff to turn over to the defendant who is under investigation the only copy of a document that is likely to be needed as evidence at trial would unduly frustrate the purpose of Section 3730(b)(2), which requires relators to provide the government with “all material evidence and information the person possesses” regarding the fraud allegations.17

Practically speaking, concerns regarding confidentiality, trade secrets, and proprietary information need not impede disclosure, as the Protections and requirements governing disclosure in the FCA involve and allow only disclosure to the government.  The seal protects the defendant from disclosure to competitors and others initially, and a protective agreement can limit unnecessary disclosure once the seal is lifted.

Conclusion

The FCA, as the primary tool for combating fraud and recovering funds fraudulently obtained from the government, should be interpreted in a manner that encourages whistleblowers to come forward.  Courts should, and generally do, allow relators significant leeway when gathering evidence because relators are unofficial agents of law enforcement and because evidence of fraud could be lost, misplaced, or suppressed if relators do not retrieve it.  The public’s interests are best served by affording relators Protections that acknowledge their efforts and personal sacrifices they make during their investigations.

  1. Author of treatise, Federal False Claims Act and Qui Tam Litigation, Law Journal Press (2010), research source of the issues discussed in this article.
  2. 31 U.S.C. § 3730(b)(2) (emphasis added).
  3. 31 U.S.C. § 3730(h).
    U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 740 (D.C. Cir. 1998) (emphasis in original); see Thompson v. Quorum Health Res., LLC, 2009 WL 4758752 (W.D. Ky. Dec. 7, 2009) (concluding the plaintiff’s good faith while gathering documents related to his fraud allegations and speaking with his attorney about his potential qui tam satisfied the requirement to engage in protected activity).
  4. Federal Rule of Civil Procedure 9(b) requires that allegations of fraud be pled with particularity.  See Fed. R. Civ. P. 9(b).
  5. See Robert Fabrikant, In the Shadow of The False Claims Act: “Outsourcing” the Investigation by Government Counsel to Relator Counsel During the Seal Period, 83 N.D. L. Rev. 834, 843 (2007) (“[D]uring the seal period, relator’s counsel, at the request of the government, conducts factual and legal research [and] participates in interviewing fact witnesses.”); see also Dep’t of Justice Relator’s Share Guidelines (Dec. 10, 1996), available at http://www.taf.org/publications/PDF/oct97.pdf (last visited June 7, 2011) (noting as item for consideration in determining relator’s share in the recovery, “The relator provided substantial assistance during the investigation and/or pretrial phase of the case.”).
  6. Submission of the United States as Amicus Curiae in Support of Relator’s Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 7, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004).
  7. Submission of the United States as Amicus Curiae in Support of Relator’s Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 7, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004).
  8. See, e.g., U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 350 F. Supp. 2d 765, 772-74 (N.D. Ill. 2004).
  9. Submission of the United States as Amicus Curiae in Support of Relator’s Motion to Dismiss the Counterclaims of Defendant Midwestern Regional Medical Center, Inc. at 16, U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 99-C-8287 (E.D. Ill. Apr. 2, 2004).
  10. But see U.S. ex rel. Cafasso v. General Dynamics C4 Sys., Inc., CV 06-1381-PHX-NVW, 2009 WL 3723087, at *5-7 (D. Ariz. Nov. 4, 2009) (concluding that the relator indiscriminately gathered documents wholesale without regard to the documents’ relevancy to the qui tam action).  Cafassso is an outlier case and is not the majority rule on gathering evidence in qui tam cases.
  11. See, e.g., U.S. ex rel. Smart v. CHRISTUS Health, CIV A C-05-287, 2009 WL 1658008, at *5 (S.D. Tex. June 12, 2009) (concluding that relator failed to meet his burden of showing that the crime-fraud exception applies because relator’s brief does not identify where in the complaint or the attachments in particular the court was to find the evidence on which to base a prima facie case that defendants’ attorneys furthered a fraud).
  12. Town of Newton v. Rumery, 480 U.S. 386, 392 (1987); see Restatement (Second) of Agency § 395 cmt. F (1958) (“An agent is privileged to reveal information confidentially acquired by him in the course of his agency in the Protection of a superior interest of himself or of a third person,” where, for example, “the confidential information is to the effect that the principal is committing or is about to commit a crime.”).
  13. Brief for United States as Amicus Curiae in Support of the Appellee at 25-26, U.S. ex rel. Cafasso v. General Dynamics C4 Sys., Inc., 09-16181 (9th Cir. May 5, 2010).
  14. See, e.g., U.S. ex rel. Grandeau v. Cancer Treatment Ctrs. of Am., 350 F. Supp. 2d 765, 773 (N.D. Ill. 2004) (“[T]he confidentiality agreement cannot trump the FCA’s strong policy of protecting whistleblowers who report fraud against the government.”); X Corp. v. John Doe, 805 F. Supp. 1298, 1310 n.24 (E.D. Va. 1992) (noting that an agreement would be void as against public policy if it would prevent “disclosure of evidence of a fraud on the government”).
  15. 668 F. Supp. 2d 146, 151-52 (D.D.C. 2009).
  16. See id. at 152.

 

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ALM: Medical Malpractice Law and Strategy, April 2012
www.hg.org, December 8, 2011
CafePharma.com, November 18, 2011