An eight-year delay in the DOJ’s intervention decision in a False Claims Act case led to the loss of more than half of the damages awarded at trial. A divided Fifth Circuit panel determined that the government’s claims did not relate back to the original complaint, leaving much of the litigated conduct beyond the statute of limitations. Finding the DOJ did not diligently investigate the original allegations, the majority also declined to toll the government’s claims—and it rebuked the DOJ’s “inexcusable” overuse of the statute’s seal provision.

A distinctive feature of False Claims Act (FCA) litigation is the requirement that whistleblower, or qui tam, complaints be filed under seal and kept that way for 60 days[1] while the DOJ “diligently . . . investigate[s]” the complaint and decides whether to intervene and take over the action.[2] The DOJ may move the court, “for good cause shown,” to extend the seal period beyond 60 days,[3] and repeated grants of such motions can result in seal periods lasting a year or more.

An FCA Medicare fraud case decided by a partially divided Fifth Circuit panel on August 21, 2023, U.S. ex rel. Aldridge v. Corporate Management, Inc.,[4] had involved eighteen such motions before the district court, resulting in an eight-year-long seal period. On appeal, that delay wound up costing the government over half of the jury’s damages award, for statute of limitations reasons. And, while the majority stopped short of dismissing the government’s claims based on abuse of the seal provision, it subjected the DOJ’s “interminable [seal] extensions” to withering criticism.[5]

Qui tam and intervention

The qui tam complaint in Aldridge alleged Medicare fraud against a hospital, its corporate management company, and executives. The relator alleged that the defendants engaged in fraudulent cost reporting, inflating supply costs, and improperly waiving co-payments and deductibles, among other misconduct.[6] After the government finally intervened, its amended complaint alleged improper billing of luxury automobiles and of executive salaries for work not performed.[7]

Following the government’s intervention, the defendants moved to dismiss its claims, arguing the eight-year delay prejudiced them and violated the FCA,[8] and also moved to unseal the entire record. The district court denied the motion to dismiss, and unsealed only the government’s extension motions and the court’s orders granting them. The government’s eighteen extension memoranda therefore remained sealed.[9] A nine-week jury trial followed, in which the jury found the defendants liable for approximately $10 million in damages—over $32 million, after the statutory trebling.[10] Thirteen years had elapsed since the filing of the original action.[11]

Among other post-trial motions, the defendants again sought to unseal the government’s extension memoranda, moved for judgment as a matter of law based on insufficient evidence, and moved for a new trial.[12] These motions were unsuccessful, and the district court confirmed the judgment.[13]

Appeal to Fifth Circuit

Appealing to the Fifth Circuit, the defendants challenged, inter alia, the sufficiency of the evidence proving the FCA claims, the district court’s application of the statute of limitations, and the court’s grant of eighteen seal extensions.[14] The appellate court reviewed the district court’s denial of the motion for judgment as a matter of law and its statute of limitations decisions de novo, and the rulings on the motions for extension of the seal period and for a new trial for abuse of discretion.[15]

The majority affirmed the district court’s denial of the motion for judgment as a matter of law,[16] finding a “legally sufficient evidentiary basis for a reasonable jury” to have found the defendants liable.[17] It also upheld the denial of a new trial, on the even more deferential standard that there was not “an absolute absence of evidence to support the jury’s verdict.”[18]

However, the district court’s application of the FCA’s statute of limitations did not similarly pass muster,[19] as the majority found the government’s allegations regarding luxury vehicles and improper salary payments involved “conduct different from that” alleged by the relator.[20] The FCA contains a specific relation-back provision available only to the government, allowing the government’s intervenor complaint to relate back to the original filing date of the qui tam complaint so long as the government’s claim “arises out of the conduct, transactions, or occurrences set forth” in the original complaint.[21]

Because the government’s claims were not “tied to a common core of operative facts”[22] with the relator’s claims, the government’s claims did not relate back to the date the relator’s original complaint was filed. As a result, conduct more than six years prior to the date of the government’s intervenor complaint fell outside the FCA’s statute of limitations.[23]

Some of those older claims could potentially be resuscitated via the FCA’s tolling provision, which gives the government “3 years after the date when facts material to the right of action are known or reasonably should have been known” to the government,[24] provided the government acted “diligently” to preserve its claims.[25] However, because the government likely knew “facts material to the right of action” nearly four years before it eventually intervened (and four years after it began investigating),[26] the majority concluded the government did not show diligence and declined to toll those claims.[27]

Repeated use of the FCA seal provision

Aldridge’s harshest language was reserved for the DOJ’s “incessant delay in intervening,”[28] which resulted in years of unfair “unilateral discovery” by the government.[29] Both the defense and relators’ bar have expressed frustration with the length of government investigations, but courts have rarely addressed this issue outside the context of a request to extend the seal. With the issue squarely before it, the Fifth Circuit amplified the observations of an earlier district court opinion that characterized a four-year prolongation of the seal period (only half as long as in Aldridge) as “approach[ing] the abusive.”[30] The district court itself, in the majority’s view, bore some responsibility for “enabl[ing] the [g]overnment’s gamesmanship” by granting all of the government’s “increasingly rote requests for extension of the seal period.”[31] This echoed Martin, where the district court faulted its own participation in what had become an inappropriately “comfortable routine” of granting such extensions, perhaps fostered by “the absence of any opposing party to object”[32] and the resulting inadequately “searching inquiry” into the government’s good cause showing.[33]

Despite finding the prolonged series of seal extension requests “inexcusable,” the majority balked at granting the “extraordinary sanction” of dismissing the government’s claims on that ground.[34] For this, the majority cited two reasons. First, it found the defendant-appellants failed “to pinpoint when the court’s cumulative indulgence” of the government’s repeated delays “rose to an abuse of discretion.”[35] Second, and “[m]ore importantly,” the court could find no precedent for dismissal based on abuse of the seal provision—though it cautioned that “lesser sanction short of dismissal” could be warranted in such cases.[36]

Although it declined to “break new ground . . . by granting such drastic relief” as dismissal, the majority concluded that the government did not “escape unscathed.” Due to the statute of limitations implications of the government’s prolonged delays, the court noted pointedly, the “consequence of [that] dilatory conduct is the reduction by over half of the judgment” in the case.[37]

Conclusion

Aldridge provides ammunition for FCA defendants to try to check abuse of the seal period. First, it makes clear district courts must scrutinize new claims added by the government after lengthy investigations to ensure compliance with the FCA’s statute of limitations. Second, it is strong, persuasive authority that the government cannot use the seal period to conduct unilateral discovery. Because the standard of review for civil investigative demands and subpoenas issued in furtherance of an investigation is extremely deferential, Aldridge and similar district court decisions may provide a path to challenge lengthy, overbroad discovery as abusive of the FCA’s seal provision.[38]