log in
All Articles | Back

Member Articles


District Court Finds DOJ ‘Falls Short’ of Showing Good Cause for Late FCA Intervention 

by Pablo Davis

Published: May, 2021

Submission: May, 2021

 



The Department of Justice (DOJ) suffered an unusual defeat when its motion for late intervention in a False Claims Act (FCA)[1] qui tam case, United States ex rel. Odom v. Southeast Eye Specialists, PLLC,[2] was rebuffed by the Middle District of Tennessee, rejecting the magistrate judge’s recommendations.[3] Siding with the defendants, who had characterized the government’s arguments for intervention as “threadbare and disingenuous,”[4] the district court found DOJ failed to show “good cause” for intervening following prior declination.


Like two recent district court decisions denying DOJ motions to dismiss over relator objections,[5] which we wrote about here, Odom also calls into question an aspect of FCA qui tam actions where courts have tended to be highly deferential to the government—in this case, the ability to intervene in such actions after initially declining intervention. At stake in both Odom and the motion-to-dismiss cases is the scope of the government’s control over FCA qui tam actions.


The Odom relators filed suit in April 2017, alleging the defendant ophthalmology practice induced optometrists to refer their patients to the practice for eye surgery by splitting Medicare and Medicaid fees for the surgery with optometrists 80/20, with the expectation the optometrist would provide postoperative services.[6] Reduced to its essence, relators argued, the arrangement amounted to a kickbacks-for-referrals scheme.[7]


Following the granting of six extensions of the 60-day time limit to keep the complaint sealed pending DOJ’s decision, the district court set an intervention deadline of August 2019. At that time, DOJ filed a notice of declination, telling the court its “investigation had not been completed” and reserving the right “to intervene in the action, for good cause, at a later date.”[8] Four months later, in December 2019, the defendants moved to dismiss, based on claimed violations of the public disclosure bar and failure to meet the heightened pleading requirements imposed by Federal Rule of Civil Procedure 9(b) for allegations of fraud. At the end of January, the relators filed their response in opposition to the motion to dismiss.


In mid-February, just after the relators filed their opposition brief, DOJ moved to intervene. In its supporting brief, DOJ asserted good cause existed for late intervention because it had “now determined that the facts merit civil prosecution of false claims and because the [r]elators, for whom the statutory ‘good cause’ requirement was created, assent to this motion.”[9]


Under the FCA, either the government[10] or a private whistleblower (relator)[11] may bring an action. Qui tam (relator-brought) actions are filed under seal and kept there for 60 days (a period the government can extend with the court’s leave, repeatedly if the court sees fit), while the government decides whether to intervene and take the helm in prosecuting the action.[12] The DOJ “diligently shall investigate” alleged violations of the statute,[13] in order to determine whether to intervene or decline intervention.[14]


After a decision to decline, leaving the action to be prosecuted by relators, the government may nonetheless seek leave of the court “to intervene at a later date upon a showing of good cause.”[15] The statute leaves “good cause” undefined.


The crux of DOJ’s argument for intervention in Odom was that, in the six months since the unsealing of the case, it had “continued to actively investigate” the relators’ allegations, leading it to uncover new evidence.[16] DOJ’s discussion of that further investigation, in its entirety, read as follows: “[T]he United States has continued analyzing documents received from Defendants and conducted more witness interviews. In addition, the United States [] pulled additional Medicare [] data and analyzed, summarized, and matched that data with various types of remuneration given by the Defendants to the referring optometrists.”[17] DOJ also argued that, because the “[r]elators consent to the [government’s] intervention at this time,” therefore “the intent of the good cause requirement [wa]s clearly satisfied.”[18]


