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Joel D. Hesch

Abstract

Each year, 10% of all federal government spending is lost due to fraud, which adds up to over $350 billion a year. Unfortunately, many well-meaning federal judges are inadvertently making it easier for wrongdoers to retain these ill-gotten gains by unnecessarily cutting short the investigative time for the government to evaluate fraud allegations brought by whistleblowers under the False Claims Act (FCA). The FCA is the federal government’s primary tool to recover funds obtained through the submission of false claims. Because the government is unable to detect most fraud cases absent the help of whistleblowers, Congress included qui tam provisions in the FCA to authorize private individuals to receive a portion of the amount recovered as a reward. To obtain a reward, however, the whistleblower—known as a “relator”—must file a qui tam complaint against the wrongdoer. The qui tam complaint is filed under seal and served only upon the government. The FCA provides the government an initial sixty-day period to evaluate the qui tam complaint and determine whether it elects to intervene. The FCA also permits extensions to this period upon a showing of “good cause.” When the government takes over qui tam cases, it obtains a recovery 95% of the time. On the other hand, when the government declines, the relator recovers in only 5% of cases. Therefore, it is imperative that the courts provide the government with a full opportunity to make an election determination. However, the courts are not applying a proper standard for granting more time to intervene in qui tam cases, which creates two significant harms. First, cutting off the government from completing its investigation by applying a rigid and improper definition of the FCA’s “good cause” standard allows fraudfeasors to keep billions of dollars in taxpayers’ funds without a resolution on the merits. Second, because of a circuit split, the definition of good cause for the continuation of the seal under the government’s primary fraud statute depends solely upon where the case is filed. The following hypothetical underscores the problem and the need for a uniform standard. Assume a whistleblower sends the government a letter or calls a hotline to report that a hospital is committing Medicare fraud. Under the tiered FCA statute of limitations, the government has a minimum of six years and maximum of ten years to file an FCA complaint, depending on when the fraud is discovered. The FCA authorizes the government to issue subpoenas for documents and take deposition testimony during the investigative period. No court permission is needed to take such informal discovery. In fact, the only limitation is the FCA’s six- or ten-year statute of limitations. Suppose instead the same whistleblower with the same facts desired to obtain a reward for reporting fraud. Thus, instead of calling a hotline, she filed a qui tam complaint in federal court (which is a prerequisite to obtaining a reward). In that situation, the court keeps the qui tam case under seal for the initial sixty days, and longer upon request and a showing of good cause. Under this scenario, the FCA still permits the government to conduct informal discovery, including issuing subpoenas for documents or deposition testimony in order to make a decision to intervene in the qui tam complaint. The problem is that if no reward is sought, the government has six to ten years to investigate the allegations, but if a reward is sought, some courts limit the government to six months or even as little as sixty days. In fact, the amount of time the government is granted to conduct an investigation in a qui tam case is dependent upon the judge’s view of “good cause.” As a result, the amount of time ranges from sixty days to nine years, depending on which part of the country the federal case is filed or even upon which judge is drawn. In reality, it often takes between three and six years for the government to properly investigate and bring a complex fraud case that satisfies Rule 9(b) and fulfills the duty to conduct a parallel criminal investigation without prematurely or wrongfully accusing a company of defrauding the government. Certainly the right of the government to conduct an in-depth fraud investigation and fully utilize the investigative tools provided under the FCA should not depend upon whether a whistleblower is seeking a reward or on a particular court’s view of good cause. Moreover, the lack of a uniform standard has resulted in a wide disparity of legal opinions that makes the result of whether the government can spend the necessary time to determine if fraud occurred almost totally dependent upon where the federal FCA case is filed. This Article proposes a uniform standard for interpreting the FCA’s “good cause” requirement that comports with the goals, purposes, and statutory language. Specifically, it argues that requests by the government for extensions of the seal period should be liberally granted for up to three years provided that the government’s investigation is still active and ongoing, and up to six years provided that the government can show a need for more time due to the size or complexity of the case or other circumstances requiring more time than an ordinary fraud investigation. To go beyond six years, however, this Article proposes that the government must obtain a partial lifting of the seal to notify the defendant of the allegations and obtain its consent.

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