The defendants objected to the government’s “threadbare and disingenuous” arguments for late intervention,[19] faulting DOJ for failing to specify the additional witnesses interviewed, why it could not have interviewed them before the intervention deadline, nor the substantive information the interviews generated.[20] Similarly as to documents, the defendants stated DOJ “d[id] not describe these documents or identify any new information gleaned from them.”[21] In sum, the defendants saw the government as merely “describ[ing] more investigative activity” but not “point[ing] to any ‘new evidence.’”[22] The result of allowing late intervention in the case, the defendants argued, would be to reward the government for “more than two years” it had already enjoyed in which “to conduct burdensome one-sided discovery into nearly every aspect of [the] [d]efendants’ business and operations.”[23]


In its reply brief, DOJ argued the defendants “misconstrue[d]” the FCA, which actually does “not require[] [the government] to put forth any particular justification” for late intervention.[24] DOJ reiterated, despite defendants’ “insinuations” to the contrary, that it in fact “ha[d] compiled new evidence supporting intervention” since August 2019.[25] This evidence included “painstakingly identif[ying] various types of remuneration” from the defendants to referring optometrists, “then analyz[ing] the impact of that remuneration on the referral patterns to ophthalmologists.”[26] DOJ added it had “also conducted more witness interviews.”[27]


The magistrate judge began her analysis with three general observations: (i) the FCA “do[es] not define good cause,”[28] (ii) “case law construing the . . . [31 U.S.C. § 3730(c)(3)] requirement is scarce,”[29] and (iii) courts typically “interpret the standard broadly.”[30] Construing the late intervention provision liberally, she noted, fits the statute’s “primary purpose” of “protect[ing] the government from fraud”: “the government should be able to intervene when necessary to protect its own interests.”[31] The magistrate judge’s analytical framework involved, first, “look[ing] to whether the [g]overnment has pointed to new evidence that warrants late intervention,” and, second, determining “whether intervention would unduly prejudice either party or cause undue delay.”[32]


The magistrate judge found the government had met its burden by “pointing to evidence discovered in their continued investigation of the case,” the kind of new evidence that “generally” leads courts to “allow late intervention.”[33] With regard to prejudice, the magistrate judge found that neither the relators nor defendants would be unduly prejudiced by the government’s late intervention, and placed great weight on the relators’ consent to that intervention.[34] While acknowledging a certain degree of prejudice to defendants from the government’s late intervention, due to resources defendants invested in briefing their motion to dismiss, the court found the harm done “not weighty enough to prevent intervention.”[35]


The district court vacated the magistrate judge’s report and recommendations in a single-page order denying the government’s motion without prejudice, and referencing “detailed” reasons set forth in the hearing on the motion.[36] In the hearing, the court had pointedly observed that the government appeared to expect the court “simply . . . to trust them because they say there is . . . new and sufficient evidence”—something the court was adamant it “w[ould] not do.”[37] Unimpressed by DOJ’s description of witness interviews and other “unremarkable” new evidence, the court concluded that what it called the government’s “tepid submission” failed even to “come close to establishing the good cause necessary to intervene and take control of the litigation nearly three years after the original complaint was filed, and more than six months after the court set a final deadline for intervention that was extended six times.”[38]


The case law supports the defendants’ view that “good cause” should not be taken on faith. Some cases support the argument that more than new evidence is needed—that the government must make a showing that the new evidence pointed to “an escalated scope of the fraud,”[39] or identify how the substance of the new evidence changed the government’s view of the case[40]—and that a relator’s consent does not establish “good cause.”[41] In other instances, courts have granted a motion for late intervention based on the government’s simple assertion that further investigation led it to “now [] determine[] that the facts merit intervention,”[42] ample time remaining for discovery,[43] or giving primacy to the relator’s consent.[44] Odom adds its weight to the first, more stringent, view.


Whether Odom signals a lasting shift in the adjudication of late intervention bids in FCA cases—with district courts holding the government’s assertion of good cause to a more exacting test—time will tell. For now, the case offers an intriguing parallel, in the intervention context, to recent cases toughening courts’ review of the government’s dismissal power.


 


[1] 31 U.S.C. § 3729 et seq. The complaint also alleged the defendants violated the Tennessee False Claims Act. This article will refer to the federal FCA charges exclusively.


[2] No. 3:17-cv-00689, 2021 U.S. Dist. LEXIS 40961 (M.D. Tenn. Feb. 24, 2021).


[3] United States ex rel. Odom v. SE Eye Specialists, PLLC, No. 3:17-cv-00689, 2020 U.S. Dist. LEXIS 136306 (M.D. Tenn. July 31, 2020).


[4] ECF No. 69, at 7.


[5] See United States v. Academy Mortgage Corp., No. 16-cv-02120-EMC, 2018 U.S. Dist. LEXIS 109489 (N.D. Cal. June 29, 2018), appeal dismissed by United States v. United States ex rel. Thrower, No. 18-16408, 968 F.3d 996 (9th Cir. 2020); CIMZNHCA, LLC v. UCB, Inc., No. 17-CV-765-SMY-MAB, 2019 U.S. Dist. LEXIS 64267 (S.D. Ill. Apr. 15, 2019), reversed and remanded with instructions to dismiss by No. 19-2273, 970 F.3d 835 (7th Cir. 2020). In Thrower, where the relators alleged false certification on loans for which federal mortgage insurance was sought, and the government declined intervention before moving to dismiss, the district court denied the motion to dismiss on the grounds that the government did not meet its burden of demonstrating a valid governmental purpose for dismissal, and failed its statutory duty to investigate fully the complaint’s allegations. See 2018 U.S. Dist. LEXIS 109489, at *9–10. The Ninth Circuit dismissed the government’s appeal on jurisdictional grounds, finding the district court’s denial of the government’s motion to dismiss did not qualify as an immediately appealable order under the collateral order doctrine—unlike, e.g., the dismissal of an FCA action over the government’s objection, which “ends the action.” See id. at *11–12. In CIMZNHCA, which involved allegations of Anti-Kickback Statute violations on the part of pharmaceutical company defendants who allegedly provided prescribing health care providers with inducements in remuneration for recommending the companies’ drugs to patients, the district court found the government had failed to conduct even “a minimally adequate investigation” of the relator’s allegations and concluded there was “no rational relationship” between the government’s expressed policy interests and dismissal. See 2019 U.S. Dist. LEXIS 64267, at *9–10. The Seventh Circuit reversed, finding that construing the government’s motion to dismiss as also a motion to intervene circumvented the jurisdictional obstacle the Ninth Circuit had found dispositive in Thrower, id. at *13–15, 28, and declined to read the statute as authorizing searching inquiry into the government’s reasons for dismissal, id. at *34–38.


[6] See Odom, No. 3:17-cv-00689 (M.D. Tenn.), ECF No. 1, at 2–6. All further ECF references are to this case.


[7] See id. at 2; Odom, 2020 U.S. Dist. LEXIS 136306, at *2–3.


[8] Odom, 2020 U.S. Dist. LEXIS 136306, at *3.


[9] See ECF No. 66, at 3.


[10] 31 U.S.C. § 3730(a).


[11] 31 U.S.C. § 3730(b)(1).


[12] 31 U.S.C. § 3730(b)(2) & (3).


[13] 31 U.S.C. § 3730(a).


[14] 31 U.S.C. § 3730(b)(4).


[15] 31 U.S.C. § 3730(c)(3).


[16] ECF No. 66, at 2.


[17] Id.


[18] Id., at 4.


[19] ECF No. 69, at 12.


[20] Id. at 7.


[21] Id.


[22] ECF No. 86, at 8.


[23] ECF No. 82, at 2.


[24] ECF No. 80, at 2 (alterations added). This argument mirrors the highly deferential view of some federal circuits of the government’s dismissal power over qui tams. See, e.g., Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (reading 31 U.S.C. § 3730(c)(2)(A) as “giv[ing] the government an unfettered right to dismiss an action”) (alteration added).


[25] ECF No. 80, at 3 (emphasis added).


[26] Id.


[27] Id. The degree of specificity about the new evidence was not appreciably greater in DOJ’s reply brief than it had been in the original brief.


[28] United States ex rel. Odom v. SE Eye Specialists, PLLC, No. 3:17-cv-00689, 2020 U.S. Dist. LEXIS 136306, at *8 (M.D. Tenn. July 31, 2020) (quoting United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., No. 6:09-cv-1002-Orl-31DAB, 2011 U.S. Dist. LEXIS 109859, at *3 (M.D. Fla. Sept. 27, 2011)).


[29] Id.


[30] Id. at *8–9.


[31] Id. at *9 (quoting Griffith v. Conn, No. 11-157-ART-EBA, 2016 U.S. Dist. LEXIS 55139, at *8 (E.D. Ky. Apr. 22, 2016)).


[32] Id. (citing Guthrie on behalf of United States v. A Plus Home Health Care, No. 12-60629-CIV-DIMITROULEAS/SNOW, 2013 U.S. Dist. LEXIS 204880, at *4–6 (S.D. Fla. July 18, 2013)).


[33] Id. at *11–13 (citing, inter alia, Baklid-Kunz, 2011 U.S. Dist. LEXIS 109859, at *3).


[34] Id. at *13; see also id. at *11 (citing Stone, 950 F. Supp. at 1049) (“Courts tend to give more weight to a finding of prejudice to the relator than a finding of prejudice to the defendant because the late-intervention provision is intended to protect the relator’s interest in recovery.”).


[35] Id. at *14.


[36] United States ex rel. Odom v. SE Eye Specialists, PLLC, No. 3:17-cv-00689, 2021 U.S. Dist. LEXIS 40961, at *1–2 (M.D. Tenn. Feb. 24, 2021).


[37] Jeff Overley, DOJ Suffers Rare Rejection of Late FCA Case Takeover, Law360 (Feb. 26, 2021), https://www.law360.com/articles/1359646 (quoting Feb. 24, 2021 hearing transcript) (alteration added).


[38] Id.


[39] Guthrie on behalf of United States v. A Plus Home Health Care, No. 12-60629-CIV-DIMITROULEAS/SNOW, 2013 U.S. Dist. LEXIS 204880, at *5–6 (S.D. Fla. July 18, 2013); United States ex rel. Hall v. Schwartzman, 887 F. Supp. 60, 62 (E.D.N.Y. 1995) (holding “new and significant evidence” that “escalate[s] the magnitude or complexity of the fraud” to be “precisely the circumstances” comprising “good cause” under 31 U.S.C. § 3730(c)(3)).


[40] See United States ex rel. Roberts v. Sunrise Senior Living, Inc., No. CV 05-3758-PHX-MHM, 2009 U.S. Dist. LEXIS 18466, at *4 (D. Ariz. Feb. 26, 2009).


[41] United States ex rel. Drennen v. Fresenius Med. Care Holdings, Inc., Civ. A. No. 09-10179-GAO, 2016 U.S. Dist. LEXIS 185587, at *12 n.2 (D. Mass. Jan. 14, 2016).


[42] See United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., No. 6:09-cv-1002-Orl-31DAB, 2011 U.S. Dist. LEXIS 109859, at *3 (M.D. Fla. Sept. 27, 2011).


[43] Sharpe ex rel. United States v. Americare Ambulance, No. 8:13-cv-1171-T-33AEP, 2017 U.S. Dist. LEXIS 108589, at *4 (M.D. Fla. July 13, 2017).


[44] See Baklid-Kunz, 2011 U.S. Dist. LEXIS 109859, at *3–4.


 



Link to article

 

MEMBER COMMENTS

 

 

WSG Member: Please login to add your comment.

    Disclaimer

WSG's members are independent firms and are not affiliated in the joint practice of professional services. Each member exercises its own individual judgments on all client matters.

HOME | SITE MAP | GLANCE | PRIVACY POLICY | DISCLAIMER |  © World Services Group, 2021